How to avoid subscription traps

LegalVision

13th Jul 2016

By Anthony Lieu

In what the Australian Competition and Consumer Commission (ACCC) has described as an emerging trend for retailers and online businesses, an increasing number of consumers have fallen prey to the marketing tactic known as a subscription trap.

What is a subscription trap?
A subscription trap is where a customer unknowingly signs up to pay for a retailer’s ongoing service after being led to believe they were only making a once-off payment. This trap arises initially where a retailer fails to draw adequate attention to the terms and conditions, particularly on a site.

A subscription trap usually involves a purchaser being signed up to a paid premium program without being fully aware of the costs that the program entails. This is because at the time of purchase the consumer may have thought these program features were free inclusions. The consumer may also be enticed to make the initial purchase through the offer of discounts and other perks like free shipping, later outweighed by the recurring payments of the subscription. For example, a food delivery business offering one week of free groceries, and the consumer being signed on to a 12 month delivery subscription.

To further complicate matters, retailers may deliberately hide the exact terms and conditions specifying a subscription, meaning consumers often have to trawl through and decipher multiple pages of legalese to find the important parts.

Very Important Premium?
Fabletics, an online clothes retailer, recently come under fire from the ACCC for its strategy of having customers sign up to its VIP membership program, which included bonus “credit” at an additional monthly cost. Although this credit functioned as a currency which allowed users to buy clothing, some consumers lodged complaints with the ACCC claiming the credit scheme was not explicitly stated at the point of purchase. While the number of complaints in Australia is unknown, some reports indicate that around 1400 complaints were made against Fabletics in the US.

The ACCC also had the retailer Scootprice on its radar. In this case, Scootprice had a membership program with ongoing costs that were not adequately disclosed at the time of purchase. On being notified by customers, the ACCC investigated Scootprice, which has since refunded customers premium membership fees.

Both Fabletics and Scootprice are cooperating with the ACCC and are taking steps to rectify the issues that led to the subscription traps. The ACCC is continuing to examine complaints carefully and has stated that it will in future take enforcement measures against retailers which are found to have led consumers into subscription traps.

Tips for retailers and consumers
There are some tips to help retailers and consumers navigate this emerging area of attention for the ACCC:

1. Have you ensured that all upfront costs are listed? If not, this may signal there are associated costs hidden elsewhere on the site or in the terms or conditions.
2. Have any cancellation fees that may apply for services been noted? These are another clear indicator of a subscription trap.
3. Has it been checked whether there are any opt-out requirements, namely checkboxes that have to be unclicked?
4. Have terms and conditions been clearly outlined by displaying them in easy to read format or on a single page where possible?
5. Has the service been vaguely described or its exact nature is unclear? If so, consumers should be wary.
6. Does the price on the invoice match the total at the checkout? If not, this is also a cause for suspicion.
7. Has it the timeframe of a free trial period been checked? Are costs incurred automatically when it expires? These are both indicators of a subscription trap.

The ACCC’s recent investigations into Fabletics and Scootprice demonstrate that the regulator will take action to stamp out this type of conduct from retailers. Equally, consumers should be diligent to avoid finding themselves caught in a subscription trap. By following tips like these, the prevalence and number of subscription traps and the harm to their victims will hopefully be reduced.

By Anthony Lieu, is Lawyer and Strategist at LegalVision.