Subscription Traps: What Businesses Should Be Aware Of

credit card

It is reasonable for businesses to want to implement subscription systems to allow them to reach their customer base on a regular basis. However, businesses need to be careful that in doing so, they are not breaching any consumer laws as any misleading or deceptive conduct may result in major fines and investigation by the Australian Consumer Commission (ACCC). While consumers have been warned about what they should look out for in subscription traps, business should also be warned.

What are subscription traps?

Subscription traps occur when businesses offer “free” trials or tests of their products or services, in which the consumer in fact becomes “trapped” by an ongoing subscription of payments to the business. Essentially, a customer may make one purchase at the business (e.g. discounted membership price), which the company takes as their consent to a paid subscription registration. The customer is unaware of the hidden fees.

For more information about how to start your own subscription business, read this article.

What might one look like?

1. Fake Endorsement 

A company may advertise their services and attempt to elevate its reputation by using fraudulently manufactured endorsements from influencers or celebrities. Customers may then be more likely to register for their products.

2. “Free” Trial

Have you ever seen a call to action like: “Start your free trial today!”? When customers click on buttons with phrases like these, this action can act as their consent to a full-on subscription instead of only the trial.

3. “Free” Gift

Customers may accept a gift, that appears complimentary to a subscription. Their acceptance may act as an agreement to hidden terms and conditions, such as an ongoing charge.

4. Confusing User Interface

An interface which has an illogical and unintuitive setup may be used to intentionally confuse and mislead the customer and eventually “trap” them into an unwanted ongoing payment subscription scheme.

What’s wrong with subscription traps?

In June 2016, the ACCC published a media release to warn consumers of the dangers of subscription traps, due to a rise in these consumer complaints overseas and in Australia. In particular, there were two moderate-profile cases. The ACCC provided an update in 2019 that they still received similar complaints and their efforts to scrutinise subscription traps would be continued and enforced.

Fabletics

The first involved an athletics wear company called Fabletics. Customers with Fabletics purchased a VIP membership and had a USD $49.95/month subscription charged to their account. Some customers complained to the ACCC that they did not know they had registered for a monthly subscription payment scheme. Others had troubles cancelling their membership. After the ACCC brought up issues of their failure to disclose conditions adequately and their membership subscription system, Fabletics agreed to change its website.

Scootprice

The second was about Scootprice, an online marketplace for discounted goods. Some customers complained to the ACCC because they were unhappy they did not know they were registered for an ongoing subscription payment scheme. Scootprice also had not disclosed their premium membership fees adequately and had unhappy customers.

What do consumers now know about subscription traps?

Businesses should be aware that consumers have been warned of the dangers of subscription traps by the ACCC. They are not as naive as they may have been in the past. Consumers have been told to be aware of precautions such as to:

  • Read the small print when entering credit card details on free trial offers. This is because traps could be hidden within the T&Cs.
  • Check that the subscription plan is with the same company as the one where you found the advertisement.
  • Cancel recurring charges, by contacting company or bank or card provider when necessary, with evidence of request to company to cancel subscription.

What are some things businesses could do to avoid creating subscription traps?

  • Ensure contracts are equally as simple to enter and exit.
  • For free trial schemes, provide consumers with subscriptions that they can actively opt into rather than opt out (e.g. do not use pre-checked boxes).
  • Disclose terms and conditions in an adequate size and visible colour, and readily accessible position.

To summarise

In light of the 2016 ACCC consumer warning of subscription traps and the rising prominence of the subscription economy influenced by COVID-19, businesses must be wary of their conduct to ensure they do not unintentionally create subscription traps. If they create misleading trial systems which entail an ongoing subscription of fees, they could be severely fined, create distrustful relationships with consumers, and tarnish the reputation and integrity of its business.

For more information on how to run an online business, browse Lawpath’s online business legal guides here.

You may also like
Recent Articles

Get the latest news

By clicking on 'Sign up to our newsletter' you are agreeing to the Lawpath Terms & Conditions

Share:

Register for our free live webinar today!

Tax Strategies for Small Business Success

12:00pm AEDT
Thursday 25th July 2024

By clicking on 'Register for webinar' you are agreeing to the Lawpath Terms & Conditions

You may also like

The 2024 Federal Budget has unveiled a comprehensive package of measures designed to support small to medium enterprises (SMEs) in Australia, while also laying the groundwork for a "Future Made in Australia."
Default interest clauses can help protect lenders' interests, but sometimes they will not be enforceable. Find out more here.
Lying on your resume to get a job is never a good idea. In fact obtaining employment through fraud can actually land you in jail.

Thank you!

Your registration is confirmed. Keep an eye on your inbox for an email with details on how to watch the webinar.