Posts Tagged ‘ROSCA’

Poll: Recurring charges are easy to start, hard to get out of – CreditCards.com

Gen-Xers, millennials most likely to get tricked into automatic payments

By Brady Porche  |  Published: August 21, 2017
Staff Reporter

Focusing on credit scores and what consumers can do to improve them

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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.

Our national telephone survey of 1,002 U.S. adults found that 35 percent had set up an account – such as a streaming TV service, a magazine subscription or a gym membership – that enrolled them in automatic payments without them realizing it. Additionally, 42 percent of consumers said it’s difficult to turn off recurring charges.

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.

Negative options
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 … has to do with old ‘book-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 ‘free,’ they should immediately look for the hook the company is laying out in front to catch them,” Patten of Truth in Advertising said. “‘Free’ 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.”

“Anytime a consumer sees the word ‘free,’ they should immediately look for the hook the company is laying out in front to catch them.”

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.

Survey methodology
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.

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The perils of not reading terms, conditions

CONSUMER FORUM 

Posted May 17, 2015, at 6:50 a.m.

Dear Company X:

Thank you for your recent letter regarding my inquiry about your negative option policy. I understand your policy states that “purchases and renewals are non-refundable” and that it was in effect when I signed up for your “club.”

I’m confused because your response states “membership cancellation can only be completed prior to the next renewal date.” Lucky me, I have plenty of time, since this membership I’m trying to get out of lasts until next February.

And, yes, when first signing up I checked the little box that says I understand and agree to all the stuff that’s in your policy. For your convenience, at the bottom of this letter I’ve included a checkbox that says you understand that most consumers wouldn’t read these things if trapped alone on a desert island with nothing else to read.

Here’s what gets me, Company X. A request to cancel has to be made at least five days before my plan expires. Even if I do that, with about nine months of “service” left on my current membership, I get nothing back?

I got into this situation because I was looking for a renewal notice before my last membership ran out. I noticed the renewal charge on my credit card bill, which arrived too late for me to cancel. Why don’t you guys do what the magazine companies do and send renewal notices eight or nine months before our subscriptions run out? Why instead is your policy to say nothing and be signed up and charged again?

Click to read: Tragic (Legal) Mistake 4: Continuity Programs: In the FTC Crosshairs

I’m told this is called a negative option policy. This practice by your company and many others has drawn attention from some people in high places. Six years ago, the Federal Trade Commission had its staff look at four kinds of negative option plans. The staff examined automatic renewals, including mine. They also looked at pre-notification negative option plans, such as book or music clubs that send a periodic notice that a consumer will receive another selection. If the person does nothing, the company ships the selection and charges for it. The staff also looked at continuity plans, where consumers agree up front to receive goods or services until they cancel the agreement. There also are free-to-pay or nominal-fee-to-pay plans: After a trial period, sellers automatically start charging a fee — or increased fee — unless consumers affirmatively return the goods or cancel the services.

Then, Company X, there’s the upsell. Some companies pitch their negative options, seal the deal, then offer an additional product or service for a few dollars more. Or they bundle offers, so two or more products or services may only be purchased together.

The FTC staff work led to passage in 2010 of the Restore Online Shoppers’ Confidence Act, or ROSCA. As you know, ROSCA bans negative option deals unless the seller does the following:

— Clearly and conspicuously discloses all material terms before getting the consumer’s billing information.

— Gets the customer’s express informed consent before making the charge.

— Sets up a simple way to prevent recurring charges.

I’m sure you folks at Company X wouldn’t diminish my consuming experience by failing to comply with the law just to make a few dollars more.

DirecTV incurred the FTC’s wrath by allegedly failing to make clear what the rates were when a nifty introductory offer was up. There apparently was some concern about the fees people were paying to get out of the deal, too.

Your company and others may be watching to see if DirecTV appeals. Or maybe you think it’s better for all businesses to be clear and conspicuous with their offers so we all know where we stand. Please check here if you agree — uh, that’s called affirmative consent.

Have a nice day.

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit https://necontact.wordpress.com or email contacexdir@live.com.

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