ABCmouse case shows how online subscriptions can become expensive traps

Between 2015 and 2018, Age of Learning, which operates ABCmouse.com, advertised a special 12-month membership for $59.95. But the site failed to tell consumers that the subscription would automatically renew, according to a complaint filed by the FTC. The California-based company also misrepresented the ease with which people could stop paying for the yearly membership, the FTC charged.

ABCmouse, which is not connected to the ABC network or Disney, is a digital education platform for children between ages 2 and 8. Users have access to content on reading, math, science and other subjects through the company’s website or mobile app.

Without admitting guilt, Age of Learning agreed to pay $10 million to settle the charges of illegal billing and marketing. The FTC said the money will be used to provide restitution to victims.

In an emailed statement, Age of Learning says fewer than 2 percent of subscribers “may not have fully understood that their subscriptions would renew, or how to easily cancel their memberships. … We regret any confusion that any subscriber may have experienced.”

Although the alleged illegal actions by ABCmouse predate the pandemic, the FTC said it wants its recent charges against the company to serve as a warning to other online businesses using “negative option” or auto-renewal offers.

Illegal practices relating to online subscriptions are a big problem, especially as more people are working, learning and shopping online, Todd Kossow, the FTC’s Midwest Region director, said during a media conference call.

With a negative-option membership or subscriptions, consumers agree to automatic billing after trying something out free or typically following a special pricing offer. Billing stops only after the consumer takes some action to cancel. That’s where the “negative” part comes in.

Negative-option offers aren’t illegal, but the law requires companies to clearly disclose cancellation terms and get consumers’ express informed consent before billing. Under the Restore Online Shoppers’ Confidence Act (ROSCA), companies must provide “simple mechanisms for a consumer to stop recurring charges from being placed on the consumer’s credit card, debit card, bank account, or other financial account.”

“The commission has been actively pursuing wrongdoers for many years, but especially during the pandemic,” Kossow said.

In the case of ABCmouse, the FTC says the company refused to accept cancellation requests made over the phone, via email or through a form on its website. Instead, people who wanted to cancel were directed to an inconspicuous portal on the website where they had to navigate anywhere from six to nine screens, Kossow said.

ABCmouse also didn’t adequately disclose that consumers would be automatically charged after a 30-day free-trial offer expired, the FTC complaint said. Consumers who successfully navigated a “complicated” and lengthy cancellation process — designed to discourage them from canceling — were still billed without their consent, the FTC said.

The company disclosed the automatic renewal only in a separate hyperlinked document that stated terms and conditions in a place where people were unlikely to see them, Kossow said.

The company says it has since streamlined its subscription, cancellation and customer support processes.

“More than 100,000 exasperated consumers tried to cancel through the Contact Us link on ABCmouse’s Customer Support page,” Andrew Smith, director of the FTC’s Bureau of Consumer Protection, wrote in a blog post about the settlement.

Unscrupulous companies can make canceling such agreements arduous, if not impossible. It reminds me of the popular NBC show “American Ninja Warrior,” where athletes have to conquer challenging obstacles, a course most fail to complete.

Consumers sometimes are caught in an auto-renewal scheme after providing credit card information to cover shipping and handling for free products. Instead, they are repeatedly billed for products and services they hadn’t intended to order.

For example, many consumers have unwittingly fallen victim to a face-cream fraud. Despite claims that they could cancel after a 14-day free trial, they got hit with pricey charges — $90 a month, in some cases — on their credit card or bank account. They hadn’t seen the hidden language saying that by accepting the “free” sample, they were automatically signing up for a subscription service with recurring charges every month.

Here’s some advice from the FTC to protect yourself from falling into an auto-renewal trap:

· Before signing up for a service, search for the company’s name and type in “complaints.”

· Be very careful about “free” products for which you’re asked to pay shipping costs. Look for any language that may indicate you are signing up for a service or regular delivery of a product.

· If you’re filling out a form with pre-checked boxes, uncheck them all and read the cancellation policy.

· Don’t use a debit card, which has fewer consumer protections than a credit card. With a credit card, you can dispute the charges. Although there’s no guarantee you’ll win the dispute, at least you won’t have automatic charges coming out of your bank account.