Update: 11:20 a.m. Friday, July 24, 2009: To include comments from Orbitz.
Thousands of Web shoppers have complained that "mystery charges" are showing up on their credit card statements and have accused those who operate so-called Web loyalty programs of duping them into signing up.
As a result, the U.S. Senate Commerce Committee is investigating Vertrue, WebLoyalty, and Affinion--companies who make "cash-back" and coupon offers to consumers and charge those who enroll in their loyalty programs.
If you think that anyone who unwittingly signs up to one of these programs must be an e-commerce rookie and that it couldn't happen to someone as savvy as you, take care that your overconfidence doesn't cost you. Josh Lowensohn, a 26-year-old CNET reporter and longtime Web shopper, this week found that a credit card he rarely uses was billed $12 in each of the past eight months by WebLoyalty.
Last November, after almost completing a purchase at Buy.com, Lowensohn was presented with an advertisement that asked him for his e-mail address. (See top half of ad above and bottom half at the end of this story.) He couldn't quickly find a way to get past the page and said he remembers thinking he would type in one of his rarely used e-mail addresses just so he could complete his transaction. Lowensohn was confident he couldn't lose anything because the advertiser didn't have his credit card information.
But WebLoyalty didn't need Lowensohn to charge his credit card. WebLoyalty CEO Rick Fernandes said Buy.com--for a fee--enabled his company to charge Lowensohn.
Web loyalty to whom?
A 10-minute Google search turns up thousands of stories similar to Lowensohn's.
Apparently, many consumers are unaware that for years now, e-tailers such as Buy.com, Orbitz, Fandango, and hundreds of others have given Web loyalty programs, also known as post-transaction marketers, access to their customers' credit cards. Some online shoppers don't realize that when they enter their e-mail addresses into these ads, they are opting into the programs and authorizing the charges.
The retailers maintain they've done nothing wrong and say it's all disclosed in their terms of service agreements. But to those who say they were duped into joining these programs, their Web store has violated a trust.
Representatives from Buy.com, Orbtiz and Fandango say they are doing their customers a favor.
"Consumers find this of value otherwise we wouldn't have it on the site," said Brian Hoyt, an Orbitz spokesman. "We're not in the business of misleading consumers."
Hoyt said that in the past month Orbitz received maybe 30 complaints about WebLoyalty and the percentage of complaints is less than one percent. Buy.com also said the number of complaints is small.
"We have a longstanding relationship with WebLoyalty because we think they provide value to our customers," said Jeff Wisot, vice president of marketing at Buy.com. "They are a company that has millions of customers who are happy with them and they provide valuable discounts and other services to their customers."
What he didn't say is that WebLoyalty pays Buy.com and other retailers for the right to market to their customers. Adam Sarner, a marketing analyst for research firm Gartner, said he is skeptical that these kinds of relationships between marketers and retailers are good for consumers.
"If you demonstrate value and a benefit for both sides," Sarner said, "customers shouldn't be complaining about being tricked into accepting your offer. Obviously, companies that bury terms in fine print or get (credit card information from someone other than the customer) already know consumers don't want their products."
Complaints, lawsuits, investigations
A spokeswoman for the U.S. Senate Commerce Committee told CNET on Wednesday that what started as a preliminary inquiry into WebLoyalty, Vertrue, and Affinion is now a "full-blown" investigation. She said: "It's becoming clearer and clearer that consumers can be at risk for these mystery charges when they shop online."
Fernandes and a spokesman for Vertrue say their practices are legal and even surpass the law's expectations. "There has never been a determination anywhere that (Vertrue's) marketing has failed to comply with the law," said George Thomas, a company spokesman. "I think after a full and fair review by the committee it will find...the practices employed by the company are specifically permitted by (Federal Trade Commission) rules."
Be that as it may, any retailer that knows how to do a Google search could have a tough time explaining to customers why it chose to associate with firms dogged by so much controversy.
Class action lawsuits have been filed against both Vertrue and WebLoyalty. In Vertrue's case, a complaint filed last year in Massachusetts alleges "consumers almost never legitimately join any of Vertrue (or its brand) Adaptive Marketing's various membership programs." In 2006, a complaint was filed that accused WebLoyalty of perpetrating a "coupon click-fraud scheme" that involved the "deceptive sale" of discount products and the "unauthorized transfer of private credit and debit card information." Fandango was also named in the suit.
That case was settled out of court for an undisclosed amount and some people who claim they were misled by WebLoyalty may be entitled to some money, according to a Web site that appears to be created to handle claims.
In February, about a half dozen British retailers, including HMV, the country's biggest chain, either "severed or suspended ties" with WebLoyalty, after receiving "a wave of complaints," according to a report in The Independent, a British publication.
WebLoyalty and Vertrue assert the complaints come from a tiny fraction of their overall customers.
In Lowensohn's case, he was presented with a coupon worth $10 off his next purchase. Fernandes said Lowensohn was informed three times on the page that he would be billed after 30 days and was shown a graphic that underscored the terms. Following that, Lowensohn was sent a dozen e-mails that notified him he would be getting billed.
This is how Lowensohn saw it: the page with the offer appeared during the buying process when all he wanted to do was to confirm his transaction, he said. The page was stuffed with fine print and it wasn't apparent to him how to move past the page without keying in his e-mail address.
As for the e-mails WebLoyalty sent him, Lowensohn, like millions of other Internet users, tries to avoid spam by providing advertisers with an e-mail address he rarely uses or checks. He never saw WebLoyalty's e-mails. He also never knew that Buy.com had cut a deal to turn over his credit card information to marketers.
"In the terms and conditions," wrote Buy.com's Wisot, "it's very clear that (customer) credit card information is going to be transferred over to WebLoyalty."
That appears to leave Buy.com plenty of room to do as it pleases with customers' personal information.
In the end, WebLoyalty says it gives unhappy customers their money back when they ask. The company has agreed to refund most of Lowensohn's $96. Before he gets it all he must submit an affidavit and the company must OK it after a review. Fernandes said his company's refund policy is "easy."
It's safe to say that many people don't check their statements carefully. What happens to people who go for years without catching charges? They would presumably be paying the balance on their credit card charges as well as interest.
Sarner, from Gartner, said that even if the Web loyalty programs affect only a small percentage of an online store's customers, it's bad for consumers as well as the retailer:
"What good is it going to do for your brand if these people hate you."