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Mastercard stops companies auto-charging after 'free trial' period

Thief stealing a bag from a woman on the beach. (image: Getty)
Thief stealing a bag from a woman on the beach. (image: Getty)

Credit card issuer Mastercard has announced it will do its part to stop the practise of auto-charging a customer at the end of a ‘free trial’ period.

It has become standard practice among online subscription businesses to tempt people to sign up with a free trial, but start automatically and regularly charging fees when that period ends if the customer didn’t explicitly cancel the service.

The vast majority of subscription services are guilty of this, including major entertainment services like Netflix, Foxtel and Stan. There are also businesses that sell consumable physical products — such as skincare or pet food — that have automatically recurring purchase plans.

In response to this, Mastercard stated Thursday that if a free trial is started using one of its credit cards, the merchant will not later be able to automatically start charging without notice.

“The rule change will require merchants to gain cardholder approval at the conclusion of the trial before they start billing,” said Mastercard chief franchise officer Paul Petta on a company blog post.

“To help cardholders with that decision, merchants will be required to send the cardholder – either by email or text – the transaction amount, payment date, merchant name along with explicit instructions on how to cancel a trial.”

Mastercard’s crackdown doesn’t stop there. Even for each recurring payment after the first one, the business must send an email or text message receipt to the customer with clear instructions on how to cancel.

“In addition, all charges that appear on the cardholder’s statement must now include the merchant website URL or the phone number of the store where the cardholder made the purchase,” said Petta.

Yahoo Finance has enquired with Mastercard whether the changes will take place in Australia or if it’s only applicable to North America, where Petta is based.

Petta said that the reforms are not a criticism of free trial periods, which can be “a legitimate and useful way” to attract customers, but would simply “increase transparency” for consumers.

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