Vonage to pay $100 million in refunds to shoppers beneath FTC consent order settling junk charges and “darkish patterns” allegations

On November 3, 2022, the Federal Commerce Fee (“FTC”) announced that it has entered right into a consent order with web telephone service supplier Vonage to settle allegations that it imposed “junk charges” on shoppers and used “darkish patterns” that prevented them from cancelling their service. Underneath the phrases of the settlement, Vonage has agreed to pay $100 million in buyer refunds, simplify its cancellation course of, and improve its disclosures.

The FTC alleges that Vonage failed to supply a easy methodology for purchasers to cancel their phone companies. Whereas clients may simply enroll for companies at any time on-line via Vonage’s web site, Vonage didn’t enable on-line cancellation. As a way to cancel their service, Vonage required clients to talk to a “retention” agent over the telephone at a particular phone quantity that was not straightforward to entry and operated throughout hours that had been extra restricted than the principle customer support phone quantity. In response to the grievance, Vonage didn’t inform clients throughout enrollment of this restriction on cancellation, and it was “buried in Vonage’s prolonged phrases of service.” The FTC additional alleges that contact info to cancel was obscured, wait instances had been lengthy, calls had been usually transferred, dropped or unanswered, and clients wishing to cancel needed to endure prolonged and repeated gross sales pitches and sudden early termination charges. Vonage supplied financial incentive to its retention brokers in the event that they persuaded cancelling clients to vary their minds. In some cases, clients who had been capable of cancel their service continued to be charged with out their consent.

The FTC alleges that these acts represent unfair acts or practices in violation of Part 5 of the FTC Act. Additional, they allege that the failure to supply (i) required disclosures relating to the strategy of cancellation and an early termination payment, and (ii) easy mechanisms for stopping recurring fees, represent violations of Part 4 of the Restore On-line Buyers’ Confidence Act (“ROSCA”), which restricts charging shoppers for items and companies offered in web transactions via a “damaging choice” function with out clear and conspicuous disclosure and knowledgeable consent. A “damaging choice” is outlined within the FTC’s Telemarketing Gross sales Rule as a provision “beneath which the shopper’s silence or failure to take an affirmative motion to reject items or companies or to cancel the settlement is interpreted by the vendor as acceptance of the supply.” 16 C.F.R. § 310.2(u).

The motion in opposition to Vonage, filed within the U.S. District Courtroom for the District of New Jersey, was authorised by a 4-0 vote of the FTC’s commissioners.

In a blog post accompanying the settlement, the FTC analogized Vonage’s cancellation course of to the Eagles’ Hotel California:  “You may try any time you want. However you possibly can by no means go away.” Persevering with that theme “[w]ith apologies to the Eagles,” the FTC highlighted the next takeaways for companies:

“Loosen up, stated the evening man. We’re programmed to obtain.” Examine the assets you commit to signing up new clients together with your efforts to make the cancellation course of easy and seamless. If your organization is “programmed to obtain” whereas making cancellation a nightmare, you might end up in authorized sizzling water. Be sure your “retention” efforts aren’t heavy on the “pressure.”

“Very last thing I bear in mind, I used to be working for the door. I needed to discover the passage again to the place I used to be earlier than.” Is there a greater description of the frustration shoppers expertise when firms topic them to unfair or misleading darkish patterns? The FTC’s Bringing Dark Patterns to Light report describes most of the techniques that increase regulation enforcement issues and emphasizes the FTC’s long-standing and ongoing dedication to combating unlawful practices.

“What a pleasant shock. Carry your alibis.” Surprising charges are by no means a “good shock” and there are not any “alibis” for a corporation’s failure to obviously clarify charges and prices up entrance and to get shoppers’ categorical consent earlier than billing them.

The characterization of the early termination payment as a “junk payment” is one other instance of regulators’ current deal with charges, particularly the place they might be insufficiently disclosed. The Vonage motion comes simply two weeks after the FTC announced the issuance of an Advance Notice of Proposed Rulemaking searching for public touch upon “the harms stemming from junk charges and related junk payment practices and on whether or not a brand new rule would higher shield shoppers,” together with using “digital darkish patterns or different deception to gather on them.” The FTC’s proposed Motor Vehicle Dealers Trade Regulation Rule additionally seeks to handle pointless add-on charges, amongst different issues, within the automotive shopping for course of. The CFPB is also seeking to address fees it believes are unfair and deceptive, and it not too long ago issued guidance on overdraft and sure depositor charges.

The FTC has additionally referred to as consideration to “darkish patterns” in a recent blog post calling attention to Buy-Now-Pay-Later compliance issues. “Darkish patterns” have additionally obtained scrutiny by the FTC and CFPB in current enforcement actions in opposition to ACTIVE Network and Credit Karma.

The deal with charges has even reached the Oval Workplace. The day the FTC introduced the Vonage settlement, President Biden tweeted that he’s referred to as on his Administration to crack down on these charges to assist shoppers.

We anticipate to see further actions by the FTC and CFPB pursuant to present authority beneath the FTC Act and Shopper Monetary Safety Act previous to the issuance of extra particular “junk payment” guidelines.