The nightmare of the mysterious debit card charges began this way for Caroline Butler:
She noticed that Privacy Matters 123, a membership program she had never heard of, was charging her $20 every month. She had no idea how to get her money back or even how to get the company to stop. All she knew was that they were draining the bank account used to help pay the medical bills for her 18-year-old daughter, a cancer patient.
Classmates.com and Vertrue charged Caroline Butler (left) fees to join a membership program she didn't want. The money they took was supposed to pay medical costs for daughter JoAnna (right).
(Credit: Caroline Butler)Somehow, Butler, a freelance photographer from Paducah, Ky., unintentionally enrolled in the membership program during a visit to social-networking site, Classmates.com, she said. What Butler didn't know at the time was that United Online, parent company of Classmates.com, was one of 88 e-tailers that agreed to sell their customers' credit card information to at least one of three marketers: Webloyalty, Affinion and Vertrue, which are now under investigation by federal lawmakers.
Thousands of consumers have accused the marketers of duping them into signing up for membership programs and locking them into paying monthly fees. What makes Butler's story different is that the money taken from her was donated by friends and well wishers who wanted to help pay her daughter JoAnna's medical costs.
She also found an unusual way to get her money back.
After weeks of getting the brush off from customer-service representatives, Butler said she decided to go straight to the top. She didn't just track down Mark Goldston, United Online's CEO. She called up Goldston's wife. "That's how desperate I was," Butler said. "It was a long fight for the money. I didn't want to be belligerent. I just asked questions and the companies refused to give me any answers."
While Butler may have been reimbursed, it's safe to say most people who find themselves in a similar situation, aren't as lucky. The U.S. Senate commerce committee said last month that Classmates.com pocketed $70 million from selling credit card data to the marketers, whose practices Sen. John Rockefeller (D-W.V.), the committee's chairman, called a "scam." A United spokesman said he couldn't comment because he didn't know anything about Butler's case and company officers were unavailable during the holidays.
Hidden charges
Butler's story helps to illuminate a couple of important issues. First, as Web merchants begin tallying holiday sales, some well-known and respected businesses have never appeared more cynical, anti-consumer, or just plain unethical.
For starters, check out David Pogue's column at The New York Times about Verizon and the telecom's decision to double the fees they charge customers who cancel their smart-phone contracts. Pogue also noted the existence of a mysterious glitch in some Verizon phones that causes users to be charged $2 if they accidentally hit one of the phone's arrow keys. Verizon explained to the Federal Communications Commission (FCC) that the new cancellation fees are fair and denied the $2 charges existed. At least one member of the commission says Verizon's explanation is "unsatisfying" and "troubling."
I mention Verizon because the $2 charge scenario sounds so familiar. There seems to be a new and alarming trend among tech and e-tailing firms on how to make a fast buck and the formula goes something like this: a merchant sneaks a few smallish charges into a customer's bill and then claims it was the customer's fault for, say, hitting the wrong phone key--or in the case of the controversial marketers--for not reading the fine print in advertisements. Next, the goal seems to be to make the process of obtaining a refund especially difficult.
According to Rockefeller and his committee, this was how companies such as VistaPrint, Continental Airlines, Fandango (owned by Comcast), 1-800-Flowers, Orbitz, Hertz, Shutterfly, and Buy.com all pocketed millions.
Visitors to the Web sites operated by these companies would be presented with an advertisement as they finalized a transaction. The page is typically packed with text and the words "Free" or "Cash back reward" are written in large type. To many shoppers, it appears the retailer is offering a coupon or reward for shopping at the site. Tucked into the fine print, however, are the full terms, which state that by entering an e-mail address or creating a username at the page, a shopper agrees to join a membership program and pay between $10 and $20 in monthly fees.
The marketers have said that they do everything they can to inform consumers of the requirements and the practice is legal because the terms are all in the ad. Some e-tailers, at least initially, defended the marketers and said they provided a valuable service to customers.
That was before the government laid their hands on the marketers' internal e-mails, memos and reports. Investigators working for the Commerce committee uncovered a host of materials that show only a tiny percentage of the people who sign up for the membership programs do so intentionally. In a report released last month, the committee also illustrated how the ads trick consumers into joining. Since then, some of the merchants have been running for cover. Continental Airlines, US Airways, Priceline and VistaPrint have cut ties with the marketers.
That gets us back to Caroline Butler and the second lesson she helps to teach.
Mark Goldston, chairman and CEO of United Online, parent company of Classmates.com, which banked $70 million from marketing practices now under investigation by the Senate Commerce committee.
