As credit-card issuers increasingly encourage recurring charges by merchants, some consumers are finding themselves caught in the middle.
I reported in my May 23 and May 30 columns that two big changes had informally evolved over the last couple of years in the credit-card industry:
Major credit-card networks now allow a "recurring indicator" (a byte of data) to be written into transactions. Merchants that include this byte no longer need to provide a card's expiry month and year, allowing charges to continue on cards that may have expired.
"Account updater" services enable merchants to obtain a consumer's new credit-card number if it has changed due to fraud, a change of banks, or some other reason. This also means that recurring charges can continue.
Combined, these two new features -- which most businesses and consumers are unaware of -- sharply increase the revenue of merchants that rely on auto-billing. But do these new methods also pose risks for individual card holders?
Possibilities for Error and Larceny
After my previous two columns appeared, readers sent me tales indicating that fraud is all too prevalent among credit-card users.
"It is still worth pointing out that the expiration is a security measure, even if it isn't used as an expiration date," writes Brad Jones.
"I was contacted by one of my credit-card companies about a change to a card that included a wrong expiration date. The wrong date was a flag to the creditor that the charge might be bogus -- which it was, in this case."
Another reader, Chip May, says suspicious charges followed him across two changes of credit-card numbers:
"The crook who placed the charge marked it as 'recurring' -- and that meant the CC company blindly 'bumped' it up through two canceled numbers! Never mind expiration dates!", May writes.
"While these automatic processes may be great for the AOLs of the world (those who make it nearly impossible to stop the service), all consumers should have the right to OPT-OUT of such automatic updates. Indeed, just as print subscriptions stop when I fail to send a check, I should be able to stop ANY recurring charge when I no longer desire the service involved."
Preventing Updates Across Credit-Card Changes
In a telephone interview, MasterCard's global group head for bill payment, Ed McLaughlin, told me, "It's very rare for fraudsters to be able to 'walk' across cards."
MasterCard, like other credit-card networks, provides merchants in the know with new numbers for its customers whose accounts have changed for whatever reason. MasterCard's version is called the "Automatic Billing Updater." McLaughlin says consumers have a lot of control over whether this service can be used by companies to continue monthly billings.
"We have a recurring payment stop mechanism," McLaughlin explains. "The Recurring Payment Cancellation Service is a requirement of the MasterCard network." He added that the same rules apply to all issuers of MasterCard plastic in whatever country they may operate.
Controlling Your Card's Recurring Charges
How can a consumer who's concerned about questionable charges get them resolved? McLaughlin says credit-card users should contact the customer-service department of the bank that issued the account. (The relevant phone number is usually printed on the back of the card.)
"Your card is issued by Bank of America or whichever bank issued your card," McLaughlin says. "We really don't get involved in the line of credit you have, the interest rate you have."
Does that mean that the quality of customer service provided by the specific bank that issued a card determines how well a consumer with problems will be treated?
"That's absolutely right," McLaughlin says. "That's why we have thousands of issuers. The consumer has choice."
This is an important point to remember when you're applying for a credit card. Rather than signing up just to get a free rollover of credit or whatever, ask yourself how good the customer service department of this particular issuer will be.
To evaluate your current cards, call the number on the back and ask a routine question. If you don't get excellent treatment, consider switching to an issuer with a better back office. Even if it charges a slightly higher rate of interest, a firm with high standards might give you invaluable support if you ever have trouble with recurring charges in the future.
The Future of Recurring Charges
MasterCard's McLaughlin is a big advocate of recurring credit-card charges as a consumer convenience.
"I love it that I can set up every payment to be made automatically," he told me. "At the end of the month, there's my gas, there's my water, and so on.
"Our job is to make that transparent to the consumer," he added. "We call it 'never-break' transactions."
Credit-card networks are so enamored of signing up consumers for auto-billing that "there is a different rate schedule [charged to merchants] for recurring transactions," McLaughlin says. Is it a lower rate? "Absolutely."
Credit-card companies making expiration dates and card numbers more "fluid" is a trend that seems likely to grow. The best step businesses and consumers can take is to educate themselves about these procedures. The more you know, the more you can do in case anything does go wrong.
Readers Jones and May will receive gift certificates for a book, CD, or DVD of their choice for sending me comments that I printed. My thanks to every reader who responded.