Mastercard cracks down on retailers who turn free trials into paid subscriptions without warning



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is hoping that its new initiative will prevent the headaches many Americans face after they forget to cancel a free subscription and find themselves paying so-called “grey charges.”

The credit-card issuer announced in a blog post that it is implementing new guidelines for merchants that offer “free trials” to make the process of cancelling a subscription easier.

Starting April 12, merchants that accept Mastercard will need to get a cardholder’s approval at the end of a free trial before they begin billing them for a paid subscription. Specifically, merchants will need to email or text a customer with information such as the transaction amount and payment date, along with instructions on how to cancel their trial.

Moreover, Mastercard will require that merchants provide a receipt to the cardholder by email or text, again with cancellation instructions, every time they are charged. In other words, if someone at first signed up for a free trial of makeup products and then chose to continue with a paid subscription, Mastercard would now require that company to send that person a receipt each month detailing the monthly fee they paid and explaining how to cancel their membership.

‘Millions of Americans have signed up for a free trial, forgotten about it and then gotten billed for it.’

—Matt Schulz, chief industry analyst at personal-finance website CompareCards

“We have noticed an increase in the number of merchants offering these ‘free’ trials for physical products, as well as seen a rise in consumer complaints in this specific space,” said Chaiti Sen, vice president of communications at Mastercard. “It is our goal to ensure that we can provide a safe and secure ecosystem.”

The new guidelines will only apply to companies selling physical products and not to subscriptions for digital services, such as cloud storage or video streaming. It will only be applied on a go-forward basis, so retailers won’t need to make changes for existing customers before April 12.

Mastercard plans to rely on consumer reports to suss out any merchants not adhering to its new guidelines. Customers who are wrongfully charged under these new rules won’t receive compensation, but Sen said Mastercard cardholders have zero liability in such instances.

“Even though it only applies to physical products right now and not digital products like streaming services, it’s significant,” said Matt Schulz, chief industry analyst at personal-finance website CompareCards

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“Millions of Americans have signed up for a free trial, forgotten about it and then gotten billed for it.”

‘Free trials’ are costing Americans big time

The lure of free products has proven costly for Americans over the years.

An investigation by the Better Business Bureau, a non-profit organization that tracks business behaviors and practices, found that many free trial offers are not in fact free at all once you read the fine print. Some of these offers may require that consumers return the items within a certain time frame to avoid being charged. In other cases, by signing up and providing credit-card information, consumers could be agreeing to monthly subscriptions.

“The chance of encountering this type of deception is high. They have infested the internet and social media,” the Better Business Bureau noted in its report, which was released back in December. The organization calculated that Americans had lost more than $1.3 billion to firms that the Federal Trade Commission has gone after for fraudulently offering free trials.

But consumers aren’t just losing money to fraudsters. Legitimate companies often use free trials as a sales tactic and then convert those subscriptions into paid ones. In many cases, these fees are small enough that they go unnoticed — but over time, those charges can add up in a big way.

‘The chance of encountering this type of deception is high. They have infested the internet and social media.’

—Better Business Bureau

Trim, a firm that tracks users’ finances for free helps in paying off debt and cancelling unwanted subscriptions, calculated that its average user had roughly five subscriptions that cost them $340 per month total. Around 7.5% of the company’s users cancel one of those subscriptions with Trim.

“At a high level, the only thing in America more annoying than telemarketing calls is getting charged every single month for something you forgot about,” Trim’s founder and CEO Thomas Smyth said.

These retail tactics can become especially dangerous to one’s financial health as they get older, as Dan Moisand, a financial adviser in Melbourne, Fla., and a MarketWatch columnist, learned.

Moisand’s father Brian had Alzheimer’s disease before he died last August. In his later years, Brian developed a habit of signing up for free trials and then unfortunately forgetting about them. It was only when the products showed up at the door — including craft beers and skincare creams — that Moisand and his mother Helen would realize what Brian had done.

Dan Moisand’s father signed up for free trials and forgot about them. It was only when products arrived at his door that his family realized what he’d done.

Putting restrictions on Brian’s credit cards didn’t always help because he could easily sign up for new ones thanks to offers he received in the mail. “On the web, there’s all kind of this stuff and it’s designed to get attention,” Moisand said. “When your brain is not functioning correctly, it often can’t remember that these things are going on.”

While the family was able to work with credit-card companies to put a stop to the charges, in the cases where the free trials turned into paid recurring transactions, Moisand said it cost his family between hundreds and thousands of dollars. “That money never came back,” he said.

Courtesy of Dan Moisand

Dan Moisand (r) and his father Brian (l) at Pebble Beach in California.
Mastercard isn’t the only company looking to address issues with subscriptions

As Americans’ frustration with fees has grown, many companies have stepped in to make cancelling subscriptions and reversing charges easier.

Besides Trim, Truebill and Hiatus are other companies that offer assistance in identifying and cancelling unwanted subscriptions. The three platforms work similarly by scanning one’s bank and credit card statements for recurring charges.

Additionally, Apple

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  has streamlined subscription management through the iTunes store to make it easier for Apple device users to track what digital subscriptions they are paying for. And other banks and financial services companies, including Capital One

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and Paypal

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offer consumers assistance in cancelling subscriptions.


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 said that it will investigate and reverse charges in instances where consumers say they have wrongfully been charged for a subscription, though they recommend consumers first attempt to settle the matter with the merchant directly. Visa

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 and American Express

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 did not immediately return a request for comment.

Lawmakers across the country are also ushering in change. Last year, changes to California’s Automatic Renewal Law went into effect that requires e-commerce firms to allow online cancellation of auto-renewing memberships or recurring purchases.

Additionally, the law required notifications regarding free trials and paid subscriptions that are similar to the guidelines Mastercard is instituting. Washington, D.C., is considering a similar law right now as well.

Despite many industry and political players looking to crack down on predatory “free” trial offers, experts say that consumers still need to stay on the defensive. Eschewing free offers altogether — especially ones where a credit-card number is still required — or being sure to read and understand the fine print of any offer that a consumer signs are some of the ways Americans can avoid the headache these charges can cause.

But even if these problematic free trials cease to exist, some argue more work is needed to make sure that retailers and other firms are more honest with consumers about what they’re expected to pay.

“Companies still have the right to increase pricing, and it’s hard to track whether your rates have increased,” said David Callis, co-founder of Hiatus. “This is only part of this grey charge problem.”

For Moisand, his experience dealing with the charges his father unknowingly incurred has influenced how he talks to his older clients about what to be wary of in terms of spending. “We’ve warned them about things in the past, but now I have a very personal specific story that I can tell them about how it works,” he said. “Awareness is the first step.”

Source : MTV