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FTC Action Alleging Dark Patterns Forces Software Company to Pay Damages and Adopt New Practices

On November 3, the FTC and a software company operating internet-based telephone services filed an agreed upon proposed court order, which includes a $100 million fine, following an FTC suit alleging that the software company participated in illegal dark patterns and charged junk fees. In its original complaint, the FTC alleged that the software company provided simple ways to sign up for their phone plans, but made it difficult to cancel those plans, and harmed consumers by:

  • forcing customers to cancel their plans through only one channel, speaking to a live agent over the phone on a cancellation line;

  • making it difficult to contact such cancellation line by acts such as not making the contact number accessible, not consistently transferring customers from the service line to the cancellation line, offering reduced hours on the cancellation line, and not providing callbacks;

  • charging an early termination fee, or “junk fees” to customers that tried to cancel, which fees were not properly disclosed to customers in the sign-up process; and

  • continuing to charge customers even after they cancelled their accounts, providing only partial refunds to the customers that complained about such additional fees.

The proposed court order sets forth the following agreed upon actions that the software company will take: (a) stop unauthorized charges by having consumers’ informed and express consent; (b) have a simple cancellation process that is available through the same methods that enrollment is offered; (c) stop utilizing dark patterns to inhibit consumers’ cancellation attempts; (d) be forthright about subscription plans including any negative option renewal plans; and (e) pay $100 million to the FTC to be used to provide consumers with refunds.

The FTC’s Bureau of Consumer Protection Director, Samuel Levine, noted that the suit and settlement was a product of the FTC’s commitment to protect consumers from dark pattern tactics, and would hopefully serve to remind companies of the consequences of not making cancellation processes easy and consumer friendly.

Putting it into Practice: As we’ve previously reported, this settlement illustrates an issue that the FTC has made a diligent effort to target and eradicate: using dark pattern techniques to both manipulate consumer activity with minimal adequate disclosures, frustrating consumers attempting to moderate or cancel their subscription payment plans (see our previous blog posts herehere, and here). Consumer-facing companies that utilize subscriptions, especially those that operate with negative renewal plans, should review the complaint and continually ensure that they are providing adequate disclosures and access to consumers wishing to alter their payment plans.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 316
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Alyssa Paddock New York Finance Attorney Sheppard Mullin
Associate

Alyssa Paddock is an associate in the Finance and Bankruptcy Practice Group in Sheppard Mullin's New York office. 

Alyssa’s practice incorporates all aspects of corporate restructuring, bankruptcy, and financial distress. Her focus has primarily centered around debtor representations in chapter 11 proceedings, but she also represents creditors and companies in various in-court and out-of-court restructurings.

212-896-0692
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