FTC Sues AI Company Over Deceptive Fees and Signup Practices

The FTC filed an action against a company offering AI-powered question-answering and expert-matching services over alleged deceptive fees and signup practices.

The complaint, filed in the U.S. District Court for the Northern District of California, asserts that the company allowed consumers to sign up for a service where they could ask questions to an AI chatbot and then be matched with a human expert in the relevant subject matter area (e.g., lawyers; healthcare providers; veterinarians; mechanics).  According to the FTC, after consumers arrived at the website’s landing page, they were presented with the chatbot and could provide initial information about their issue.  The chatbot would then inform them that they could click and join the website for a fully-refundable fee of $1-$5 before being connected to an expert.  In some iterations of the website, there was a reference to the fact that there was a monthly fee, but this information was not readily visible unless consumers scrolled away from the top of the landing page where they were presented with the chatbot.

On the page to enter their credit card information and confirm enrollment, text which was in much smaller type than was used on the rest of the page noted that by signing up, consumers would also be charged a recurring monthly fee (ranging from $28-$125) until they canceled.  According to the FTC, the reference to the monthly fee in very small type compared to the rest of the page, along with the fact that this contradicted the more prominent prior representation that they can join for a $1-$5 fee, meant that consumers were more likely not to see or not to understand this disclosure about the monthly fee.  Likewise, there was a link in the small text to view terms and conditions which discussed the fee structure, but consumers were not required to click the link or view the terms and conditions page to proceed, and the pricing information was located in the middle of the dense and lengthy terms and conditions information.

Over time, hundreds of thousands of consumer complained to the company, sought refunds, or disputed the monthly fees.  The consumers typically claimed that they did not understand they were signing up for a recurring subscription or that they thought they were only paying a one-time fee to get a single question answered.  Additionally, the company conducted website testing and marketing research which showed that consumers were misled or did not understand the website’s purchase process.  The company, however, did not take any action to enhance or clarify the information presented during sign-up.

The suit brings claims under the FTC Act for unfair and deceptive practices, as well as under the Restore Online Shoppers’ Confidence Act (ROSCA), which provides disclosure and informed consent requirements for certain types of online transactions.