The One Weird Old Trick to Frustrate Online Scammers, Reduce Fees for Consumers, and Make Americans Happier with Their Finances

Abstract

What do Match.com, Gold's Gym, Time Magazine, and AOL all have in common with Internet hucksters? They've all been caught using automatically recurring transactions to squeeze every last dime out of unwilling customers. Using electronic payment systems, such as credit cards and debit cards, unscrupulous merchants are able to preauthorize deductions from a consumer's account. In doing so, they can conduct "automatic selling," or sales in which a consumer participates in a transaction as a default, and must act affirmatively to cancel the exchange. Automatic selling and preauthorized payment are dangerous for consumers, because they can easily lead to overpayment or ignorance of a transaction's true cost, and incentivize the merchant to create obstacles to cancellation. This paper contains case studies demonstrating the spread of automatic selling throughout the modern economy, as it crops up in a diverse set of industries and contexts. It discusses the failures of current regulatory attempts to protect consumers from automatic selling; including efforts by the FTC, Congress, state government, and private regulation. Finally, it describes a simple, straightforward mechanism for reducing or eliminating the harms of automatic selling. This mechanism, called an "authorization catalogue," functions much like a bank balance sheet, providing consumers with a standardized interface, which lists all current open authorizations on a particular bank account or credit card. It allows consumers to cancel any authorization at any time with the press of a single button.

Keywords: consumer protection, debit cards, credit cards, recurring charges, preauthorized payments, negative option billing, automatic bill pay