How a 'free trial' can actually cost you big

Hanna Horvath Headshot

By

Hanna Horvath, CFP®

Hanna Horvath, CFP®

CERTIFIED FINANCIAL PLANNER™ & Managing Editor, Growth

Hanna Horvath is a CERTIFIED FINANCIAL PLANNER™ and managing editor for growth at Policygenius. She helps produce the Easy Money newsletter, and owns all growth initiatives for Easy Money. She recently passed her exam to become a CERTIFIED FINANCIAL PLANNER™ in November 2020.

Hanna's work has appeared in NBC News, Business Insider and Inc. Magazine. She is regularly quoted in top media outlets, including CNBC, Best Company and HerMoney. She has also appeared on the Money Moolala podcast and All's Fair podcast.

Prior to Policygenius, Hanna wrote for KNBC in Los Angeles and WNBC in New York. When she isn't writing, she's (often) running, (usually) cooking and (sometimes) doing photography.

Published March 28, 2019|4 min read

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You’ve probably seen it before: A photo of a celebrity online, touting an intriguing new product — a ‘miracle tea’ that helps you shed weight quickly, or a face cream that takes years off your face.

These products often offer a deal that seems too good to be true: a risk-free trial with just the cost of shipping and handling.

But these deals can often leave you in debt.

“This problem is massive,” said Steve Baker, international investigations specialist at Better Business Bureau. “A good part of the population has fallen for these scams.”

How do subscription traps work?

Many times, when you’re applying for a product’s free trial, it’s not truly free. Besides paying for shipping and handling, you are often signing off on a year-long subscription for the product. This information is buried in fine print when you enter your payment information.

Once you click “buy,” the free trial company will begin charging your credit card. It’s often difficult to contact the sellers to cancel the subscription and get a refund.

“It takes only a second to put in your credit card information,” he said. “But it can take weeks or months to get your money back, if you do at all.”

Who falls for free-trial scams?

Most people have.

“Many think that only dumb people for these kind of scams,” Baker said. “But no. I’ve met people with Ph.D.s who have fallen for it. It’s hard to imagine that it could happen to you, but it’s hard to avoid.”

Baker is the author of a BBB study that investigated subscription traps. They found the problem is growing. Complaints to the Federal Trade Commission more than doubled between 2015 to 2017. Losses during that time reached over $15 million.

I’ve been scammed. Now what?

If you’ve fallen for a subscription trap, first try to contact the seller to cancel and get a refund. If that’s not possible, you can dispute the charge with your credit card company. If your card company deems your dispute valid, the transaction will be permanently reversed.

Major card companies are aware of the issue of subscription traps and have specific policies in place. For example, Mastercard requires a seller to get approval from a customer after the conclusion of a free trial to continue billing them, according to a 2019 press release. Representatives from Visa and American Express did not respond to requests for comment.

If the charges persist, contact the FTC. Aggressive online sales tactics are against the law. FTC has recently made a greater effort to challenge free trial companies, and has so far resolved $1.3 billion in total losses.

Ads are everywhere and it can sometimes be hard to know if a product you’re buying is legitimate. First, do your research. Read reviews. Baker said the BBB has its own list of accredited businesses. He recommends checking the list before buying something from a website you’re unfamiliar with. Make sure any food- or drug-related products, including dietary pills and skin creams, have been approved by the Food and Drug Administration.

Other types of traps: zombie subscriptions

Sometimes, you don’t get scammed by a product. You just forget to cancel.

“Have you ever been in a situation where you’ll do whatever it takes to get a birthday card, and the next thing you know you’re signing up for a monthly subscription to a greeting card website?” said Thomas Smyth, CEO of Trim, a financial health company. “And you forget to cancel. And they just keep charging you.”

These types of subscription are called “zombie subscriptions.” They are products or memberships you bought and no longer use, but still charge you. In these cases, you often forget you signed up until you see the charge on your card the next month.

“And then it’s like, ‘Well now I have the whole month to keep using this product, so I’ll just wait and cancel,” Smyth said. “It’s a cycle.”

This is where Smyth’s company comes in. Trim finds your recurring monthly subscriptions and cancels the ones you don’t use. It also will negotiate down certain bills on your behalf (and it will charge a percentage of the savings).

Truebill offers a similar service.

“The alternative is going through all of your accounts manually,” said Haroon Mokhtarzada, CEO of Truebill.

Mokhtarzada estimates that more than 30% of the adult population is currently paying for a subscription they don’t know about. This can include streaming services, gym memberships and clothing rentals.

“People try not to forget about all these things they signed up for, but they often do,” he said. “We should be able to solve this problem.”

Paying for a bunch of subscription services? Here’s how to offset the cost.

Image: Brooke Lark