(Credit: United Online)Some of the merchants involved say that they receive only a small number of customer complaints about the membership programs. But the commerce committee provided evidence that showed the marketers labor to insulate retailers from complaints while the retailers do their best to look the other way.
In the case of United Online, it will be hard for the company's CEO to claim he didn't know some of his customers were unhappy about the membership programs. One brought her grievances into his home.
Give me my money
After Butler noticed the charges on her account, she wanted to find out how they got there, but her bank statement provided little information outside of an 800-number and a name: Privacy Matters 123. According to its Web site, Privacy Matters 123 is a "credit management and identity theft protection membership program." The government says the program is operated by Vertrue. To see what some consumers think of it, do a Google search for "Privacy Matters" and the word "scam."
Butler said when she called the 800-number, customer service representatives from the program were reluctant to provide any information about how she became enrolled, how she could get her money back, or even how to cancel. Vertrue representatives did not respond to an interview request but in the past have said that it's easy for unhappy customers to cancel.
That wasn't Butler's experience. She said she panicked when it became evident that Vertrue wasn't going to return the money. The account that Vertrue was drawing money from held the donations for her daughter. Butler said she doesn't remember doing it but she concedes she might have used the debit card at Classmates.com in error. She says she absolutely did not intentionally use it to sign up to Privacy Matters 123. By the time she realized what was going on, months had passed and Vertrue's charges had caused her account to be overdrawn. She said the combination of Vertrue and overdraft charges had cost her more than $900.
After weeks of badgering Vertrue's employees, Butler was told by one worker there to try Classmates.com, since it was that company that had given up her debit-card information to Vertrue.
Then, she got another break. As she watched TV one day, Butler said she saw a commercial for NetZero, the dial-up Internet service operated by United Online, parent company of Classmates.com. There on her TV screen was Goldston, the CEO. She was fed up talking to functionaries. She consulted an online phone directory and learned that Goldston owned three homes in the Los Angeles area. She called them.
Eventually, Goldston's wife answered. Butler began to cry.
She told Mrs. Goldston about her frustration. She told her about her daughter's illness and how the money she lost didn't belong to her but was there to help JoAnna. She told her that if she didn't get reimbursed she would go to the media, even the Oprah Winfrey show if she had to, and expose them.
Click the photo and read a collection of CNET's stories on the marketing scandal.
"Your husband is stealing from my daughter," Butler recalled saying.
It worked. Not only did Butler get reimbursed, but she said she also received a written apology from Classmates.com.
What all this means is that Caroline Butler is tough and refused to be pushed around by the likes of Vertrue and Mark Goldston. It also means that Goldston can't claim not to know that some of his customers are harmed by the practices employed by Vertrue and the other marketers.
What Goldston and all of the CEOs of the stores involved in this scandal need to do now is follow the lead of Goldston's wife: find some compassion, apologize and make amends.
For years, baffled consumers looked to Visa, MasterCard, and American Express for answers when mysterious charges from "shadowy companies" began appearing on their credit card statements.
Even though all three card companies have rules designed to protect users from unauthorized charges as well as to weed out problem-plagued merchants, thousands of people appear to have complained to their card companies for years about three post-transaction marketing companies: Webloyalty, Vertrue, and Affinion. Perhaps as many as 30 million people were affected, according to a government report.
The U.S. Senate Committee on Commerce, Science, and Transportation launched an investigation last May after learning of the thousands of consumer complaints from online shoppers. As a result of the investigation, lawmakers have concluded that the three marketing firms employed deceptive practices in order to fool consumers into signing up to loyalty programs and paying monthly fees. Now, the commerce committee wants Visa, MasterCard, and American Express to explain how all this went on for years under their noses.
Last week, Commerce Committee Chairman John Rockefeller (D-W.V.) wrote a letter to Kenneth Chenault, CEO of American Express, as well as the chiefs of the other two major card companies. He asked that they provide information about their dealings with the three marketers. Rockefeller wrote: "It concerns me greatly that the companies we are investigating have been able to acquire the credit and debit card numbers of millions of American consumers and bill them every month for services the consumers do not realize they have purchased."
Visa and MasterCard did not respond to interview requests. American Express said: "We share the committee's concerns about the alleged unfair and deceptive practices and are in the process of investigating."
Webloyalty, Affinion, and Vertrue generated $1.4 billion through the misleading practices, according to a report issued by the commerce committee last month. Those firms couldn't have accomplished that without obtaining "unprecedented" access to consumer credit cards, from online merchants according to the government's report and e-commerce experts. To obtain the card data, the marketing firms paid nearly $800 million to 88 e-tail stores, including Orbitz, Buy.com, Travelocity, Barnes & Noble, Pizza Hut, and Priceline.
