Amazon to pay a historic $2.5 billion penalty for duping customers to sign up for ‘Prime’ membership

Amazon has agreed to pay $2.5 billion to settle a lawsuit by the US Federal Trade Commission (FTC). The regulatory body alleged that the global retailer had duped millions of customers into signing up for Prime membership without their consent and made it difficult to cancel their subscription. 

Amazon agreed to pay $1 billion in civil penalties and $1.5 billion in compensation to consumers, the consumer protection and competition agency said. The compensation of $1.5 billion will be provided to an estimated 35 million customers impacted by “unwanted Prime enrolment or deferred cancellation,” the agency stated. Under the terms of the settlement, Amazon will give up to $51 to eligible customers within 90 days.

This is one of the largest penalties ever imposed by the FTC. In 2019, the regulatory body imposed a $5 billion fine on Facebook, now known as Meta, for violating consumers’ privacy.

“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. Today, we are putting billions of dollars back into Americans’ pockets and making sure Amazon never does this again. The Trump-Vance FTC is committed to fighting back when companies try to cheat ordinary Americans out of their hard-earned pay,” said the FTC statement. 

What does the settlement require Amazon to comply with? 

As per the statement released by the FTC, Amazon has to make changes to the Prime enrolment and cancellation flows by:

1)including a clear and conspicuous button for customers to decline Prime. Amazon can no longer have a button that says, “No, I don’t want Free Shipping.”

2)including clear and conspicuous disclosures about all material terms of Prime during the Prime enrolment process, such as the cost, the date and frequency of charges to consumers, whether the subscription auto-renews, and cancellation procedures.

3)creating an easy way for consumers to cancel Prime, using the same method that consumers used to sign up. The process cannot be difficult, costly, or time-consuming and must be available using the same method that consumers used to sign up, and

4)paying for an independent, third-party supervisor to monitor Amazon’s compliance with the consumer redress distribution process.

For Amazon, $2.5 billion is just 0.1% of its market capitalisation,  which now sits at close to $2.4 trillion. The retail giant’s shares closed lower by 0.94% on the Nasdaq Composite.