Negative-Option Billing

May 16, 2022 | 10 min read

negative-option billing

Put a Positive Spin on Negative-Option Billing With This Handy Guide for Merchants

How many things have you bought because you were offered a ‘free trial’? Maybe it was a sample box of cosmetics you received in the mail, a popular streaming service you wanted to check out, or a gym you have been interested in joining. Whatever the case, we have all enjoyed a subscription service at one time or another.

Negative-option billing models are one subset of the broader subscription model. It’s an excellent way to bridge the marketing gap between your brand and consumers. There are a few drawbacks to be aware of as well, though.

In this article, we’ll explain what negative-option billing is, who benefits from it, the rules you should follow, and how to make it work for your business.

What is Negative-Option Billing?

Negative Option Billing

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Negative-option billing is the practice of giving customers a service that was not previously provided, then charging them for the service unless they specifically decline it.

Negative-option billing has a lot of different applications. That said, it’s most commonly used in the case of free trial offers and other similar promotions. You offer a prospective buyer a free trial but collect the user’s payment information before the trial begins. Then, unless the buyer reaches out to cancel, you roll the trial over into an ongoing paid service.

This practice offers benefits for you, as well as your consumers. As a retailer, you enjoy a reliable source of revenue coming in regularly. In exchange, customers get access to goods or services they want without the need to remember monthly payments or renewals.

Yes…at least in a general sense.

Laws vary by country, but negative option billing is considered legal in the US, as long as it is not “abusive.” Unfortunately, cases exist in which merchants cross that line. For example, the FTC ruled back in 2001 that a group of buying clubs did not adequately disclose the terms of their customer agreement. Thus, as the body ruled, this use of negative-option billing is unfair and abusive.

Enforcing that ruling is extremely difficult on an individual basis, though. The standards determining proper notice can be ambiguous.

So, it’s true that there is some legal gray area regarding negative-option billing regulations. But, when done correctly, this approach can be a real win-win for everyone involved.

Benefits of Negative Option Billing

When executed properly, negative-option billing methods can be highly beneficial for everyone. For instance, ‘free trial’ marketing can encourage many consumers to try a company or brand they otherwise might not have. It can also increase consumers' buying options and elevate their purchasing power by offering goods and services at discounted prices.

For you, negative-option plans draw more buyers into subscriptions. You get the chance to impress or delight consumers with your products without spending a fortune on marketing and outreach. It can also provide the opportunity to receive advance reviews of products before launch and help reach many buyers who might otherwise have been priced out of their market.

In almost every way, negative-option models benefit both parties involved. As long as both parties are willing to make an effort to communicate with each other and maintain their end of the negative-option billing contract, that is.

Your job is to keep the consumer informed of the terms and conditions related to the subscription they’ve selected and remind them before the bill is due. By that token, the consumer’s job is to inform you of any billing issues or problems rather than relay that information to banks or third parties.

Problems with Negative Option Billing

According to the rules, most subscription merchants take great pains to explain to and remind customers of their billing terms. Despite this, a few bad apples have left an indelible mark on the industry. As a result, public opinion of negative-option billing is mixed, at best. This perception encourages cardholders to turn to their bank to resolve problems rather than the merchant.

Chargebacks are a common side-effect of the negative-option billing model. Merchants who use this method tend to rely upon the fine print to turn profits, which consumers can interpret as a shady business practice. Furthermore, if cardholders didn't understand what they were signing up for or wanted to cancel but didn't know how, they may file chargebacks to recover their funds.

The public has a low opinion of the negative-option approach, in general. As a result, negative-option billing is considered a “high-risk” practice.

Reduce risk. See fewer chargebacks.

The solution is here.


Nowadays, most subscriptions we sign up for online take less than two minutes to select and approve. While that's convenient for merchants and consumers, it can lead to consumers being overloaded with subscriptions or even forgetting that they agreed to the subscription in the first place. When this happens, the consumer may file a chargeback. This would constitute a case of friendly fraud.

Here’s a case in point to illustrate the problem:

Some readers might be old enough to remember Columbia House mailers. The company would advertise that customers could get twelve CDs for as little as a penny. After getting their initial selections, the customer would receive a box full of merchandise Columbia House recommended based on those preferences. The customer would have a limited timeframe to return the CDs before they were charged for the whole box. But, if the buyer contacted the bank and claimed that the company used shady practices, they could recover the money.

