Amazon reaches historic $3.8 billion settlement over allegedly duping users into paying for Prime memberships

Amazon will pay $2.5 billion ($3.8b) to settle Federal Trade Commission allegations that the company duped users into paying for Prime memberships, the regulatory agency announced Thursday (local time).

The surprise settlement comes as Amazon and the FTC were just three days into the trial in a Seattle federal court.

Opening arguments in the case occurred Tuesday, but the settlement allows Amazon to avoid having a jury at the trial return a verdict with potentially larger damages than the settlement with the FTC.

The lawsuit, filed by the FTC in June 2023 under the Biden Administration, claimed that Amazon deceived tens of millions of customers into signing up for its Prime subscription program and sabotaged their attempts to cancel it.

Three senior Amazon executives were at risk of being held individually liable if the jury sided with the FTC.

Amazon will pay a $1 billion ($1.5b) civil penalty to the FTC and will refund $1.5 billion ($2.2b) to an estimated 35 million customers impacted by “unwanted Prime enrolment or deferred cancellation,” the agency said.

Under the terms of the settlement, Amazon will give $51 ($77) to eligible customers within 90 days.

Amazon admitted no wrongdoing in agreeing to settle, the FTC said.

The agreement prohibits Amazon from misrepresenting the terms of Prime.

It also requires the company to make clear and conspicuous disclosures about the terms of the program during enrolment, and says Amazon must get consumers’ express consent before charging them for a subscription.

Amazon also has to provide an easy way for users to cancel their subscription, the agency said.

As part of the settlement, Amazon and two of its executives, Prime boss Jamil Ghani and Neil Lindsay, a senior vice president in the company’s health division who previously held a role in the Prime business, will be prohibited from unlawful conduct.

FTC Chairman Andrew Ferguson called the penalty a “monumental win” for the agency under the Trump Administration.

“The Trump-Vance FTC is committed to fighting back when companies try to cheat ordinary Americans out of their hard-earned pay,” Mr Ferguson said in a statement.

Amazon spokesperson Mark Blafkin said in a statement 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 penalty is one of the largest ever imposed by the FTC. The agency in 2019 hit Facebook, now known as Meta, with a $5 billion fine for violating consumers’ privacy.

Still, the $2.5 billion ($3.8b) fine is equivalent to roughly 0.1 per cent of Amazon’s market cap, which now sits at close to $2.4 trillion ($3.6t) Shares of Amazon were up slightly following the announcement.

Launched in 2005, Amazon’s Prime program has grown to become one of the most popular subscription services in the world, with more than 200 million members globally, and it has generated billions of dollars for the company.

Membership costs $139 ($212) a year and includes perks like free shipping and access to streaming content. Data has shown that Prime members spend more and shop more often than non-Prime members.

Amazon still faces a bigger legal case with the FTC.

In 2023, the regulator accused the company of illegally stifling competition in the e-commerce market.

The FTC was joined by attorneys general from 17 states, in alleging Amazon used “monopoly power” to inflate prices, degrade quality for shoppers and unlawfully exclude rivals, thereby undermining competition.

Amazon won partial dismissal of the case last year, but is still slated to go to trial against the FTC in 2027.Earlier this month, the US district judge overseeing Google’s antitrust case ruled against the most severe consequences that were proposed by the Department of Justice, including the forced sale of Google’s Chrome browser.

Google lost the case against the Government last year, but was spared of having to divest of any key assets.