Digital Media

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.

(Credit: Priceline.com)

Update: Dec. 15, 2009 7:50 a.m.: To include US Airways in list of companies that have stopped using post-transaction companies.

Priceline, an online travel site accused by the government of selling customer credit card information to "scam" marketers, says it no longer has any relationship with those marketing firms.

Company spokesman Brian Ek said Priceline, perhaps best known as the "name your price" company, stopped using post-transaction firm Affinion sometime last month. The news was first reported by The Connecticut Post.

In May, the U.S. Senate launched a probe of the company, as well as competitors Webloyalty and Vertrue and 88 online merchants, for allegedly duping as many as 30 million consumers into paying monthly fees.

"With the Senate inquiry going on, we want to wait and see what happens," said Ek, who added that Priceline no longer has partnerships with any of the post-transaction marketers.

According to the U.S. Senate Committee on Commerce, Science and Transportation, Priceline is one of about 19 companies, including Orbitz, Travelocity, Shutterfly, Classmates.com, Buy.com, and Redcats USA, that banked more than $10 million from its partnerships with post-transaction marketers. Among the merchants that have cut ties with the marketing firms since the government began its investigation are Continental Airlines and VistaPrint, an online printing service. On Tuesday, a spokeswoman for US Airways confirmed that the airline no longer was affiliated with post-transaction marketers.

The government says that the merchants agreed to allow the marketers to present ads late in the transaction process. According to experts, the ads are designed to give unwitting Web shoppers the impression that by providing their e-mail address they are justing signing up to receive a cash-back reward or discount.

Click the photo and read a collection of CNET's stories on the marketing scandal.

But buried in the fine print are the full terms, which state that by providing an e-mail address, shoppers are enrolling in a membership program and authorizing the marketer to charge their credit card up to $20 per month. After finding the charges on their bank statements, thousands of mystified people have complained that they were misled.

The marketers have denied wrongdoing and say that their practices are legal because all the terms are included in their ads. They have recently begun requiring consumers to enter the last four digits of their credit card number.

That doesn't go far enough, according some experts. The government's investigators have unearthed documents that show the marketing companies and the e-tailers know that the ads are deceptive. They also show that only a tiny percentage of the people who are signed up to the membership programs ever use them and that an elaborate system is created by the marketers to shield their retail partners from getting blamed by customers.

Members of the Commerce committee have called the practices a "scam," and "robbery."

Just washing its hands of Affinion may not get Priceline off the hook. On November 5, Commerce committee Chairman John Rockefeller wrote a letter to Priceline CEO Jeff Boyd asking for information about his company's relationship with Affinion.

Ek said he didn't know whether Priceline severed ties with Affinion before or after Boyd received Rockefeller's letter.

The Commerce committee is expected to hold another hearing on the matter sometime after the start of the year.

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."

Another e-tailer criticized by federal lawmakers two weeks ago for profiting from "misleading" and "deceptive" marketing practices appears to be rethinking its position.

VistaPrint, an online printing company, announced Monday it has "terminated its contract" with Vertrue, a so-called post-transaction marketing company that has come under scrutiny along with competitors Affinion and Webloyalty. This summer, the U.S. Senate Commerce committee began looking into scores of consumer complaints about the marketers--some going back years.

VistaPrint said in a statement that the company's contract with Vertrue ends December 20.

The three Connecticut-based marketing firms are accused of helping well-known online stores, including Buy.com, Travelocity, Expedia, Pizza Hut, Hotwire, and Classmates.com, dupe consumers into joining loyalty programs and paying up to $20 in monthly fees. According to a government report released last month and expert testimony, perhaps as many as 30 million people have unwittingly joined these loyalty programs.

Lawmakers allege that the marketing firms presented ads to consumers during the transaction process and not only were the terms of the membership requirements obscured by large blocks of small print but the retailers also allowed the marketers to charge their customers' credit cards without the cardholder first providing the card number and expiration date.

The vast majority of transactions online occur only after a cardholder provides their own card information. Those who study consumer behavior say that many online shoppers are lulled into a false sense of security because they simply don't know retailers can sell access to their credit card information. The arrangement between the e-tailers and the third-party marketers appears to be unprecedented.

Members of the Commerce committee, who held a hearing on the practices last month, called them a "scam" and at least one discussed the possibility of arrests.

