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In early 2023, the Consumer Financial Protection Bureau (CFPB) released a statement about negative option subscriptions, warning about how they could potentially deceive consumers.
You might not realize it, but you could be getting charged for subscriptions you have no memory of signing up for or thought you canceled. These charges come from negative option subscriptions — a type of marketing tactic in which customers are automatically charged for certain subscriptions, such as a gym membership or a streaming service, unless they actively cancel them.
Here’s a deeper dive into how negative option subscriptions work, why the CFPB issued guidance around them and how you can save on unwanted charges.
What are negative option subscriptions?
Negative option subscriptions refer to a business practice where a company automatically enrolls you in a subscription service unless you explicitly decline or cancel it. This means that unless you take action to cancel the subscription, you will be charged for it on an ongoing basis.
Suppose you purchase a product online — a vitamin supplement, for example — and during the checkout process, you are presented with an offer to enroll in a monthly subscription to receive a discount on future purchases. If you don’t read the fine print carefully, you may inadvertently sign up for the subscription, thinking it’s a one-time purchase, and your credit or debit card will be charged each month unless you take steps to cancel it.
Another common example of negative option subscriptions is free trials. Many companies offer a free trial of their product or service for a limited time but require you to enter your payment information up front. If you don’t cancel before the trial period ends, you may be automatically enrolled in a paid subscription.
Negative option subscriptions can be frustrating and expensive if you’re not vigilant about them. If businesses aren’t explicit about the terms of the subscription, they could even be breaking the law.
The potential risks of negative option subscriptions
Negative option subscriptions can create several problems for consumers, leading to unwanted charges and long phone calls with their bank or the provider. Some common issues that consumers may face with negative option subscriptions include:
- Difficulty canceling: Some companies make it hard to cancel by requiring customers to jump through hoops or navigate confusing cancellation processes.
- Extra fees: Customers may not realize they’re being charged for a subscription until they see the charge on their bank statement. This can lead to unexpected fees from overdrafts if they don’t have enough funds in their account to cover the charge.
- Unexpected renewals: Some negative option subscriptions automatically renew after the initial subscription period ends, leading to additional charges without the consumer’s knowledge or consent.
- Lack of transparency: Companies may bury subscription terms and conditions in small print or use confusing language that makes it difficult for customers to understand the terms of the subscription.
- Legal issues: According to the CFPB, companies that do not “clearly and conspicuously disclose the terms of their subscription services and obtain consumers’ informed consent” could be violating the law.
In general, negative option subscriptions are legal as long as the company makes the subscription terms clear, obtains the consumer’s informed consent and allows the consumer to easily cancel. There are plenty of examples of illegal practices, though.
The CFPB sued ACTIVE Network, an event registration company, in October 2022 for “tricking” people into enrolling in an annual subscription. The company generated over $300 million for its paid membership club, whereas consumers only intended to sign up for road races and other events, according to the CFPB.
ACTIVE violated the law for “enrolling consumers in and charging them for discount club memberships without their knowledge, consent, or a full understanding of the material terms of the transaction,” the CFPB stated.
In another instance, TransUnion was sued by the CFPB in April 2022 for violating a 2017 law enforcement order involving “deceptively marketing credit scores and credit-related products,” according to the CFPB.
The CFPB stated TransUnion deceived consumers into signing up for recurring monthly charges. Consumers would click a button on the TransUnion website that gave the impression they could access a free credit score, when in fact, it was a misleading subscription enrollment with hard-to-find disclosures, the CFPB said.
If you suspect you were illegally charged by a company for a subscription, contact the company immediately to dispute the charges and request a refund. It’s worth reviewing the terms and conditions of any subscription agreement to make sure all the relevant details were clearly laid out and that you knew what you consented to. It’s also a red flag if you have trouble canceling the subscription — it’s unlawful for companies to make their cancellation process unnecessarily complicated.
How to avoid unwanted subscription charges
First, it’s essential to read the fine print and understand the terms and conditions of any subscription service before signing up. This includes understanding the billing cycle, cancellation policies and any automatic renewals.
Keep track of your subscription services and regularly review your bank statements to ensure that you’re not being charged for subscriptions you no longer need or want. It’s not uncommon for subscription charges to go unnoticed, especially if they’re small or infrequent, so it’s important to review your statements regularly.
Fortunately, technology can help you identify hidden subscription charges. Many fintech apps offer subscription tracking features that can automatically detect recurring charges and alert you to any changes in subscription fees. Some apps, like Rocket Money, can even negotiate with service providers on your behalf to reduce your subscription fees or cancel unwanted subscriptions.
How to cancel unwanted subscriptions
The first step to take if you decide to cancel a subscription is to look into any cancellation procedures outlined by the provider. Some companies may require you to cancel a certain number of days in advance or through a specific channel.
If there’s no particular guidance on how to cancel the subscription, contact the service provider directly to request cancellation. Have important information prepared, including your account details and reason for cancellation.
If you’re having difficulty canceling the subscription or suspect that you’re getting unauthorized charges, you may need to escalate the issue to a higher level of management or seek legal advice. The Financial Trade Commission offers a sample complaint letter you can use as a template for addressing subscription service concerns to the company.
It’s important to keep records of all communication with the service provider, including the date and time of your cancellation request and any confirmation numbers or email receipts. This can help you dispute any unauthorized charges and provide evidence of your attempt to cancel the service.
Fees from unwanted subscriptions can add up and cost you significantly over the course of a year or more. You can review bank statements regularly and take advantage of subscription management apps to stay on top of hidden subscription charges.
Remember, it’s your right as a consumer to cancel any subscription service you no longer want or need. If you’re being charged for subscriptions you didn’t consent to, or that you were unable to cancel, the provider might be breaking the law, so don’t hesitate to contact the company or file a complaint with your state attorney general.