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Financial Services Law Insights and Observations

FTC alleges subscription service failed to provide access to paid-for services or secure personal data

Federal Issues FTC Enforcement Privacy/Cyber Risk & Data Security Deceptive UDAP FTC Act ROSCA

Federal Issues

On June 7, the FTC announced a complaint and proposed consent order against the operators of a movie subscription service to settle allegations that the respondents denied subscribers access to paid-for services and failed to secure subscribers’ personal information. The FTC alleges in its complaint that the respondents violated the FTC Act by employing multiple tactics to prevent subscribers from using the advertised services, including by (i) invalidating subscribers’ passwords while deceptively claiming to have “detected suspicious activity or potential fraud” on the subscribers’ accounts; (ii) imposing a deceptive ticket verification program, which required subscribers to submit photos of physical movie ticket stubs within a certain timeframe in order to view future movies or risk having their subscriptions cancelled; and (iii) using undisclosed financial thresholds known as “trip wires” to block certain subscribers after they reached certain viewing thresholds based on their monthly cost to the company. The FTC also alleged the respondents violated the Restore Online Shoppers’ Confidence Act, by failing to (i) disclose all material terms before obtaining consumers’ billing information; or (ii) obtain consumers’ express informed consent before charging them. Furthermore, the respondents allegedly failed to take reasonable measures to protect subscribers’ personal information, including storing personal data such as financial information and email addresses in unencrypted form and failing to restrict who could access the data, which lead to a data breach in 2019.

An analysis of the FTC’s proposed consent order notes that the respondents are prohibited from misrepresenting their services and must establish a comprehensive information security program that requires them—and any businesses controlled by the respondents —to implement and annually test and monitor safeguards and take steps to address security risks. The respondents must also obtain biennial third-party assessments of its information security program, notify the FTC of any future data breaches, and annually certify that it is complying with the order’s data security requirements. The FTC noted that because certain respondents have filed for bankruptcy, the order does not include monetary relief.

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