Millions of Amazon Prime Customers Will Get Part of $2.5 Billion Lawsuit Settlement

By Christina Ianzito, AARP

The FTC announced today that in a “historic” settlement, the company has agreed to pay $1.5 billion in refunds to an estimated 35 million customers affected by “deceptive enrollment practices.” Amazon will also pay $1 billion in civil penalties.

The government charged the company, which made $638 billion last year, with enrolling customers in $139 annual Amazon Prime memberships without their consent — or, as the FTC pointedly put it, “knowingly duped millions of consumers into unknowingly enrolling in Amazon Prime.” Amazon also made it “exceedingly difficult” for customers to cancel their Prime memberships.

Customers are eligible for payout if they enrolled in Amazon Prime any time from June 23, 2019, to June 23, 2025. Some customers will receive up to $51 automatically; others will need to submit a claim. Payments are to be made within 90 days.

Amazon released a statement following the FTC settlement: “Amazon and our executives have always followed the law, and this settlement allows us to move forward and focus on innovating for customers. We work incredibly hard to make it clear and simple for customers to both sign up or cancel their Prime membership, and to offer substantial value for our many millions of loyal Prime members around the world. We will continue to do so, and look forward to what we’ll deliver for Prime members in the coming years.”

Larger crackdown on unfair cancellation practices

The case is part of the government’s ongoing effort to tackle such deceptive practices.

Last month, for example, it sued the operators of LA Fitness and other gyms, alleging that, like Amazon, they made it “exceedingly difficult” for consumers to cancel their memberships.

“Tens of thousands of LA Fitness customers reported difficulties — cancellation was often restricted to specific times or required speaking to specific managers who were often not present or available,” said Christopher Mufarrige, Director of the Bureau of Consumer Protection, announcing the lawsuit on August 20.

The company’s policies are portrayed as egregious and wildly frustrating for consumers, including training staff “to reject escalated requests and to deny cancellations requested by phone or email, reiterating that all cancellations must be done in person with one specific employee or by mail.”

And Match.com recently settled with the government for $14 million for, among other practices, allegedly deceptively luring customers into subscribing for a free six month trial without making the terms of the agreement clear.

Law that would have helped enforce practices was scrapped

Last October the FTC announced a final “click-to-cancel” rule, proposed under the Biden Administration, that will require sellers to make it as easy for consumers to cancel their enrollment as it was to sign up. It would prohibit sellers from, among other things “misrepresenting any material facts while using negative option marketing; require sellers to provide important information before obtaining consumers’ billing information and charging them.”

(Negative option marketing is when companies use automatically renewing subscriptions or free trials that automatically convert to a paid subscription.)

A federal appeals court vacated the ruling in July for procedural reasons, with the strong support of affected companies such as streaming TV services and online advertisers, but the FTC has continued to target deceptive practices.

How Amazon misled customers – and what will change

The lawsuit against Amazon, filed in 2023 in the U.S. District Court for the Western District of Washington (Amazon is based in Seattle), alleged that the company “used manipulative, coercive, or deceptive user-interface designs known as ‘dark patterns’ ” to get consumers to enroll in automatically renewing Prime subscriptions.

It noted that during the checkout process, for example, the button presented to consumers to complete their transaction sometimes didn’t make it clear that clicking that option meant they were agreeing to sign up for Prime. Such practices are “not only frustrating” for users, they “also [cost] them significant money,” said then-FTC Chair Lina M. Khan.

According to the FTC, along with the $2.5 billion Amazon will pay in penalties and refunds, the settlement requires that the company:

• include a clear and conspicuous button for customers to decline Prime. Amazon can no longer have a button that says, “No, I don’t want Free Shipping.”
• include clear and conspicuous disclosures about all material terms of Prime during the Prime enrollment process, such as the cost, the date and frequency of charges to consumers, whether the subscription auto-renews, and cancellation procedures.
• create an easy way for consumers to cancel Prime, using the same method that consumers used to sign up. The process cannot be difficult, costly, or time-consuming and must be available using the same method that consumers used to sign up; and
• pay for an independent, third-party supervisor to monitor Amazon’s compliance with the consumer redress distribution process.

“This settlement definitely sends a message,” says Frank McKenna, chief innovation officer for Point Predictive, a San Diego-based fraud-prevention company. “When the FTC can secure $2.5 billion from one of the world’s most powerful companies, it essentially puts every other business on notice that these practices are no longer acceptable.