Nothing gets consumers angrier than to be signed up for some membership program, without their knowledge, when they make an online purchase. The Senate will consider a measure that could make such practices a thing of the past.
Sen. Jay Rockefeller (D- WV), Chairman of the Senate Committee on Commerce, Science, and Transportation, has introduced legislation, the Restore Online Shoppers' Confidence Act, to end the deceptive online sales tactics that have been the subject of a year-long Commerce Committee investigation.
A Commerce Committee staff report, the second of two reports, charges Affinion, Vertrue, and Webloyalty - the companies that used aggressive sales tactics to enroll online consumers in services without their consent - developed policies designed to prevent online consumers from getting their money back when they called to question the mystery charges on their credit and debit cards.
"Tricking consumers into buying goods and services they do not want is completely unacceptable," Rockefeller said. "It's not ethical, it's not right, and it is not the way business should be done in America."
Rockefeller said the committee's investigation uncovered misleading practices and, as a result, offending companies have been forced to change their ways. He says his bill will ban these deceptive online sales practices once and for all."
So-called "loyalty" programs are offered by companies that contract with other online merchants to share their customers' credit card information. The sharing company either receives a flat fee or a percentage of every "sale."
An unsuspecting consumer might be enrolled in one of these programs and charged a monthly fee by accepting a "free" gift or a discount at the end of their transaction. Their acceptance of the discount constitutes their agreement to enroll in the membership program, though most consumers are unaware of the linkage, and are completely unaware that the merchant with whom they have just made a purchase is sharing their credit card information.
Rockefeller says the first staff report, released in November 2009, revealed how Affinion, Vertue, and Webloyalty used a set of online sales tactics to charge millions of consumers for membership clubs and services the consumers did not want and were unaware they had purchased. The report found that these companies bilked millions of Americans out of more than one billion dollars by partnering with hundreds of legitimate websites that were willing to share their customers' billing information, including credit and debit card numbers, for financial gain.
The new Commerce Committee staff report shows what happened when consumers called Affinion, Vertrue, and Webloyalty to get their money back for the services they were unknowingly charged for. Findings of the new report include:
• In a practice known as "refund mitigation," the three companies created scripts and policies intended to minimize the amount of money they would have to return to consumers who had inadvertently enrolled in the clubs. For consumers who insisted on refunds, the companies employed a variety of tactics to keep the refund amounts as small as possible, including requiring customers to obtain refunds by completing written affidavits.
• Each company instructed their call center representatives not to issue refunds to consumers, unless the consumers mentioned certain key words like "attorney general," "Better Business Bureau," or "bank representative." These policies were designed to satisfy those consumers who were most likely to create additional "customer noise" problems and reputational damage for the companies. Consumers who did not mention the "magic words" did not receive full refunds.
• Because they could encounter the aggressive sales tactics of Affinion, Vertrue, and Webloyalty while shopping on hundreds of different websites, online shoppers were frequently enrolled inadvertently in multiple membership clubs offered by the same company. Consequently, many customers who called Affinion, Vertrue, and Webloyalty to cancel one membership and request a refund were actually enrolled in more than one of the companies' clubs. Webloyalty and Vertrue trained their agents not to inform consumers about these additional memberships.
Failure to follow credit card rules
• Affinion, Vertrue, and Webloyalty violated MasterCard and Visa's rules for credit card and debit card transactions and American Express placed the companies in monitoring programs for merchants with high rates of disputed charges from cardholders (known as "chargebacks"). Between 2006 and 2008, the three largest credit card companies processed 1.4 million chargeback requests and over 10 million refunds, totaling hundreds of millions of dollars, from cardholders disputing charges from Affinion, Vertrue, and Webloyalty. Despite these rule violations and the high volume of consumer complaints, the three companies enjoyed uninterrupted access to the payment systems operated by Visa, MasterCard, and American Express until late 2009. Once Chairman Rockefeller notified the credit card companies of the aggressive online sales tactics in December 2009, the companies quickly took action to ensure that Affinion, Vertrue, Webloyalty, and their e-commerce partners were in compliance with their rules for merchants and that their cardholders were no longer subject to the misleading "data pass" process.
Rockefeller says his bill will help put an end to the deceptive online sales tactics uncovered by the Commerce Committee's E-commerce investigation by requiring them to clearly disclose the terms of the offers to consumers, and to obtain consumers' billing information, including full credit or debit card numbers, directly from the consumers. It would also prohibit retailers from sharing consumers' billing information including credit and debit card numbers, to post-transaction third party sellers, like Affinion, Vertrue, and Webloyalty.
Webloyalty issued a statement in response to the Commerce Committee's report, saying it has already taken action to mend its ways.
"We have evolved our business practices over time based on our independent analysis as well as in response to feedback from consumers, industry groups, lawmakers and regulators," the company said in a statement. "We believe that the practices we adopted in January 2010 - including requiring consumers to enter their full credit card information to enroll in our programs - represent significant enhancements to our business practices."