Many a consumer has been perplexed by a charge on their bank or credit cards for something called "Simple Escapes." Usually it is for a small amount, but the consumers profess to have no recollection of ever hearing of it - much less agreeing to purchase it.
The company behind Simple Escapes, the subject of consistent complaints to consumer Web sites and government agencies over a number of years, is Vertrue, based in Stamford, Connecticut. Until late 2004, it was known as MemberWorks.
Vertrue is what is known as a member services marketing company. Similar to a buying club, it enrolls consumers in its membership programs that provide discounts on travel, health services, clothing and other consumer products and services.
The company was founded in 1989 by a Gary Johnson, who launched his business career while still an engineering student at Harvard Business School in 1981. According to a company press release, Johnson helped start CUC International, a membership services business, in 1983. Johnson was the recipient of the Ernst & Young Entrepreneur Of The Year Award for Southwest Connecticut/New York Hudson Valley in 1999.
By that time, MemberWorks had become a successful, fast-growing marketing firm with over $200 million in annual revenue. It was also about that time that MemberWorks began to run afoul of consumer authorities for its marketing practices. Specifically, its telemarketing practices.
In June 1999 Minnesota Attorney General Mike Hatch sued US Bank, charging it had sold its customers' private financial information to MemberWorks for $4 million, plus a commission on sales to those customers. The state reached a settlement, under which the bank paid $3 million and agreed to stop sharing customers' financial information to marketers of non-financial products, to give customers notice and an opportunity to "opt out" of the sale of their financial information to market financial products, and to provide certain refunds to customers charged by telemarketers who bought their account numbers.
Hatch also sued MemberWorks, charging it used a deceptive and misleading telemarketing sales pitch to solicit these consumers to join a variety of membership clubs allegedly offering discounts on health products, entertainment and travel.
The resulting settlement required the company to change its telemarketing sales scripts, to provide advance notice of any upcoming membership renewal charges, and to give double refunds to consumers whom the company failed to tape-record accepting the membership. The company paid $75,000 in costs but admitted no liability.
In the Minnesota case, consumers were found to be at a distinct disadvantage. When engaging a telemarketer, they had no idea that the person on the other end of the line - thanks to the deal with US Bank - already had access to their credit card or bank account information. As a result, many consumers were billed for services they say they did not intend to buy.
New York Is Next
In September 2000 MemberWorks reached agreement with the State of New York, settling charges of telemarketing abuses in connection with its sales of lifestyle club memberships which offered consumers alleged savings on a variety of products and services involving entertainment, shopping, home improvement, and health care.
The settlement, according to New York Attorney General Eliott Spitzer, arose from his office's continuing investigation of banks and credit card issuers that violated their cardholders' privacy rights by selling their personal account information to telemarketers in return for a substantial commission.
In conjunction with the New York settlement, MemberWorks announced it would implement "industry leading marketing practices" in New York.
"The agreement with the New York Attorney General's office was not based upon any specifically identified consumer complaints, but rather the general concern that some consumers may be confused by disclosures made while marketing the programs," the company said in a release.
In February 2001 MemberWorks reached a settlement with the Nebraska Attorney General's Office over its marketing practices. Again, MemberWorks, in a press release, attributed the problem to confused consumers, and pledged to make its policies clearer. It also announced it was implementing its "industry leading marketing practices" nationwide.
"MemberWorks has agreed to put specific disclosure language within its telemarketing call scripts, clarifying to consumers when charges will occur and will also notify consumers by mail prior to placing a membership renewal charge on a consumer's account," the company said in a press release.
California & the Negative Option
Three months later, MemberWorks settled similar consumer complaints with the State of California. This time, MemberWorks and its marketing partner Sears were called to account for the manner in which MemberWorks club memberships were sold. California Attorney General Bill Lockyear found that consumers were confused when they were enrolled in the clubs as part of their transaction at a Sears store.
"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," the Attorney General's Office said.
"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 so-called "negative option" is a provision in which consumers are charged for something unless they take some type of action to inform the company they do not want it. By no means limited to MemberWorks, the negative option is a growing tool used by marketers that often catches consumers unaware.
While not admitting liability in the case, MemberWorks paid the State of California $1.5 million in civil penalties and costs while Sears was fined $500,000.
Why Stop Now?
Despite the litigation with Minnesota, New York, Nebraska and California, MemberWorks was a company on the fast track. In June 2001 it reported annual revenue of $474.7 million, up 44% from the previous year. Its membership base was up 14% to nearly eight million.
In late 2002 MemberWorks announced a major marketing agreement with America Online, the once dominate Internet Service Provider, at that point struggling amidst the dot-com implosion. The agreement gave MemberWorks the opportunity to market its membership clubs to millions of AOL subscribers.
"Under the agreement, MemberWorks will market nine of its membership programs across the AOL service, providing AOL members access to merchandise offers and savings on a comprehensive mix of top-tier, brand-name benefits. A wide variety of promotional offers designed especially for AOL members will be made available across the entire AOL service," MemberWords said in a press release.
