Amazon Reaches $2.5B Settlement In Prime FTC Lawsuit

Amazon has agreed to a record-breaking $2.5 billion settlement with the Federal Trade Commission (FTC) over allegations that it tricked millions of consumers into signing up for its Prime subscription service and made it nearly impossible to cancel.

The settlement announced on Thursday came days into a jury trial that began in Seattle this week over the issue, which stemmed from a lawsuit filed by the Federal Trade Commission in 2023.

According to the FTC lawsuit filed the in June 2023, the retail giant was accused of deceptive practices that enrolled customers in Prime without consent and deliberately complicated the cancellation process. At the time, Amazon dismissed the case as evidence the FTC had “radically departed from its mission of protecting consumers and competition.” But the company settled just as the Seattle trial was set to begin.

Before the trial began, investigators unearthed internal documents showing Amazon executives were aware of questionable tactics. One internal comment described subscription driving as “a bit of a shady world,” while another referred to leading consumers into unwanted subscriptions as “an unspoken cancer.”

This week, Amazon argued its subscription practices exceeded industry standards and that it had spent millions to improve the customer experience after former Amazon user experience researcher, Reid Nelson, testified that he had flagged the company’s interface as “misleading” and “confusing.”

“The evidence showed that Amazon used sophisticated subscription traps designed to manipulate consumers into enrolling in Prime, and then made it exceedingly hard for consumers to end their subscription,” FTC Chairman Andrew Ferguson said in a statement. “Today, we are putting billions of dollars back into Americans’ pockets, and making sure Amazon never does this again.”

The $2.5 billion settlement is split into $1 billion in civil penalties and $1.5 billion in consumer relief for roughly 35 million impacted customers. Eligible consumers may automatically receive up to $51 in relief, while others will need to submit a claim.

“Amazon and our executives have always followed the law and this settlement allows us to move forward and focus on innovating for customers,” Amazon spokesperson Mark Blafkin said in a statement. “We work incredibly hard to make it clear and simple for customers to both sign up or cancel their Prime membership.”

Despite the settlement, Amazon did not admit wrongdoing but agreed to major changes, including:

• Provide a clear and conspicuous button for customers to decline Prime.

• Remove the “No, I don’t want Free Shipping” button.

• Clearly disclose Prime terms, including charges and cancellation procedures.

• Create an easy cancellation method that mirrors the signup process.

• Pay for an independent third-party supervisor to monitor compliance.

While many  view the payout as a major win for consumers, critics said the company got off lightly. Former FTC chair Lina Khan, who ran the agency when the lawsuit was filed, said in a social media post on Thursday that a settlement just a few days into Amazon’s jury trial rescued the company “from likely being found liable for having violated the law,” allowing it to “pay its way out.”

“A $2.5 billion fine is a drop in the bucket for Amazon and, no doubt, a big relief for the executives who knowingly harmed their customers,” Khan said.

The American Economic Liberties Project argued the deal lets Amazon “walk away scot-free.” 

“Enough with this game of whack-a-mole. If the Commission is serious about protecting people from deceptive subscription schemes, it should re-issue the Click-to-Cancel rule today, instead of tossing it aside to appease the Chamber of Commerce,” Nidhi Hegde, the group’s executive director, said in a statement.

Former FTC commissioner Alvaro Bedoya took to X to expound  further, questioning political pressure. 

“We have to ask ourselves: What pressure did the White House put on this FTC to enter into this settlement? What communications were there? This doesn’t smell right,” Bedoya wrote. 

A White House official dismissed those concerns as conspiracy theories, emphasizing that the settlement represents the second-largest consumer redress action in U.S. history.

Meanwhile, industry groups such as NetChoice praised the decision, praising the Trump administration for “coming to the table with technology companies”. 

“It’s good to see the Trump administration coming to the table with America’s leading technology companies to resolve disputes, instead of engaging in protracted legal battles with counterproductive outcomes for consumers and America’s ability to innovate and compete,” NetChoice director of policy Patrick Hedger said in a statement.

The case reignited debate over the proposed “click-to-cancel” rule, which would have required companies to make subscription cancellations as simple as signups. Amazon’s case fueled calls for simpler cancellation of subscriptions like streaming, gyms, and meal services. The FTC’s “click to cancel” rule, blocked by a court in July, would have required businesses to obtain consent for subscriptions, auto-renewals, and free trials converting to paid plans. The rule, proposed by former President Joe Biden was part of his effort to crack down on “junk fees”. The FTC said canceling the services would have to be “at least as easy” as signing up.

With Prime generating $44 billion in annual revenue, analysts say the payout represents just 5.6% of subscription income and won’t shake Amazon’s dominance. But for consumers tired of subscription traps, this “historic” settlement may signal that help is finally on the way.

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