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If you’ve ever shopped on the internet, or even used the internet, chances are you’ve seen a free trial offer pop up. And most likely, it turned into an automatic payment plan that wasn’t clearly disclosed on the signup page.
“Negative option billing” is a business model characterized by a free trial or introductory promotion that automatically enrolls the customer into a recurring billing plan after the trial period unless the customer takes action to cancel.
Negative option billing is rampant online, and due to some unfortunately common characteristics such as unclear terms, difficult cancellation processes, deceptive marketing, and exploitation by scam artists, they all too often put customers at a disadvantage. In 2019 alone, $6 million was returned to customers who disputed trial/continuity transactions, according to the Federal Trade Commission (FTC), one of the main consumer protection agencies in the U.S.
While it’s always important to read the fine print before signing up for anything, payment industry rulemakers are making moves to hold free trial/continuity businesses accountable for making their selling terms more comprehensible and customer-friendly.
Who Sets the Rules?
A business may sell products that are perfectly legal, but the way it sells them can render those transactions illegal by card scheme standards. For example, Visa and MasterCard have both released new policies that focus on merchant category code 5968: Direct Marketing – Continuity/Subscription Merchants. Any merchant who uses their networks (those who accept Visa and MasterCard payments from customers) must comply with their respective rules.
Effective April 18, 2020, globally, Visa will be monitoring merchants selling both physical and digital goods and services using this model to make sure they are complying with new requirements designed to enhance customer experience, enable cardholders and issuers to clearly identify these transactions, and reduce the amount of customer disputes that typically follow them.
Quick Reference Guide
Visa highlights six key points for free trial/merchants in its Trial Subscription Quick Reference Guide:
Express Consent. At the time of enrollment, merchants must require the cardholder to expressly consent to entering an ongoing subscription service for recurring payments.
Enhanced Notification. At the time of enrollment, merchants must provide a copy (i.e., email or SMS/text, or other delivery method, if agreed with the cardholder) of the terms and conditions of the subscription service to the cardholder, even if no amount was due at the time. This must include:
- Confirmation that the cardholder has agreed to a subscription, unless the cardholder cancels.
- The start date of the subscription.
- Details of the goods/services.
- Ongoing transaction amount and billing frequency/date.
- Link or other simple mechanism to enable the cardholder to easily cancel any subsequent transactions online.
Merchants must also send a reminder notification (i.e., email or SMS/text) including a link to online cancellation policy at least seven (7) days before initiating a recurring transaction if:
- A trial period, introductory offer, or promotional period is about to expire.
- The nature of the recurring agreement has changed (for example, the price or billing period).
Explicit Transaction Receipts. Merchants must disclose the following on transaction receipts:
- Length of any trial period, introductory offer, or promotional period, including clear disclosure that the cardholder will be charged unless the cardholder takes steps to cancel any subsequent transactions.
- Transaction amount and date for the initial transaction (even if no amount is due) and for subsequent recurring transactions.
- A link or other simple mechanism to enable the cardholder to easily cancel any subsequent transactions online.
Statement Descriptor. An additional descriptor indicating a trial period-related transaction will be required in the Merchant Name field of the Clearing Record for the first transaction at the end of a trial period.
The descriptor (for example, “trial,” “trial period,” “free trial”) will then
appear on cardholder statements, online banking, mobile apps, and SMS/text alerts, in the same way discretionary, additional invoice/order numbers appear for electronic commerce transactions.
Easier Cancellation. Merchants must provide an easy way to cancel the subscription or payment method online, regardless of how the cardholder initially interacted with the merchant (for example, a pop-up store in a shopping mall, door-to-door sales, or a TV/Radio ad).
Expanded Dispute Rights. The existing dispute condition of “Misrepresentation” will be expanded, specifically for transactions where merchandise or digital goods have been purchased (i) through a trial period or (ii) as a one-off purchase, and the cardholder was not clearly advised of further billing after the purchase date.
Merchants can remedy the dispute by proving that they have acted appropriately, provided they can show:
- The cardholder expressly agreed to future transactions at the time of the initial interaction; and
- The merchant electronically notified the cardholder (based on the details the cardholder provided) before processing new transactions following the trial/promotional period.
Better for Customers Means Better for Business
The requirements are strongly recommended for all subscription merchants, but specifically apply to those offering free trial/introductory promotions that roll into an ongoing subscription/recurring agreement.
An acquiring bank is a merchant account provider, which is BankCard USA’s role, and we are equipped to provide trial/subscription merchant accounts. Many providers do not serve this industry because it is considered too high risk. Our underwriters screen merchant account applicants to ensure their compliance with these industry rules as an on-boarding protocol and continuously throughout our processing relationship, while providing fraud and chargeback prevention tools to mitigate risk at no extra charge.
As a merchant, it’s important to make sure you have these protocols in place to comply with Visa’s new conditions and more importantly, to support your business by supporting your customers. They are the lifeblood of any business, including ours, and customer satisfaction goes a long way.
