Current Events in April 2001

California Attorney General Bill Lockyer, with the district attorneys of Orange and Ventura Counties, announced the settlement of a consumer protection complaint against MemberWorks, Inc., and Sears, Roebuck and Co., that requires refunds and changes in the way discount club memberships are marketed and sold.

The settlement, approved by Orange County Superior Court Judge Tam Nomoto Schumann, involves a program in which MemberWorks and Sears offered discounts to customers who enroll in a membership program for an annual fee ranging between $49 and $89.

After a 30-day trial period, the consumers' credit cards are automatically charged for a one-year membership unless the consumers take affirmative steps to cancel the memberships. At the end of the membership year, and annually thereafter, a consumer's credit card is charged automatically for a membership renewal, unless the member take affirmative steps to cancel the memberships under a practice known as a "negative option."

The complaint alleges that the telemarketing and other promotional practices used by Connecticut-based MemberWorks and Illinois-based Sears misled and confused consumers about their authorization for billing and about the procedures for billing, renewal and cancellation.

Specifically, the complaint alleges that consumers were not informed that defendants had the ability to charge their credit cards without the consumers providing their credit card numbers or ever signing anything. After purportedly agreeing to a trial period, consumers received a membership packet in the mail, which disclosed the negative option feature and the other terms of membership in tiny 6 to 7 point type.

The complaint further alleges that the companies solicited the sale of memberships by promising free round trip airline tickets through the "Fly Away Free USA" program, but did not clearly disclose that in order to receive these tickets, the consumer was required to pay designated rates for a specified number of nights at designated hotels.

Some consumers were billed without their consent and were later referred to as subscribers in renewal packets when those consumers never consented to subscribing or joining the program.

Without admitting liability, MemberWorks agreed to pay $1.5 million and Sears will pay $500,000 in civil penalties and costs, to be divided among the counties of Orange and Ventura and the State of California. The companies agreed to a permanent injunction that requires a number of changes in business practices to improve the notice to consumers.

Telephone solicitors for the companies will now tell consumers that the consumer does not need to provide his/her account number in order to be charged, and must disclose that the account will be automatically charged each year unless the consumer calls to cancel. Specific notices are now required in the membership and renewal packets and on the outside of the envelopes containing the packets. Those notices tell consumers that UNLESS YOU CANCEL, YOUR CREDIT CARD ACCOUNT WILL BE CHARGED.

The companies also agreed to give refunds to consumers who paid for memberships in the last two and half years who did not use any of the benefits of the program, have not already received a full refund, and who either did not authorize the membership, did not know that their credit cards would be charged, or were deceived or misled concerning the terms of the membership.

The programs marketed, sold and provided by MEMBERWORKS INCORPORATED include the following:

• 24Protect
• BusinessMax
• Callers Advantage
• CardMember Protection Service
• Connections
• Countrywide Dental Program
• Countrywide Dental & Health Program
• Essentials
• HealthTrends
• Home & Garden Rewards
• Homeworks
• Leisure Advantage
• MarketPlaza
• MoneyMaster
• PremierHealth
• PremierHealth Plus
• PremierHealth Trends
• Privacy Plus
• RateSaver
• SmartSource
• Travel Arrangements
• ValueMax Shopping Service

The programs marketed, sold and provided by SEARS, ROEBUCK AND CO., in conjunction with MEMBERWORKS INCORPORATED, include the following:

• Countrywide Dental & Health Program from Sears
• Countrywide Dental Program from Sears
• HealthTrends from Sears
• Health Connections from Sears
• MoneyMaster
• Sears Health Connections
• Sears PremierHealth
• Sears PremierHealth Trends
• Travel Arrangements

April 26, 2001
iMotors, an online user-car boutique, is closing down after two years of putting customers together with the user car of their dreams. A statement on the iMotors Web site said customers who have made deposits will receive prompt refunds and warranties will continue to be honored.

The company said it had insufficient capital to continue operations. It had cut its workforce by 30 percent last month and cut back its operations to focus on the West Coast. It had major operations in San Francisco and Sacramento.

iMotors found, purchased and reconditioned user cars to match customer requetsts. At one time it had 800 employees nationwide and seemed on the road to building an enduring franchise, but difficulties in turning a profit and investors' sudden loss of faith in Web businesses brought its joy ride to an end.

iMotors also faced stiff competition from eBay Motors, and Autobytel online and from CarMax and other bricks and mortar used-car superstores.

