Attorney General Mike Hatch announced today the settlement of a consumer fraud lawsuit against MemberWorks, Inc., a national company that uses consumers bank account information to market membership programs offering discounts on merchandise and services. The settlement was submitted to Hennepin County District Judge Marilyn Rosenbaum.
The Attorney General filed the lawsuit in July 1999 against MemberWorks following numerous complaints from consumers that they did not believe they had authorized membership charges to their checking or credit card accounts. The settlement requires MemberWorks to substantially change its business practices and provide double refunds to consumers who did not fully consent to the MemberWorks charge.
"When a consumer receives a telemarketing call from MemberWorks, the scales are already tipped in the companys favor, because, unknown to the consumer, their financial institution has already supplied their name, account information and ability to charge their account," said Attorney General Hatch. "This settlement will give MemberWorks an incentive to compete fairly because from now on, every time it fails to get meaningful consent from a consumer, MemberWorks must pay a double refund."
In the complaint against MemberWorks, Hatch alleged the company used consumers personal financial information, such as checking account or credit cards numbers, account balances, addresses and phone numbers, to conduct direct mail and telemarketing campaigns to Minnesota consumers. MemberWorks typically solicited customers with a "free 30-day trial membership" pitch. At the end of the 30-day "free" trial, the company charged customers an annual membership fee using information provided by their banks, even though consumers had not given MemberWorks billing information. The companys practice led scores of customers to feel that they had been "slammed" with services or products they did not believe they ordered.
Issuing Double Refunds to Future Customers for Unauthorized Charges
Under the settlement, MemberWorks must inform each customer that the verification portion of the telephone conversation will be taped. The company must maintain verification tapes on each of its telephone solicitations for 24 months. Consumers who believe that MemberWorks wrongfully charged their accounts have 24 months to submit a claim to MemberWorks. MemberWorks must give each consumer a double refund if it cannot produce a tape showing the consumers specific consent (outlined in the new changes to the companys telephone script below).
Making Refund to Past Customers
Any consumer with an existing claim that MemberWorks made an unauthorized charge may apply to the company for a refund. If MemberWorks does not make the refund, a consumer is eligible for arbitration via a telephone conference call with an independent arbitrator who can award a double refund. The decision of the arbitrator is binding on MemberWorks. The independent arbitrator is former Hennepin County District Court Judge Patrick Fitzgerald. MemberWorks must pay for Judge Fitzgeralds arbitration fees. Past customers have until July 1, 2002 to submit their claims. Any customer with a past claim for unauthorized charges should contact the Attorney Generals Consumer Assistance Line at either: (651) 296-3353 or (800) 657-3787 for more information.
Changing Memberworks Telephone Solicitation Script
The State alleged that the scripts that MemberWorks currently uses to get so-called authorization from the consumer are very confusing, with the consumer essentially giving consent by supplying their birthdate at the end of a lengthy and confusing paragraph. Under the settlement, MemberWorks must obtain the customers consent by reading the following script language verbatim:
"[Memberworksclient name, e.g. the name of the consumers bank] will automatically charge your [account type -- usually credit card or checking account number] at the end of your 30 day trial period and at the beginning of each new membership year unless you call to cancel. If you decide to cancel your membership, call [800#] within the next 30 days. Will it be alright to charge the annual fee of $___ on your [MemberWorks client name] account unless you call to cancel?"
If the company does not read this language and the consumer doesn't say "yes," the customer is entitled to a double refund.
Reinstating a Method to Notify Consumers of the Annual Automatic Renewal Process
MemberWorks current practice is to enroll customers in programs where the customers account automatically will be charged an "Automatic Renewal Fee" each year unless the consumer calls to cancel.
Under the Settlement, MemberWorks must, on the first page of its membership enrollment kit, tell customers that their account will be charged in 30 days unless they cancel and that their account will be re-charged each year thereafter unless they cancel. In addition, MemberWorks must send a letter and envelope with 14 point font saying "Upcoming Charge for Membership Renewal," before each annual renewal. The letter also must say, "if you take no action your account will be charged to automatically renew your membership."
Giving the Attorney General the Right to Audit Memberworks to Verify Compliance with the Settlement Terms
Under the terms of the settlement, MemberWorks must make available to the Attorney Generals Office all records of consumer complaints including the number of complaints received; the number of arbitrations conducted; and the number of double refunds the company issues. It also must provide other evidence the Attorney General reasonably requests to ensure compliance with the settlement.
In addition to the above, MemberWorks shall comply with the following provisions:
- If MemberWorks uses a bank name to solicit Minnesota consumers, MemberWorks must clearly and prominently disclose that MemberWorks is a separate company.
- MemberWorks must not give false, misleading or inaccurate responses to consumers about its relationship with the banks who supply the customers personal financial information.
- MemberWorks must refrain from representing that the consumer is not making a purchase decision during the call unless it discloses in the same sentence that the consumer must cancel within the trial period to avoid a charge
- MemberWorks must not say its trial period is "free" unless the consumer is not charged for any portion of the trial period.
- When MemberWorks represents the benefits of its Membership Program and states that a consumer can obtain a discount, rebate, savings or any other similar benefit related to the purchase of merchandise, it must clearly disclose the following when applicable: that the consumer has to use a rebate procedure to obtain savings; that the represented savings are limited in dollar amount; that a minimum purchase is required to obtain a benefit; that the consumer must purchase a coupon to obtain a benefit; or that the benefit may not be available through a retail store in the consumers area.
- MemberWorks shall not inaccurately represent the value of any discount, rebate, savings or benefit, including the amount of any dollar or percentage savings.
- MemberWorks must pay $75,000 to the State of Minnesota.
If consumers have further questions about the settlement they should call the Attorney Generals Office at (651) 296-3353 or outside the Twin Cities at: (800) 657-3787.