While some of these stores have otherwise established solid reputations, the material disclosed by Senate investigators indicates these retailers sold their customers' financial data to third parties--something that experts say many consumers are unaware of and would likely find abhorrent.
Sen. John Rockefeller, chairman of the Senate committee wants Visa, MasterCard, and American Express to answer questions how marketers were allowed to buy consumer credit card information from top retail sites.
(Credit: U.S. Senate Commerce Committee)The sheer number of retailers accused of betraying customer trust and the scrutiny now being focused on Visa, MasterCard, and American Express is turning the situation into an unprecedented scandal for the e-commerce sector.
The reason that the commerce committee may be turning the focus onto the credit card companies is that they were in a prime position to halt the deceptive marketing practices long ago, experts say. To understand what responsibility the credit card companies may have had, you have to know how the controversial marketing practices worked.
First, a consumer who is finishing up a transaction at a Web store would be presented with a pop-up ad. An offer for a cash-back reward of, say, $10 is written in large print. Customers are informed, again in bold text that they can get the reward if they enter their e-mail address.
Further down and written in much more obscure text are the full terms of the deal. That's how customers are notified that by entering their e-mail address they will effectively be agreeing to join a membership program and allowing their retailer to turn over their credit card information so it can be charged monthly, perhaps as much as $20. For this reason, the three marketing firms and their retail partners say the whole thing is legal and above board. All the terms are there in the fine print and it's not their fault that consumers don't read them.
Congressional investigators turned up documents, however, that showed they were well aware of the potential deception. Investigators presented internal e-mails from the marketing firms that illustrate how they purposely employ tactics to mislead consumers while staying within the letter of the law.
According to members of the commerce committee, it's a classic loophole play. In addition, documents show that the marketers told retail partners that they were much more likely to make money if the retailers gave them their customers' credit card information rather than to having to ask for it from the cardholder.
That's where American Express, Visa and Mastercard come in.
Had the big card companies followed their own rules, these dubious marketing tactics would have failed long ago, said Ben Edelman, an assistant professor at Harvard Business School who focuses on electronic marketplaces.
Visa, MasterCard, and American Express require that only a cardholder, not any intermediary or merchant, provide a credit card number to complete a transaction. This is key as many consumers are completely unsuspecting that an e-mail address is enough to authorize a purchase, according to Edelman, who offered written testimony during last month's committee hearing held on the marketers.
"Consumers naturally expect that if they don't type their card numbers they won't be charged," Edelman said. "That's a good rule of thumb, and it's true almost everywhere, but not at these tricky sites."
Another question that Visa, MasterCard, and American Express must answer is why they appear to have ignored what appears, according to the government's report, to be a large volume of customer complaints about Webloyalty, Affinion, and Vertrue.
The card companies have rules in place to boot merchants off their systems who have too many customer complaints or "chargebacks," the term used to describe the refunding of money to a credit card owner who has been charged incorrectly or fraudulently.
The Senate committee has indicated it will hold another hearing sometime after the start of the year and intends to call to testify the CEOs of the marketing firms and many of the Web stores. Perhaps, the chiefs of Visa and the other card companies should be there as well.
"Credit card networks have hundreds of pages of rules detailing every requirement of banks, retailers, and credit card users," Edelman said. "The rules exactly prohibit these practices. But what good are rules when they are not enforced."
(Credit:
U.S. District Court for the Northern District of California)
Start-up Spring Design has been denied an injunction to halt Barnes & Noble from selling its Nook e-reader, according to court documents.
The company had requested the injunction, in addition to monetary damages, as part of a recent lawsuit filed in federal court in San Jose, Calif. The suit charges that the bookseller misappropriated Spring Design trade secrets in the design of its Nook, which launched October 20, the day after Spring Design announced its Alex e-book reader.
The court's decision (PDF), based on a Monday hearing, denies Spring Design's request for a preliminary injunction, but states that a halt to sales could still be appropriate if the plaintiff ultimately prevails. The court also says it will expedite the pre-trial process to accommodate Spring's request for an early hearing.
Barnes & Noble does not comment on litigation as a matter of policy, a company spokeswoman said Wednesday. CNET has contacted Spring Design for a comment and is waiting to hear back.
The Nook, like Spring Design's Alex (which has yet to be released), combines a color touch screen with an e-ink display, and both readers use the Android operating system. In its lawsuit, Spring Design said it showed its plans for the Alex to Barnes & Noble, which showed interest in the product and gave no indication it was working on a similar device.
So sales of the Nook will move forward for now, though not without hitches of a non-legal sort.
