A U.S. government investigation has prompted several well-known online retailers to sever ties with marketing firms after both were accused of working together to deceive customers out of $1.4 billion.
The retailers, including Priceline.com, Classmates.com, FTD.com, Shutterfly.com and Orbitz.com, were accused of working with marketers Affinion, Vertrue and Webloyalty to mislead consumers into unknowingly signing up for "affinity" or "loyalty" programs that would charge their credit card accounts.
The marketers are currently still in business. So are the retailers involved, some of which deny the extensive documentation (.pdf) aired by the U.S. Senate Commerce committee during a hearing last week that implies that the retailers willingly partnered with the marketers to allow access to their customers.
Greg Sandoval at CNET reports:
The Senate's investigators said they learned that the retailers had made an unholy alliance with the marketers. Under most of the agreements between the marketing firms and retailers, an advertising page is presented to a shopper while they complete a transaction at the retailer's online store. Many shoppers say they entered their e-mail address and pushed a large "Yes" button on the ad because it appears to be a $10 cash-back offer or coupon. Many of those that complain say they thought they were being rewarded by the retailer for making a purchase.
Written in much smaller print within the ad are the full terms of the deal. A customer is notified there that by providing their e-mail address they are joining a membership program and agreeing to pay one of the marketing firms a monthly fee, typically between $10 and $20.
But the retailers have balked at the idea that they were in the wrong, Sandoval reports.
Some of the companies said:
- Orbitz: "[The company] does not pass on any personally identifiable customer information to third party vendors without their permission."
- United Online, parent company of FTD.com and Classmates.com: "We believe that our marketing practices provide clear disclosure. We do not transfer our customer's credit or debit card information to third parties without our customer's consent."
- Priceline.com: The terms of the deal have "been clearly and fully explained."
The argument is over whether the charges were clearly conveyed to some 30 million consumers affected by the offers. The terms of the agreement were all technically in the advertisement, but the question is whether they were obvious enough to be fair.
For example, the offers didn't require a customer to retype their credit card number. The marketers already had access to it through the original purchase from the e-tailer, so with one click, a customer could easily and unwittingly sign up for a $12 monthly charge.
But new documents prove that the companies knew full well of how unaware consumers were of the implications of these offers.
Sandoval reports again:
According to the Senate Commerce committee's report, a Vertrue employee once wrote that "cancellation calls represent approximately 98 percent of call volume" to the company's customer service operations. One Webloyalty employee said in an e-mail that "90 percent of our members don't know anything about the membership."
Documents obtained by the government show Affinion estimated that the chances of obtaining money from a consumer would be four times higher if a retailer handed over a customer's credit-card information to the marketing firm than if the firm had to get it from the actual cardholder.
Sandoval writes that those affected aren't just the elderly or computer illiterate. Victims include "lawyers, computer programmers, vice presidents, U.S. Army veterans, and journalists," he writes, totaling some 35 million people.
The Senate Commerce committee concluded (.pdf) that consumers are unprotected from these 'aggressive sales tactics':
Affinion, Vertrue and Webloyalty use aggressive sales tactics intentionally designed to mislead online shoppers. These three companies exploit shoppers‘ expectations about the online purchasing process to charge millions of consumers each year for services the consumers do not want and do not understand they have purchased. Hundreds of e-commerce merchants – including many of the best-known, respected websites and retailers on the Internet – allow these three companies to use aggressive sales tactics against their customers, and share in the revenues generated by these misleading tactics. While Congress and the Federal Trade Commission have taken steps to curb similar abusive practices in telemarketing, there has not yet been any action to protect consumers while they are shopping online.
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