Visa and Mastercard Combat Deceptive Marketing Practices

Getting tough on deceptive marketing practices

With consumers out of pocket and regulators, consumer groups, and the media increasingly concerned, the payment industry is coming under heightened scrutiny for its stance on deceptive marketing practices.

At the end of last month, Visa announced the worldwide harmonisation of requirements for free trial merchants. In this article, we examine these requirements and highlight the similarities and differences with the Mastercard requirements that took effect on 12 April 2019.

How goods are sold is as important as what goods are sold. If a merchant’s sales and marketing practices violate applicable laws—such as consumer protection laws or trading standards legislation—transactions for legal goods and services may become illegal, creating an acceptance risk for acquirers and payment services providers (PSPs).

State of the industry

US Federal Trade Commission (FTC) data shows that complaints about ‘free trials’ more than doubled between 2015 and 2017. In a recent case from earlier this year, the FTC announced it was returning more than $6 million to consumers following a successful action against a vendor of online health products, Tarr, Inc., and the 19 companies it controlled.

This case exemplified the hallmarks of a deceptive marketing scam. The defendants used unsupported claims, fake ads, bogus celebrity endorsements, and consumer testimonials to market weight loss, muscle-building, and wrinkle reduction products. They also employed deceptive offers of ‘free’ and ‘risk-free’ trials.

The websites failed to disclose that consumers would be enrolled in recurring billing arrangements unless they cancelled within a short timeframe. The cancellation process was unclear, resulting in many customers who signed up for free trials being charged hundreds of dollars for often unwanted products.

Deceptive marketing practices such as these have led to disgruntled customers, increased chargebacks, negative publicity, and scrutiny from consumer groups and regulators. For card schemes in particular, this has become both a brand and legal issue. Card scheme logos appear on these websites, giving them an appearance of respectability. The schemes have also been accused of processing millions of dollars annually that contribute to the viability of such websites.

High-risk negative option billing merchants

At the end of last month (June 2019), Visa announced plans to harmonise its worldwide requirements for subscription merchants offering free trials or introductory promotions. These new or expanded requirements will take effect on 18 April 2020.

The changes apply equally to merchants selling physical or digital goods and services if they offer free trials or introductory offers that roll into an ongoing subscription or recurring agreement. Some requirements are already in place in specific Visa regions. Readers are advised to review the full text of the Visa Business News bulletin dated 20 June 2019 for details. The requirements cover:

• Express consent at the time of enrolment
• Enhanced and standardised notification requirements
• Explicit transaction receipts that include the length of the trial, transaction amount, and date for initial and subsequent payments, along with a simple cancellation method
• Easy cancellation methods, similar to an email unsubscribe button
• An additional statement descriptor that explicitly calls out the trial status of the transaction
• Global expansion of European dispute rights around free trial merchants
• Additional cardholder disclosure and consent requirements to be included in Visa rules and the harmonisation of GBPP requirements around negative option and up-selling merchants
• Updated complaint forms for issuers and cardholders against free trial merchants

The main points of difference compared to the Mastercard requirements for high-risk negative option billing merchants, which came into effect on 12 April 2019, are:

• Visa’s requirements apply to merchants selling both physical and digital goods and services, whereas the Mastercard requirements apply only to sellers of physical goods.
• Visa requires a descriptor indicating a trial period in the merchant name field for the first transaction at the end of the trial period. This descriptor (e.g., ‘trial’, ‘trial period’, ‘free trial’) will appear on cardholder statements, online banking, mobile apps, and SMS alerts. Additionally, the recurring payment indicator is required for the first transaction, even if the amount differs from the usual or ongoing obligation (this is currently optional).
• Mastercard requirements state that merchants must send details on how to cancel the subscription with every attempted authorisation. The Visa requirements do not explicitly state this, although merchants must provide an easy way to cancel the subscription online, regardless of how the cardholder initially interacted with the merchant.
• Mastercard requires merchants to send written confirmation to the cardholder when the trial period and/or billing plan has been cancelled. There is no equivalent Visa requirement, although confirming a cancellation is considered good business practice.

Hidden high-risk

With the fight against deceptive marketing practices intensifying, acquirers and PSPs are under increasing pressure to improve their merchant onboarding and monitoring processes. After all, any merchant scamming their customers is also scamming their acquirer. It pays to underwrite wisely. Web Shield has added functionality in both InvestiGate and Monitor to assist customers in identifying high-risk free trial and negative option billing merchants as follows:

• The Subscription/Membership Detection Indicator helps identify corresponding merchants, in addition to the Deceptive Marketing module. If you require an export of the merchants within your portfolio, please contact compliance@webshield.com.
• As part of the merchant onboarding process, acquirers must identify all third-party entities that provide services directly to their merchants and involve access to cardholder data. The Load Balancing Indicator provides an early hint of such relationships, which can be followed up with the merchant.
• The Cancellation Link Indicator shows at a glance if an e-commerce merchant has made its cancellation procedure known to customers.
• The Deceptive Traffic Detection database identifies all types of ‘risk-free trials’, high-pressure sales tactics (such as countdown timers), prize draws, and other red flags.

Deceptive marketing practices will also be the subject of the fifth book in the Web Shield series, Fundamentals of Card-Not-Present Merchant Acceptance, launched at the RiskConnect conference on 19-20 November 2019.

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