There's a new credit card rule you probably haven't heard about and, if you make credit card purchases online or over the phone, it may affect you. This new policy applies to what the credit card industry calls "card not present" situations, which is when you give a merchant your info, either online or over the phone, but never physically hand them your credit card.
In the past, when you provided your credit card info, when the card expired, you needed to manually update the info with the merchant. Once the card expired, the merchant was no longer able to bill or rebill the card for new charges. Sometimes credit cards are used for regular monthly billing subscriptions or to order products to be delivered on a regular basis. Companies are notorious for continuing to rebill customers even after cancellations, and sometimes the expiration of a credit card was the only way to stop the unauthorized charges.
Rebilling credit cards is one of the biggest ways companies scam consumers. With the complicated statements sent out, it can be hard to see small rebills or very difficult to dispute charges. These disputes can be made more difficult when you did provide the merchant with your card info, but you now wish to cancel the service. I have experienced situations where it becomes my word against theirs as to whether I really did cancel the service.
Online and TV direct response companies are notorious for this. The infamous Girls Gone Wild company has made a fortune using practices like this. They would present outrageous offers to get you to provide your payment info for this cheap lure offer, like $9.99 for a DVD. The fine print says you will receive new DVDs monthly, which are automatically charged to your credit card, unless you return them unopened for credit. As you can imagine, most people opened the DVDs and then just decided to keep them anyway, rather than go through the time, hassle and expense of trying to call the company, pack and ship the DVD back, then monitor the refund of your money. Most people simply kept the DVDs and paid the inflated prices that were charged. That first DVD may have been $9.99, but the monthly single DVDs would often be much higher, $29.99 plus almost $10.00 in shipping and handling fees.The industry calls this practice of sending repeated product a "continuity program" and call the overall practice "negative option sales," meaning they keep sending new stuff until you tell them not to.
This generated millions of dollars in revenue for the company. The company was charged with illegal practices in 2003 and settled with the Federal Trade Commission for over a million dollars in 2004 after admitting to a range of deceptive practices all hurting consumers and making them more money.
Once one of these companies had your information, the only way to stop unauthorized billings was to close the account or wait for the card to expire. You could often call customer service, they would agree to refund money and stop billing the card, but then billing would continue. I have had this problem with Sirius Satellite Radio and DirecTV. Customer service confirms the account is canceled, yet my card would continue to be billed.
Now this new rule will allow card issuers to automatically update the card account information with the merchants. I feel this is very anti-consumer and if you search online for information, you will see many card processors and issuers, using this new rule as a bonus, a plus for merchants and a way to make more money.
Payment Data Systems, owned by giant bank HSBC, highlights all the merchant friendly features of this new credit card account updater program on their site, but with a positive spin aimed at merchants. I think it's funny, they claim it increases customer loyalty and helps retain customers, this is a nice way to say lock them in. They also note it keeps the process "transparent" to customers, meaning they aren't reminded the merchant is billing them, which leads to further potential of fraud.