US retailers' members-only programs under scrutiny with Amazon lawsuit

[June 23, 2023]  By Arriana McLymore and Katherine Masters

NEW YORK (Reuters) -Amazon.com Inc isn't the only U.S. retailer accused of using deceptive tactics to sell memberships to shoppers.

From big-box chains Walmart and Best Buy to specialty retailers like Savage X Fenty and Adore Me, retailers' subscription programs are facing growing scrutiny.

Many collect monthly fees from shoppers in exchange for free delivery, unlimited tech support or discounts on merchandise. Thirty percent of Americans were enrolled in a subscription service in 2022, according to a survey of 37,720 people by Euromonitor Inc, up from 20% of respondents in 2017.

Amazon is under fire from the U.S. Federal Trade Commission, which filed a lawsuit against it in Seattle. The FTC accused the e-commerce giant of duping "millions of consumers" into purchasing subscriptions for Prime services. Prime members in the United States pay $139 per year for free delivery, and drive much of Amazon's sales volume.

For years, Amazon "knowingly complicated the cancellation process for Prime subscribers who sought to end their membership," the FTC said in the complaint. Amazon "substantially revamped its Prime cancellation process" to some customers before the lawsuit was filed, according to the complaint.

Amazon, which launched Prime in 2005 and has around 170 million subscribers in the U.S., said it is willing to defend itself in court. Last year, Amazon changed its process to cancel Prime with "two clicks" in Europe to comply with the European Union's consumer protection rules, and it altered the process in the U.S. in early 2023, it said. Both the prior and new cancellation process comply with applicable law, Amazon said.

William Kovacic, a professor at George Washington University Law School and former commissioner of the FTC, said that the Amazon lawsuit is a way "to make a point," change Amazon's practices and "develop a template for standards for the entire sector."

Retailers should be "very concerned" that the FTC is pursuing action against auto-renewal terms, multi-step cancellation policies and other practices that have become widespread across many online subscription platforms, said Kathleen Benway, a former chief of staff at the FTC's Bureau of Consumer Protection.

"This is the first time a court is looking at the adequacy of these types of disclosures and other practices that have become pretty common now," she said.

SAVAGE X FENTY, ADORE ME

Consumer protection nonprofit Truth in Advertising filed a lawsuit in 2020 against Savage X Fenty and its parent company TechStyle, which also owns e-commerce platforms such as JustFab and Fabletics, for the company's automatic enrollment techniques.

The nonprofit said that Savage X Fenty lured shoppers to the site with VIP member discounts on lingerie and automatically enrolled them in its membership program without fully disclosing the terms and conditions.
 

The logo of Amazon is seen at the company logistics center in Lauwin-Planque, northern France, January 5, 2023. REUTERS/Pascal Rossignol/FILE PHOTO

Those terms required consumers to opt out of the program to avoid monthly charges. Savage X Fenty's marketing also informed customers that those charges could be used as purchase credits without telling them that the credits only applied to purchases of $49.95 or more, according to the complaint.

The company subsequently reached a settlement with California's state government for $1.2 million. A company spokesperson said as part of the settlement, it agreed to make changes to Savage X Fenty's website and set aside $140,000 to provide refunds to eligible California consumers.

In 2016, Truth in Advertising filed a lawsuit against Adore Me, then an independent company, for its VIP membership pricing program. The retailer reached a $2.35 million settlement with more than two dozen states over its practices earlier in June.

Ranjan Roy, Adore Me's vice president of strategy, said the allegations related to the company's practices between at least 2012 to 2016, before the retailer was acquired by Victoria's Secret.

WALMART, BEST BUY

Walmart started its Walmart+ subscription in 2020 and had 20 million subscribers as of May, according to Morgan Stanley estimates. It charges $98 a year and promises free grocery delivery.

A Michigan shopper alleged in a lawsuit in 2022 that Walmart used "deceptive subscription practices" including charging customers automatically after a free Walmart+ trial, creating obstacles in cancelling subscriptions and not honoring cancellations after shoppers opted out, according to the complaint. He withdrew the lawsuit, according to the court docket.

His lawyer, Spencer Sheehan, did not immediately respond to emails and calls for comment. The lawyer previously told a media outlet that the parties "resolved the action to our mutual satisfaction." Walmart did not immediately comment.

Best Buy in 2021 launched a subscription program offering tech support and discounts on products. Later this month, it will begin offering two tiers of paid memberships for $49.99 a year or $179.99 a year.

A shopper filed a class action lawsuit against Best Buy in 2022 after purchasing a TV online, alleging that he was automatically enrolled in two subscription programs - a Total Tech Support Monthly Membership, which cost $19.99 a month, and an antivirus program costing $2.99 a month - without his knowledge. Best Buy did not include an option to cancel either membership online, according to the lawsuit.

A California district court referred the case to private arbitration earlier this month but noted that the disclosure above the purchase button was "plainly readable." Best Buy declined to comment on the lawsuit.

(Reporting by Arriana McLymore, Kate Masters and Siddharth Cavale in New York City; Editing by Muralikumar Anantharaman)

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