What Rules Must Negative Option Merchants Follow?

Visa and Mastercard dictate most negative-option billing requirements in the payments industry. While those rules tend to be similar, they aren’t the same. Thus, negative-option rules differ slightly between both companies.

Let’s break these down:

Visa Negative-Option Billing Rules

Visa’s Trial Subscription Updates of 2020 made several changes to their merchant subscription requirements. The mandate stipulates that if you accept Visa cards, you must obtain explicit consent from a consumer to enter into any recurring payment agreement. This could come in the form of a pop-up box, a signed consent form, or even a letter returned in the mail.

Another stipulation requires you to remind consumers that they will be charged for the service they ordered before the first billing date. This is intended to ensure consumers can cancel the service or subscription before the free trial expires.

If a cardholder files a chargeback and can supply evidence that you ignored either of these rules, you automatically forfeit the right to fight back through representment. In this way, Visa is attempting to solve faulty billing practices and the high rate of chargebacks associated with negative-option billing.

Mastercard Negative Option Billing Rules

Mastercard supplied its own subscription billing updates in November of 2021. Most of these changes specifically refer to negative-option and ‘free-trial’ merchants.

Most of the rules are similar to or the same as Visa’s, minus a few key differences. For example, you must allow time for customers to cancel before billing goes into effect. You must also disclose the full subscription arrangement to the consumer and procure written consent to the arrangement before an agreement can be made.

Mastercard also requires that you supply the customer with an email receipt for any opening or continuing payment. You must also remind consumers of the upcoming payment, but only in the case of ‘free trials’ that are ending, even if they are spaced months apart. Lastly, the ‘point of payment’ has also been mandated by Mastercard to include the terms of the trial, the amount and regularity of future payments, and due dates. These details must be made clearly visible on the checkout page, and a copy emailed to the consumer at the point of payment.

Mastercard merchants have until September of 2022 to implement ‘point of payment’ requirements.

These rules ensure that the merchant doesn’t bury any crucial subscription or payment details in their terms of service. Consequently, they ensure that the buyer has provided those details in full. If both parties have provided and received the information required to enter into any subscription agreement, then the risk of buyers filing chargebacks falls drastically.

Negative Option Billing Best Practices

It’s possible to enjoy the benefits of negative-option billing without drawbacks and headaches. The best advice we can give you is to follow card network rules very carefully and limit errors wherever possible. Remember, chargebacks often result from misunderstandings over billing practices.

To protect your business from chargebacks and remain compliant with network rules, it’s wise to:

Be Up-Front

Ensure your subscription policies, including your terms and conditions, are provided to your customers at checkout. The “three C’s” of writing a customer policy should be clear, concise, and comprehensive. If you bury your terms in the fine print, you can expect a bevy of chargebacks to follow.

Obtain Written Consent

It would be best to get proactive rather than passive confirmation at checkout. The buyer should provide acceptance of your subscription terms, and a copy should be emailed to your customer as a receipt. These forms should include an electronic signature and a repetition of the terms to which the buyer agreed.

Make Cancellation Easy

The more difficult you make it for consumers to cancel a subscription, the easier you’re making it for them to handle the matter through their bank instead. You lose money every time a chargeback is filed, whether the bank rules in your favor or not. Keep that in mind when drafting your subscription or ‘free trial’ terms. Customers should be able to cancel—or restart—their subscriptions with a few clicks.

Send Reminders

Billing reminders should be emailed to the customer at least one week before billing is processed. This is true, even if their due date is months after the trial. Each reminder should also include a link to cancel the service if the customer prefers to do that.

Follow the Rules

Trying to get around card network rules is simply bad for business. To provide the best customer experience and maintain a stellar reputation, abide by network rules and guidelines at all times.

Need a Hand?

No doubt about it: negative-option billing is a lucrative payment solution for many eCommerce businesses. As with any venture, however, risk is sometimes a factor.

The good news? You can pursue a negative-option billing and still manage your chargeback and fraud risk.

With over a decade of experience in the chargebacks and payment industry, the experts at Chargebacks911® are uniquely placed to help in the fight against chargebacks. Call us today for a free demo.

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