Thirty-five percent of consumers signed up for accounts that enrolled them in auto-pay without them realizing it
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Consumers are easily ensnared by sneaky recurring charges, and many find them hard to escape, according to a new CreditCards.com survey.
Federal laws prohibit companies from tricking people into paying for things they don’t want. However, many online merchants use “negative option” offers, which require consumers to cancel services or product shipments to avoid recurring charges, to turn a profit. And they’re not always used in ways that serve the consumer’s best interest.
“The main reason consumers get caught in these negative option offers is the material details, conditions and terms are not clearly and conspicuously shown,” said Bonnie Patten, executive director of the consumer watchdog group Truth in Advertising.
Of course, not everyone who gets charged unknowingly is the victim of a scam. And many do nothing to remedy the situation. Our survey found that approximately 9 million consumers (after an extrapolation based on the entire U.S. adult population) kept subscriptions and memberships for which they were unwittingly charged rather than cancel them. Young millennials (ages 18-26) were more likely than any other group to let recurring charges live on.
Here’s what our survey revealed about how consumers handle subscriptions and other recurring charges:
- Younger consumers are more easily snookered. Gen-Xers (44 percent) and millennials (37 percent) were mostly likely to get hung up in automatic payments. Gen-Xers were also the most likely to say it’s “very difficult” to turn off automatic payments, followed by baby boomers.
- Older folks steer clear of traps. Members of the Silent Generation (ages 72 and older) were significantly more likely than any other age group to say they’d never signed up for automatic payments without realizing it.
- Free trials anything but. A full 48 percent of respondents said they signed up for free trials that automatically renewed without their knowledge. Only 9 percent of those people kept the subscriptions after the trial period ended.
- A tight budget can be a safeguard. Consumers who make less than $30,000 per year were least likely to say they inadvertently fell into recurring charges.
The scientific survey of 1,002 adults was conducted Aug. 3-6 via landline and cellphone. See survey methodology.
If you’ve ever been hit with recurring charges you didn’t expect, chances are you were either deceived or you just weren’t paying close attention. Many of us are guilty are signing up for trial accounts and services online without reading the full terms and conditions – even the ones that don’t ask you to study a 10-page PDF document with small type.
But if you’re ever asked to provide payment information to proceed with what you think is a one-off service, it’s critical to find out for sure. There are merchants out there whose business models largely depend on consumers not fully understanding their offer terms.
“What we’re seeing is that they’re not making it easy for a consumer to tell that they’re going to be put into a negative option offer,” Patten said. “For example, they may use a pre-checked box, or the ability to decline a negative option offer is at the bottom of the page, in a smaller font and a color that’s not very visible.”
Although the Federal Trade Commission (FTC) has a rule that targets negative option offers, it’s largely obsolete these days.
“The negative option rule \u2026 has to do with old \u2018book-of-the-month club’ issues and a very specific type of negative option that we normally don’t see anymore,” said James Kohm, director of the FTC’s enforcement division.
But consumers are broadly protected by Section 5 of the FTC Act, which prohibits “unfair or deceptive” practices that could mislead them or cause harm. Additionally, the Restore Online Shopper’s Confidence Act (ROSCA) protects consumers from getting charged for services online without their consent and mandates that merchants fully disclose their terms. Congress is also considering a bill titled the Unsubscribe Act that would increase consumer safeguards against deceptive online negative option offers and make it easier to cancel them.
Earlier this month, the FTC invoked Section 5 and ROSCA in shutting down an online marketing operation for scamming consumers into paying $200 a month for tooth whiteners and other products. The agency said customers were lured through a mix of misleading claims, hidden disclosures and confusing terms into low-cost “trials” that turned into pricey subscriptions if they didn’t cancel within eight days. In a separate case this month, the FTC charged a firm operating a bogus discount club with debiting more than $40 million from the accounts of consumers who believed they were applying for payday loans or cash advances.
Kohm noted that major online subscription services such as Netflix, Spotify and Amazon Prime are unlikely to engage in these kinds of deceptive practices due to their popularity and their reputations. (The companies’ respective policies contain language that spells out their billing practices.) But he said “fly-by-night” operations that only use products as a fig leaf for their nefarious schemes don’t care about reputational damage, so there’s little incentive for them to play by the rules.
How to avoid negative option and free trial traps
The internet is too big for federal authorities to track down every shady online seller, so consumers must use their own judgment and be vigilant.
“You need to decide whether you want to participate in negative options and free offers,” Kohm said. “You can also decide whether you’re dealing with a company that you know and trust.”
Kohm also recommends contacting your state attorney general’s office or doing a simple Google search to find out if a company offering a negative option or a free trial has elicited complaints from other consumers.
Meanwhile, be suspicious of any offer that promises you something for nothing – especially if it still asks for your credit card or bank account information.
“Anytime a consumer sees the word \u2018free,’ they should immediately look for the hook the company is laying out in front to catch them,” Patten of Truth in Advertising said. “\u2018Free’ rarely actually means free. Almost inevitably, if consumers are being offered a free trial, it’s so the company can get their credit card information and enroll them in one of these negative option offers.”
If you are snagged by a not-so-free trial or other account that charges you more than you intend, you can dispute the payments with your credit card issuer.
“Customers can cancel a one-time or recurring ACH payment by contacting us with the payee or merchant name and dollar amount of the payment,” Betty Riess, spokeswoman for Bank of America, said in an e-mail.
$10 per month eventually turns into $120 per year
Unexpected recurring charges are at best an inconvenience and at worst a budget-buster. A charge of $10 or so per month may seem like small change to many consumers. However, it adds up over time if you forget about the account or put off canceling it.
But by steering clear of automatic payment traps, you’ll have more money to cover recurring charges for things you actually want and need.
CreditCards.com commissioned Princeton Survey Research Associates International to obtain telephone interviews with 1,002 adults living in the continental United States. Interviews were conducted by landline and cellphone in English and Spanish from Aug. 3-6, 2017. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error is plus or minus 4 percentage points.