Businesses love to tell us that they have introduced ‘wonderful new innovations’ to make our lives easier.
Only scratch the surface and these technological advances largely benefit the businesses themselves, often while distracting us as they help themselves to our cash.
One of the biggest money spinners that readers contact me about is the ‘auto-renewal’ – where businesses automatically assume that you’ll want another year of their goods or services and continue to charge you, often with little to no notice. Over the last few years I have been flooded by complaints from readers about this insidious practice and the various ways that businesses try to slip these payments under the radar.
The situation has got so bad that the Government is proposing ‘clamping down’ on subscriptions – from ‘subscription traps’ (rip-off deals where you are tricked in to making regular payments) to tackling auto-renewals.
Don’t get too excited though. The Government is incorporating this in to the Digital Markets, Competition and Consumers Bill which is a huge and wide-ranging behemoth that’s been endlessly fiddled with and is still only at the committee stage. It’ll be ages before that bill lumbers over the finish line, trust me.
Frankly, with one or two exceptions, I’d like to see auto-renewals banned outright. This is something Citizens Advice is also calling for. As they pointed out, half a billion was taken from people’s accounts last year without them realising. That’s pick-pocketing on an industrial scale.
Why should auto renewals be banned?
According to the Government’s own research, we spend £25 billion each year on subscriptions in sectors that are not regulated each year. And people spend £1.8 billion on subscriptions that they do not think are good value for money.
The Government’s report found: These are a result of failures to fully inform all consumers before purchasing subscriptions, failures to keep customers informed about their subscriptions, and cancellation processes that are difficult to navigate. The government is considering regulation to address these harms.
So why not ban auto-renewals now if subscription services are so bad? Well that’s a good question. After all, businesses could just be told tomorrow to make annual renewals ‘opt-in’. This would mean each year you physically have to choose to continue the subscription. That would solve the problem definitively.
Needless to say, some businesses have got the hump about these proposals. Disney+ has accused the Government of “trying to micromanage the way subscription streamers interact with their customers”. Which makes me wonder what problem the Mouse House has with giving people a fair choice about what they spend their money on.
Here’s one reason why businesses don’t want us to look too closely at our bank accounts. I recently helped a reader from Glasgow get a refund of £800 plus interest after we discovered that her mobile phone company had failed to cancel multiple mobile phone insurance policies that they sold her each time she upgraded her phone. She had four running at the same time! Innocent mistake or deliberate sales tactics – either way, we can’t trust some businesses to police themselves.
The problem with subscriptions
Knowledge is power when it comes to tackling subscription auto-renewals and other rip-offs. Here’s a quick overview of the main problems.
One of the biggest sources of complaint that I hear about from readers is the annual auto renewal. Businesses take a calculated risk that if they hit us with one large debit every 12 months, we might not notice the payment. By the time we do, they can argue that we are already ‘using the service’ and refuse a refund. This is a very crafty and manipulative practice. In addition, these subscriptions can be clamped on to credit cards as well as debit cards, making them even harder to spot. Some of the world’s biggest companies use this method to bill their customers. But it is worth complaining. I recently spoke to a reader who was billed £90 for an annual anti-virus software subscription. He spotted it after three days and made a formal complaint. Not only was the payment refunded – he was given a 60% discount to sign up for another year.
Annual auto-renewals have less chance of being spotted, but the size of the debit might give the game away. The alternative for businesses is to charge you monthly (though you often ‘commit’ for a year). Though you have an opportunity each month to spot the debit, psychologically, if the payment is around the £4.99 mark, people are often more inclined to ‘let it go’. We need to stop thinking about these bills in monthly terms though. £4.99 is just shy of £60 a year, which is a real commitment in this cost-of-living crisis.
Subscription traps and free trials
From diet pills to face creams, subscription traps are where a firm gives you a free trial or offer for a few months, then hits you with often hugely overpriced charges for basic products. These out-and-out rip offs are often from businesses based abroad. The irony is you can usually tell your bank to cancel the payment and stop the problem immediately. But huge numbers of people tell me that they feel responsible for being tricked and swallow the losses. I recently helped one reader get £1,000 back from one of these con artists after they failed to provide proof that she had agreed to regular variable debits.
Even if you’ve spotted a sneaky auto-renewal or suspect one is on the horizon, cancelling the things can be a real chore. Some companies go out of their way to make this so difficult, so I can only conclude it’s a deliberate plan to make you give up and keep paying. Amazon is currently being investigated in the US over the sheer volume of clicks it takes to cancel its Prime membership. And when I tried to cancel extra premium channels (£4.99 a pop) that I’d trialled through my Amazon Prime TV streaming service, I had to go on to my laptop to do it, though I’d agreed to the trial with one click on my TV. It took me 20 clicks to find the cancellation screen.
Auto-renewals were pioneered by the insurance industry decades ago, ostensibly as a way to ensure that people stayed insured and didn’t run out in the gaps between cover ending and a new policy beginning. While it’s important that insurance cover is continuous – car insurance is a legal requirement, for example – many readers tell me that they think the auto renewal of insurance with one cursory notification is an excuse by the industry to sneak big price rises past us under the radar. The theory being if we miss the renewal date, we end up with a notable premium increase and a hefty exit fee to escape. And it’s clear that we do pay more for staying loyal too. Figures from the Office for National Statistics (ONS) also show that the price of car insurance has gone up 43% in the last year.
How to find out what your subscriptions you are paying for
There are three main types of regular payment that can be used to debit money from your accounts. Direct debits, standing orders and continuous payment authorities. It’s the last category that causes the most problems because this form of regular payment is the most widespread and hardest to spot.
A direct debit (DD) is an agreement between you and a business that lets them debit money from your account. The business can vary this by date and the amount of cash they can take – but only if they give you advance notice if something is going to change. This is the most common payment for utility bills, insurance contracts and ‘big business’ payments.
A standing order (SO) is something only you authorise to allow a set payment to another business each month. You control it and get to cancel it.
A continuous payment authority (CPA) works in a similar way to direct debits and allows a business to debit money from your account, card or phone just by agreeing it on the phone, online or in person. You don’t need to do anything more than say yes or tick a box to do this. While this makes agreeing contracts super easy, it is also open to exploitation. An unscrupulous business can tell your bank that they have your permission when they don’t, for example.
To my intense annoyance, you have to trawl through all of your accounts for 13 months to find all of these missing payments. There are some free apps that help you find regular payments but nothing that picks up all of them yet. And don’t be fooled by your bank’s online banking ‘subscriptions’ settings too. I’ve yet to find one that identifies even half of the continuous payment authorities lurking on accounts.
Why ban auto-renewals?
I genuinely don’t understand why businesses are moaning about the tightening of rules around auto-renewals. If they really do care about their customers – and are proud of the services they offer – then what’s the problem with asking their customers to opt in for another year?
Unless of course, they aren’t so confident that they offer value for money…
Featured in Times Money Mentor – Martyn James