For more information regarding refunds, customers can call 888-iMOTORS. Customers with warranties in force will remain covered for the duration of the their policies, the company said. Further information on warranty administration and claims can be obtained from Fidelity Insurance at 800-327-5172.

April 20, 2001
President Bush has nominated Mary Sheila Gall to succeed activist Ann Brown as chair of the Consumer Product Safety Commission (CPSC), likely signaling a new era of restraint by the agency.

Gall has been one of three CPSC commissioners since being appointed by President Bush's father in 1991. She has been a critic of Brown's activist style, accusing Brown of promoting a "federal Nanny State."

Brown's supporters note that she has not only lambasted business but has also recognized companies that emphasize safety. She established the Chairman's Commendation to recognize outstanding contributions to safety. It has been awarded to 19 recipients, including Procter & Gamble, Toys R Us, Hasbro's Playskool Division and the Whirlpool Corporation.

Brown and Gall have differed recently on the issue of baby bath seats. There have been at least 67 deaths associated with the seats, which are supposed to make it easier for parents to bathe infants 6 to 9 months old. But babies can slip out of the seats and drown if left unattended even for a short time. Brown has wanted to ban the seats while Gall argues that it is the parents' responsibility to use the seats safely.

They've also disagreed on baby walkers. Gall voted against regulating them, saying it's not the manufacturers' fault if parents fail to supervise their children and let them fall down a flight of stairs while using the walkers.

However, Gall has taken a strong pro-safety stance when she feels it's warranted. She voted in favor of a rule to make cigarette lighters child-resistant and also voted for the recent $1.75 million settlement with Cosco, which had failed to report defects in baby products that led to two deaths and hundreds of injuries.

The CPSC is likely to shift towards Gall's views over the next year. After Gall is confirmed by the Senate, Brown plans to leave the commission, which will create a vacancy that's likely to be filled by someone whose views are more nearly aligned with Gall than with Brown.

And what will Brown do with herself post-CPSC? She says she'll start a nonprofit organization to promote product safety. It won't be her first foray into the nonprofit world. For more than two decades prior to her CPSC appointment, Brown was a consumer advocate. She served as vice president of the Consumer Federation of America for nearly 15 years, and was chairman of the board of the consumer advocacy group Public Voice from 1983 to 1994.

Gall served as Assistant Secretary of the U.S. Department of Health and Human Services (1989-1991). She headed the Human Development Services Agency, responsible for 55 Federal programs (such as Head Start) serving children, youth, families, people with disabilities, the elderly and Native Americans. Gall oversaw a yearly budget of five billion dollars and a workforce of 1000 employees.

Prior to her appointment as Assistant Secretary, Gall served as Counselor to the Director, Office of Personnel Management (1986-1989). She worked directly with the White House Cabinet Council, other federal agencies, federal labor unions and public interest organizations on the subject of managing the federal civil service (3.5 million employees).

A single adoptive parent, she was selected by President Reagan to chair the President's Task Force on Adoption.

WASHINGTON, April 19, 2001 -- LG Electronics Inc., of Seoul, South Korea, is voluntarily recalling about 100,000 Goldstar, General Electric, and Sears Kenmore portable dehumidifiers. These dehumidifiers have an internal electrical connection that can overheat, presenting a potential fire hazard to consumers.

LG Electronics has received seven reports of dehumidifiers overheating, including four reports of fire within the units, with smoke damage to surrounding objects. No injuries have been reported.

The recall is being conducted in cooperation with the U.S. Consumer Product Safety Commission (CPSC).

The recalled dehumidifiers are white, with a red auto shut off button, and regulators for fan speed and humidity control. The dehumidifiers were manufactured between November 1998 and May 1999, and have the following brand names and model numbers: Goldstar DH2510, DH4010 and DH5010; General Electric AHG25LAG1, AHG40LAG1 and AHG50LAG1; and Sears Kenmore 580.59600890 (60-pint model only). The brand name is located to the left of the control unit. The model number is located behind the condensate bucket, on a sticker on the left hand side.

Mass merchandise and department stores nationwide sold the dehumidifiers from January 1999 through December 1999 for between $100 and $200.

Consumers should stop using the dehumidifiers immediately and call LG Electronics toll-free (800) 651-1602 anytime for a free repair. Consumers also can log on the company's website at www.easyrecalldehumidifier.com.