The Federal Trade Commission has been on a hot streak since Lina M. Khan joined the agency as chair in June 2021. The latest evidence of the agency’s crackdown on FTC violations is the 2022 annual report on FTC refunds to consumers. During the 2022 calendar year, the FTC provided more than $392 million in refunds to over 1.9 million consumers. In addition, $10.4 million was sent to the US Treasury and $6.9 million was paid to third-party administrators who processed the refunds.

Consumers in Texas, California and Florida received the highest total of consumer refunds last year.

Process for FTC refunds

The FTC law enforcement actions are designed to stop illegal practices and to provide refunds to consumers who suffered financial losses whenever possible. Once a settlement is finalized and defendants have paid the amount ordered by the court, the FTC Office of Claims and Refunds creates a plan to decide how to best return the money to consumers. Any money left over after refunds are made, or if there is insufficient money available to make “meaningful refunds” is sent to the US Treasury for the General Fund, as dictated by court order and the law.

When the FTC has a list of impacted customers along with contact information, they are able to process refund checks to those customers. Sometimes the FTC does not have access to that information, or the data is insufficient, so the agency has to use a claims process to identify people eligible for a refund. The FTC uses a six-step process for every refund program.

1. Identify who is eligible for a refund. FTC court orders usually require the company to provide  a list of customers, customer contact information and the amount each customer paid.
2. Determine how the money will be divided. This is based on a number of factors but is typically done on a pro rata basis.
3. Send refunds.
4. Update names and addresses if needed to deliver payments. Because cases often take years to resolve, customers may have moved or have new or different contact information.
5. Consider if an additional distribution is feasible after the initial distribution is complete.
6. Send any remaining funds to the US Treasury.

Impact of AMG Capital Management, LLC vs. FTC

The FTC points out that more than 90% of the $392 million in refunds came from cases that were decided before the Supreme Court’s 2021 ruling in AMG Capital Management, LLC vs. FTC. The decision in that landmark case stripped the FTC of its ability to recover redress for consumers pursuant to Section 13(b) of the FTC Act. In the four years before the AMG case, the FTC returned more than $11 billion to consumers under its Section 13(b) authority. It is expected that refunds will decrease in the coming years as a result of AMG.

As a result of that ruling, consumer losses from several significant cases are not eligible for redress: Cardiff (Redwood Scientific Technologies, Inc.), $18 million in consumer losses and ZyCal Bioceuticals, $6.5 million in consumer losses.

“The Commission sued these defendants to halt bogus claims that their products grow bone and cartilage and relieve joint pain,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in the ZyCal Bioceuticals case in a February 6, 2023 news release. 

“This settlement is an important reminder that health-related advertising claims require rigorous substantiation in the form of competent and reliable scientific evidence. Unfortunately, the Supreme Court decision in AMG Capital Management prevented us from obtaining refunds for consumers in this case. The Commission has urged Congress to enact legislation to restore the agency’s ability to obtain critical relief for consumers through federal court actions,” Levine added.

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Subscription companies impacted

Sometimes cases involve subscription or membership-based companies. Here are examples of cases that included distributions to customers or were resolved in 2022.

FTC vs. AH Media Group, LLC

In July 2019, the FTC filed a complaint against AH Media Group, LLC alleging deceptive business practices, including deceptive trial offers. The FTC alleged that, at least since April 2016, the defendants operated an online subscription scam that involved online marketing and sales of at least eight different product lines, primarily personal care products and dietary supplements. Consumers paid for low-cost trials of products, essentially covering the cost of shipping at $4.99 or less.

When the consumers signed up for the trials, however, the defendants signed them up for continuity plans without their knowledge of consent, according to the FTC complaint. After the two-week trial period, the defendants automatically charged the customers’ accounts for the full cost of the product, in the $90 range. They continued to charge the customers for the products plus shipping and handling until consumers canceled the plans. The FTC estimated that, as a result of this deceptive behavior, AH Media Group took more than $35 million from customers across the country. Approximately $5.4 million was returned to defrauded consumers.

“These companies promised free products for only the cost of shipping, but then charged consumers for expensive subscriptions,” said Andrew Smith, Director of the FTC’s Bureau of Consumer Protection, in a May 8, 2020 news release. “The FTC will continue to go after companies that offer supposedly ‘free’ trial offers, but hide the real terms and conditions in the fine print.”

FTC vs. Age of Learning, Inc. d/b/a ABCmouse

The FTC sued ABCmouse for allegedly misrepresenting cancellations and failure to disclose important information to consumers. As a result, tens of thousands of customers had their accounts renewed and were charged for their memberships without proper consent. In addition, ABCmouse made it difficult for consumers to cancel their memberships to avoid additional recurring charges.

“ABCmouse didn’t clearly tell parents that their subscriptions would renew automatically, and then the company made it very difficult for them to cancel,” said Smith in a September 2, 2020 news release. “People are relying more than ever on remote learning and other online services, and companies need to be up-front about automatic renewals and get permission before charging customers.”

ABCmouse is a membership-based online learning tool for kids ages two to eight years old. The FTC complaint alleged that, from 2015 until at least 2018, ABCmouse advertised “special offer” 12-month memberships for $59.99. However, the company did not disclose to members that their memberships were automatically renewable until canceled. Consumers who signed up for a 30-day free trial membership had the option to extend their trial for $39.95 for a 12-month period or $29.95 for six months.

