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The FTC's settlement with Cleo AI gives some indication as to what we might see from the agency in the coming months. The FTC alleged, among other things, that Cleo AI's actions violated Section 5 of the FTC Act. In particular, as reported in our sister blog, Cleo AI required people to enroll in a paid subscription plan, even though they marketed their services as free. It also made it difficult for people to cancel their subscription and made it hard to stop recurring charges. The company also failed to disclose material terms.
Cleo AI agreed to settle by paying $10 million in consumer redress, and a $7 million civil penalty. The company has also agreed not to misrepresent people's ability to cancel negative option charges and must get people's "express informed consent" before collecting money (or other consideration) from consumers. It has also agreed to simplify the subscription cancellation mechanism.
Putting it Into Practice: This case suggests that the FTC will be continuing its practice of examining businesses whose user interfaces make it difficult for users to exercise choices, especially those that result in fees being charged. This decision follows the FTC's November 2024 update to the negative option rule.
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