We just started receiving word of a crack down by Mastercard which is resulting in merchant accounts being frozen.
Mastercard is reviewing individual accounts and requesting freezes on some accounts which have forced continuity and "Free - just pay shipping" offers.
I received word from one marketer whose account indeed had been frozen as of last night.
It is a crack down on practices which Mastercard has deemed to be misleading. In particular free offers which were unclear that they would be billed in the future as well as "Free (just pay shipping)" type offers.
Another merchant provider is also expressing concern over these issues.
"Free, just pay shipping" or offers that hide the nature of recurring payments are to be avoided as well.
More Detail
Here is the email sent out by my processor concerning this issue:
PowerPay wants to inform every one of changes expected from the Payment Brands regarding practices that are considered "Brand Damaging". As you may be aware, both Visa and MasterCard are taking action in response to increases in consumer disputes related to card-not-present and direct response products and services. PowerPay is endorsing the adoption of Best Practices to support our merchant base in conducting business in a manner that protects both businesses and consumers from fraud. To date no formal announcement has been received, however PowerPay is issuing this communication now in an effort to educate and assist our agents/merchants in complying with anticipated Payment Brand mandates and actions.
MasterCard has recently warned the Acquiring community that "Negative Option" enrollment will be considered a "Brand Damaging" business practice. "Brand Damaging" is a very broad term and is still being defined, but in light of recent fines to our counterparts, we must be proactive. Indications are that MasterCard will require immediate termination of merchants identified as using this business practice, along with any other practices considered "Brand Damaging". This follows recent policy changes from Visa regarding descriptor formats and disclosure of corporate entities related to Direct Response offers, with the intent to enforce all chargeback and transaction monitoring programs as defined by the associations.
PowerPay cannot accept merchant applications for products and/or services employing "Negative Option" enrollment, in addition to the following practices:
Marketing models that employ "Free-Trial", "Deferred Billing" and/or "Shipping Only". Customers must be receiving a tangible good or contracted service in exchange for charging of payment cards. Incentivized discount offers are acceptable when the cardholder is receiving something in exchange for payment, however we will be unable to support accounts engaging in hidden or delayed charges and 'free' offers that are not truly free.
"Cross-Selling" and "Up-selling" business practices. All sales should be directly between the business entities (merchant) processing the transaction and the cardholder, with cardholder authorization for all purchases.
Per Payment Brand guidelines, the use of multiple merchant accounts, billing descriptors and merchant processors may be viewed as an attempt to avoid chargeback monitoring programs and is prohibited. Perceived non-compliance has led to termination of processing relationships. PowerPay will review the business consideration for opening multiple merchant accounts to ensure compliance with Payment Brand guidelines.
Transactions generated from internet traffic and all other lead sources must be managed and monitored for potential fraud using an approved system. Third Party service engagement may be a requirement for account approval.
The FTC has recently published guidelines regarding "Negative Option" enrollment programs and is taking a very aggressive position against merchants utilizing/employing this business practice. Recommendations take in part from the FTC's website may include but are not limited to the following:
Material terms should be disclosed in a clear, concise manner. Unnecessarily long or inconsistent terms are viewed as an attempt to mislead the consumer.
Terms should be disclosed in a conspicuous manner, clearly placed and labeled on websites in a location that indicates the importance and relevance to the transaction. Fonts and colors must be easy to view.
Material terms must be disclosed prior to completion of the transaction and before a financial obligation is incurred by the consumer.
Customers must provide affirmative consent to any offer, examples include a mandatory "I Agree..." statement checkbox, where the customer is acknowledging the Terms and Conditions of the offer and consents to be entered into continuity program as a result of completing the transaction. Pre-checked boxes do not qualify as affirmative consent.
Merchants must not discourage or make difficult in any way the disclosed cancellation procedures and all cancellation requests must be honored in accordance with the stated terms of the transaction.
This is a still developing issue.
If you have comments or more to add, please do it below here. I will update this article as more details come in.
UPDATE: January 27, 2010
Here is a PDF of an update on this situation released on 1/27/2010.
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Thanks for the heads up, Tim! Appreicate the news.
Thanks for the quick heads up Tim. I have to admit I got a little cross-eyed trying to decipher some of the legal mumbo-jumbo.
Does this mean we have to stop using $1.00 trials to our sites entirely?
I had a $1.00 trial declined yesterday and am wondering if maybe that is the issue behind it...because they were eventually approved for the full monthly cost of membership.
Rory
I gather from what I can interpret from the post that you can't be deceptive about recurring membership payments. Never have been and wouldn't start now. But that doesn't protect me as a merchant from the customer who tells their card provider that we never told them they would be charged for recurring membership.
We hear that every day or two regardless of having our signup page say...
"$19.95 for 3 month "Premier Membership"
I agree to pay $19.95 for a 90 day membership. I understand that this membership will renew automatically for $19.95 every 90 days unless I cancel before the renewal date. As a member, I am free to cancel my membership at any time. "
and requiring them to check a box at the bottom that says...
"Check Here <------"I understand and agree to the ArtisticThreadWorks terms of use, automatic renewal system, and no-refund policy to acknowledge that you have read and understood our terms of use. Automatic Renewal: Membership will automatically renew unless you Cancel Membership before the renewal date. "
Also - recently we added this option for membership...
" $7.49 for "Machine Embroidery Basics DVD" includes free trial membership to ArtisticThreadWorks for 30 days... I agree to pay $7.49 for the "Machine Embroidery Basics" DVD and take a free 30 Day trial membership to ATW. I understand that my ArtisticThreadWorks membership will renew automatically for $19.95 after 30 days and every 90 days thereafter unless I cancel before the renewal date."
Question is... do you think either of these will get me into trouble with our merchant account provider?
-- Larry
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Written by a lawyer... check bottom line for me?, January 23, 2010
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