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"Free Trial" Not So Free

Buying Clubs to Pay $9 Million to Settle Deception Charges

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WASHINGTON, Oct. 24, 2001 -- A group of buying clubs including Triad Discount Buying Service, will pay more than $9 million to settle charges that they misled consumers into accepting trial club memberships and obtained consumers' billing information from telemarketers without the consumers' knowledge or authorization. Consumers then were enrolled in the clubs and charged up to $96 in yearly membership fees.

Of the amount to be paid, $8.3 million is earmarked for consumer restitution and $750,000 will cover state investigative costs. The multi-state investigation, which was led by Florida and Missouri, resulted in more than 40 states entering into the agreement.

"This case signals to companies offering trial offers that they must disclose the important terms and conditions of their offers and obtain consumers' agreement before transferring their billing information to third parties or charging their credit cards," said Federal Trade Commission Chairman Timothy J. Muris. "Companies that do not take these steps will face coordinated federal and state attention," he added.

The FTC charged the Triad companies, of Boca Raton, FL, with deceptively signing up buying club members through more than 100 contract telemarketers. These telemarketers generally advertised products such as kitchen gadgets and diet pills to consumers via outbound calls and through media advertising, direct mail, or catalogs that result in inbound calls. After consumers provided their credit card number to pay for the telemarketer's product, the telemarketer pitched a 30 day "no obligation" free trial in Triad's buying club. Once consumers agreed to the free trial, and in many instances even when they did not agree, their names and credit card numbers were transferred by the contract telemarketer to the Triad companies.

Within 45 days, the Triad companies charged membership fees to the consumers' credit cards without their knowledge or authorization unless they had called to cancel their trial membership.

According to the Commission's complaint, the scripts did not adequately disclose that the consumers' credit card numbers would be turned over to a third party, or that Triad would charge consumers if they did not cancel their trial membership within the 30 day period. The scripts also failed, according to the complaint, to adequately disclose that in following years, consumers' credit cards would be charged annual renewal fees, unless consumers cancelled.

Under the court agreement, approximately 275,000 consumers who filed complaints against Triad companies nationwide may be eligible for partial membership refunds from the companies pending court approval.

"This should send a strong message that large-scale consumer fraud will not be tolerated," Missouri Attorney General Jay Nixon said. "This settlement ensures that thousands of consumers will receive timely restitution and that safeguards are in place to prevent this deception from reoccurring."

Triad operator Ira Smolev and the Triad companies, some of which are currently in bankruptcy court, are required to drastically revise their marketing practices to avoid future deceptions. Included in the order are prohibitions against misrepresenting "free" offers of goods or services and failing to disclose any consumer obligations by accepting trial offers.

The companies are also prohibited from obtaining from third parties consumers' personal billing information, including credit and unique identifying information, without authorization, or disseminating the information, and from signing up new members or renewing existing memberships without express, verifiable authorization from the consumer.

The parties named in the court order include: Ira Smolev, Triad Discount Buying Service, Inc., Member Service of America, L.L.C., Orchid Associates, L.L.C., Premier Membership Services, L.L.C., Inter*Act Travel, Inc., Inter*Act Communications, Inc., Consumer Data Depot, L.L.C., ERevenue Partners, L.L.C., Far Services, L.L.C., Linden Investments, L.L.C., Lynstrom Information Service, L.L.C., Premier Club Services, L.L.C., Premier Marketing Services of America, L.L.C., Residents Resource Network, L.L.C., Revenue Solutions, L.L.C., Spanish River Investors, L.L.C., The Backend Company of America, Inc., The Shoppers Edge, L.L.C., Triad Marketing Group, Inc., and Tritell of Nevada, L.L.C., and the corporations' successors and assigns.

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