Adobe’s hidden cancellation fee is unlawful, FTC suit says

Adobe prioritized profits while spending years ignoring numerous complaints from users struggling to cancel costly subscriptions without incurring hefty hidden fees, the US Federal Trade Commission (FTC) alleged in a lawsuit Monday.

According to the FTC, Adobe knew that canceling subscriptions was hard but determined that it would hurt revenue to make canceling any easier, so Adobe never changed the "convoluted" process. Even when the FTC launched a probe in 2022 specifically indicating that Adobe's practices may be illegal, Adobe did nothing to address the alleged harm to consumers, the FTC complaint noted. Adobe also "provides no refunds or only partial refunds to some subscribers who incur charges after an attempted, unsuccessful cancellation."

Adobe "repeatedly decided against rectifying some of Adobe’s unlawful practices because of the revenue implications," the FTC alleged, asking a jury to permanently block Adobe from continuing the seemingly deceptive practices.

Dana Rao, Adobe's general counsel and chief trust officer, provided a statement confirming to Ars that Adobe plans to defend its business practices against the FTC's claims.

"Subscription services are convenient, flexible, and cost-effective to allow users to choose the plan that best fits their needs, timeline, and budget," Rao said. "Our priority is to always ensure our customers have a positive experience. We are transparent with the terms and conditions of our subscription agreements and have a simple cancellation process. We will refute the FTC’s claims in court.”

Cancellation fee allegedly used as retention tool

The government's heavily redacted complaint laid out Adobe's alleged scheme, which starts with "manipulative enrollment practices."

To lock subscribers into recurring monthly payments, Adobe would typically pre-select by default its most popular "annual paid monthly" plan, the FTC alleged. That subscription option locked users into an annual plan despite paying month to month. If they canceled after a two-week period, they'd owe Adobe an early termination fee (ETF) that costs 50 percent of their remaining annual subscription. The "material terms" of this fee are hidden during enrollment, the FTC claimed, only appearing in "disclosures that are designed to go unnoticed and that most consumers never see."

For individual users, accessing Adobe’s suite of apps can cost more than $700 annually, Bloomberg reported. For many users suddenly faced with paying an ETF worth hundreds while losing access to services instantly, the decision to cancel is not as straightforward as it might be without the hidden fee. the FTC alleged.

Because Adobe allegedly only alerted users to the ETF in fine print—by hovering over a small icon or clicking a hyperlink in small text—while the company's cancellation flows made it hard to end recurring payments, the FTC is suing and accusing Adobe of deceptive practices under the FTC Act.

Additionally, Adobe's "stealth ETF" may violate the Restore Online Shoppers’ Confidence Act (ROSCA), the FTC alleged.

Under ROSCA, Adobe's ETF could be considered a "negative feature option" because Adobe allegedly does not clearly disclose the ETF during subscription sign-ups. Therefore, Adobe only gets a customer to agree to pay the ETF through their "silence or failure to take an affirmative action to reject goods or services or to cancel the agreement."

ROSCA only permits online businesses to charge for goods or services through a negative feature option under certain conditions. In Adobe's case, the ETF would've needed to be clearly disclosed prior to collecting billing information. Otherwise, the customer should have been asked to give informed consent, or Adobe should have provided "simple mechanisms to stop recurring charges."

Adobe did none of that, the FTC alleged, failing to provide "a simple way" to end subscriptions and harming customers who were "ambushed" by ETFs that "can sometimes be several hundred dollars."

Adobe subscribers have long complained on social media and in submissions to the Better Business Bureau (BBB). They've detailed what the FTC said was "a range of difficulties consumers have encountered when attempting to cancel an Adobe subscription." Most frequent complaints suggest that the self-cancellation process sends customers in an unending loop and that support calls or chats are routinely dropped.

"During the phone call, they put me on hold, and when they came back the connection kept blanking out, until the line was silent, but they were still connected," an Adobe subscriber, Vicky K., wrote in a review posted on BBB last week. "I couldn't hear anything. I [feel] trapped in this subscription."

"Horrible, predatory," another reviewer named Seth L. wrote. "Never, ever sign up for a free trial. I've been on the hook an entire year with multiple calls to customer service. Insanely high cancellation fee. Awful."

The FTC believes that instead of acknowledging that customers were confused about the ETFs, Adobe knowingly used the ETFs as a "retention tool" to prevent or delay cancellations.

But what's potentially even more frustrating than paying a hefty fee just to cancel a subscription is realizing that a subscription you thought was cancelled is still active and you're still getting charged the full price. In cases where Adobe's self-cancellation process seems to be misleading users, the company may only provide a partial refund, the FTC alleged, if the user receives any refund at all.

"In numerous instances, subscribers who have requested to cancel through Adobe’s customer service believe they have successfully cancelled but continue to be charged," the FTC's complaint said. "Some of these subscribers do not realize for months that Adobe is continuing to charge them, and only learn about the charges when they review their financial accounts."

Adobe execs targeted by FTC

In the complaint, the FTC names two Adobe executives as defendants who perhaps could've changed Adobe's practices: Maninder Sawhney (senior vice president of digital go to market & sales) and David Wadhwani (president of digital media business).

The section of the complaint detailing Sawhney's role is entirely redacted, so not much is currently known about his role in supervising the enrollment process. According to his LinkedIn, he joined Adobe nearly 14 years ago and was promoted to SVP in 2022 after stints leading teams working on customer retention, engagement, and experience.

There is slightly more information about Wadhwani, who has been with Adobe since 2021 and is described in the complaint as "one of the chief architects behind Adobe’s pivot from its legacy product offerings to its current digital subscription model based on maximizing recurring revenues."

In a press release, the FTC has only further specified that it was "taking action against software maker Adobe and two of its executives, Maninder Sawhney and David Wadhwani, for deceiving consumers by hiding the early termination fee for its most popular subscription plan and making it difficult for consumers to cancel their subscriptions."

The FTC hopes to push Adobe to clearly disclose the ETFs at sign-ups, the same way they clearly disclose "in red font" at cancellation how high the fee will be.

"Adobe trapped customers into year-long subscriptions through hidden early termination fees and numerous cancellation hurdles,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “Americans are tired of companies hiding the ball during subscription sign-up and then putting up roadblocks when they try to cancel. The FTC will continue working to protect Americans from these illegal business practices."