Mastercard hardens SaaS billing rules

Growing popularity of subscription-based services prompted Mastercard to update guidelines for direct marketing, continuity and subscription merchants classified as MCC 5968 in Mastercard's merchant category code list. Revised rules require "high-risk negative option billing merchants" to be transparent and responsive with customers enrolled in free trials and subscription services, according to Mastercard's Security Rules and Procedures – Merchant Edition, published Feb. 9, 2021, and subsequent bulletin distributed in November.

"A non-face-to-face high-risk negative option billing Transaction occurs in a Card-not-present environment when a consumer uses an Account to purchase a subscription service to automatically receive one or more physical products (such as cosmetics, healthcare products, or vitamins) on a recurring basis (such as weekly, monthly, semi-annually, or annually)," Mastercard wrote in the merchant rulebook.

Mastercard representatives additionally noted that consumers who elect to try a free sample may not realize or remember that recurring billing begins when a trial period ends, which frequently leads to cardholder disputes and chargebacks. The rulebook stipulates that trial periods involve a "preset length of time during which the Cardholder may evaluate the characteristics of the physical product such as its quality or usefulness to determine whether the Cardholder wants to either purchase the product on a one-time basis or recurring basis; or return the product (if possible) to the high-risk negative option billing Merchant."

Clarity, transparency

David Haber, senior associate at Global Legal Law Firm, noted that some of Mastercard's new guidelines for MCC 5968 merchants will become effective on March 22, 2022, and additional disclosure rules will be enforced beginning Sept. 22, 2021. These rules will impact merchants who sell streaming video and gaming services, software licenses and membership fees, he added.

"Complaints and chargebacks from consumers who did not understand the automatic renewal subscription or negative option model are expected to drop with these new requirements," Haber said. "Often consumers don't understand the billing terms, forgot that they enrolled, and/or had problems trying to cancel their subscriptions."

Haber went on to say that merchants who offer free trials before automatic renewal starts will have to comply with additional rules to ensure that consumers understand their options and have an appropriate amount of time to cancel their subscriptions before their trial periods end.

Notifications, receipts

Haber noted that the Federal Trade Commission and California legislators have taken a hard look at subscription-based services. For example, California's Autorenewal Task Force, which represents a coalition of district and city attorney, has been aggressive in filing suits against merchants, he stated, adding that the FTC has rigorously enforced the federal Restore Online Shoppers' Confidence Act and Colorado recently joined the ranks of more than a dozen states with stringent autorenewal guidelines.

MCC 5968 merchants must be especially mindful of Mastercard's guidelines, Haber noted. He summarized the new rules as follows:

• Disclosures: Before a consumer is enrolled in a subscription, at the point of payment the merchant must provide the subscription terms and get the consumer's affirmative acceptance of those terms. If the merchant offers a subscription, it must disclose both the price that will be billed and frequency of billing.

• Negative Option Disclosures: The terms of the trial (including initial charges), the length of the trial period, and the price and billing frequency must be disclosed at the "point of payment." This includes the screen where consumers enter their card information or any screen that displays the order, such as a shopping cart.

• Confirmed Enrollment: Merchants need to send the consumer a confirmation of enrollment by email or any other electronic method. The terms of the subscription must be included, including trial terms if applicable, and instructions about how the consumer can cancel the subscription.

• Receipts: The merchant must send a receipt for the billing by email or other electronic method for each subscription billing. The receipt must include the transaction details, and detailed instructions about how the subscriber can cancel.

"If a merchant uses a negative option billing or subscription/recurring billing with periods between billing of six months or longer, they will need to send a subscription reminder," Haber said. "The notices must be sent between three and seven days before the card is automatically charged, and may be sent by email or another electronic method."

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