Money

Forget to cancel 'free' trials? Mastercard now might protect you from getting charged

[Editor's note: This article has been updated to reflect that Mastercard's new policy only applies to purchases of physical goods, not services. The company clarified that point after the original article was published.]

In the era of free trials — which often end in automatic enrollment and billing — forgetting to cancel comes at a cost. But Mastercard's latest policy aims to protect consumers against some of those annoying recurring charges that too often catch customers by surprise.

On Wednesday, Mastercard announced that merchants will now be required to gain cardholder approval before they start billing at the end of a free trial for subscriptions for physical goods, like clothing subscriptions, for example.

That means in these cases, merchants will have to send the cardholder an email or text with the transaction amount, payment date and merchant name. Additionally, for each payment thereafter, merchants will have to send a receipt to the cardholder for each new transaction, along with clear instructions on how to cancel the subscription.

"Free trial offers can be a legitimate and useful way to increase sales and improve consumer satisfaction," Mastercard says in its announcement. The new policy is meant to "increase transparency and ensure an outstanding experience for cardholders," Mastercard said in its announcement, adding that cardholders also have further protection under the credit card company's Zero Liability policy, which guards against unauthorized charges.

Many Americans can relate to falling into the trap of forgetting about free trials and then not knowing how to cancel. In fact, Ted Rossman, industry analyst at CreditCards.com, says getting charged after a free trial ends or unknowingly being enrolled in a subscription with an automatic payment plan is a huge issue that affects over half of U.S. adults.

"It's definitely a big problem," Rossman tells CNBC Make It about the new Mastercard policy.

Rossman points to data collected by CreditCards.com, in which a 2017 poll of over 1,000 U.S. adults found that 35 percent had set up an account that enrolled them in automatic payments without them realizing it, and 42 percent said it was difficult to turn off such recurring charges. Upon discovering that they'd been automatically enrolled, 89 percent opted to turn it off.

The poll also found that 48 percent of respondents were unknowingly charged for a subscription after a free trial period ended. In that case, 88 percent of consumers opted to cancel the subscription, but only 51 percent were issued a refund.

Rossman called MasterCard's move smart, adding "I suspect the business reason is they're sick of issuing all those refunds. They don't want the business cost and time to reverse all these transactions that people are upset about."

Mastercard did not immediately respond to a request for comment, but told The Verge it wanted to start with only physical product subscriptions because it's the area in which it has had the most customer complaints. Mastercard's new rules also require merchants to provide cardholders with explicit instructions on how to cancel the trial for subscription goods.

Other credit card providers do take steps to protect consumers from unauthorized charges. An American Express spokesperson tells CNBC Make It that the company has "procedures in place to ensure card members are not held liable for fraudulent or unauthorized charges." American Express encourages its members to carefully monitor their credit card bills, the spokesperson says, and the card provider will open a dispute and work to resolve any issues should an unrecognized charge appear.

Visa did not immediately respond to CNBC Make It's request for comment.

Discover did not immediately respond to CNBC Make It's request for comment, but told CNBC in December that "If the customer is unsuccessful in resolving the situation with a merchant, they can also engage us, and we will work with Discover Network to investigate the matter. ... Discover Network monitors merchants to ensure they are not operating or accepting cards in connection with sale of any goods or services using deceptive or predatory practices and/or in violation of any applicable laws."

Consumers do have other protection. Under the Restore Online Shopper's Confidence Act, "companies must clearly lay out the terms of free trials or other subscriptions before consumers give their credit card information. Companies are also required to have express consumer permission before charging consumers and they must have a simple mechanism for the consumer to stop the recurring charges," CNBC reported.

Rossman suspects that other major credit card providers will follow suit with policies similar to Mastercard's new rules.

"It's definitely a copycat industry," Rossman says. "Just like we see airline fees, when one of them institutes it, others follow. The same thing happens in the credit card space."

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