Many businesses allow customers to sign up for subscriptions and to have their credit or debit cards automatically billed each month. Consumers often appreciate the convenience and simplicity of these programs, but problems can arise if companies don’t clearly disclose the terms upfront or fail to explain how customers can cancel their subscriptions.

How Some Companies Have Exploited Consumers

While most businesses that use a recurring billing model operate ethically, some have taken advantage of consumers. In some cases, companies didn’t clearly explain the terms of their billing agreements or it made it difficult for consumers to opt-out or cancel memberships. In other instances, businesses offered customers a free or low-cost trial to give them an opportunity to try the company’s product or service before committing to a membership, but then the companies automatically billed customers when the trial memberships ended without explaining that to customers when they signed up.

Legal Changes to Protect Consumers

Those sorts of practices prompted class action lawsuits and changes to both federal and state laws to help customers make informed decisions and avoid being confused, deceived, and exploited. The Federal Restore Online Shoppers’ Confidence Act (ROSCA) prohibits businesses from making recurring charges simply because a customer didn’t opt out; a customer must explicitly opt-in. The terms of an agreement must be explained before a customer provides billing information, and a customer must be told how to cancel recurring charges.

Several states have passed their own laws that clearly explain what information about subscriptions must be disclosed to consumers, as well as when and how it must be disclosed. During the membership sign-up process, a business must prominently and conspicuously display a notice that explains the terms of the agreement in a way that is easy to understand. Some state laws require companies to make it easy for consumers to cancel trial memberships, while others require consumers to opt-in after a free trial ends before a company can bill a credit or debit card.

Get Professional Help Running a Subscription Service

Subscription billing is convenient for both businesses and consumers, but unfortunately, some companies have used unscrupulous practices to take advantage of customers, which led to a series of laws designed to protect consumers. If you want to use subscription billing, it’s important to understand and follow all applicable laws. Subscription DNA stays on top of legal changes and can help your company process automatic payments and comply with state and federal rules. Contact us today to learn more.