Beware auto-renewals' endless charges

Easy to sign up for, hard to shut off; complaints mount


If you aren't vigilant when you sign up for a great magazine subscription deal or a free trial offer on health care products, it could haunt you for months or years, ringing up endless charges on your credit card through automatic renewals.

"Companies sometimes make it very easy to auto renew and very hard to stop a renewal," says Lauren Sanders, associate director of the National Consumer Law Center.

In many cases, consumers sign up for low-priced subscriptions, free trial offers, annual memberships or recurring services without realizing that after the initial period ends, charges for the goods and services will continue to be billed to their credit cards.

Beware: Auto-renewals are easy to sign up for, hard to get out of

In other cases, consumers will agree to the terms, but can't figure out how to stop the charges if they no longer want the product or service.

These practices have generated a mountain of complaints. Now regulators, public officials and lawyers are taking legal action against these controversial practices.

First prosecutions under new law
In October 2014, the Federal Trade Commission (FTC) pursued two cases under the Restore Online Shoppers' Confidence Act, or ROSCA -- the first cases since the law was enacted in 2010. It prevents companies from charging consumers for an online transaction unless all terms are clearly disclosed and the company has received the consumer's informed consent.

In the first case, a judge issued a temporary restraining order against Health Formulas LLC and related companies and individuals selling weight loss, skin care, virility and other products. Consumers thought they were getting a free trial or buy-one-get-one offer and that their debit or credit card would be used to cover shipping costs. Instead, consumers were billed repeatedly for $60 to $120 a month.

Along with violating ROSCA, the companies were accused of violating the  Electronic Fund Transfer Act by debiting consumers' accounts without written authorization.

The FTC reached a settlement with JDI Dating Ltd., which runs a series of dating websites. Along with creating fake profiles so consumers thought they were hearing from potential love interests rather than made-up people, their subscriptions were automatically renewed without their consent at a cost of $10 to $30 a month. The company agreed to stop its deceptive practices.

Meanwhile, attorneys general in 45 states reached a $3.8 million settlement with satellite radio service Sirius XM for automatically renewing contracts and making it difficult for consumers to cancel contracts and receive refunds. Along with the settlement with the states, Sirius XM agreed to pay restitution to affected consumers.

Can't shut off renewals
Problems often begin as they did with Florida resident Jason Herman, who in December 2014 filed a $5 million federal lawsuit against SeaWorld Parks & Entertainment over its automatic renewal practice.

Herman purchased two annual passes in 2013 using the EZpay system, which allows consumers to pay in installments with monthly charges to their credit cards. Although the passes were paid off, the charges of about $35 a month continued and the passes were automatically renewed. His request for a refund was denied.

Like Herman, many consumers don't realize the charge will continue into perpetuity unless you turn if off -- if you can figure out how to turn it off.

With some merchants, just a phone call or email will shut it off.  Others make it almost impossible to cancel once you've signed up, says Ralph Dangelmaier, CEO of BlueSnap, a global payment services provider.

With merchant data breaches gaining national attention, consumers need to be particularly vigilant about charges to their credit card. Sanders says, "In light of all of the data breaches recently, companies should be allowed to keep and store consumers' credit card information only if the consumer actively chooses an auto-renewal."

Much of the controversy centers around the practice of "negative option" renewals, in which your credit card is automatically charged for a particular good or service unless you specifically opt out.

Problems often occur when consumers sign up for a free 30-day trial offer for a product or service and don't realize they'll continue to receive the merchandise or service after the trial period ends and their credit card will be billed, Dangelmaier says.

If that happens, you can't just call your credit card provider to cancel the payments. Instead, you'll need to go back to the merchant to get the charge turned off, representatives of Wells Fargo and Chase say.

You do have leverage, however, if you ask a merchant to stop billing you, and the charges continue. Then you can dispute the charges through your credit card issuer.

"If a consumer is unable to resolve a billing issue with a merchant, he or she can file a claim with Chase if they used a Chase card," spokesman Rob Tacey says.

The FTC outlines steps consumers should follow to dispute credit card charges under the Fair Billing Credit Act. You should put your complaint in writing and send it so it reaches the creditor within 60 days after the first bill with the error was sent to you.

In light of all of the data breaches recently, companies should be allowed to keep and store consumers' credit card information only if the consumer actively chooses an auto-renewal.

-- Lauren Sanders
National Consumer Law Center

But what if you want a renewal?
There are plenty of instances when consumers want their subscriptions to automatically renew. Maybe you're a Netflix fan, or your Internet security software is on automatic renewal.

If you've lost your credit card or been the victim of a data breach and your bank has issued you a new credit card, Visa, MasterCard and American Express all have systems that automatically update your credit card information with merchants so you don't have to notify each one that your card number has changed, says Shawn Budde, CEO of 2Checkout, an online payment processing service.

So if Bank of America issues you a new credit card because of a data breach, the Internet security software that automatically renews to your credit card each year will find your new card number and continue uninterrupted, Budde says.

But it also means unwanted charges will continue unabated.

'Zombie accounts'
Dumping your current credit card provider and switching to a new one will prevent the vendor from finding you, but you could end up creating a debt monster.

The system that automatically updates your credit card information won't let merchants know if you cancel your Bank of America card and switch to an American Express card, says Tyler Griffin, CEO of Prism Money, a budget and bill paying app. 

But your closed card could continue to rack up charges. "The card number still exists in the bank's records; it's not as if the card is permanently erased. If the biller can make a compelling case that the customer signed a binding contract, the bank will accept the charge and bill the consumer based on the information they have on file," Griffin says. "These are kind of like zombie accounts." 

If there's no contract in place, Griffin says the charges should be disputed with your credit card company. "Billing without the consumer's consent is fraudulent activity and will be treated as such by the card company."

When enough complaints roll in about a particular company, the merchants will be charged higher swipe fees, Dangelmaier says. These are the fees merchants pay to banks and credit card companies for processing card transactions. "If this happens too many times, it can cost them a lot of money."

Legitimate debts still pile up
It can also cost you if you've signed a contract and simply decide to stop paying. If you do that, the debt could be sent to collections, Griffin says, putting a big dent in your credit score.

But, he says, "There's a big disparity in how aggressive billers are." Those with legitimate debts will work hard to pursue those claims. "Ones that are openly shady and who have a business model of tricking consumers into ongoing charges tend to back off when confronted."

If you can't resolve the issues on your own, you can also file complaints with the FTC and your state attorney general.

U.S. Sen. Bob Casey, a Pennsylvania Democrat, wrote the FTC and the Consumer Financial Protection Bureau (CFPB), urging them to ensure consumers receive better warnings about automatic renewals and asking that they make it easier for consumers to cancel these contracts.

"Consumers shouldn't be charged for automatic renewals that are buried in fine print and nearly impossible for the average person to identify," Casey wrote.

He requested the two agencies "increase efforts to alert and inform consumers about the risks of these clauses. I also request that you explore regulatory options to clarify or standardize the use of these contracts in order to better protect consumers from any potential abuse or unexpected financial strain."

See related: Buy now, pay forever: Beware negative option plans, Pros and cons of charging automatic payments to a credit card, Mobile payments raise consumer protection worries

Published: January 28, 2015

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