You may be one of thousands of people who've had
unauthorized charges placed on their credit cards by Internet marketers.
But you may not know that your card number was originally handed over to
the perpetrators by your own bank.
A case in point is BrandDirect Marketing, a company partly owned by
Reader's Digest and Federated Department Stores.
Through its Web site, BrandDirect promotes "free trial memberships" in
brand-name buyers clubs. The online clubs BrandDirect currently handles
are IBM Small Business Solutions, Simplicity Sewing and Arthur Frommer's
Budget Travel, among many others.
On the surface, it all appears professional. But watch out for the
skeleton lurking in the closet.
BrandDirect agreed in August to repay consumers $11 million for
questionable credit card charges, as part of a settlement it struck with
the states of Connecticut and Washington.
"BrandDirect uses information provided by some of the nation's largest
financial institutions, including First USA Bank, Citibank, Chase
Manhattan Bank, and others," Washington Attorney General Christine
Gregoire said in a statement.
Thanks to these banks, BrandDirect's salespeople already had the credit
card numbers of the prospects they were calling. This makes it all too
easy for a marketer looking for a commission to charge a card,
regardless of what the consumer actually said. Since customers were
never asked to read their credit card number over the phone, it was easy
for people to assume they wouldn't be charged.
So much for "free"
The states alleged that BrandDirect "offered a 30-day 'free' trial
membership, but charged many customers during that period." The company
also "failed to cancel memberships on demand," the states said.
David Ziller, senior vice president of BrandDirect, said in an
interview, "We're doing everything to comply with the Attorney General
settlement," and that the company's marketing is not now causing any
It isn't necessarily a crime in the United States for a bank to sell a
telemarketing company your credit card number, although it is in some
The Gramm-Leach-Bliley Act, enacted in November 1999, is the most recent
U.S. law affecting the transfer of credit card number to unauthorized
third parties. The act allows consumers to "opt out" of a few
data-sharing arrangements. But it permits banks to give your credit card
numbers to any "affiliated" third party, such as an insurance
subsidiary. And--in an exception that infuriates consumer groups--a
bank may give the information to a third party that it has a "joint
By contrast, Canada recently adopted a Personal Information and
Electronic Documents Act, which went into effect on Jan. 1, 2001. The
first phase of the law protects personal banking data, such as
credit card numbers. A second phase, beginning on Jan. 1, 2002, will
cover personal health information.
And in Europe, a "data protection directive" became effective in 1998,
affecting all commerce in the 15 countries of the European Union.
Companies must reveal to consumers the information that's been collected
on them but protect personal data when exchanging files with other
The sale of credit card numbers is such a lucrative business that it's
certain to thrive wherever it's allowed.
In one recent case, U.S. Bank reached a settlement with California and
37 other states last September, prohibiting the bank from sharing
credit card data unless its customers agree to "opt in." According to
the Idaho attorney general's office, the bank was receiving a commission
of 22 percent of the sales made by telemarketing companies.
"The benefit of opt-in as compared to opt-out is this: Who should be in
charge of your personal financial information--your bank or you?"
Brett Delange, Idaho deputy attorney general, said in an interview.
To protect your credit card numbers, contact your bank to determine
whether there's a way to "opt out" of data sharing. Some banks will
comply, even where this isn't required by law.
If not, the next best thing you can do is watch your credit card
statements like a hawk.
Consumer advocate Brian Livingston appears at CNET News.com every
Friday. Do you know of a problem affecting consumers? Send info to
tips@BrianLivingston.com. He'll send you a book of high-tech secrets
free if you're the first to submit a tip he prints.