Several U.S. retailers, including Amazon.com Inc, Walmart, Best Buy, Savage X Fenty, and Adore Me, have been accused of using deceptive strategies to sell memberships to customers.
These retailers offer subscription programs where shoppers pay monthly fees in return for benefits such as free delivery, unlimited tech support, or discounts on products. According to a survey conducted by Euromonitor Inc, the number of Americans enrolled in subscription services increased from 20% in 2017 to 30% in 2022, indicating a growing trend.
This situation has led to increased scrutiny of retailers’ subscription programs, with concerns about transparency and fairness in their practices.
Amazon
Amazon, listed as AMZN on NASDAQ, is currently facing legal action from the U.S. Federal Trade Commission (FTC), as the commission filed a lawsuit against the company in Seattle. The FTC accuses Amazon, a leading e-commerce giant, of deceiving “millions of consumers” by tricking them into subscribing to Prime services. In the United States, Prime members pay an annual fee of $139 to enjoy benefits like free delivery, which significantly contributes to Amazon’s sales.
According to the complaint filed by the FTC, Amazon has deliberately complicated the process of canceling Prime memberships for subscribers who wish to terminate their subscription. However, before the lawsuit was initiated, Amazon made significant changes to its Prime cancellation process for certain customers, as stated in the complaint.
Amazon, which introduced Prime in 2005 and currently boasts approximately 170 million subscribers in the U.S., asserts its readiness to defend itself in court. In the previous year, Amazon modified its cancellation procedure in Europe to comply with consumer protection regulations set by the European Union. It also made alterations to the cancellation process in the U.S. in early 2023. Amazon maintains that both the previous and revised cancellation processes adhere to applicable laws.
William Kovacic, a professor at George Washington University Law School and former FTC commissioner, believes that the Amazon lawsuit serves as a means to make a strong statement, induce changes in Amazon’s practices, and establish a standard framework for the entire industry.
Kathleen Benway, a former chief of staff at the FTC’s Bureau of Consumer Protection, warns that retailers should be highly concerned about the FTC’s pursuit of legal action against practices like automatic renewals, multi-step cancellation policies, and other commonly adopted approaches across various online subscription platforms. She emphasizes that this is the first time a court is assessing the adequacy of these types of disclosures and practices, which have become prevalent in the industry.
SAVAGE X FENTY
In 2020, the non-profit organization Truth in Advertising took legal action against Savage X Fenty and its parent company TechStyle, which owns various e-commerce platforms like JustFab and Fabletics. The lawsuit focused on the company’s methods of automatically enrolling shoppers without fully disclosing the terms and conditions.
Savage X Fenty enticed customers with VIP member discounts on lingerie, but in doing so, they enrolled them in a membership program without providing clear information about how to opt out. The terms required consumers to actively opt out to avoid monthly charges. Additionally, the marketing materials misled customers by suggesting that the charges could be used as purchase credits, without clarifying that the credits were only valid for purchases of $49.95 or more.
Following the legal proceedings, Savage X Fenty reached a settlement with the state government of California, agreeing to pay $1.2 million. As part of the settlement, the company committed to making changes to its website and allocated $140,000 for refunds to eligible consumers in California.
In 2016, Truth in Advertising also filed a lawsuit against Adore Me when it was still an independent company, regarding its VIP membership pricing program. Earlier in June, the retailer settled the case with over two dozen states for $2.35 million.
Ranjan Roy, Adore Me’s vice president of strategy, clarified that the allegations pertained to the company’s practices between 2012 and 2016, before it was acquired by Victoria’s Secret.
WALMART
Walmart introduced its Walmart+ subscription service in 2020, which had an estimated 20 million subscribers as of May, according to Morgan Stanley. The subscription costs $98 per year and offers free grocery delivery.
In 2022, a shopper from Michigan filed a lawsuit alleging that Walmart engaged in deceptive practices related to subscriptions. The allegations included automatically charging customers after a free trial, making it difficult to cancel subscriptions, and failing to honor cancellations when shoppers opted out. However, the lawsuit was later withdrawn.
The shopper’s lawyer, Spencer Sheehan, did not respond immediately to requests for comment. Previously, Sheehan stated that the parties had resolved the matter satisfactorily. Walmart did not provide an immediate comment on the issue.
In 2021, Best Buy launched a subscription program that provides tech support and product discounts. Starting later this month, they will introduce two paid membership tiers: one costing $49.99 per year and the other $179.99 per year.
In 2022, a customer filed a class action lawsuit against Best Buy after purchasing a TV online. The lawsuit alleged that the customer was unknowingly enrolled in two subscription programs: a Total Tech Support Monthly Membership for $19.99 per month and an antivirus program for $2.99 per month. The lawsuit claimed that Best Buy did not offer an online option to cancel either membership.
A California district court referred the case to private arbitration recently but noted that the disclosure above the purchase button was clearly visible. Best Buy chose not to comment on the lawsuit.
