Dark Patterns and Regulatory Response: A Look into the FTC’s Proposed Regulations for Subscription Businesses

Introduction

Based on the podcast conversation How to Make Your Subscription Business FTC-Compliant in 2024 with Paavana Kumar, a partner at Davis+Gilbert LLP and subscription law expert, this article aims to lay out prevalent deceptive tactics and dark patterns that have unfortunately become all too common, and analyze the potential impact of the newly proposed regulatory updates by the FTC on subscription businesses and their consumers.

We’ll also look into the differences between consumer protection in the B2C and B2B contexts, shedding light on how regulatory compliance varies across different types of business transactions.

Deceptive Tactics and Dark Patterns
in Subscription Businesses

There’s a whole bag of tricks (aka deceptive tactics) that subscription companies can use to try and do a number on their consumers – in particular, luring them into subscriptions they don’t want. Dark patterns, in particular, have been causing quite a stir due to their inherently deceptive nature.

These dark patterns literally cash in on psychological tricks, cognitive biases, and sneaky design elements to influence consumer behavior, often resulting in unintentional or undesired sign-ups or purchases. Prime examples include forcing consumers into a never-ending subscription, surprising them with hidden price hikes, or making cancellation mechanisms intentionally confusing or difficult to complete.

Below are some examples of dark patterns, negative option features, and commonly used deceptive tactics that are NOT supposed to be brought into play lest a company attract the ire of the regulators. Instead, we hope that this short (but non-exhaustive) list can at least help marketers, UX/UI designers, or subscription managers to investigate their own transaction flows and identify (and hopefully weed out) the bad stuff.

Forced Continuity and Tricky Opt-Outs

This tactic makes it challenging for consumers to cancel their subscriptions by implementing complicated or hidden cancellation processes. The goal is to keep customers subscribed for longer periods, even if they no longer wish to continue.

Drip Pricing and Hidden Costs

This involves advertising only a part of a product’s or service’s cost upfront, with additional charges revealed later, to capture consumers’ interest early and increase the likelihood of completing a purchase.

Sneaky Price Increases

Some subscription businesses offer initial discounted rates and gradually raise their subscription prices over time without clearly notifying the customer. This maneuver can catch consumers off guard, leading to frustration and potential financial strain.

Confusing Interface Designs

Deceptive interface elements, such as misleading buttons, unclear checkboxes, sudden changes in shading, or pre-selected options, may be utilized by subscription businesses to misguide users into making unintended purchases or subscriptions.

Limited or False Free Trials

Some free trials that are offered  require users to enter payment information upfront. They may then make it challenging to cancel before the trial period ends, leading to unexpected charges. In some cases, the promised free trial may not be truly free, as there may be hidden fees and obligations, such as minimum purchase obligations.

Bait-and-Switch

This tactic involves advertising an appealing subscription offer or product and then substituting it with a lower-quality or more expensive alternative after the consumer has committed or made a purchase.

Countdown Clocks

Subscription businesses may use countdown clocks to create a false sense of urgency. These timers pressure customers into making quick decisions by creating an artificial deadline or limited time offer. Countdown clocks manipulate customers into impulsive purchases without fully considering the subscription’s terms and conditions.is deceptive tactic aims to mislead prospective customers into believing the offering is of higher quality or value.

Unwanted Upsells

Some subscription businesses aggressively and misleadingly push additional products or services onto customers during the subscription process, renewal, or even the cancellation flow. This tactic often leads to unwanted and unexpected charges.

Fine Print Traps

Important information, such as auto-renewal clauses, cancellation policies, or future price increases, may be buried in fine print or written in confusing language. This tactic aims to hide unfavorable terms and conditions from customers.

Pre-checked Boxes

Businesses may pre-select additional products, services, or costly add-ons during the checkout process, leading customers to unwittingly purchase items they did not intend to buy. This practice exploits user inattention and can result in unexpected charges.

Hidden Automatic Renewals

Subscription businesses may enroll customers into automatic renewals without their explicit knowledge or consent. This misleading practice can result in continued charges even when customers believe they have canceled their subscriptions.

Manipulative Discount Offers

Subscription businesses may display misleading original prices when offering discounts, creating the illusion of a significant discount when the original price is inflated. This tactic deceives customers into believing they are getting a better deal than they actually are.

Limited Cancellation Window

Some subscriptions businesses only allow customers to cancel within narrow time frames or require long notice periods before cancellation. This tactic can lead to customers unintentionally missing cancellation windows and being charged for additional subscription periods.

Fake Reviews and Testimonials

Subscription businesses may fabricate positive reviews or testimonials to create a false sense of popularity or satisfaction with their products or services. This deceptive tactic aims to mislead prospective customers into believing the offering is of higher quality or value.

Staying on the lookout for these sneaky tactics can empower consumers to make smarter choices and shield themselves from any unfair tricks. It’s all about arming yourself with information and making sure you’re not falling for any funny business. You got this!

Weighing the Consumer Retention vs.
Regulatory Compliance Dilemma

When it comes to balancing the financial side of things with keeping customers happy and staying within the FTC’s good graces, subscription businesses have their work cut out for them. But here’s the thing: cutting corners with deceptive tactics and dark patterns might bring in some quick bucks, but it’s a recipe for long-term disaster. Trust, transparency, ethical compliance, and genuine value over deceptive practices is what we’re aiming for.

Sure, beefing up your cancellation mechanisms may require a little bit of investment. And to be honest, you might also lose a couple of subscribers along the way, but hey, that’s probably what they want and their intention, and they should be able to follow through with it.

