Senate committee: Look out, 'scam marketers'

Senate Commerce Committee Chairman Rockefeller introduces a bill designed to halt the practice of charging consumers' credit cards without their explicit consent.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
4 min read

The U.S. Senate is moving to put an end to one of the biggest scandals ever to shake online retail.

Webloyalty CEO Richard Fernandes during an interview on 'The Today Show.'

Sen. John (Jay) Rockefeller, chairman of the Senate Commerce Committee, introduced a bill on Wednesday designed to prevent post-transaction marketers from duping consumers into enrolling into monthly memberships.

Rockefeller's committee has said marketers Webloyalty, Affinion, and Vertrue were responsible for mysterious credit card charges that millions of Americans, including elderly citizens and wounded Iraqi veterans, have complained about for years. Rockefeller's bill, called "Restore Online Shoppers' Confidence Act," is the result of a yearlong investigation by the Commerce Committee (See CNET's past coverage on marketing scandals here).

Webloyalty, Affinion, and Vertrue all employed similar practices, according to the Rockefeller's staff. They typically presented pop-up ads to online shoppers when they were finalizing a transaction at any one of a score of Web stores.

To many consumers who have complained, the ads appeared to be a discount coupon from the retailer. Laden with fine print and confusing "free" offers, the marketers offered discounts, if the shopper would only key in their username or e-mail address. The rub was that by entering that information, they were agreeing to pay $20 in monthly fees to join a membership program.

Those terms were tucked into fine print. Millions of shoppers didn't realize for months or even years that they were being charged. Many shoppers said they offered their e-mail information while believing that they couldn't get hurt because they hadn't provided their credit card information.

In these cases, the marketers didn't need that from a card owner. They got that personal information from e-tailers such as Priceline.com, Buy.com, Orbitz, Fandango, Continental Airlines, 1-800-Flowers.com, FTD.com, and Classmates.com.

"Each company instructed their call center representatives not to issue refunds to consumers, unless the consumers mentioned certain key words like 'attorney general,' 'Better Business Bureau,' or 'bank representative.'"
--Senate Commerce Committee report

But the schemes didn't stop with the charges. Rockefeller's staff of investigators issued a second report on some of the techniques the marketers used to help them hold on to the money, once consumers realized that they were charged without their knowledge. The Commerce Committee's report said those techniques included:

Refund Mitigation: In a practice known as "refund mitigation," the three companies created scripts and policies intended to minimize the amount of money they would have to return to consumers who had inadvertently enrolled in the clubs. For consumers who insisted on refunds, the companies employed a variety of tactics to keep the refund amounts as small as possible, including requiring customers to obtain refunds by completing written affidavits.

Magic Words: Each company instructed their call center representatives not to issue refunds to consumers, unless the consumers mentioned certain key words like "attorney general," "Better Business Bureau," or "bank representative." These policies were designed to satisfy those consumers who were most likely to create additional "customer noise" problems and reputational damage for the companies. Consumers who did not mention the "magic words" did not receive full refunds.

Multiple Memberships: Because they could encounter the aggressive sales tactics of Affinion, Vertrue, and Webloyalty while shopping on hundreds of different Web sites, online shoppers were frequently enrolled inadvertently in multiple membership clubs offered by the same company. Consequently, many customers who called Affinion, Vertrue, and Webloyalty to cancel one membership and request a refund were actually enrolled in more than one of the companies' clubs. Webloyalty and Vertrue trained their agents not to inform consumers about these additional memberships.

Failure to Follow Credit Card Rules: Affinion, Vertrue, and Webloyalty violated MasterCard and Visa's rules for credit card and debit card transactions, and American Express placed the companies in monitoring programs for merchants with high rates of disputed charges from cardholders (known as "chargebacks"). Between 2006 and 2008, the three largest credit card companies processed 1.4 million chargeback requests and over 10 million refunds, totaling hundreds of millions of dollars, from cardholders disputing charges from Affinion, Vertrue, and Webloyalty.

Despite these rule violations and the high volume of consumer complaints, the three companies enjoyed uninterrupted access to the payment systems operated by Visa, MasterCard, and American Express until late 2009. Once Chairman Rockefeller notified the credit card companies of the aggressive online sales tactics in December 2009, the companies quickly took action to ensure that Affinion, Vertrue, Webloyalty, and their e-commerce partners were in compliance with their rules for merchants and that their cardholders were no longer subject to the misleading "data pass" process.

Webloyalty, which has adopted changes that it says will make it harder for people to mistakenly join one of their club memberships, issued a statement to the media: "Webloyalty is committed to providing value to all online consumers who join our membership programs, to making sure that consumers understand fully the benefits of our programs."