... Read more
The Nook
(Credit: Barnes & Noble)Demand is so strong for the Nook that Barnes & Noble has begun telling new customers not to expect delivery of the soon-to-be-released e-reader until the second week of December.
When the nation's largest bookseller unveiled the device in October, customers placing early preorders were told they could expect the Nook to ship by the end of November; customers placing preorders now are being told they can expect shipment by December 11. The new shipping date was first reported by Brighthand.com.
A Barnes & Noble representative confirmed the December 11 shipping date but disputed the characterization of the new shipping date as a delay.
"Like with any hot, new consumer device, the sooner you order it, the sooner you receive it," said Mary Ellen Keating, senior vice president of corporate communications and public affairs. "We had high expectations for the Nook and couldn't be happier" with preorder sales. However, she declined to say how many of the e-readers had been preordered.
"We are working hard to meet demand for the holidays," she said.
Earlier this month, start-up Spring Design filed a lawsuit against Barnes & Noble, alleging the bookseller misappropriated its trade secrets in the design of the Nook. Spring Design had announced its Alex e-reader just days before Barnes & Noble formally unveiled the Nook. Both e-readers use the Android operating system and combine an e-ink screen with a color touch screen. It seeks both monetary damages and a halt to sales of the Nook.
The $259 Nook, a challenger to Amazon.com's Kindle, will join an expected boom in e-reader sales. In a report released last month, Forrester Research raised its 2009 forecast for e-reader sales in the United States to 3 million units from its previous prediction of 2 million sales. Forrester also expects Amazon's Kindle to command about 60 percent of the e-reader market in 2009, compared with 35 percent for Sony's Reader.
Updated 10:00am PST to revise Google percentage through online bookstores.
Watch out Amazon. Google is hitting the online bookstore business.
The search giant announced Thursday at the Frankfurt Book Fair that in the first half of next year it will launch Google Editions, a new service that will deliver e-books to anyone with a Web browser.
Partnering with publishers which whom it already has digital rights deals, Google plans to initially offer about a half-million books through the service, according to press reports from Frankfurt. Readers will be able to purchase the books directly from Google or from online bookstores such as Amazon and Barnes & Noble.
In September, in conjunction with Congressional hearings into its Google Books project, the search titan had revealed a reseller program that would give competitors a share of money from such a service.
Google plans to share the sales with both publishers and the online bookstores. For books sold directly from its Web site, the search giant said at the book fair that it would give publishers 63 percent of the sales and keep 37 percent itself. For books sold through Amazon or other retailers, the publisher would get 45 percent, while the retailer would get almost 55 percent with a small share for Google.
The company said that consumers would be able to read the books on any connected device, including PCs, Netbooks, and smartphones. Apple iPhone users could access the e-books through their Gmail accounts.
Google said it doesn't plan to offer a dedicated e-book reader to accompany the new service, according to the press reports.
"We're not focused on a dedicated e-reader or device of any kind," Tom Turvey, Google's director of strategic partnerships, told journalists at the Frankfurt Book Fair.
Google was not immediately available for comment to CNET News.
Bookseller Barnes & Noble reportedly plans to release its own e-book reader to challenge Amazon.com's Kindle.
The wireless device, which is expected to have a 6-inch touch screen and virtual keyboard, could be offered for sale as early as next month, according to a Wall Street Journal report on Thursday that cited people briefed on the matter. A price range was not revealed.
The device is also expected to run Google's Android operating system, according to a Gizmodo report that cited a source who claimed to be a mobile-application developer for Barnes & Noble.
A representative for Barnes & Noble, the nation's largest brick-and-mortar bookseller, declined to comment on whether such a device was in the works.
"We have made no announcement of an e-book reader device," said Mary Ellen Keating, senior vice president of corporate communications and public affairs, pointing out that the company was already supporting a variety of e-book reader devices. However, she declined to comment specifically on whether Barnes & Noble was developing its own device.
Barnes & Noble announced in July that it was returning to the e-book market with the launch of its own digital-book store, which allows customers to read digital books on an array of different platforms, including the iPhone, the iPod Touch, and BlackBerry smartphones. Barnes & Noble is also expected to be the exclusive digital-book supplier for the upcoming Plastic Logic eReader, which is not scheduled to go on sale until next year.
However, if the reports prove accurate, the device should compete directly with Amazon's new Kindle 2, which the online retail giant unveiled earlier this week. The new version also sports a 6-inch screen and wireless downloads, and is expected to be available on October 19.
Amazon also announced that it is cutting the price of the device by $40, to $259, and bringing it more in line with Sony's Reader Pocket Edition, which sells for $199. The retailer also announced an international version that would allow customers to download books in more than 100 countries outside the United States.