John Rockefeller, the committee's chairman, said during the hearing that Continental Airlines had informed him it planned to stop working with the marketers and U.S. Airways had indicated it would do the same.

Look for more merchants involved to wash their hands of Vertrue, Affinion, and Webloyalty. One reason is that the explanations retailers have typically offered: they received only a small percentage of customer complaints and that the marketers "offered value," to customers appear to get blown up by the government's report.

Investigators for the Commerce committee document how many e-tailers were aware that the practices employed by Webloyalty, Vertrue and Affinion misled their customers.

For example, the government presented a copy of an e-mail exchange between employees of 1-800-Flowers.com and Affinion. The worker representing the Web flower shop wrote in November 2007 that there was concern about the amount of customer complaints regarding Affinion's membership program. Did they kill the program?

"I know that our relationship with Affinion is a huge boost to our revenue," wrote the representative of 1-800-Flowers.com. "I wouldn't suggest mothballing the program since it is so lucrative."

Updated at 2:50 p.m. PST to include quotes from senators and names of retailers that do business with Vertrue, Webloyalty, and Affinion.

Words like "scam," "fraud," and "arrest" filled the air during a Senate hearing on Tuesday that focused on the controversial marketing companies that allegedly dupe consumers into paying monthly fees to join online loyalty programs.

Ray France, a U.S. Army veteran, testifies at a Senate hearing about how consumers are duped into paying monthly fees to join online loyalty programs.

(Credit: U.S. Senate Commerce committee)

Vertrue, Webloyalty, and Affinion generated more than $1.4 billion by "misleading" Web shoppers, said members of the U.S. Senate Committee on Commerce, Science and Transportation, which called the hearing. Lawmakers saved their harshest rebuke for Web retailers that accepted big money--a combined sum of $792 million--to share their customers' credit-card information with the marketers.

Senate investigators launched their six-month inquiry by examining complaints from people who discovered mysterious charges on their credit card bill. For years, Web shoppers have complained that they were signed up to some Web loyalty program without their knowledge and were charged fees until they discovered the problem and complained. Some paid fees for years.

The government says the investigation shows that Webloyalty, Affinion, and Vertrue "trick" consumers into entering their e-mail address just before they complete purchases at sites such as Orbitz, Priceline.com, Buy.com, 1-800 Flowers, Continental Airlines, Fandango, and Classmates.com. A Web ad, which many consumers say appears to be from the retailer, offers them cash back or coupon if they key in their e-mail address.

Many of those who complained say they don't fear the ad because they aren't being asked to turn over credit-card information, according to the Senate report. But buried in the ad's fine print is notification that by entering their e-mail address, the shopper is agreeing to join a loyalty program and allowing the store to authorize marketers to charge their card each month, between $9 and $12.

"When people shop online, they have the right to expect that the stores they entrust with their credit card and other personal information will not share it," said Sen. John Rockefeller, (D-W.V.), the committee's chairman. "What's happening is many online merchants have decided to betray their customers' trust...fine print is the (biggest) scam of all time."

The way the government lays out its findings, it appears the loyalty programs are profiting off of the reluctance of many consumers to read fine print and check their credit card statements, and the blind trust many have in the stores where they shop.

Vertrue and Webloyalty issued statements saying they have changed their practices and have opted to require consumers to key in some credit card or other information to enroll into one of the company's membership programs. Expert witnesses and government officials said during the hearing that these alterations don't go far enough.

Perhaps most importantly, witnesses also said the best and only way to defeat the problem is to make it unlawful for retailers to ever sell their customers' personal information.

Affinion representatives were not immediately available for interview.

Rockefeller noted during the hearing that Vertrue and Webloyalty dropped some of their business practices only after Senate investigators were well into their probe. He also remarked that some of the retail companies, including U.S. Airways, had informed him that they they had ceased doing business with the marketers. He told the audience at the hearing and those who watched via a Webcast that he anticipated Continental Airlines would do the same.

The government's report provides a jaw-dropping amount of information that shows:

• Managers at Webloyalty, Affinion, and Vertrue are fully aware that most of the people signing up for memberships are unaware that they are doing it.

• Their programs are designed to mislead consumers into signing up.

"Classmates.com, which has been partnered with each company at different times and has earned more than any other partner, generated approximately $70 million in revenue."

