Time is running out to make a gift to Marketplace and help us meet our fall fundraiser goal of 2,000 donations by midnight Friday.
We may have reached peak subscription. Services for any type of product, from meal kits to streaming services to makeup, now entail a subscription-based model where you’re charged on a monthly basis.
It’s great for the companies involved, but for customers, this model has become a headache that often results in wasted dollars — whether it’s because it’s easy to forget about your subscription or because it’s difficult to actually cancel.
In 2020, the Better Business Bureau reported that customers lost an average of $140 and had lodged more than 58,000 complaints about free trials and automatic renewal subscriptions over the past three years.
“I think that if you ask every consumer, they’ll tell you at least one or two stories of things that have been a nightmare to cancel,” said Florencia Marotta-Wurgler, a law professor at New York University.
The Consumer Financial Protection Bureau, the Federal Trade Commission and state attorneys general have brought forward a slew of cases against companies involved in deceptive practices.
Last month, the Consumer Financial Protection Bureau announced that it is suing MoneyLion Technologies, an online lender, for allegedly “overcharging” and “deceiving” military servicemembers and military dependents, as well as prohibiting customers from canceling memberships. Last week, the CFPB also announced it was suing another company, ACTIVE Network, an online registration company, for allegedly enrolling members “into a costly membership club” in a deceptive manner.
In its press release, the CFPB criticizes online dark patterns, a term used to describe design elements that trick customers into paying for a company’s products or services, or sharing their data.
The bureau cites a September report from the Federal Trade Commission that outlines the different forms that dark patterns can take, which include ads that look like neutral content; a design that deters consumers from being able to cancel by pushing them to click other links; and hiding additional fees that come with the product the consumer is purchasing.
In a written response to a Marketplace request for comment, a MoneyLion spokesperson referred to a publicly issued statement in response to the CFPB and added:
“At this time, we are not able to comment further on any ongoing litigation. What we can say is that at MoneyLion, our mission is to provide better financial outcomes for our customers through innovative products, offerings and content. We are focused on financial inclusion and education and we’re honored to work with the military and veteran community. We’re committed to working with all stakeholders to develop innovative financial products that help consumers reach their goals.”
Active Network also replied to Marketplace’s request for comment, stating:
“The lawsuit by the CFPB against Active Network in Texas regarding a single product is frivolous and without merit. The Active Advantage product, the target of today’s action, has been reviewed by multiple appropriate federal and state regulators, including the Federal Trade Commission. Active Advantage has nothing to do with consumer financial services, making the CFPB’s action outside the scope of the agency’s authority. And the recent ruling by the Fifth Circuit, which includes Texas, that found the CFPB’s funding structure to be unconstitutional shows just how far off base this agency has become. This matter is immaterial.”
Marotta-Wurgler said there are a variety of different types of dark patterns, with a common one being “negative-option” plans, where customers have to opt out of paying for a subscription service that will continue charging them otherwise.
She said these often start off as free trials, where customers have to sign up using their credit card information and are then later charged after the free trial period ends.
Subscription-based business models that used negative options have a history that stretches back long before the advent of the internet. Norman I. Silber, a professor of consumer law at Hofstra University, pointed to the music service Columbia House Records, which would continue mailing you its products and charging you until you opted out.
But now, everything has been digitized and we live in a “subscription-based world,” Marotta-Wurgler pointed out. “It’s extremely hard to keep track of everything.”
The FTC has raised concerns about a dark pattern trap known as the “roach motel” which makes it easy to sign up for a service, but “almost impossible to escape.” The FTC pointed to ABCmouse, a subscription-based educational program, that offered a 12-month membership that would automatically renew after this period. The FTC alleges that the company “buried” its automatic renewal in its “Terms and Conditions” section, which involved having to click another link.
“Families who tried to cancel through the website were forced to click through a labyrinth of pages urging them not to cancel. In addition to wasting families’ time, these pages were riddled with traps — ambiguous menu options that in some cases re-enrolled members if they clicked the wrong button,” the FTC says.
ABCmouse ended up having to pay $10 million in a settlement with the commission.
Marotta-Wurgler said there have been attempts to curtail dark patterns with the passage of the FTC’s Restore Online Shoppers’ Confidence Act, which required companies to adhere to “very strong disclosure standards” in financial transactions.
“The rule also states that consumers have to give affirmative consent to the negative-option offer and that businesses have to establish simple cancellation procedures,” Marotta-Wurgler said. “So it’s all in the books, that doesn’t mean that it’s not still happening.”
Many states, including California, Illinois, Georgia, and New York have also enacted laws to halt automatic renewal plans, according to Pew Charitable Trusts.
And consumers have been taking action by bringing forward class-action lawsuits against these companies.
“It used to be that simple disclosures sufficed,” Marotta-Wurgler said, adding that now that these disclosures won’t cut it.
But while states and federal agencies have brought cases against companies for engaging in dark pattern behavior, it’s been “a cat-and-mouse game,” since companies can technically comply with the law if they disclose what they’re doing, Marotta-Wurgler said.
She noted that sometimes the disclosures “are in very fine print,” or companies take advantage of signing up people for their products by offering rewards or prizes.
Marotta-Wurgler said that consumers are now bombarded with messages asking them to agree to a site’s terms or click around to opt out of a service, leaving them with “clicking fatigue.”
“The onus is always on the consumer,” she said.
Silber said that there’s “a cottage industry of consultants and businesses” who help sellers increase their number of renewals and make it difficult for people to cancel subscriptions or memberships.
“Many of the big companies are driven by a desire to increase the number of renewals that they have,” he said.
But that effort may be short-sighted, he noted, because of customers’ frustrations.
Ideally, Marotta-Wurgler said she would like to see a rule that makes companies opt a consumer out of a service if they’ve been inactive for a while, or send them a strong message asking if they’re sure they want to continue using that service.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.