Amazon has agreed to a groundbreaking $US2.5 billion ($3.8 billion) settlement with the US Federal Trade Commission. The commission claimed that the online retail giant misled customers into purchasing Prime memberships and made the cancellation process unnecessarily complex.

The settlement requires the Seattle-based company to pay $US1 billion ($1.5 billion) in civil penalties, marking the largest fine ever imposed by the agency. Additionally, $US1.5 billion ($2.3 billion) will be refunded to consumers who were unwittingly enrolled in Prime or faced barriers when attempting to cancel their memberships, according to the commission’s announcement on Thursday.

This unexpected settlement comes shortly after the trial began this week in the US District Court in Seattle. The case centers on the Restore Online Shoppers’ Confidence Act of 2010, a law established to ensure online consumers understand the charges they incur.

FTC officials said Amazon had its back against the wall and the consumer refund amount exceeded even the agency’s expert projections.

“It appeared to them that a loss was inevitable after just a few days, prompting them to settle,” said Chris Mufarrige, director of the Bureau of Consumer Protection, regarding the settlement discussions.

Despite this, Amazon expressed confidence in its ability to win the case but decided to resolve the issue promptly to avoid a lengthy trial and possible appeals. The company did not admit to any wrongdoing in the matter, which had been initiated two years ago.

“Amazon and our executives have consistently adhered to the law, and this settlement allows us to shift our focus back to customer innovation,” stated spokesperson Mark Blafkin.

“We work incredibly hard to make it clear and simple for customers to both sign up or cancel their Prime membership, and to offer substantial value for our many millions of loyal Prime members around the world.”

Certain Prime customers who are eligible for automatic refunds of up to $US51 ($78) include those who may have signed up for a membership via the company’s “Single Page Checkout,” among other links, between June 23, 2019, to June 23, 2025. Those customers will be reimbursed within 90 days of the settlement order.

Amazon is also on the hook to set up a claims process for more than 30 million customers who may have been affected by the other issues at the heart of the FTC case, including its cancellation process.

Amazon Prime provides subscribers with perks that include faster shipping, video streaming and discounts at Whole Foods for a fee of $US139 ($213) annually, or $14.99 ($23) a month.

It’s a key and growing part of Amazon’s business, with more than 200 million members. In its latest financial report, the company reported in July that it booked more than $US12 billion ($18.4 billion) in net revenue for subscription services, a 12 per cent increase from the same period last year.

That figure includes annual and monthly fees associated with Prime memberships, as well as other subscription services such as its music and e-books platforms.

The FTC said Amazon deliberately made it difficult for customers to purchase an item without also subscribing to Prime. In some cases, consumers were presented with a button to complete their transactions — which did not clearly state it would also enroll them in Prime, the agency said.

Getting out of a subscription was often too complicated, and Amazon leadership slowed or rejected changes that would have made cancelling easier, according to an FTC complaint.

Internally, Amazon called the process “Iliad,” a reference to the ancient Greek poem about the lengthy siege of Troy during the Trojan war. The process requires the customer to affirm on three pages their desire to cancel membership.

The FTC began looking into Amazon’s Prime subscription practices in 2021 during the first Trump administration, but the lawsuit was filed in 2023 under former FTC Chair Lina Khan, an antitrust expert who had been appointed by Biden.

The agency filed the case months before it submitted an antitrust lawsuit against the retail and technology company, accusing it of having monopolistic control over online markets.

As part of the settlement terms, Amazon is prohibited from misrepresenting the terms of the subscriptions.

It must fully disclose the costs to be incurred and obtain the customer’s express consent for the charge. For example, it must have a clear option for customers to accept or decline a Prime subscription being offered during a purchase, avoiding potentially confusing language such as: “No thanks, I don’t want free shipping.”

Automatic renewals for memberships must be clearly marked and the company is also required to use a cancellation process, which “must not be difficult, costly, confusing or time consuming,” according to the settlement.

Amazon said the settlement doesn’t require it to make any additional changes — only to maintain its current sign-up and cancellation process that it had put in place in recent years.