Email marketing remains one of the most effective ways to generate leads, nurture prospects, and retain customers. But as Costco recently demonstrated, it's also an area where a compliance mistake can become incredibly expensive.
In late July 2026, reports surfaced that Costco agreed to a $14 million settlement related to promotional emails, drawing attention to the legal and financial risks associated with email marketing compliance. The news not only impacted public perception but was cited as a factor in a short-term decline in the company's stock price.
Whether you're sending monthly newsletters, promotional offers, event invitations, or automated nurture campaigns, this serves as an important reminder: email marketing isn't just a marketing function. It's a compliance function, too.
In this article, we'll break down what happened, why it matters, and most importantly, how you can protect your business.
According to financial news reports, Costco reached a $14 million settlement involving promotional email communications. The settlement became public in late July and received significant media attention.
While Costco remains one of the world's most successful retailers, the situation highlights an important reality:
Even highly sophisticated organizations with substantial legal and marketing resources can face compliance challenges.
The lesson isn't that Costco is unique. It's that every business that sends marketing emails is exposed to risk if proper safeguards aren't in place.
Many organizations view email marketing solely through the lens of lead generation and customer engagement.
However, regulators, consumers, and courts view it differently.
Email communications involve:
As privacy regulations continue to evolve, organizations can no longer afford to treat compliance as an afterthought.
The larger your database grows, the greater the risk becomes.
A compliance issue affecting a list of 100 contacts might be manageable.
A compliance issue affecting 100,000 contacts can become a significant legal and financial concern.
Many organizations don't intentionally violate email marketing regulations. In fact, most compliance issues stem from routine marketing activities that seem harmless at the time. As databases grow and campaigns become more sophisticated, small oversights can quickly turn into significant legal, financial, or reputational risks.
Many companies struggle to prove exactly when, where, and how a contact subscribed to receive marketing communications.
A prospect may have filled out a website form years ago, attended an event, downloaded a resource, or been added through a sales process. Over time, those records often become fragmented across different systems, making it difficult to demonstrate that proper consent was obtained.
Without clear documentation, organizations may find themselves unable to answer critical questions such as:
If a complaint arises, "we think they signed up" is rarely sufficient. Businesses should maintain detailed records of consent, including signup dates, forms, sources, and any supporting documentation.
Consumers expect that when they click "unsubscribe," the emails stop.
Unfortunately, many organizations have disconnected systems, outdated lists, or manual processes that allow unsubscribed contacts to continue receiving communications. In some cases, contacts are removed from one email platform but remain active in another. In others, marketing lists are shared between teams without proper suppression controls.
Even a small number of unsubscribe failures can lead to customer complaints, damage brand trust, and create potential compliance concerns.
Businesses should routinely test their unsubscribe process and verify that opt-out requests are honored across all marketing platforms, automated workflows, and third-party systems.
This is the issue that recently put Costco in the spotlight.
Some marketers use subject lines designed to create urgency, such as:
Urgency can be effective, but it must be genuine.
If a business promotes an offer as ending on a specific date while already planning to extend that promotion, regulators and consumers may view the messaging as misleading. Organizations should ensure that subject lines accurately reflect the offer being presented and that promotional deadlines are truthful.
The safest approach is simple: if your email says the sale ends tonight, the sale should actually end tonight.
Buying an email list may seem like an easy way to accelerate growth, but it often creates more problems than opportunities.
The individuals on purchased lists usually have no prior relationship with your company and may never have agreed to receive communications from you. As a result, purchased lists frequently generate:
Beyond compliance, purchased lists often produce poor marketing results because recipients are unfamiliar with your brand. Building an audience through permission-based marketing may take longer, but it creates stronger relationships and far better long-term performance.
An email database is not a "set it and forget it" asset.
Over time, contacts change jobs, abandon email addresses, lose interest, or forget they subscribed. Yet many organizations continue emailing old records indefinitely.
This can create several issues:
Regular list hygiene helps improve both compliance and campaign performance. Businesses should routinely remove invalid addresses, review inactive subscribers, and verify that consent records remain accurate.
Many organizations assume that because a marketing agency, consultant, or software platform is handling email campaigns, compliance responsibility transfers to that partner.
It doesn't.
Ultimately, the business whose name appears in the inbox is responsible for its marketing communications.
This becomes particularly important when external partners are:
Companies should establish clear compliance expectations, review email content regularly, and ensure all vendors follow documented marketing policies.
One often-overlooked risk involves promotions that change after marketing emails have already been sent.
For example:
While these situations may seem harmless from a sales perspective, they can create concerns if marketing messages imply urgency that isn't actually real.
Before launching any promotion, marketing, sales, leadership, and operations teams should be aligned on the offer timeline and committed to honoring the advertised terms.
Here's a practical framework every organization should implement.
Start by reviewing:
Ask yourself: Could we prove consent for every contact on our list if challenged today?
If the answer is unclear, further investigation is warranted.
Every subscription process should clearly communicate:
Avoid vague language or assumptions. Transparency builds trust while reducing compliance risk.
Your CRM or marketing platform should store:
Documentation is often your strongest defense if questions arise later.
Many organizations assume their unsubscribe process works properly. Don't assume.
Regularly test:
Verify contacts are actually removed when requested.
Develop written guidelines covering:
Formal processes reduce the likelihood of accidental mistakes.
Every employee involved in email marketing should understand:
Compliance cannot be the responsibility of one person alone.
Treat email compliance like cybersecurity.
It isn't a one-time project.
Schedule recurring reviews to evaluate:
Regular audits help identify issues before they become expensive problems.
When companies think about penalties, they usually focus on settlements or fines.
However, the financial impact often extends much further.
Organizations may experience:
The cost of prevention is almost always lower than the cost of recovery.
If you're a CEO, founder, president, or marketing leader, take these actions this week:
✅ Review how your organization collects email addresses
✅ Verify that unsubscribe requests are processed correctly
✅ Audit marketing automation workflows
✅ Confirm your CRM maintains consent records
✅ Review third-party vendor practices
✅ Schedule a compliance review
The organizations least likely to face compliance issues are usually the ones actively reviewing their processes before something goes wrong.
Reports indicate Costco agreed to a $14 million settlement related to promotional email communications, drawing industry-wide attention to email compliance practices.
Compliance helps organizations protect customer privacy, reduce legal risk, maintain trust, and avoid costly penalties.
Absolutely.
Regulations generally apply regardless of company size. Small businesses can face significant financial and reputational consequences from compliance failures.
A quarterly review is a strong best practice, with additional reviews whenever significant marketing or technology changes occur.
Organizations should maintain documentation showing when, how, and where consent was obtained, along with related subscription information.
Purchased lists often introduce compliance, deliverability, and reputation risks. Most organizations achieve better long-term results through permission-based list growth.
Everyone involved in the email marketing process shares responsibility, including leadership, marketing teams, agencies, and technology partners.
The recent Costco settlement is a reminder that email marketing compliance isn't just a concern for large corporations. Every organization that communicates with customers through email has a responsibility to ensure its marketing practices are transparent, accurate, and respectful of the people on the receiving end. As your business grows, your email database becomes one of your most valuable assets, but it can also become a significant source of risk if it's not managed properly. The organizations that see the greatest long-term success understand that email marketing is about more than growing a list or increasing open rates. It's about building trust. The businesses that win over the long term don't simply build larger email lists. They build lists filled with people who trust their brand, value their communications, and feel confident engaging with them.