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Exercise App Reaches $1 Million FTC Settlement After Breaking its Promise to Pay Users for Working Out

September 23, 2017, 5:57 PM UTC

The exercise-tracking startup Pact has reached a settlement with the Federal Trade Commission, promising to pay nearly $1 million in restitution after allegations that it defrauded users.

Pact, founded in 2011 by Yifan Zhang and Geoffry Oberhofer, had a compelling proposition for people looking to improve their health. Users would set up “pacts,” promises to go to the gym or eat healthier. Those who failed to fulfill their pacts would have to pay a monetary penalty, while those who succeeded would get a cut of payments from those who failed.

But the FTC claims that Pact penalized tens of thousands of its users even when they fulfilled their exercise and diet goals, and even continued charging some after they had canceled the service. On Thursday, Pact agreed to pay out $940,000 to those who were improperly charged or didn’t receive rewards they’d earned.

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Pact shuttered in July, announcing the closure in an email to users but offering no clear explanation. It now seems the FTC investigation leading to Thursday’s settlement may have been a factor. Pact had raised $2.5 million in funding from investors, including the high-profile venture fund Khosla Ventures.

Some of Pact’s issues seem to have been technical failures rather than outright deception. The app’s Google Play page is still live, and features thousands of one-star reviews complaining of crashes, issues connecting to peripherals like FitBit, and poor GPS reception that prevented users from getting credit for gym trips.

But Pact also seems to have egregiously failed when it came to addressing those issues. The FTC’s complaint alleges that Pact continued to charge customers even after they reported that the app wasn’t properly tracking their workouts. That included one military user whose gym on an Air Force Base wasn’t recognized by the app, and another user who wasn’t able to cancel her pacts after being injured in a car accident.

Even after Pact received “tens of thousands” of complaints from users, the FTC says it didn’t fix the issues – instead, it rolled out new features that suffered from the same problems.

The FTC says Pact must complete its repayments within 30 days.