The Federal Trade Commission (FTC) is taking a strong stance against deceptive practices employed by businesses, sending close to $100 million in refunds to over 389,000 consumers who were ensnared in subscriptions marred by dark patterns and hidden fees courtesy of Vonage, the internet phone service provider.

According to the settlement between the FTC and Vonage in November 2022, Vonage had engaged in deceptive design practices known as dark patterns, making it exceedingly challenging for consumers to cancel their services. The company often continued to charge consumers illegally even after they explicitly requested cancellations from a live agent. These practices violated consumer rights and warranted regulatory intervention.

The FTC’s actions have required Vonage pay almost $100 million in refunds to consumers who suffered financial losses due to their actions. Additionally, the settlement mandates that Vonage simplifies and makes transparent its cancellation process while discontinuing the practice of charging consumers without their informed consent. This not only serves as a financial remedy but also pushes Vonage to overhaul its business practices to align with ethical standards.

The FTC will be disbursing payments to 389,106 affected consumers. Most of the recipients will receive checks by mail, and they are encouraged to cash these checks within 90 days, as indicated on the checks. For those eligible consumers without a physical address on file, refunds will be made through PayPal, which should be redeemed within 30 days. For any inquiries regarding their payments, consumers can reach out to the refund administrator, Epiq, at 1-877-525-4728, or find more information on the FTC website, including frequently asked questions about the refund process. The FTC emphasizes that it never requires individuals to provide money or account information to obtain a refund.

What Are Dark Patterns?

Dark patterns are manipulative design practices used to deceive consumers and influence their choices, leading to potential harm. The FTC is actively enforcing action against companies that employ such dark patterns to protect consumers from deceptive practices and maintain fair competition in the market. Businesses are advised to adopt transparent and consumer-centric design practices to avoid legal consequences and build trust with consumers. Dark patterns are highly effective in influencing user behavior, such as signing up for services or making purchases.

Here are the four dark patterns the FTC outlines in their “Bringing Dark Patterns to Light” report on Dark Patterns. 

1. Design Elements that Induce False Beliefs: This type of dark pattern manipulates consumer choices by inducing false beliefs. For example, companies may use design elements that create misleading impressions, such as false claims or deceptive formatting in advertisements that resemble independent editorial content. Other examples include countdown timers that aren’t time-limited, false claims of limited product availability, and fake claims of other consumers showing interest in the same product. The FTC enforces actions against companies using dark patterns to mislead consumers and manipulate their choices.
2. Design Elements that Hide or Delay Disclosure of Material Information: Dark patterns in this category hide or obscure important information from consumers, such as burying key limitations in dense Terms of Service documents or tricking consumers into paying hidden fees. An example is the practice of “drip pricing,” where businesses only display part of a product’s total price and do not reveal mandatory charges until late in the buying process. These practices make it difficult for consumers to compare prices across sellers and can lead to unnecessary costs.
3. Design Elements that Lead to Unauthorized Charges: This type of dark pattern tricks consumers into paying for goods or services they didn’t intend to buy, including single or recurring charges. It may involve deceptive free trial offers that turn into recurring subscriptions if consumers fail to cancel. For example, children’s gaming apps may use deceptive buttons to lead to unexpected purchases. The FTC enforces action against companies that engage in practices resulting in unauthorized charges.
4. Design Elements that Obscure or Subvert Privacy Choices: This category of dark patterns involves design elements that hide or subvert consumer privacy choices. Companies may present illusory choices related to data collection or sharing, nudging consumers toward sharing more data than they intend. This can be done by making it difficult for consumers to reject data collection or by using default settings that maximize data collection. Privacy-related dark patterns can undermine consumers’ actual privacy preferences and impact their data-sharing choices.

Dark Pattern impact multiplies when multiple dark patterns are combined, as shown in various FTC enforcement cases. 

FTC – Vonage Settlement Background

The FTC’s $100 million settlement with Vonage represents a significant step in curbing unethical business practices, with Vonage accused of utilizing “dark patterns” to hinder consumers’ ability to cancel their services. Subscribers were routinely billed between $5 and $50 each month, with charges automatically deducted from their financial accounts unless they actively canceled the service by a specified date.

The FTC’s complaint, lodged in November 2022, unveiled multiple issues in Vonage’s approach, which included the restriction of cancellation to a single method requiring customers to speak to a “retention agent” for service termination. Customers were informed that their cancellation requests would not be accepted via email, fax, text, or other electronic means.

The restrictions placed on consumers escalated further, as starting in September 2020, the majority of residential customers and many small business customers paying less than $60 per month were limited to using chat support as their sole mode of communication, without phone support.

Reaching a “retention agent” proved to be a formidable challenge, with customers often encountering difficulties finding the appropriate cancellation line. This, in turn, led to prolonged wait times and numerous dropped calls. Promised callbacks to customers did not materialize, further complicating the cancellation process. To make matters worse, Vonage representatives reportedly hung up on customers attempting to cancel.

In some cases, customers who successfully canceled their services were still subjected to continued charges for several months, only receiving partial refunds when they lodged complaints.

INSIDER TAKE

The FTC’s successful settlement with Vonage underscores the importance of a clear, ethical approach in business operations. Three valuable takeaways for subscription companies emerged from this case:

1. Ensure that the cancellation process is as simple and straightforward as the sign-up process to maintain transparency and protect consumer rights.
2. Familiarize with the issues raised in the FTC’s “Bringing Dark Patterns to Light” report to avoid falling afoul of consumer protection laws.
3. Clearly explain fees and costs upfront, obtaining express consent from customers before initiating billing processes.

As the FTC continues to ramp up enforcement of consumer protection laws and clamp down on deceptive subscription practices and unethical business models, businesses are urged to establish compliance departments to ensure that their operations align with legal standards and prioritize consumer well-being.

In the era of digital subscriptions and recurring revenue models, adherence to ethical and consumer-friendly practices has become paramount, not only to avoid legal repercussions but also to create a seamless and trustworthy subscriber experience.