The following article comes to us courtesy of Brian Kehn from HomeServeUSA, and describes rule changes that are current as of August 12, 2019.
Visa and MasterCard have new rules related to merchants who provide introductory offers, up-sells and free trial offers that turn into an ongoing subscription. The program rules vary by card brands. American Express and Discover have not released any changes at this time. MasterCard rules went into effect on April 12, 2019 and only pertains to merchants who offer physical goods. Visa’s new rules will become effective April 18, 2020 and pertain to merchants who offer physical goods, digital goods and services.
Below is a comparison of the card brand rules. Please note the Visa rules was released in July and could be modified before the April 2020 enforcement date.
| MasterCard | Visa | |
| Merchants Impacted | Merchants who offer free trials that convert into an ongoing subscription |
Merchants who offer a free
trial or introductory offer that turns into an ongoing subscription Merchants that offer up-sells Merchants who use negative option billing*, with or without a free trial |
| Items Regulated | Physical goods | Physical goods, digital goods, and services |
| Enforcement Date | April 12, 2019 | April 18, 2020 |
| MCC Classification | 5968: Direct Marketing—Continuity / Subscription Merchants. |
5968: Direct
Marketing—Continuity / Subscription Merchants Digital goods or content subscriptions can use MCC 5815, 5816, 5817, or 5818 |
| Billing Descriptor Updates | Include the phone number (MO/TO) or URL where the customer shopped |
Use the recurring payment indicator for the
initial transaction Include “trial” or a similar phrase for the first post-trial transaction |
| Trial Start Date | Trial must start on the day the customer receives the product, not before | Not specified |
| Timing of Consent | After the trial has ended but before the card is charged | Before the initial transaction or the trial begins |
| Information Disclosure |
Merchant’s name Date and amount of subsequent transactions Cancellation instructions The date the merchant will attempt to charge the card again if the account has insufficient funds when the first attempt is made |
Merchant’s name Date and amount of subsequent transactions Cancellation instructions Cancellation policy Description of the goods or services being offered Length of the trial period or introductory offer Clear disclosure that the customer will be charged unless subsequent transactions are cancelled Date the trial begins or the initial transaction date (if applicable) Initial transaction amount (if applicable) Last four digits of the card being used for the subscription |
| Subscription Confirmation or Transaction Receipt | Sent after the trial ends | Sent immediately after customer consent has been granted |
| Additional Cardholder Notifications |
Sent after an approved
authorization attempt Sent after an unsuccessful authorization attempt |
Sent seven days before processing the first
post-trial transaction Sent seven days before processing a transaction if the terms of the subscription have changed |
| Cancellation Policy | Published on the website the customer shopped at |
Available online, regardless of
how the customer shopped Include a digital, self-service cancellation option, such as completing an online form or sending a text message |
| Disclosure of Cancellation Instructions |
After the trial has ended but
before the card is charged After each subsequent authorization request |
Before the initial transaction or
the trial begins Immediately after consent is granted Before processing the first post-trial transaction Any time subscription terms are updated |
| Written Confirmation of Cancellation | Required | Not specified |
| Trial-Specific Reason Code | Not specified | If a transaction is disputed because the customer wasn’t aware of or didn’t agree to a subscription after the trial period, the issuer must use reason code 13.5 – Misrepresentation. |
| Compliance Monitoring | Inclusion in the Mastercard Registration Program | Mystery shopping |
*Visa references the term negative option billing in the comparison grid. Visa refers to negative option billing as the scenario in which a business offers a free trial or introductory offer followed by a monthly subscription if you don’t cancel before the trial is over. In other words, negative option is a billing practice in which merchants offer a free trial, require a credit card to claim the trial, and then bill the customer for a monthly subscription if they didn’t proactively cancel before the trial ended.
Here are some of the high-level requirements of the enhanced program for negative option billing:
- Express Consent – At the time of enrollment, merchants must require the cardholder to expressly consent to entering an ongoing subscription for recurring payments.
- Enhanced Notification – At the time of enrollment, merchants must send electronic copies (email, text, etc.) of the terms and conditions of the subscription, even if no amount is due at the time. Merchants must also send an electronic reminder with a link to cancel at least seven days before initiating a recurring transaction.
- Easier Cancellation – Merchants must provide an easy way to cancel the subscription method online, regardless of how the cardholder initially interacted with the merchant.
- Statement Descriptor – An additional descriptor indicating a trial period-related transaction will be required.