Mr. President, please protect Web shoppers
For years, Web retailers teamed with unscrupulous marketers to dupe consumers into enrolling in dubious marketing programs. The president is expected to sign a bill outlawing the practice.
commentary During one of the busiest online shopping periods of the year, legislation that protects online shoppers from being preyed upon by unscrupulous marketers and Internet retailers could become law soon.
A bill called the "Restore Online Shoppers' Confidence Act" was passed by the U.S. House of Representatives last week and should soon hit the desk of President Barack Obama.
The legislation is designed to stop a practice made infamous by three marketing firms: Webloyalty, Vertrue, and Affinion. These companies presented ads for membership programs to consumers just as they were completing transactions at Web stores. The ads they presented didn't require shoppers to key in their own credit card numbers to sign up or to pay for the memberships. No, the marketers got the information from the well-known and trusted stores where the consumers shopped, such as Priceline, Orbitz, FTD.com, Classmates.com, Buy.com, Barnes & Noble, and Hertz. That trust was misplaced.
Those stores betrayed their customers by selling their credit card information to the marketers, according to the findings of an investigation by the U.S. Senate. The result was that people found "mystery charges" on their credit card statements and had no idea how they got there.
Passing legislation like this might seem like a no-brainer. The bill outlaws signing people up to membership programs and charging their credit cards without their expressed permission. Slam dunk, right? Yet, the practice went on for nearly a decade. Lawsuits were filed. Thousands of complaints were registered with consumer advocates, the Better Business Bureau, and at least a half dozen different state attorneys general, including Richard Blumenthal, Connecticut's attorney general. Webloyalty, Vertrue, and Affinion are all based there and operated under Blumenthal's nose.
Blumenthal has made headlines for his investigations of sex ads on Craigslist and information gathering by Google. As for Connecticut companies duping consumers out of $1 billion, Blumenthal missed that one.
If you study the history of these three marketers, you discover that some are well-connected. Apollo Management, the private equity firm founded by former Drexel Burnham Lambert banker Leon Black, is the parent company of Affinion. There's no slam dunk with these well-funded companies and, indeed, they apparently will continue to use the same soon-to-be outlawed model in other categories, according to Prentiss Cox.
Nobody has studied the shenanigans of the three marketers better than Cox, a former assistant attorney general for the state of Minnesota who is now a law professor at the University of Minnesota and someone who has tried sounding the alarm about these companies for years.
"This bill that passed Congress was an honestly bipartisan vote--a rare moment of consensus these days," said Cox, in an e-mail interview. "That level of agreement is appropriate to the problem the bill addresses. There is simply no justification for allowing e-retailers to make money by selling access to the credit card or other billing information given to them by consumers. The evidence is overwhelming that this practice has resulted in tens of millions of consumers charged for "products" they did not want, did not use and for which do not even know they have paid."
This particular legislation won't stop Webloyalty, Vertrue, Affinion, or similar companies from looking for other ways to dupe consumers, according to Cox.
"This industry has lived by constantly adapting this scam with different solicitation methods," Cox said. "If this problem persists on the Internet after the bill becomes law, it is time to hold hearings about a more comprehensive solution...this internet scam is just part of a bigger problem called pre-acquired account marketing.
"I hope," Cox continued, "success with this legislation will prompt Congressional investigation of the substantially similar schemes used by banks and other account issuers in league with the same third party sellers."