Consumers tried to call and email ABCmouse or submitted a customer support form but the lengthy, confusing cancellation process made it difficult for members to cancel. Some of those who completed the cancellation process later learned that ABCmouse still charged them, according to the FTC. ABCmouse settled the case with the FTC for $10 million. The first round of payments totaling $6.5 million were mailed in April 2021. A second round of payments was approved in November 2022.

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FTC vs. Uber

In October 2018, the FTC gave final approval for a $20 million settlement with Uber Technologies, Inc., alleging that the popular ride-sharing company deceived customers about its privacy and data security practices. According to the original FTC complaint, the FTC alleged that Uber didn’t properly protect customer data or prevent unauthorized access from Uber employees.

Because of their alleged negligence, Uber sustained two data breaches, one around May 2014 when someone accessed personal information about Uber drives and another one in October and November 2016 when some accessed both driver and customer data. Uber supposedly waited more than a year to notify customers and the FTC of the data breaches.

“After misleading consumers about its privacy and security practices, Uber compounded its misconduct by failing to inform the Commission that it suffered another data breach in 2016 while the Commission was investigating the company’s strikingly similar 2014 breach,” said Acting FTC Chairman Maureen K. Ohlhausen on April 12, 2018. “The strengthened provisions of the expanded settlement are designed to ensure that Uber does not engage in similar misconduct in the future.”

Final refund payments were made by the FTC in November 2022 to close the case.

Newer cases

Of course, these aren’t the only subscription-related cases the FTC has pursued. Here are a few of the more recent cases the FTC has settled.

FTC vs. Microsoft

Earlier this week, Microsoft agreed to pay a $20 million civil penalty for allegedly violating the Children’s Online Privacy Protection Act (COPPA) by collecting personal data for kids who signed up to use Xbox without telling their parents or getting their consent. The complaint also alleges that Microsoft Xbox violated Section 5 of the FTC Act.

“Our proposed order makes it easier for parents to protect their children’s privacy on Xbox, and limits what information Microsoft can collect and retain about kids,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, in a June 5, 2023 news release. “This action should also make it abundantly clear that kids’ avatars, biometric data, and health information are not exempt from COPPA.”

FTC vs. Amazon

Last week, Amazon reached a $30 million settlement with the FTC on two separate cases. In one case, the FTC filed a complaint that alleged that Amazon-owned Ring, a home security camera company, violated their customers’ privacy by allowing employees and contractors access to customers’ private videos without first implementing basic privacy and security protections.

In a separate action, the FTC filed a complaint against Amazon for allegedly violating the Children’s Online Privacy Protection Act (COPPA) by ignoring parents’ requests to delete their children’s information and voice recordings obtained from Alexa and for not being transparent with parents about their data deletion policies. Amazon also violated the FTC Act by misrepresenting how Alexa app users could delete their geolocation data and voice recordings, the FTC alleges. Amazon has agreed to a $25 million settlement in this action.

FTC vs. RevMountain, LLC, et al

The FTC first brought action against these defendants in August 2017, alleging their claims for a deceptive “free trial” scheme for tooth whitening and other products sold by the defendants were deceptive. Also, fine-print disclosures were hidden, and the defendants allegedly used deceptive marketing tactics to charge consumers a nominal fee for their products while simultaneously charging them for two recurring subscription services at a cost of $100 per month per subscription. The FTC returned $1.1 million to consumers in more than 41,000 checks in April 2023.

The FTC first brought action against these defendants in August 2017, alleging their claims were deceptive, fine-print disclosures were hidden, and they used deceptive marketing tactics to charge consumers a nominal fee for their products while simultaneously charging them for two recurring subscription services at a cost of $100 per month per subscription.

FTC vs. Epic Games

In March 2023, the Federal Trade Commission finalized an order that will require Fortnite developer Epic Games to pay a record $520 million to settle a claim brought against it by the FTC last year. The FTC alleges that the video game maker used dark patterns to trick players into making unauthorized purchases and to let kids make purchases without their parents’ consent. According to the complaint, Epic Games received more than 1 million complaints from consumers for unauthorized charges.

From the $520 million settlement, $245 million will be refunded to consumers and $275 million in penalties will be paid to the U.S. Treasury for violating the Children’s Online Privacy Protection Act (COPPA). According to the FTC, Epic Games collected personal data from children without their parents’ permission. Even when parents asked to have their child’s information deleted, Epic Games sometimes failed to comply. The $275 million penalty is the largest in a COPPA case ever.

As part of the settlement, Epic Games must adopt privacy default settings for children and teens, so that voice and text communications are turned off by default. They must delete all personal information previously collected that violates COPPA unless they obtain parental consent or the user is 13 years old or older. Also, Epic Games must create a comprehensive privacy program to ensure there will be no further violations. This program must be regularly audited by an outside firm.

FTC vs. Vonage

In November 2022, the FTC settled a claim with internet phone provider Vonage for $100 million. The federal agency alleges that Vonage made it easy for individuals and small businesses to sign up for their communication services, including VOIP, but they used “dark patterns” to make cancellation difficult. Vonage billed customers between $5 and $50 per month, automatically charging their credit and debit cards or bank accounts, unless customers took affirmative action to cancel the service by a specified date.

The FTC alleges that Vonage’s behavior violated both the FTC Act and ROSCA (Restore Online Shoppers’ Confidence Act). To settle the case, Vonage must pay $100 million to cover customer refunds. They will also be required to implement a simpler cancellation process that is “easy to find, easy to use, and available through multiple channels.”

Another stipulation of the settlement is Vonage must clearly explain how their negative option program works, how to avoid charges, total costs involved and a timeline that customers must follow to avoid fees and penalties. Vonage must agree to stop charging people without their express, informed consent.

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