Internet Marketing Alert: Mastercard’s New Free Trial Rules
From the Restore Online Shoppers’ Confidence Act to state auto-renewal legislation, negative option marketing has been heavily regulated on federal and state levels for a number of years. In April 2019 there will be another hurdle for marketers to overcome.
Mastercard recently announced new consumer protection requirements for negative option merchants and providers that process Mastercard transactions.
Specific notice and consent rules apply to trials.
Perhaps, most notable, the new rules require merchants to notify consumers at the end of the trial period before charging the consumer. After a trial period has expired, merchants will have to obtain express consent before charging the consumer, and provide the merchant’s name, transaction amount, payment date and cancellation instructions.
The trial period must begin on the date when the cardholder receives the product, for eCommerce transactions. A direct link must also be provided to and easy to use online cancellation procedure on the website where the negative option transaction is initiated.
Mastercard acknowledged that free trial offers “can be a legitimate and useful way to increase sales and improve consumer satisfaction.” It also recognized that some free trials (e.g., skincare or healthcare products) “can unwittingly turn into a recurring product subscription that is difficult to cancel” and that its new rules will help to “increase transparency.”
The updates rules cover card-not-present transactions involving free trials, low-cost trials and recurring subscriptions to receive tangible products. Digital marketers of nutraceutical products may be the most significantly impacted.
Acquirers will be required to utilize specifically designated subscription codes that identify negative option billing practices as “high risk.” All charges that appear on a cardholder’s statement will have to include the merchant website URL (or, the phone number of the store where the purchase was made).
Additionally, acquirers will be required to register negative option billing merchants and third-party service providers with access to account data. Negative options merchants’ will need to be verified as compliant by the acquirer at the time of registration, as well.
The new rules also impose heightened a monitoring requirement. More specifically and in addition to general authorization monitoring requirements, acquirers of negative option merchants will have to monitor authorizations in order to identify when the same account number appears across different negative option merchant IDs in the acquirer’s portfolio.
Acquirers will need to ensure that negative option merchants comply with Mastercard’s fraud control standards and maintain a chargeback ratio below stated thresholds.
Takeaway: The new rules will significantly impact business models that rely upon continuity plans and trial offers. Merchants will be required to obtain cardholder approval at the conclusion of a free trial before billing; forward the cardholder the transaction amount, payment date, merchant name and cancellation instructions; and forward a payment receipt with clear cancellation instructions.
Contact the author at firstname.lastname@example.org if you are interested in learning more about this topic, of if you are interested in implementing preventative compliance protocols. You can also follow FTC defense lawyer on Twitter.
Richard B. Newman is a digital marketing attorney at Hinch Newman LLP. He is a member of the International Association of Privacy Professionals.
Attorney advertising. Informational purposes only. Not legal advice or a comprehensive analysis of the new Mastercard rules.