But back to the financial bit, the cost of dealing with an FTC investigation can be way more costly and damaging for your business in the long run than investing a bit in cleaning up your transaction flows. Plus, considering that businesses still have a few months to make some adjustments before the FTC starts poking around (as long as things aren’t waaaay off track or just flat out wrong), there’s still an opportunity to get on the right path.

When it comes to compliance and keeping things transparent, Paavana has some useful tips for businesses to consider. It’s all about analyzing every step of the customer journey, from the moment they sign up to when they decide to cancel.

One requirement under the law is to make sure the signup process is clear-cut, with disclosures and all relevant charges displayed upfront. It’s important to include a way for customers to explicitly agree to the terms and conditions – ideally, that’s an unchecked check box along with an explicit disclosure and assent to the terms. It’s all about making sure everyone’s on the same page. It’s also important to always notify consumers of, and ideally get their consent to, any material changes to pricing or other elements of their subscription terms.

Speaking of cancellations, businesses need to make sure the process is hassle-free and well-communicated. Sending regular reminders of the cancellation process helps. Implementing a mirror cancellation process, where it’s just as easy (if not easier) to cancel as it was to sign up, can go a long way in keeping consumers happy. And, make it easy for consumers to cancel the same way they signed up (e.g. through a website or app).

Now, let’s talk about those flat fee subscription models. They’re not inherently deceptive, but they can be a bit tricky if all the terms and conditions aren’t laid out in the open. That lack of transparency can land businesses in a tight spot, with class action lawsuits and unhappy customers to deal with. On the flip side, usage-based pricing, where customers are billed based on what they actually use, tends to attract fewer complaints and lawsuits. So, it’s worth considering if you want to steer clear of deceptive practices.

By taking these suggestions to heart, subscription businesses can create a more ethical and transparent experience for their customers. Not only will this help minimize the chances of catching the FTC’s attention, but it will also build trust and foster long-lasting relationships with customers who see the genuine value in what you offer.

If you’re eager to dive deeper into the legal side of things, I highly recommend checking out Paavana’s Navigating the Subscription Maze: Staying on Top of Auto-Renewal Legislation in 2024. It’s a practical and actionable resource that provides invaluable guidance on things like designing user-friendly sign-up flows, clearly disclosing terms, and steering clear of any sneaky or deceptive practices. It also gets into the state laws, which are a whole other ballgame.

The Distinctions in Consumer Protection in B2C and B2B Contexts

In the context of consumer protection, there are notable distinctions between the B2B (business-to-business) and B2C (business-to-consumer) environments.

In B2C transactions, there is typically a stronger regulatory focus and emphasis on protection. This is because consumers are generally seen as more vulnerable to deceptive practices and may have limited resources or knowledge to navigate complex deals. Also, most state laws on point are promulgated under the consumer protection laws.

However, this does not mean that B2B transactions are completely off the hook of consumer protection laws or regulations. The updates to the Negative Option Rule stress the importance of businesses adopting fair practices and being transparent, even when dealing with other businesses, and emphasizes that the updated laws will apply to subscription based companies across industries, even enterprise solutions.

The Restore Online Shoppers’ Confidence Act (ROSCA) is an important law that applies to both B2B and B2C transactions. It was created back in 2010 specifically to tackle the abuse of negative option marketing, which was quite prevalent at the time. Negative option marketing is when third parties try to upsell products or services to customers during checkout without their explicit knowledge or consent.

In the B2C context, ROSCA requires businesses to disclose “all material terms of the transaction” to the consumer. Basically, it ensures that consumers have all the clear and accurate information they need about what they’re buying, including any claims about the product’s effectiveness. This is important to protect consumers from misleading practices that could land them in financial trouble.

In the B2B context, ROSCA has been infrequently enforced against businesses. However, the principles of transparency and fair practices it promotes are still relevant. Even in B2B transactions, businesses need to lay out clear terms, share all the key information, and steer clear of deceptive tactics that could harm other businesses.

The inclusion of ROSCA adds another layer to the discussion of consumer protection in both B2B and B2C contexts. It reminds businesses of the importance of being transparent, following disclosure requirements, and staying away from deceptive marketing practices that can harm both consumers and businesses.

Conclusion

The growth of subscription-based businesses has brought about some concerning deceptive tactics and dark patterns. Thankfully, the FTC is stepping up to the plate with proposed regulatory updates, like expanding the Negative Option Rule, to tackle these issues head-on and ensure fairness for both B2C and B2B consumers and creating a less confusing overarching framework for companies to follow when designing their compliance efforts.

Businesses need to understand the importance of building trust and being upfront with their customers. If they prioritize ethical compliance and transparency over short-term gains from deceptive practices, they’ll be able to make those relationships solid and built on trust and value. And let’s be real, that’s what we all want in the end, right?

And lastly, if you have any questions about subscription law or anything that we just discussed in this article, Paavana’s bio and contact information are provided below. Yes, I just threw in a plug, but it’s a plug that’ll help you and your subscription business get out of (or avoid being in) a tight spot.  

How to Make Your Subscription Business
FTC-Compliant in 2024

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Edwin Ryan Poquiz

Content Marketing Manager @ DigitalRoute

Edwin Ryan is a 360° marketing strategist, content producer, UX designer, and hobbyist. He has produced content for The Wharton School, SFSU, and several startups and non-profit organizations both in the US and in Sweden. 

When he’s not doing his nine-to-five, he’s usually out enjoying every opportunity to unplug from the urban jungle he calls home to go climbing, cycling, kayaking, skiing, hiking, and ice skating, among others.