The background for the action is the EU's effort to do something about the fact that more than half of all EU citizens have already fallen for scams on the internet. According to a recent study, one tenth of these victims have fallen into the traps that lead people to take out unwanted subscriptions.
Don't let rip-off companies have their way
The European Consumer Protection Cooperation (see our CPC brochure) has been fighting this practice since 2017 and has since tried to find a solution with the market leaders Visa, Mastercard and American Express. The European CPC network investigated the implementation of specific rules for the authorisation of card transactions by the three major payment networks. Result: Transactions with regular follow-up payments were systematically authorised by card providers against the rules of the Payment Services Directive and also the Unfair Commercial Practices Directive.
Years of tug of war
Since the business models of most subscription traps rely on fully automated debits, and since credit card companies make money on every transaction, this results in a constant and tempting flow of capital for the payment services, which are in themselves reputable. Apart from the fixed monthly fees of their end customers, credit card companies mainly earn money by collecting interest on late payments. Secondly, they also collect money from merchants who accept the card. So-called interchange fees are charged for every transaction. These fees are paid to the bank that issued the card to cover the risks, costs and potential fraud that card issuers may face with each card transaction. They vary in amount depending on the brand and type of transaction, from 1.15% to 3.25%. In addition, credit card companies also charge merchants an assessment fee for processing transactions.
In short, even dubious subscriptions generate profits for credit card companies. This may have played a role in the lengthy implementation of this case. The three credit card companies played for time, an agreement between CPC negotiators and Mastercard was reached last summer. The other two followed suit and agreed to the following voluntary commitments around the turn of the year:
Stricter info obligations
In the course of this action, American Express introduced stricter rules for merchants, including the obligation to send customers a reminder about the first subscription fee. Mastercard and VISA, on the other hand, went a step further by instructing merchants in detail in which specific window information about subscription payments has to be shown, thus ensuring that the new rules can hardly be circumvented. It is important to agree that merchants always display information about recurring subscription fees in the window where consumers enter their credit card details for the first purchase or trial period. Customers must therefore be informed at the very beginning of the payment process that they are about to take out a subscription.
The three financial groups are now under the scrutiny of the CPC supervisory authorities, which are actively monitoring the implementation of the commitments made. National authorities will take further action in the member states should additional problems be identified. We hope that other credit card providers will also improve for competitive reasons, as this new protection mechanism for subscriptions is attractive for card users and may well speak for or against choosing a certain credit card brand.