Mastercard announced a new policy that will require certain merchants accepting Mastercard to obtain explicit cardholder approval to begin recurring billing once a free trial has ended.
A study released in December 2018 by the Better Business Bureau (BBB) tallied financial losses from free-trial offers of more than $1.3 billion over the past 10 years. According to the study, consumers who notified the BBB about free-trial scams reported an average loss of $186. “These situations can be frustrating and costly for both consumers and their banks,” Mastercard says in its announcement.
Mastercard’s new rules apply only to free trials for physical products, such as health care products, skin care products and vitamins, which convert to auto-renewing subscriptions or negative option plans. In other words, the rules will not impact digital services like Netflix or Amazon Prime.
When obtaining cardholder approval for the first payment after the free trial, Mastercard will require merchants to send the cardholder a message, either by email or text, with the following details:
- Transaction amount;
- Payment date;
- Merchant name; and
- Clear instructions on how to cancel.
For each payment thereafter, the merchant will need to send a receipt to the cardholder by email or text message with clear instructions on how to cancel.
Many state auto-renewal statutes, such as California’s, require an acknowledgment or confirmation to be sent to the consumer after the initial purchase; however, requiring merchants to send a receipt after each subsequent transaction is a more onerous requirement.
All charges that appear on a cardholder’s statement now must also include the URL of the merchant’s website or the phone number of the location where the cardholder made the purchase.
The new Mastercard rules will take effect on April 12, 2019, and merchants, processors, and acquirers are expected be compliant by that date.
The new Mastercard rules suggest what we can expect to see from other payment networks and state legislatures in the near future. For example, starting July 1, 2019, an amendment to Vermont’s Automatic Renewal Provisions in Consumer Contracts law will require consumers in the state to make an “affirmative action to opt in” to an auto-renewal program “in addition to accepting the contract” (Vermont House Bill 593). In California, senators are advocating for legislation that would, among other things, require businesses that offer a free gift or trial to receive a consumer’s authorization for an automatic renewal offer separate from the authorization to accept the free gift or trial.
For now, Mastercard is proud to be leading the charge. “Free trial offers can be a legitimate and useful way to increase sales and improve consumer satisfaction,” Mastercard said. “The new rules will help in increase transparency and ensure an outstanding experience for cardholders.”