As previously announced in Visa Business News (June 19, 2019/Sept. 26, 2019/Feb. 20, 2020), Visa will implement a new policy around subscription services that may impact newspaper publishers. This new policy, which will go into effect on April 18, establishes new rules for consumer disclosure and acceptance of free trials and promotional offers for recurring subscriptions of physical goods and digital services. With more than 15 percent of online shoppers having one or more recurring subscriptions – and growing, with increased digital commerce during the COVID-19 crisis – the credit card company is concerned that consumers may not be fully aware that a free trial or introductory offer will convert into a higher price and then automatically renew. Visa claims that credit card issuers are writing off tens of millions of dollars in sales annually after receiving consumer complaints. The new policy will provide cardholders with clearer information that will enable them to identify and act on subscription transactions and reduce the number of transactions that result in disputes.
The central component of the new policy is a requirement that merchants must send a reminder notification (e.g. email or SMS/text) at least seven days before a free trial or introductory offer expires and converts into a higher, recurring charge. The merchant is not expected to remind consumers before each recurring charge after the initial conversion, unless the terms and conditions in the original agreement have changed.
While supporting increased consumer transparency, the Alliance was concerned that the original Visa policy would have unintentionally led to subscriber churn, which would have jeopardized an important revenue stream for newspaper journalism. For example, the original policy – proposed June 19, 2019 –would have required the reminder notification to include a “link to online cancellation” and suggested that transaction receipts include an easier cancellation method such as an “unsubscribe button.” The Alliance entered into a dialogue with Visa representatives, who were responsive to our views and made important changes, including allowing merchants to link to an “online cancellation policy” so that consumers could manage their accounts online or through other means. Further, Visa is no longer suggesting that transaction receipts include an “unsubscribe button.” Most significantly, Visa released further guidance on February 20 in the form of Frequently Asked Questions that provided guidance on what type of marketing would be included in or excluded from the new Visa policy.
Depending on how newspapers market subscriptions to consumers, the new policy may not apply.
What Is In the Scope of the Regulation
The updated policy applies to merchants that provide goods/services via subscription (i.e. a recurring transaction), in which the subscription agreement with the cardholder includes either of the following:
– Free Trial: An initial period at zero cost to the cardholder to use the merchant’s service before the merchant’s regular price is applied for ongoing usage of the subscription.
– Discounted Introductory Offer or Promotional Period: An initial period with a preliminary cost to the cardholder that is clearly marketed, communicated, advertised or promoted to the cardholder as a discount to the merchant’s regular price before the merchant’s regular price is applied for ongoing usage of the subscription after the initial discounted period.
What Is Out of the Scope of the Regulation
The updated policy does not apply in the following scenarios:
– If the cardholder uses a discount code/voucher to reduce the merchant’s regular price at the time of completing the subscription enrollment with the merchant.
– A merchant’s regular pricing schedule increases over the term of the subscription agreement, which is disclosed to, and accepted by, the cardholder at the time of completing the subscription enrollment with the merchant.
– An offer of a satisfaction/“money back”/refund guarantee is provided at the time the cardholder agrees to the merchant’s regular price when completing the subscription enrollment with the merchant.
Our read of the second bullet above is that a newspaper subscription marketing campaign would not be covered by the policy if the publisher does not offer the consumer a free trial or discounted/promotional offer. Instead, the newspaper marketing campaign discloses to the consumer a regular pricing schedule that would increase over time, and that pricing schedule is agreed upon by the cardholder at the time of subscription enrollment. For example, the following approach might be out of scope of the regulation: “Sign up now for a digital subscription. Your price is $4.99 a month for three months and $9.99 per month thereafter. You can cancel anytime.”
It is worth noting that this pricing would have to be the regular pricing offered to all potential subscribers visiting a newspaper’s site. If the newspaper includes a money back guarantee, as described in the third bullet above, this would solidify the “out of scope” assessment.
While there are no fines or penalties for failing to comply with the new policy, Visa card issuers could certainly decline to work with any merchant that does not comply with the new rules. However, on April 14, Visa announced that it will be taking a “tailored and pragmatic” approach to compliance during the COVID-19 pandemic and, “as such, would delay enforcement of compliance actions related to the policy.” The company also said it was delaying a requirement for an “Enhanced Statement Descriptor” for the first transaction after a trial or promotional offer until April 17, 2021. Businesses and card issuers were struggling with how this could be done from a technological standpoint.
Here is Visa’s Quick Reference Card on its new subscription policy.
For more information, please contact Alliance Senior Vice President, Public Policy, Paul Boyle.