Hundreds of thousands of consumers may have unknowingly enrolled in membership programs while using websites owned by Bellevue, Wash.-based Intelius.

A two-year investigation by the Washington Attorney General's Office contends Intelius received thousands of consumer complaints regarding unauthorized enrollment in the programs and that company management -- including CEO Naveen Jain -- knew about the complaints but chose to continue the deceptive and tremendously profitable marketing tactics.

"Intelius chose cash over candor," said Attorney General Rob McKenna. "Despite a continuous stream of complaints from consumers about mysterious charges, despite a consultant's belief that Intelius' advertising practices were causing confusion and despite a recommendation from its own staff to make it easier for consumers to opt out of additional purchases, the company wouldn't change course."

McKenna said a $1.3 million settlement with Intelius will protect consumers. The settlement, filed in King County Superior Court, doesn't require the company to admit any wrongdoing, but significantly restricts its future advertising practices. Intelius will also provide refunds to Washington state residents who were enrolled in the company's "Identity Protect" program but never used the service.

Post-transaction marketing

The investigation by McKenna's Consumer Protection High-Tech Unit focused on an Internet sales method commonly referred to as post-transaction marketing In that arrangement, additional services are offered to consumers after they've submitted their credit card data but before they've received the product they intended to purchase.

"Post-transaction marketing plunges you into an online labyrinth where the only way out is to click and click and click," McKenna said. "One wrong turn and you're enrolled in a membership program that costs you $20 or more each month. And you'll never know until you scrutinize your credit-card bill."

A Scottsdale, AZ, consumer, who did not want his name revealed, says he used the People Search website once approximately 12 months ago and paid a $1.00 charge for the service. "Since then," he tells, "I was charged a monthly fee for 19.95 for Intelius (which apparently is People Search and was the name of the charge on my account), as well as $19.95 per month for Privacy Matters. I never even signed up on Privacy Matters. I only used that one service on that one incident and now I've been charged a total of $39.90/month."

The sales tactic gained notoriety in November 2009 when the U.S. Senate Commerce, Science and Transportation Committee released an investigative report accusing Web companies of duping consumers. McKenna was the only attorney general to submit testimony in connection with the committee's hearing. He pointed out that investigations suggest more than $50 million has been deceptively obtained from Washington consumers by a handful of businesses.

Washington's case directly addresses the sort of problems spotlighted by the Senate report. Most notably, the settlement prohibits the company from accepting advertising from Vertrue, Inc., WebLoyalty, Inc., and Affinion. It also prohibits Intelius from transmitting a consumer's financial information to any third party to enable that party to bill consumers.

An example of this ploy comes from Joel of Roque Bluffs, ME, who writes, "On April 12, 2008 I charged 2.95 on my American Express Card, payable to Intelius for a phone number look-up On April 23, 2008 a charge of 19.95 showed up on my AMEX card from AP9*PMIDENTITY.COM. It has been charged every month since." Joel tells that he reported it to AMEX, which credited the most recent charge and is investigating.

The settlement

The agreement also addresses Intelius' ability to sell its own products through post-transaction marketing and free-to-pay conversion offers, whereby consumers initially receive a free trial and are charged unless they cancel. Consumers must give their expressed agreement before being enrolled in a membership program and all terms must clearly be communicated.

Approximately $300,000 of the $1.3 million will be used to recover the state's litigation costs and monitor the restitution program.

Washington consumers are eligible for refunds under the settlement if they 1) enrolled in Identity Protect before Aug. 12, 2009, (the period when the state felt the ads were deceptive), 2) have not received full refunds and 3) have not used any member-enabled benefit.

Intelius will contact eligible consumers by mail and e-mail with instructions on how to submit a claim. The settlement does not apply to consumers in other states or those who purchased memberships from any third-party marketer.