Thursday, December 19, 2019
The card brands are cracking down on free trial subscriptions. Mastercard disclosed new rules requiring businesses to obtain cardholder approval before they can bill those customers for recurring deliveries of products or services after a free trial period ends. And Visa devised similar rule changes to take effect in April 2020.
The changes aim to "streamline processes for subscriptions that feature a free trial or introductory offer, to improve transparency on billing terms and support easier cancellation for customers," chargeback prevention and recovery provider Verifi, which is owned by Visa, explained in a notice on its website.
Mastercard earlier this year said businesses offering free trials now must obtain cardholder approval before they can bill those customers at the end of free trial periods. The pending Visa rule changes closely mirror those implemented by Mastercard.
The subscription business model is big business, with consumers and businesses subscribing to everything from food and toiletries to online content and software. And free trials (also known as negative option billing plans) are used by many businesses to attract subscribers. But free trials roll into recurring payments when a customer fails to cancel their subscription at the end of the free trial period, which often leads to chargebacks.
"Free trial offers can be a legitimate and useful way to increase sales and improve consumer satisfaction," Mastercard wrote in a blog post. "The new rules will help increase transparency and ensure an outstanding experience for cardholders."
This isn't the first attempt by Mastercard to rein in chargebacks related to free trials, which are commonly categorized as "friendly fraud." In 2018, Mastercard created a new merchant category code specific to companies offering free trials and began classifying them as high-risk merchants. Now the card company's additional rules require explicit consumer approval before billing can start at the end of a free trial.
Under Mastercard's new rules, merchants must email or text a cardholder at the conclusion of a free trial. The message must detail the transaction amount, payment date, the merchant name and explicit instructions on how to cancel the trial if that's the route the cardholder prefers to take.
Then, for each payment thereafter the merchant must send the cardholder a receipt, by email or text, with clear instructions on how to cancel the product or service if they so desire. Additionally, all charges that appear on the cardholder's statement must include the merchant's website URL or the phone number of the store where the customer signed up for the free trial.
Under Visa's new rules beginning in April, merchants must have a customer's express consent at the time of enrollment to enter into a subscription agreement with recurring payments, even if no payment is required, and provide an electronic copy of that agreement (via email or text) which details the free trial period, clear disclosures about subsequent transactions (including amounts and dates) and a link with instructions for cancellations.
They also must send a reminder notice with a link at least seven days prior to the end of the free trial. The notice should provide details such as the date when the free trial ends, the recurring transaction amount and a simple cancellation method.
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