Chargeback Prevention

Best Practices for Negative Option Billing

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There are good reasons to offer different billing options for a service. Creating accessible payment plans for the budget-conscious, for example, while offering savings to customers willing to make a larger up-front investment. Sometimes, the billing plan itself is part of the sales pitch, like a free trial or bonus offer that’s too good to pass up.

When the catch is that accepting the offer locks the customer into recurring billings that must be explicitly opted out of, that’s negative option billing, and it can be a frequent source of disputes. What do merchants need to know about using negative option billing?

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The history of negative option billing predates the era of ecommerce, and it has never enjoyed a particularly good reputation among consumers, despite the fact that the book-of-the-month and mail-order record clubs that relied on negative option billing offers used to be fairly popular.

These days, consumers are more likely to buy monthly deliveries through subscription box services and getting their media through digital subscription channels—and these merchants too may find negative option billing to be an effective way to make the leap into subscribing.

For merchants for whom it makes sense to offer negative option billing, the challenge is to make sure the terms of the subscription are clearly communicated to the customer, so that they don’t feel tricked or cheated once the actual billings kick in—a situation that frequently leads to disputes and chargebacks.

What is Negative Option Billing?

Negative option billing is defined by the Federal Trade Commission as “a category of commercial transactions in which sellers interpret a customer’s failure to take an affirmative action, either to reject an offer or cancel an agreement, as assent to be charged for goods and services.”

In practice, this might look like a movie club that offers 10 DVDs for a dollar, but also signs the customer up for a monthly purchase of preselected DVDs. Another example would be an online game that offers a seven-day free trial membership, and if the customer doesn’t cancel before the seven days are up they start getting billed at the full monthly rate.

Merchants are required to tell customers what they’re signing up for, and they can’t use unsolicited gifts to ensnare people into a billing arrangement they never wanted. However, when merchants lead with an offer that looks too good to be true, it doesn’t always set up realistic expectations for consumers.

The fact that negative option billing relies so heavily on “the fine print” of the agreement is why it has been examined and regulated by the FTC and the card networks at various times.

How Does Negative Option Billing Lead to Disputes?

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyWhile many consumers are familiar with how negative option billing works, and most merchants do make the required effort to explain the subscription terms to their customers, that doesn’t mean that consumers don’t frequently resort to chargebacks to deal with any problem or disagreement with a negative option billing service.

Because of the unfavorable associations it has for many consumers, they may feel like there’s nothing wrong with disputing a charge that they forgot to cancel in time—it’s just turnabout as fair play.

It doesn’t help that in the recent past, some merchants deliberately made it difficult for customers to cancel their services. The cancellation process might involve logging in to the website, requesting a cancellation page, and being given a phone number to call.

This trained many consumers to believe that easy online cancellations are rarely offered, and it’s faster to just call your bank and dispute. Recent card network mandates have addressed this aspect of negative option billing, but it can take cardholders a while to become aware of changing trends.

What Should Negative Option Billing Merchants Do to Prevent Chargebacks?

The best way to keep yourself safe from negative option billing chargebacks is to understand how the card networks regulate this billing practice and follow their rules very carefully. This doesn’t mean that you won’t still see chargebacks related to these offers, but if you’ve followed the card network rules and can provide documented proof that you did so, you should be able to fight these chargebacks and win.

The following guidelines should keep you in compliance with both Visa and Mastercard’s most recent mandates:

  • Make sure the cancellation process is easy and can be done online, even if the customer initially signed up over the phone or in-person.
  • Always obtain express consent at the time of enrollment for future recurring billings.
  • Provide customers with enhanced notification regarding their subscription and billings. Send a copy of your terms and conditions via text or email immediately upon enrollment, and send a billing reminder at least seven days before processing a recurring transaction. The billing reminder should include the date and amount of the upcoming transaction, the name and description that will be shown on the cardholder’s bank statement, and a link to cancel the service if the customer wishes.
  • Use your dynamic merchant descriptor to indicate the nature of your recurring billings.
  • Follow all card network rules for keeping and processing stored payment credentials.

Negative option billing merchants are often automatically categorized as “high risk” and may be subject to additional rules or requirements from their payment processors and acquiring banks, so be sure to check with them as well.


Everybody loves a good deal, and the fact that negative option billing is still around after so much scrutiny speaks to its viability as a business model. The problem is when merchants misuse it, and build up unrealistic expectations in consumers by promising too much, downplaying the details of the offer, and obfuscating the cancellation process.

By establishing honest and transparent relationships with consumers, a new generation of negative option billing merchants can do a lot to give it back some respectability.

In the meantime, chargebacks remain an ever-present danger, and the strongest defense against them is to follow the rules and clearly document your processes and communications. With the truth on your side, you can fight and win against invalid chargebacks.

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