So-called ‘negative option’ deals mean unless you act, a free trial will morph into a permanent debt.
“I thought I’d remember to cancel, but I didn’t,” says Dunleavey, a personal finance expert and author of “Money Can Buy Happiness: How to Spend to Get the Life You Want.” “Inertia proved stronger than my own earnest intentions, which means that the net price of the next book I download will be about $50.”
Dunleavy fell for a common sales practice called negative options marketing.
Negative options are free trial offers that launch a series of automatic credit card charges if consumers forget to cancel. Signing up for a free credit report or a free sample of acai-berry weight loss products ends up leading to other charges such as a monthly fee for credit monitoring or the cost of additional weight loss supplements that are shipped after the free trial has expired. While negative option marketing isn’t illegal, consumers argue that it is misleading.
“It sounds so easy to sign up for a free trial and to cancel at anytime to avoid being charged,” says Dunleavey. “It’s a manipulative practice. You can’t just click ‘agree’ without reading the terms; you have to know what you’re getting into.”
Another look from the FTC
In May 2009, the Federal Trade Commission announced that it would re-examine the rules pertaining to negative options.
The initial rules were introduced in 1973 after the FTC found that marketers were using unfair and deceptive practices when it came to pre-notification negative options deals. The rules were reviewed in 1986 and 1997 as part of the regular review process. Both times, the commission found that the rules continued to be fair and applicable. This year, the rule comes up for review again.
“The FTC reviews all of its rules and guidelines every 10 years to evaluate them in the context of the current marketplace and to determine if any changes or modifications are needed,” says Robin Rosen Spector, an attorney with the FTC’s Bureau of Consumer Protection. “One of the questions on the table for this rule review is whether the rule should be expanded to include other types of negative options plans.”
Currently, the rules only apply to a subset of negative option marketing called pre-notification. Book clubs are an example of pre-notification plans. Under these plans, consumers receive notifications of merchandise offers such as the “Book of the Month” pick and have the option to decline the product by responding by a specified date or taking no action and receiving (and paying for) the merchandise.
“These plans give you the option to say no every single time,” Spector explains. “Right now, pre-notification negative options plans are the only type of negative options covered by the FTC rules.”
Not all negative options covered
The three most common types of negative options rules that are not covered under the current guidelines are:
Continuity plans: Consumers receive regular shipments of products until they cancel the agreement.
Trial conversions: Offers that include a trial period (for free or at a reduced cost) for a specified period after which consumers will continue to receive products at the regular price until the offer is canceled.
Automatic renewals: These plans allow sellers to automatically renew consumers’ subscriptions for the full fee when they expire unless the subscription is canceled.
Current procedures for legal negative options
Under the current rules, there are seven terms that a seller must clearly disclose in order to legally offer negative options deals to consumers, including:
- Terms for subscribers to notify sellers of their desire not to purchase a selection.
- Minimum purchase obligations.
- Whether billing charges include postage and handling.
- Notification of a minimum of 10 days to reject a selection (and the requirement that if a subscriber was not given 10 days to cancel their selection, the promise that the return of the selection plus postage and handling, will be credited to the subscriber).
- The frequency that announcements and forms will be sent.
- The maximum number of announcements subscribers can expect.
- The right to cancel.
According to Spector, one of the new rules under consideration would require sellers to clearly disclose the terms of their negative option plan to consumers before they subscribe.
Comment period extended
As part of the review process, the FTC invites comments from the public. The initial comment period was closed on July 27, but several requests to extend the period led the FTC to reopen comments on Aug. 7. The issue will remain open for comment until Oct. 13, 2009.
As of Sept. 18, 2009, 14 comments have been logged. Of those, half of the comments are from trade associations such as the Direct Marketing Association and Magazine Publishers of America, which believe the negative options rules are fair and should not be amended. The other half are from outraged consumers who were charged for goods following a free trial and want the rules pertaining to negative options to be changed to offer increased protection to consumers.
Joel Metter, supervisor of Consumer Protection for Broward County in Florida, is working on comments to submit to the FTC. Over the past eight months, Broward County has logged more than 200 complaints from consumers who have been victims of trial conversions negative options offers. In some cases, consumers who went online to order free trials of acai berry weight loss supplements from two local companies didn’t read the fine print but even educated consumers who read and understood the terms and conditions are reporting issues to the division of consumer protection.
“We’ve had cases where consumers have tried to cancel their subscriptions but are unsuccessful,” explains Metter. “We have complaints from people who call the companies and wait on hold for hours, leave voice mails that are never returned or are directed to websites that have nothing to do with their products to fill out cancellation orders. All of these things indicate that these companies are trying NOT to allow people to cancel their subscriptions.”
Wants all ‘negative options’ covered
Metter wants the FTC to add trial conversions to the subset of negative options that it covers and believes the new rules should include specific language and disclosures to warn consumers. The existing rules for negative options are being followed, he notes.
“The current rule is successful for what it does cover; the subset of negative options that are covered are things we never get complaints about,” he says. “When the FTC enacts a specific rule, most businesses follow it because no one wants to mess with the FTC.”
Consumers want the rules strengthened, too.
Keisha Oldacre logged a comment with the FTC when she felt tricked by the fees she was charged after ordering a free trial of a dietary supplement.*
“These companies are very tricky,” she writes. “They use giant, promising print to suck in the consumer and tuck the true details of the ‘deal’ on other pages of their website in much smaller print.”
It is possible to take advantage of free trial offers without being charged under negative options marketing practices. Follow these tips to avoid unwanted charges:
- Read the fine print: Look for the “catch” to find out when/how you’ll be charged. Often, you have to contact the company within a certain time period to avoid receiving additional products — and being charged for them. Companies often require written notice of cancellation (as opposed to a phone call or e-mail).
- Examine credit card statements closely: Your bill might have a charge from ABC Products and not “weight loss supplements,” so it can be hard to decipher the charges. Make sure you read the statement closely to look for questionable charges or charges that were incurred after you canceled the negative options contract.
- Report erroneous charges: If you believe a company has charged you in error, you should also contact your credit card company to dispute the charges.
- Be prepared to cancel: Dunleavey suggests making a note in your calendar or setting a computerized alarm as a reminder to cancel before the trial period ends and your credit card is charged.
“If you want to emerge with the upper hand, it’s going to require a lot of planning, effort and forethought,” she says.
*As originally published, the article mischaracterized the product Oldacre purchased. See the CreditCards.com corrections policy