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:
- Callers Advantage
- CardMember Protection Service
- Countrywide Dental Program
- Countrywide Dental & Health Program
- Home & Garden Rewards
- Leisure Advantage
- PremierHealth Plus
- PremierHealth Trends
- Privacy Plus
- 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
- Sears Health Connections
- Sears PremierHealth
- Sears PremierHealth Trends
- Travel Arrangements