Mastercard Negative Option Billing Rules

Negative Option Billing is a business practice that has built a reputation as being somewhat shady or deceitful. The premise of this practice relies on the customer signing up for a service that it is a free trial or reduced price, and then once that trial is over the customer gets billed for future products at full price. For example, a customer will sign up to receive free cosmetics for one month but will have to give their credit card information to the company. The customer receives the free cosmetics in that first month, but then will be billed for more cosmetics in subsequent months. In order to avoid being billed, the customer must contact the company and unsubscribe from the service. Because this business practice relies on customers staying subscribed long enough to be charged, companies offering this service make it hard to unsubscribe.

On April 12, 2019, MasterCard established new rules regarding negative option billing. These new rules apply only to card-not-present subscription services in which the customer receives a physical product. These rules do not cover digital services,such as streaming TV or music services. If your business relies on negative option billing practices, it is important to understand MasterCard’s rules in order to avoid charge backs and possible action against you. So, what do these new rules entail?

·       Notification:A merchant offering a free trial must notify the customer once that trial has ended, before charging the customer. The customer must also be notified of the transaction amount, the date of transaction, the merchant name, and how to terminate the service at any time.

·       New MCC: Any merchant offering a free trial of a physical product will be assigned an MCC of 5986 – Direct Marketing: Continuity/Subscription Merchants.

·       High Risk Classification:Merchants who make use of negative option billing are classified as “high risk,” which may affect a merchant’s credit card processing fees.

·       Permission: The merchant must obtain explicit permission from the customer before charging their card.

·       Trial Period: Instead of the trial period beginning once the customer completes the transaction, the trial period must begin on the day that the customer receives the product.

·       Verification: Acquiring banks must monitor and verify multiple purchases from the same account holder.Merchants must be able to provide proof of sale for a year.

·       Customer Service:A customer service phone number must be available on the website when that site is down for maintenance.

·       Cancellation: A merchant must provide the customer with clear, direct instructions on how to cancel their subscription on their website and on customer receipts. If a customer cancels the subscription, the merchant must provide written confirmation of that cancellation.

·       MasterCard Registration Program:Acquiring banks must register merchants using negative option billing and any third-party service providers in the MRP.

Need help keeping track of these rules and staying compliant? PayArc can help! Call or email us today to help get started with a merchant account.