Although a bit late to the market, a Barnes & Noble device would join an expected boom in the e-book reader sales. In a report released Wednesday, Forrester Research raised its 2009 forecast for e-reader sales in the United States to 3 million units from its previous prediction of 2 million sales. Forrester also expects Amazon's Kindle to command about 60 percent of the e-reader market in 2009, compared with 35 percent for Sony's Reader.
The revelation that the device may be powered by Android comes as the 2-year-old operating system rides a wave of support from wireless handset makers. In the past couple of months, nine devices using Android have been announced, including the Motorola Cliq, which goes on sale in November, and the new Samsung Moment, which was announced Wednesday at the CTIA Fall 2009 trade show.
Another Amazon Kindle competitor has unveiled its plans for the future. And like Plastic Logic's e-reader, the device will feature Barnes & Noble's e-book store.
The Kindle has even more competitors.
(Credit: Amazon)When Irex Technologies unveils its consumer e-reader later this year, it will include Barnes & Noble's e-books, Irex said in a statement Monday.
Barnes & Noble's store currently features more than 750,000 titles, and it expects that library of available titles to increase to more than one million within the next year. The full library will be available for download on Irex's e-reader.
That news followed a report earlier this month that Irex's new e-reader will sport an 8.1-inch touch screen and 3G wireless connectivity. The device's touch screen will be controlled with a stylus instead of a user's fingers.
... Read moreDon Reisinger is a technology columnist who has written about everything from HDTVs to computers to Flowbee Haircut Systems. Don is a member of the CNET Blog Network, and posts at The Digital Home. He is not an employee of CNET. Disclosure.
As it has for most of the past decade, Barnes & Noble is playing catchup to Amazon. Barnes, the nation's largest brick-and-mortar bookseller said Monday that it has launched its own digital-book store.
Plastic Logic's prototype e-book reader
(Credit: Plastic Logic Limited)The Barnes & Noble eBookstore will enable customers to read the service's digital books on an array of different platforms, including the iPhone, the iPod Touch and BlackBerry smartphones, the company said in a statement.
In addition, Barnes & Noble will be the exclusive digital-book supplier for the upcoming Plastic Logic eReader, which hopes one day to be a competitor of Amazon's Kindle, by far the nation's most popular e-book reader.
But anyone wishing to buy Barnes & Noble's e-books on Plastic Logic's device has got some waiting to do. The device is not scheduled to go on sale until next year.
Amazon has already completed an upgrade of the Kindle.
Still, Barnes & Noble has finally returned to the e-book game in a big way and there's plenty the chain can do to cross market the books from within its more than 700 brick-and-mortar locations.
Barnes & Noble first got into e-books after they sparked a flurry of excitement in 2000 when best-selling author Stephen King experimented with the format. E-books failed to catch with the public, however, largely because there wasn't an easy or useful way to access them. The Kindle helped to change that.
Barnes & Noble ended it's first attempt at selling digital books in September 2003.
Updated at 8:20 a.m. PST with comment from Barnes & Noble.
Barnes & Noble has acquired e-book seller Fictionwise.com for $15.7 million, as it makes another attempt at running an e-book store.
The cash deal, announced Thursday, is part of Barnes & Noble's plans to launch its own e-book store later this year, despite its lack of success with a previous attempt years ago.
Back in 2000, Barnes & Noble teamed up with Microsoft to launch an e-book store with the help of Microsoft Reader software. But three years after its launch and investing at least $20 million into the project, Barnes & Noble discontinued sales of e-books.
Although the company did not disclose the reasons for halting its e-book store efforts, a Nielsen/NetRatings analyst speculated at the time that sales had been minimal.
Barnes & Noble spokeswoman Mary Ellen Keating said Friday that the time wasn't right earlier this decade.
"Consumers were not as quick to embrace the technology, the pricing set by the publishers, or the reading devices," Keating said of the previous effort. "We did have growth in our e-book sales, but the growth was not significant enough to support the business at the time."
Apparently, however, consumer tastes and the technology have advanced enough over the past six years to give it another shot.
"The market has changed since then, and we see this as a growth area," Keating said.
Last month, archrival Amazon.com . And earlier this week, Amazon unveiled its Kindle app for the iPhone and iPod Touch.
Fictionwise, which Barnes & Noble will run as a separate business unit, offers its own eReader app for smartphones, other handheld devices, desktop computers, and laptops. Likewise, competitor Lexcycle has its Stanza app for e-book reading.
While consumer interest in e-books has increased over the years, they have yet to attract a mainstream market. Analysts attribute price as the major barrier to the adoption of e-books.
- prev
- 1
- next
