On November 2, the FTC entered into a settlement agreement with a Manhattan-based fintech company for $18 million over alleged deceptively marketed cash advances to consumers and impeding customers’ ability to cancel memberships. The FTC alleged that the fintech company violated the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA).
The proposed settlement agreement will additionally require the fintech to stop its deceptive marketing practices and end tactics that prevent customers from canceling services. The proposed settlement must be approved by a federal judge before it can go into effect.
The FTC claims that the fintech used “dark patterns” to “create a confusing and misleading cancellation process that prevented consumers from canceling their subscriptions.”
According to the FTC’s complaint, the fintech made promises of instant cash advances of up to $250 if consumers signed up for a $9.99 monthly subscription on the company’s app. Instead of receiving the cash advances, consumers were locked into a $9.99 monthly membership they could not cancel. Only a small number of users received payments of $250, while most users were denied their cash advances outright.
Despite advertising that cash advances would arrive instantly for free with no late fees or interest, the fintech started charging a 99-cent fee for instant transfers and would not allow users to cancel their auto-renewing subscriptions until their advances were repaid, according to the FTC’s complaint.
Putting It Into Practice: As we have previously reported, this settlement illustrates an issue that the FTC has worked to target and eradicate: using dark pattern techniques to manipulate consumer activity through confusing and misleading cancellation processes (see our previous blog posts here, here, and here, as well as our webinar titled “Who Turned Out the Lights?: FTC Steps Up ‘Dark Patterns’ Enforcement of Retailers” on this topic). 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.