Amazon Settles with FTC for $2.5 Billion Over Prime Practices

Amazon (AMZN) will pay $2.5 billion to settle accusations from the Federal Trade Commission (FTC) that the e-commerce giant deceptively enrolled users in its Prime membership program, the regulatory body announced Thursday. This settlement averts a potentially damaging jury verdict after a trial that began just three days prior in a Seattle federal court.

The lawsuit, initiated in June 2023 under the Biden administration, alleged that Amazon employed manipulative tactics to induce tens of millions of consumers into subscribing to Prime and then obstructed their efforts to cancel their memberships. The settlement mitigates the risk of individual liability for several senior Amazon executives.

Under the agreement, Amazon will pay a $1 billion civil penalty to the FTC and issue $1.5 billion in refunds to an estimated 35 million customers, averaging approximately $51 per user, who were affected by “unwanted Prime enrollment or deferred cancellation.” These refunds are expected to be distributed within 90 days.

While Amazon has agreed to the settlement, the company hasn’t admitted any wrongdoing, according to the FTC.

The settlement mandates that Amazon clearly disclose the terms of the Prime program during enrollment and obtain explicit consent from consumers before charging them for a subscription. It also stipulates that Amazon must provide a straightforward cancellation process for users who wish to terminate their membership. This includes prohibiting the use of dark patterns or other deceptive interfaces designed to discourage cancellation.

Furthermore, the agreement includes restrictions on two Amazon executives: Jamil Ghani, the head of Prime, and Neil Lindsay, previously involved in the Prime business and now a senior vice president in the company’s health division. These executives are prohibited from engaging in similar unlawful conduct in the future.

FTC Chairman Andrew Ferguson hailed the settlement as a “monumental win,” underscoring the agency’s commitment to protecting consumers from unfair business practices.

In a statement, an Amazon spokesperson said that the company and its executives “have always followed the law, and this settlement allows us to move forward and focus on innovating for customers.”

The $2.5 billion penalty is among the largest ever levied by the FTC. The agency previously fined Meta (formerly Facebook) $5 billion in 2019 for privacy violations.

While substantial, the fine represents approximately 0.1% of Amazon’s market capitalization, which currently hovers around $2.4 trillion. Amazon shares saw a slight increase following the announcement, suggesting that investors see the settlement as a manageable cost of doing business.

Since its launch in 2005, Amazon Prime has exploded in popularity, boasting over 200 million members worldwide. The subscription service, priced at $139 annually, provides benefits such as free shipping and access to streaming content. Data indicates that Prime members exhibit higher spending habits and more frequent purchases compared to non-Prime members, making it a crucial revenue driver for Amazon.

This settlement, however, doesn’t resolve all of Amazon’s legal woes. The company still faces a larger antitrust case brought by the FTC.

In 2023, the FTC, along with attorneys general from 17 states, accused Amazon of engaging in anti-competitive practices in the e-commerce market. The lawsuit alleges that Amazon leverages its “monopoly power” to inflate prices, degrade service quality, and unlawfully exclude competitors, all of which harms consumers and stifles innovation. This case is slated to go to trial in 2027.

The FTC’s ongoing scrutiny highlights the increasing regulatory pressure on big tech companies. Recently, a U.S. district judge issued a ruling in Google’s antitrust case, avoiding the most drastic remedies proposed by the Department of Justice, such as the forced sale of Google’s Chrome browser. While Google lost the case, it was spared from divesting key assets, signaling a nuanced approach to antitrust enforcement.