Popular weight-loss and wellness app Noom has agreed to pay $56 million, and provide an additional $6 million in subscription credits, to end putative Manhattan federal court class claims that it ripped off about 2 million users through a deceptive subscription auto-renewal scheme.
Noom is a digital platform that applies psychology to achieve long-term weight loss. Its platform is comprised of factors like cognitive behavioral therapy techniques and a user-friendly interface. Among health management companies, Noom has been a particular success. The company forecasted $600 million in revenue last year, counts 45 million users, and was valued at more than $4.2 billion as of May 2021. Furthermore, the company may be eyeing an initial public offering, aiming for a valuation of around $10 billion.
Noom offers a two-week free trial and then costs $150 for a 6-month subscription. Those interested in the trial are required to enter their credit card information up front. In 2020, the Better Business Bureau had to warn customers about Noom. The BBB said it received over 1,000 complaints claiming that Noom offers misleading free trials and that subscriptions are difficult to cancel. A few months ago, eight former customers filed a $100 million class-action lawsuit against Noom for allegedly deceptive auto-renewal and billing practices.
The class action suit involved former users who claimed Noom charged them without their consent in amounts ranging from $45 to $400. Several users complained they had signed up for a free or low-cost trial and were told to cancel through a coach, who they said did not respond before the trial expired. Consequently, users were allegedly inadvertently billed for several months to a year’s worth of services. Users alleged Noom actively misrepresents and/or fails to accurately disclose the true characteristics of its trial period, its automatic enrollment policy, and the actual steps customers need to follow in attempting to cancel a 14-day trial and avoid automatic enrollment. More specifically, users alleged Noom engaged in an unlawful auto-renewal subscription business model by luring customers in with the opportunity to “try” its programs and then imposing significant barriers to the cancellation process.
A former senior software engineer for Noom was quoted in the suit as saying that canceling Noom was “difficult by design.” According to the engineer, the design was intended to generate income from customers who did not cancel in time to avoid charges.
In addition to a $56 million cash fund, the deal calls for $6 million in subscription fee credits and changes to the business that are worth up to $120 million, according to a motion filed on February 11 seeking preliminary approval.
The parties reached an agreement in principle on September 14, according to court records in the U.S. District Court for the Southern District of New York. In addition to a $56 million cash fund, the deal calls for $6 million in subscription fee credits and changes to the business that are worth up to $120 million, according to a motion filed on February 11 seeking preliminary approval. Those benefiting from the settlement fee include customers who purchased automatically renewed Noom Healthy Weight subscriptions between May 2016 and October 2020 and did not receive a refund. Individual payouts are expected to be between $30 and $167 per person.
According to the proposed settlement, Noom will have to substantially enhance its auto-renewal disclosures, require customers to take separate action (like checking a box or writing a digital signature) to accept auto-renewal, and provide customers with a button on the account page for easier cancellation.
According to a letter from its cofounders, Noom has revised its billing and subscription practices, pricing disclosures, and customer support. The changes include making subscription and pricing details more clear, making it easier to cancel, and increasing customer support, the letter says. The cofounders also stated while they disagree with the claims made in the suit, they believe the settlement is the best path forward as it allows them to focus on delivering the best possible health outcomes for Noomers.
Regulators at the federal and state level have recently made clear their focus on enforcement actions against “dark patterns,” which are tactics used by companies to trick consumers into making certain choices. Indeed, the FTC announced an enforcement policy statement in October 2021 warning companies against using dark patterns that deceive consumers into signing up for subscription services.
According to the plaintiffs, the cash portion of the proposed settlement (which awaits preliminary approval from the court) is “the largest-ever cash recovery” for consumers in an auto-renewal case, far exceeding payments in past private and public cases, and the non-monetary relief goes “well beyond” past public or private auto-renewal settlements. Would this proposed settlement constitute a just outcome given a successful company’s improper practices? Or, is this purportedly unprecedented sum excessive?
Vishal attended Arizona State University for college and majored in Political Science. In law school, Vishal serves as Vice President of the Asian American Law Students Association as well as competing member of the Holderness Moot Court Arbitration team. See the author’s previous blog post here.