ClickZ News, an online marketing trade publication, reported that the deal called for MemberWorks to pay AOL $1 million in December 2002 and at least $3 million the following year. The report noted that it was MemberWorks' second major deal that month. Two weeks earlier it had signed a deal with Victoria's Secret to market to its customers.
It wasn't long before ConsumerAffairs.com began to get complaints, like this one from Dwight, of Salem, West Virginia, received in February 2003:
I received my bank statement and it had a debit charge of $134.95 on it from "Simple Escapes." I had never heard of them. When I called the 1-888 number they told me that I had ordered this by a "Pop-Up" on AOL. I said I had never done that and besides how did they get my checking account number to which they replied "through AOL."
Florida Cries Fraud
In October 2003, following a three year investigation, Florida Attorney General Charlie Crist sued MemberWorks for violations of state consumer protection laws. The company objected, saying the complaint was based on past policies that had been rectified since the litigation of 2000 and 2001.
"The company believes that the allegations of the complaint are unfounded and the company intends to vigorously defend its interests in this matter," MemberWorks said in a statement.
Crist disagreed. His complaint alleged that MemberWorks violated Florida's Unfair and Deceptive Trade Practices Act by engaging in "various deceptive practices," including:
• charging consumers credit card accounts without authorization, a practice referred to as cramming;
• offering free gifts without disclosing financial requirements;
• resisting consumer requests to cancel memberships or to obtain refunds; and
• other abusive telemarketing practices.
"Charging customers for products without their knowledge is fraud," said Crist. "These citizens were unknowingly victimized and deserve to be reimbursed."
Noting that the company reported annual revenue of $400 million, the Florida Attorney General's Office said its investigation estimated that 50 percent of all sales were reported as "unauthorized," an astounding figure and a charge the company hotly denied.
A year later, MemberWorks settled the Florida case by paying $950,000 and agreeing to double refunds to Florida consumers charged for MemberWorks clubs without proof they consented to the charge. However, it was made under protest, as the company made clear it expressly denied the charges.
Today, Vertrue markets a number of membership products in partnership with some of the nation's best known retailers and Web sites, including Classmates.com and AOL. It staunchly defends its business practices, insisting it is abiding by all consumer protection laws. Yet, the consumer complaints haven't stopped. In fact, they are not substantially different from those consumers have leveled in earlier years.
"My daughter was on Textbooks.com last January. According to Simple Escapes she signed up for their service on a pop-up window in Textbooks.com. She claims she did not sign up for anything," said Matt, of Three Rivers, Michigan.
"I am being billed for something called Simple Escapes that I never signed up for and I can't find anyway for this to stop happening," said Johnnie, of Toms River, New Jersey.
"I just received my credit card statement and found a charge for $9.95 from Simple Escapes. I have no idea what this is, nor have I ever used any service like this. I looked this up on the internet and found this site here with all the other complaints. I can't believe this," said Allison, of Pleasant Hill, California.
The above three complaints were received at ConsumerAffairs.com since June 30, 2005. Textbooks.com says that at its insistence, MemberWorks has made its charges more obvious to consumers coming from Textbooks.com's Web site.
In January of this year, we received a complaint from Michelle, of Reston, Virginia, who, with the help of Wachovia Bank, was able to receive a full refund after being charged for two Vertrue memberships she says she never enrolled in. In a follow-up interview with ConsumerAffairs.com, Michelle said she believes the company got her credit card information when she purchased an item from a TV shopping channel in November 2004.
"The following month a telemarketer called me and offered a $50 gift card at Target. He said I just had to listen to some of his offers, and that even if I declined all of them I would still get the gift card," she said.
Michelle said she clearly declined all the offers but the following month she received her debit card statement with a $19.95 charge to Simple Escapes. She called Wachovia Bank, and a customer service representative conferenced her on a call to Simple Escapes.
"They said that I had verbally agreed to enroll in the programs, but when I ask them to play the tape of the conversation, they couldn't do it. They ended up refunding the money," Michelle said.
Fair Credit Billing Act
Michelle, who said she never did receive the promised $50 Target gift card, was apparently able to extricate herself from the programs by demanding a "proof of purchase."
The Fair Credit Billing Act requires banks and credit card companies to allow consumers to dispute a charge by demanding a proof of purchase. If a company cannot provide the bank or credit card company with proof that the product or service was actually ordered by the consumer, the bank or credit card company does not have to charge the consumer's account.
Consumers who find themselves enrolled in Simple Escapes or any other membership program against their will should demand a proof of purchase from their credit card company, who will then be obliged to demand it from the marketing company. Sending this terse letter should also result in a speedy cancellation.
How do you avoid getting signed up for something like Simple Escapes in the first place? Consumer experts suggest the following:
• never talk to telemarketers;
• avoid "free" or "trial" offers of anything;
• don't fill out online surveys; and
• carefully read the privacy policies of any e-commerce Web sites you patronize.
If any Web site says it may share your financial information with third parties, it's a definite red flag.