FTC Settles with Ed Tech Provider Chegg for $7.5 Million over Cancellation Practices

The FTC has recently announced that it has reached a settlement with Ed Tech provider Chegg, a Silicon Valley-based business, for $7.5 million over its cancellation practices.

The Complaint charged that Chegg violated ROSCA, 15 U.S.C Sections 8401-8405 by failing to provide simple mechanisms for consumers to cancel their subscriptions.

According to the Complaint, Chegg provided two methods for cancellation: the main Chegg website and a customer service line.  The Complaint alleged that the website cancellation link was difficult to find and only worked on a PC browser, and that the cancellation link itself did not actually cancel the subscription, it took customers to pages that encouraged them to accept a discount in lieu of cancellation or pause the subscription for three months in lieu of cancellation, and even if the customer found the button to continue cancelling, this did not cancel the subscription, it took the customer to a survey about why they were cancelling.  Once the customer provided a reason for the cancellation, the customer still could not cancel, the customer would be directed to a page explaining all the consequences of a cancellation, and only if the customer reached the bottom of that page would the customer be able to see a button that actually cancelled the subscription, provided that the customer was using a PC browser.  According to the Complaint, the cancellation button on the final page did not work on a mobile browser until July 2024.  There were similar problems on Chegg’s other websites.  For those customers who utilized customer service to request to cancel, the Complaint alleged that those customers were often still charged even after they requested cancellation.  The FTC alleged that since 2020, Chegg had charged nearly 200,000 customers after they had requested cancellation.

Section 4 of ROSCA, 15 U.S.C. Section 8403 prohibits charging consumers for a good or service through a negative option feature unless the seller (a) clearly and conspicuously discloses all material terms of the transaction before obtaining the consumer’s billing information; (b) obtains the consumer’s express informed consent before making the charge; and (c) provides simple mechanisms to stop recurring charges.

The FTC’s Telemarketing Sales Rule (“TSR”) defines a negative option feature as: “in an offer or agreement to sell or provide any goods or services, a provision under which the consumer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement is interpreted by the seller as acceptance of the offer.”

The FTC’s Order requires Chegg to provide a simple mechanism for a consumer to cancel the negative option feature, avoid being charged or charged an increased amount for the good or service, and immediately stop recurring charges.  Also, the FTC Order provides that the simple mechanism must be at least as easy to use as the mechanism the consumer used to consent to the negative option feature, and that the “simple cancellation mechanism must be easy to find when the consumer seeks to cancel.”  Also, for cancellation by phone, the cancellation must be made promptly “via a telephone number that is (a) answered by Defendant or records messages, (b) available during Defendant’s normal business hours, (c) not more costly to use than the telephone call the consumer used to consent to the negative option feature, and (d) easy to find and clearly displayed on the Defendant’s websites.”

What is the lesson SaaS and software companies should learn from the FTC’s enforcement action against Chegg?

The lesson to be learned from the Chegg matter is that compliance requires more than just good contract terms: compliance requires good practices.  In the case of cancellation, federal law requires simple mechanisms to stop recurring charges, and that includes making the simple cancellation mechanism easy to find.  The sales strategy of discouraging cancellation by offering discounts and other options besides cancellation is not going to meet the FTC’s scrutiny.  Also, cancellation by phone needs to be easy and straightforward as well as effective.

Do your company’s cancellation practices in effect meet current federal and state requirements?  To consult with a SaaS and tech contracts attorney with expertise in these regulations, schedule a consultation today at this link.