FTC’s Chegg Settlement Offers a Warning for Subscription-Based Businesses

Any company that relies on recurring billing or subscription-based revenue should take note: the Federal Trade Commission (FTC) is intensifying its oversight of how businesses handle cancellations. In a recent action, the agency announced a proposed $7.5 million settlement with Chegg Inc., underscoring that difficult or confusing cancellation processes can lead not only to customer frustration but also to regulatory penalties.

According to the FTC’s complaint, Chegg—known for its online learning and homework-assistance tools—made it unreasonably difficult for users, including students and parents, to cancel auto-renewing subscriptions. The agency alleged that Chegg’s cancellation processes were hidden within its websites, required multiple steps to locate, and often forced consumers through confusing and time-consuming procedures. In some cases, Chegg allegedly continued charging users even after they had submitted cancellation requests, affecting nearly 200,000 consumers since October 2020.

Violations of Consumer Protection Laws

The FTC asserts that Chegg’s practices violated both the FTC Act and the Restore Online Shoppers’ Confidence Act (ROSCA). These laws require online retailers that use automatic renewal or “negative-option” billing to clearly disclose key terms, obtain express consumer consent before charging, and provide straightforward ways to end recurring payments.

Christopher Mufarrige, Director of the FTC’s Bureau of Consumer Protection, emphasized the importance of enforcing these standards:

“When companies make it hard to cancel subscriptions or ignore consumers’ requests, they undermine confidence in online commerce,” Mufarrige said. “The FTC will continue holding businesses accountable under ROSCA and ensuring that consumers have meaningful control over recurring charges.”

Settlement Terms and Broader Context

Under the proposed order, Chegg must pay $7.5 million in refunds and implement simple, accessible cancellation mechanisms for all auto-renewing subscriptions. The company is also prohibited from misrepresenting or obscuring cancellation options in the future.

This action follows a 2022 FTC settlement with Chegg, in which the company agreed to enhance its data-security practices after allegations that lax controls exposed personal information belonging to millions of customers and employees. Together, the two orders highlight the agency’s ongoing scrutiny of how technology companies handle consumer data and subscription billing.

Legal Insight: What This Means for Subscription-Based Businesses

The Chegg settlement serves as a timely reminder that subscription and recurring billing models must prioritize transparency and consumer control. Under ROSCA and related state laws, online sellers must:

• Provide clear and conspicuous disclosures of renewal terms before obtaining payment authorization
• Secure express, informed consent to any automatic renewal
• Offer easy, accessible cancellation methods that match the simplicity of enrollment

Failure to comply can lead to FTC enforcement actions, state attorney general investigations, and significant financial and reputational harm.

At Lipresti Law, we help technology and e-commerce companies design subscription models that align with FTC guidance and evolving best practices. Firms that proactively review their user flows, consent mechanisms, and cancellation processes can reduce regulatory risk and build consumer trust in an increasingly regulated digital marketplace.