Pomerantz Settles Case Alleging “Dark Practices”
On August 26, 2024, Pomerantz secured preliminary approval of a $3.6 million settlement in a securities class action against Global Payments, Inc. (“GPN”) in the United States District Court for the Northern District of Georgia. The case was initially filed after the federal Consumer Financial Protection Bureau (“CFPB”) sued GPN’s wholly owned subsidiary, Active Network, LLC (“Active Network”), for alleged deceptive practices in violation of federal consumer protection law.
GPN is a payments technology company that provides software and services to merchants and financial institutions. Active Network provides registration and payment processing services to organizers of events such as summer camps and athletic competitions. Many such organizers, rather than building their own registration and payment infrastructure, contract with a vendor like Active Network. In such a case, when an individual registers for that organizer’s event, they are directed to a webpage built by Active Network to complete the process. Active Network collects the consumer’s payment data (such as a credit card number) and retains a portion of the payment pursuant to its contract with the organizer.
Active Network also has a “discount membership club” called “Active Advantage.” In return for an annual fee, Active Advantage members can redeem discounts for processing fees, beer and wine tastings, sports apparel, flowers, travel, lodging, and race registrations.
Active Network allegedly employed two practices, “dark patterns” and “negative options,” that deceived consumers into enrolling in Active Advantage. According to the CFPB, dark patterns are design features that deceive, steer, or manipulate users into behavior that is profitable for a company, but often harmful to users or contrary to their intent, and negative options are terms and conditions under which a seller interprets a consumer’s silence or failure to reject or cancel an agreement or service as acceptance of an offer. The CFPB has warned that these may violate consumer protection laws.
Drawing on the CFPB’s allegations and other sources, Pomerantz’s clients alleged that Active Network designed its online registration and payment process to deceive consumers into unknowingly accepting “inserted offers” to enroll in Active Advantage in the process of registering for events, and that those trial memberships were automatically converted to paid memberships when the unknowing consumers failed to cancel before the trial period ended.
Prior to being acquired by GPN in 2017, Active Network was repeatedly accused of such practices. For instance, the attorneys general of Iowa and Vermont, as well as district attorneys in California, brought cases against the company under consumer protection laws, which Active Network settled. Active Network also settled a consumer class action with similar allegations only months before the GPN acquisition.
Nevertheless, after acquiring Active Network, GPN stated in SEC filings that it was “currently in compliance with existing legal and regulatory requirements.” GPN and its senior officers also touted Active Network’s performance without disclosing that it reflected Active Advantage membership fees charged to unsuspecting consumers.
The CFPB’s action, filed in October 2022, included detailed allegations indicating that the defendants’ statements were false. After conducting an investigation— which GPN did not disclose—the CFPB alleged that Active Network continued to deceive consumers into accepting the inserted offer for Active Advantage membership, that consumers enrolled in Active Advantage redeemed only 2.8% of the fees they paid, indicating that consumers were unaware of their enrollment (and leading one senior manager to call the program “pure profit” in an internal email), and that Active Network generated over $300 million in fees from Active Advantage since 2011. Pomerantz investigated and uncovered numerous former Active Network employees who corroborated these allegations and alleged that these issues were well known at the company.
After the court largely denied the defendants’ motion to dismiss, the parties began the discovery process and agreed to settle the case soon thereafter. For its part, the CFPB action was stayed shortly after it was filed, in light of the United States Court of Appeals for the Fifth Circuit’s ruling that the CFPB’s funding authority was unconstitutional. After the Supreme Court reversed that decision, the stay of the CFPB’s action was lifted, and that case is now pending.