Internet Marketers Warned Against Deceptive Marketing Practices
By Anna Johnson on January 26th, 2010As the U.S. Federal Trade Commission (FTC), Better Business Bureau (BBB) and credit card providers Visa and MasterCard seek to educate consumers about – and take action against online marketers engaged in – deceptive marketing practices, merchant account providers are also joining the fray.
One merchant account provider, in particular, has sent a letter to its clients warning them not to engage in a range of practices… or effectively risk having their accounts pulled.
Internet marketer Ryan Lee, who runs a number of membership sites, recently blogged about receiving such a notice from his merchant account provider.
Ryan’s merchant account provider warned that Visa and MasterCard were cracking down on merchants engaged in deceptive marketing practices. In particular, the merchant account provider said MasterCard was likely to terminate merchants engaged in ‘negative option’ practices.
A ‘negative option’ is where a consumer accepts an attractive offer such as a free trial or free sample, and provides their credit card information in order to pay for shipping or an administrative fee… without being informed that they are also agreeing to pay a recurring fee.
For example, there might be a barely noticeable pre-checked box at the bottom of the order form, or a warning in finely printed terms and conditions, stating that the customer will be charged a recurring fee in return for some kind of subscription or membership.
Not only is it up to the consumer to un-check the box, opt-out of the terms and conditions, or cancel before the end of the trial period to avoid the recurring charge, but some merchants make canceling an unnecessarily long and complicated process.
According to Visa, as much as 29 percent of U.S. consumers say they’ve been duped by online marketing tactics incorporating ‘negative option’ features.
In response to the backlash against the use of negative options, Ryan Lee’s merchant account provider warned its clients against employing marketing models utilizing a ‘free trial’, ‘deferred billing’, ‘shipping only’ or even ‘cross-selling’ and ‘up-selling’.
As quoted by Ryan, the merchant account provider said:
“Customers must be receiving a tangible good or contracted service in exchange for charging of payment cards. Incentivized discount offers are acceptable when the card-holder is receiving something in exchange for payment, however we will be unable to support accounts engaging in hidden or delayed charges and ‘free’ offers that are not truly free.”
In relation to cross-selling and up-selling:
“All sales should be directly between the business entities (merchant) processing the transaction and the cardholder, with cardholder authorization for all purchases.”
The merchant also told clients to abide by the FTC’s requirements which, among other things, include being transparent with customers by clearly disclosing all charges and requiring continuity offers to be ‘opt-in’ rather than ‘opt-out’ (i.e. customers should have to pro-actively click a check-box in order to enter into a continuity program).
So… is this merchant account provider being fair – or going too far – in disallowing clients from engaging in certain marketing practices?
That depends on whether the merchant account provider takes action against Internet marketers who are truly deceiving customers… or whether it starts targeting marketers who legitimately promote free trials and other offers, where they clearly and fully disclose the continuity elements involved.
There is nothing wrong with promoting a free trial in which someone will be billed a certain amount after the trial has ended… AS LONG AS this is made clear to the customer at the outset.
There is nothing inherently wrong with offering a free trial, free sample, etc on the basis that charges will apply if the customer continues using the product or service. MANY companies – far beyond Internet marketers – offer these kinds of terms.
What is wrong is NOT CLEARLY WARNING THE CUSTOMER that they will be charged ongoing fees.
I do NOT agree with the title of Ryan Lee’s blog post: ‘forced continuity and free trials are almost over’. Internet marketers who do the right thing should have nothing to fear. But for Internet marketers who either blatantly mislead customers or who stretch the limits of what is acceptable… their days of getting away with misleading folks are numbered.
Having said that, I am concerned about over-zealous merchant account providers freezing the accounts of Internet marketers who employ forced continuity arrangements in a completely transparent and legal way.
I guess, if that happens, it will be yet another example of where a few rogue Internet marketers have made business tougher for everyone else.
Sources: Ryan Lee, “Forced Continuity and Free Trials are Almost Over Read This Now”, RyanLee.com, January 14, 2010, Visa, “Deceptive Marketing,” Visa
