Locke Lord QuickStudy: Negative Option Marketing Costs ‎Vonage $100 Million in Fines

Locke Lord LLP
November 7, 2022

Vonage made it easy for customers to sign up for their internet phone services with monthly charges. However, the Federal Trade Commission alleged in a complaint filed in the U.S. District Court for the District of New Jersey that Vonage used negative option marketing practices, concealed the amount and frequency of these fees, and made it difficult for customers to cancel the services after they signed up. On November 3, 2022, the FTC entered into a consent order with Vonage, requiring Vonage to pay $100 Million in civil fines and to change their negative option marketing practices.

The FTC’s consent order demands that Vonage require consumers to take an affirmative action to agree to recurring charges. That is, a consumer must opt-in to a recurring charge, not merely fail to opt-out. The consent order also requires Vonage to clearly and conspicuously disclose to consumers that they are agreeing to pay recurring monthly fees. On Vonage websites and apps, or through any written offers, the FTC requires a check box or signature for the consumer to affirmatively opt-in to recurring service charges. Immediately adjacent to the opt-in, Vonage must disclose three things:

(1) whether the consumer must take affirmative action to avoid charges, such as after a promotional period ends,
(2) the costs and frequency that the consumer will be charged, and
(3) the deadline by which the consumer must act to stop charges.

Similar disclosures must be used whenever a consumer enters billing information to sign up for a free trial or promotional period. The FTC also required Vonage to send confirmation of a transaction by email to the consumer, which must again disclose that same information – the amount and frequency of charges, and what steps a consumer must take to stop them.

The FTC also alleged that Vonage made it difficult for consumers to cancel the recurring charges, such as by making it difficult to find the right phone number on Vonage’s website. The consent order required Vonage to provide a “simple mechanism” for the consumer to stop any recurring charges. A “simple mechanism” would include using the same method to cancel – such as the same website, email address, or application – that the consumer used to sign up for the service. Instead, the FTC alleged that Vonage used “dark patterns” in web design, which it defined as “a user interface that has the effect of impeding consumers’ expression of preference, manipulating consumers into taking certain action or otherwise subverting consumers’ choice.”

Vonage’s use of negative option marketing practices was quite costly, resulting in $100 million in fines that will be used to reimburse consumers. The FTC’s consent order also imposed ongoing compliance requirements on Vonage for the next 12 years, requiring it to keep records that show full compliance with the order – including customer complaints and refunds – and to respond to any of the FTC’s investigative requests.

The FTC does not prohibit all forms of automatically renewing service charges. However, marketers offering subscription based services should consult an attorney to ensure the payment terms are clearly and conspicuously disclosed to the consumers, that consumers provide affirmative consent, and that consumers are adequately informed how to opt out of the recurring charges.