Amazon has reached a historic $US2.5 billion ($3.8 billion) settlement with the US Federal Trade Commission, which said the online retail giant tricked customers into signing up for its Prime memberships and made it difficult for them to cancel after doing so.

The Seattle company will pay $US1 billion ($1.5 billion) in civil penalties — the largest fine in the agency’s history — and $US1.5 billion ($2.3 billion) will be paid back to consumers who were unintentionally enrolled in Prime, or were deterred from cancelling their subscriptions, the agency said Thursday.

The surprise settlement comes just days after the trial began in US District Court in Seattle this week. At the heart of the case is the Restore Online Shoppers’ Confidence Act, a 2010 law designed to ensure that people know what they’re being charged for online.

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

“I think it just took a few days for them to see that they were going to lose. And they came to us and they paid out,” said Chris Mufarrige, director of the Bureau of Consumer Protection, on the settlement negotiations.

Amazon, however, said it was confident it would win case but that it chose to resolve it quickly instead of going through potentially years of trial and appeals. The company admitted no wrongdoing in the case, which was first filed two years ago.

“Amazon and our executives have always followed the law and this settlement allows us to move forward and focus on innovating for customers,” said spokesman Mark Blafkin in a statement.

“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.