Amazon Lawsuits Over Ad Overcharges, Prime Tricks, and Data Abuse

Amazon is facing multiple lawsuits and accusations of deceptive practices, ranging from secretly overcharging advertisers to misleading customers about Prime subscriptions and mishandling user data. These allegations have led to significant legal battles with the FTC and various states, resulting in substantial settlements and court orders.

Allegations of Overcharging Advertisers

In August 2026, the FTC and 22 states sued Amazon, alleging that the company secretly overcharged businesses advertising on its platform for years, potentially amounting to tens of billions of dollars. Internal documents reportedly show Amazon "hoping that advertisers don't notice" these inflated costs, which the FTC claims were "largely passed on to American consumers."

How Amazon's Ad Auctions Work (and Allegedly Didn't)

Amazon's advertising system primarily uses "second-price" auctions for sponsored product listings. In this model, the winner pays only slightly more than the second-highest bid, not their full bid. For example, if a seller bids $10 and the next highest bid is $7, they would expect to pay around $7.01. This encourages higher bids, as advertisers believe they won't overpay.

However, the lawsuit alleges that Amazon gradually shifted towards a "first-price" auction model without informing advertisers. In a first-price auction, the winner pays their exact bid, regardless of lower competing bids. This typically leads advertisers to bid lower to avoid overpaying.

The "Soft Reserve Price" and Hidden Surcharges

Leaked internal documents suggest Amazon knew advertisers were bidding based on the assumption of a second-price auction. Amazon allegedly tested how much it could raise hidden charges without detection.

• In 2021, advertisers paid their full bids 30-40% of the time.
• By 2022, this increased to about 70%.
• By 2024, it reached approximately 80%.

Amazon reportedly implemented these surcharges gradually to avoid immediate detection and pushed them even higher during major shopping events like Prime Day and Black Friday. Internally, discussions revolved around raising prices while "hoping that advertisers don't notice and decrease bids or ad spend."

The lawsuit claims Amazon "changed its auction rules without notice by adding an undisclosed surcharge that Amazon referred to internally as a 'soft reserve price.'" This "soft reserve price" allowed Amazon to add an extra charge, pushing the final price closer to the advertiser's original bid. The head of Amazon Ads allegedly described it as a "proxy 2nd price" calculated by Amazon itself.

When advertisers inquired, Amazon reportedly lied, and internal documents warned staff against revealing the surcharges due to potential "irrevocable damage to advertiser trust." In 2024, senior executives allegedly described the system as a "clever non-transparent way to charge first price" and an "incredibly effective way to drive revenue." One employee even admitted, "The benefit to Amazon comes at the cost of advertisers."

Amazon's Defense and Consumer Impact

Amazon disputes the FTC's case, stating that advertisers never pay more than their own bid and that the cost per click remained flat after inflation adjustments between 2019 and 2024. The company claims the FTC "cherry-picked old training materials," including a video viewed by only 928 people over two and a half years.

The FTC, however, maintains that the evidence is "cut and dry." The alleged overcharges, estimated to be tens of billions of dollars, affected over 500,000 small and medium-sized businesses. FTC Chairman Andrew Ferguson stated, "These higher costs were largely passed on to American consumers," a claim Amazon denies.

The lawsuit is ongoing, with the FTC and states seeking to halt the practice, impose penalties, and secure restitution for advertisers. Texas is also pursuing a separate case.

A Pattern of Deception

This advertising lawsuit is not an isolated incident. Amazon has a history of misleading customers and employees across various services.

Amazon Flex: Withholding Driver Tips

Amazon Flex, a delivery service similar to Uber, promised drivers $18-$25 an hour plus 100% of their tips. However, in late 2016, Amazon allegedly lowered its base pay to drivers and used customer tips to cover the difference. Despite "hundreds" of complaints from suspicious drivers, Amazon sent emails "falsely" claiming no changes to the tip system. Amazon only ceased this practice after learning of an FTC investigation in 2019. The FTC found Amazon had withheld $61.7 million in tips, leading to a settlement.

Alexa: Retaining Children's Voice Recordings

In 2019, privacy groups accused Amazon of violating children's privacy laws by indefinitely retaining Alexa voice recordings from children unless parents actively deleted them. The FTC later confirmed that Amazon kept these recordings, even after deletion requests, and often retained transcripts to improve Alexa's voice recognition. Amazon denied the claims but settled for $25 million, agreeing to:

• Delete inactive child accounts.
• Delete children's voice recordings and location data.
• Be barred from using data requested for deletion to build or improve products.

In the same week, Ring, an Amazon-owned doorbell company, was fined $5.8 million for allowing employees and contractors to watch customers' private videos.

Amazon Prime: Deceptive Enrollment and Cancellation

Amazon is accused of deceiving "tens of millions of customers" into signing up for Prime subscriptions they didn't want and then making cancellation intentionally difficult.

Deceptive Enrollment Tactics:

• Hidden Sign-up Buttons: "Get FREE two-day shipping" buttons were secretly auto-renewing Prime subscription sign-ups.
• Checkout Obstacles: During purchases, Amazon would prioritize Prime sign-up, making it harder to complete a purchase without subscribing.
• "Dark Patterns": The FTC stated Amazon used "manipulative, coercive, or deceptive user-interface designs known as 'dark patterns'" to trick consumers. Some buttons didn't clearly indicate they would also sign users up for Prime, and one button, "No, I don't want Free Shipping," was equivalent to declining Prime.

Difficult Cancellation Process:

Amazon allegedly created an intentionally difficult "cancellation flow" for Prime, requiring users to navigate multiple pages and decline various offers (discounted prices, auto-renew only, not canceling) before finally being able to cancel. On mobile, this process extended to seven or eight pages, with options like "Keep My Benefits," "Continue to Cancel," and "Remind Me Later," none of which immediately ended the membership.

Internal documents revealed Amazon executives and employees were aware of these unwanted subscriptions, with one employee calling it "an unspoken cancer" and another describing "subscription driving" as "a bit of a shady world."

Obstructing the FTC Investigation

Amazon also "attempted to delay and hinder the Commission's investigation in multiple instances." The company allegedly abused attorney-client privilege, wrongly withholding about 92% of relevant documents by labeling them as privileged, which the FTC called "purposefully abused privilege claims to keep inculpatory documents from the FTC." The judge in the case granted the FTC more time for evidence gathering, barred Amazon from using late-submitted documents, and ordered Amazon to pay the FTC's legal fees, stating Amazon's withholding of thousands of documents was "tantamount to bad faith."

Outcomes and Accountability

Amazon maintains it has done nothing wrong and always followed the law. However, in 2022, Amazon agreed to allow EU customers to cancel Prime in just two clicks after consumer complaints. The court has also raised the maximum refund from $51 to $200, and as of September 2026, Amazon had paid out over $845 million in settlements related to these issues.

Despite these settlements, which are substantial for most companies, they represent a small fraction of Amazon's gross profit, which was $360 billion in 2026. Critics argue that for Amazon, these settlements are merely a "cost of doing business," allowing them to continue deceptive practices without true accountability.

A notable exception is Europe's investigation into Amazon's use of competitors' data, which resulted in Amazon legally promising to stop the practice, with potential fines of up to 10% of its annual turnover for non-compliance. This suggests that stronger accountability measures, such as significant financial penalties tied to revenue, may be necessary to deter Amazon from future deceptive conduct.