Amazon has agreed to pay what the Federal Trade Commission (FTC) has called a "historic" $2.5 billion settlement after it was accused of manipulating customers into getting and keeping Prime subscriptions.

The FTC filed an antitrust lawsuit against the retail giant in June of 2023, alleging that it had enrolled millions of consumers in Prime subscriptions without their consent and then made the subscriptions exceedingly difficult to cancel.

At the time, Amazon called the suit proof that the FTC had "radically departed from its mission of protecting consumers and competition."

But the company settled the case just as the Seattle trial was beginning.

Amazon was aware of "shady" practices: lawsuit

In the lead-up to the trial, said the FTC in a press release, investigators found documents indicating that Amazon executives and employees knew about issues with the Prime enrollment and cancellation process, citing comments such as “subscription driving is a bit of a shady world” and leading consumers to unwanted subscriptions is “an unspoken cancer.”

Former Amazon user experience researcher Reid Nelson testified in court on Sept. 24, reported NPR, saying that he had flagged Amazon's tactics and interface as "misleading" and "confusing." Amazon argued that its practices around subscriptions and cancellations exceed industry transparency standards and that it had spent millions improving the customer experience, according to NPR.

"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 FTC is pursuing similar litigation against other major companies, Federal Communications Commission Chair Brendan Carr said in an interview with FOX Business Network’s Making Money with Charles Payne, calling it “a major priority of mine.”

Amazon agrees to pay $1.5 billion to customers

As part of the settlement agreement, Amazon admitted no wrongdoing but agreed to adhere to several changes to its interface.

These include ensuring there is a clear and conspicuous button for customers to decline Prime and removing the button saying, "No, I don’t want Free Shipping"; providing clear and conspicuous disclosures of the terms of Prime, including costs, charges and cancellation procedures; creating an easy way for consumers to cancel Prime, using the same method that consumers used to sign up and paying for an independent, third-party supervisor to monitor its compliance."

Amazon also agreed to $1 billion in civil penalties and $1.5 billion in consumer relief for roughly 35 million impacted customers. According to court documents, some eligible customers will automatically receive up to $51 in relief, while others will have 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's Senior Manager of Policy Communications Mark Blafkinsaid in a statement. "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."

Reactions to the settlement

The American Economic Liberties Project, which advocates against the concentration of business power, said the settlement allows Amazon and its executives to “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.

In a post on X, Alvaro Bedoya, senior advisor at the American Economic Liberties Project and a former FTC commissioner under the Biden administration, questioned why FTC leadership accepted a settlement after scoring a series of wins in court.

"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 said in his post.

Former FTC Chair Lina Khan shared Bedoya's post, adding that the settlement "raises real questions."

Still, the technology trade group NetChoice said the Trump administration was taking "the right step" by settling this case.

“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.

Teresa Murray, consumer watchdog director for the Public Interest Research Group, called the settlement "great news."

“It goes beyond Amazon and Amazon Prime customers," Murray said. "This could help all consumers – anyone who's ever been tricked into a subscription or deceived about what they were signing up for, or who may sign up for a subscription or membership of some sort in the future."

What's the status of the click-to-cancel rule?

The Amazon case was behind a push from consumer advocates and regulators to establish easier ways to cancel subscriptions to streaming services, gym memberships, food deliveries and more. A court blocked the “click to cancel” rules in July days before they were slated to take effect.

The rule, proposed by former President Joe Biden as part of his effort to crack down on “junk fees," would have required businesses to get consent for subscriptions, auto-renewals and free trials that convert to paid memberships. The FTC said canceling the services would have to be “at least as easy” as signing up.

Nearly 75% of companies that sell directly to customers offer some sort of subscription, according to an industry and background note coauthored by Harvard Business School marketing professor Elie Ofek.

Complaints about the difficulty of dropping subscriptions have jumped in recent years, with some customers ending up with monthly charges long after they no longer want or need a product or service.

Meanwhile, trade groups representing advertisers, news publishers, retailers and other industries argued that a multistep cancellation process protects consumers or lets them take advantage of a better deal.

Murray of PIRG said the organization wants the FTC to resurrect the click-to-cancel rule "to protect millions of consumers from deceptive sales tactics, as well as companies that conduct their businesses honestly."

"They're hurt too when consumers feel like they can't trust who they're dealing with,” Murray said. “In the meantime, we hope this Amazon settlement sends a strong message to any company operating in ways that could conceivably confuse customers or thwart their efforts to not be customers anymore.”

In his interview with Fox Business, Carr said the FTC is looking into whether to take up more click-to-cancel rulemaking, adding that he disagreed with the previous administration's approach to setting up the rule.

Ferguson, the current FTC chair, said he voted against Biden's “click to cancel” rule because it came during the lame-duck period.

How to cancel your subscription

PIRG recommends these strategies if you are having trouble canceling a subscription:

  • Think twice about that free trial subscription.
  • Never use a debit card. Always use a credit card.
  • Read the terms and conditions and watch out for pre-checked boxes.
  • Keep copies of emails or text messages sent to you when you signed up, and any screenshots of your efforts to cancel, or any notes from a phone call, including the name of who you spoke with.
  • Put reminders in your calendar. If it’s a one-year subscription, schedule a calendar reminder for maybe a couple of weeks before the automatic renewal date, and again a few days ahead of time, and just cancel then. Don’t wait until the last minute.
  • Remove any credit card information from your account if you can, to ensure you aren’t charged for another billing cycle.
  • Complain to the FTC and your state attorney general if you have problems canceling.

This article originally appeared on USA TODAY: Amazon to refund millions of Prime customers in $2.5 billion FTC settlement

Reporting by Mary Walrath-Holdridge, Jessica Guynn and Bailey Schulz, USA TODAY / USA TODAY

USA TODAY Network via Reuters Connect