--From the Senate report

• Retailers doing business with the companies are also aware that customers are likely to be angered once they notice the charges but do it because they are paid big bucks. Classmates.com has pocketed $70 million from partnering with the all three companies, according to the report. The government says that 88 retailers have made more than $1 million through the partnerships with e-loyalty programs, while 19 have made more than $10 million.

Another reason e-tailers risk alienating customers is that some of the e-loyalty companies insulate the Web stores from customer complaints. They call these complaints "customer noise." To illustrate this, the Senate committee included excerpts from a letter from a Priceline shopper who said she was charged for a loyalty membership for over a year without her knowledge.

The governments investigation will continue. According to a Senate staffer, Rockefeller will invite the CEOs of Webloyalty, Affinion, and Vertrue to testify at another hearing, which will likely be held sometime early next year.

To watch a replay of the Senate hearing go here.

The names of the retailers that partnered with Affinion, Webloyalty, or Vertrue.

(Credit: U.S. Senate Commerce Committee)

Tuesday could turn out to be an embarrassing day for a score of online retailers, such as Continental Airlines, FTD, and Classmates.com.

Expect Sen. John Rockefeller, chairman of the Senate committee looking into "deceptive practices" by companies operating online loyalty programs, to be highly critical of the retail stores that do business with them.

(Credit: U.S. Senate Commerce Committee)

The so-called mystery charges that have appeared on some of their customers' credit card statements will come under scrutiny at a hearing held by the U.S. Senate Committee on Commerce, Science and Transportation.

At the center of the federal probe are Webloyalty, Affinion, and Vertrue, companies that make "cash-back" and coupon offers to consumers and charge them monthly fees to enroll in their loyalty programs. The reason the government is involved is that for years, scores of online shoppers have asserted they were signed up for the programs without their consent.

It might be in your interest to watch the Webcast of Tuesday's hearing if any of this sounds familiar to you:

An ad pops up just as you're completing a transaction at an online retail site. It's packed with fine print and it's not easy to see how to get past the page to complete the purchase. What is clear is that all it takes to move off the page is to enter an e-mail address. A shopper may think that entering an e-mail can't hurt them. It's not as if some marketer has their credit card information.

But what those who enter their address are often unaware of is that they are authorizing the retail store to allow Web Loyalty, Affinion, Vertrue, or other similar marketers to charge their credit cards. There are cases where shopper don't discover the monthly charges on their credit card statement for months.

"The economy is hurting so many families today and we need to provide them as much relief as possible," said Sen. John Rockefeller (D-W.Va.), the committee's chairman. "Thousands of American consumers have been complaining about these deceptive practices and asking for answers. There could be many more affected by these hidden mystery charges."

Affinion, Webloyalty, and Vertrue have all denied any wrongdoing and argue that their services offer users savings and are valued by many subscribers. They will not be represented at Tuesday's hearing, according to a Senate staffer but are expected to appear at a later hearing.

In August, as the government's investigation rolled on, Webloyalty announced that it would alter it's ads to require that consumers "enter the last four digits of their credit or debit card to confirm" they wish to pay the membership fees. Last week, Affinion made similar changes.

During the hearing, when the Senate committee is expected to make public the results of a six-month investigation, it will also likely say the alterations made by Webloyalty and Affinion don't go far enough. The committee is also expected to publicize how much money the marketing companies are paying their retail partners.

What would be interesting to learn is how long the average Affinion or Vertrue customer stays in the program. If it's relatively short and there's high turnover, then that might indicate the company is signing up unwitting people instead of those seeking to join them.

Note: To access the Webcast of the Senate hearing on the mystery charges, go to the Commerce committee's site here at 11:30 a.m. PST.

Update 1:15 p.m. PDT: Added quotes from Vertrue.

Vertrue, which operates a so-called Web loyalty program, apparently isn't as forthcoming with information as some U.S. Senators would like.

On Tuesday, the U.S. Senate's Commerce Committee issued a subpoena to Vertrue requiring that the privately held company turn over documents that committee investigators requested in May, including communications with business partners and credit card companies.

Companies like Norwalk, Conn.-based Vertue, along with WebLoyalty and Affinion, are marketers that make "cash-back" and coupon offers to consumers and charge those who enroll in their loyalty programs. The three are under investigation after scores of consumers complained that they were duped into paying monthly fees.

(Credit: Vertrue.com)

George Thomas, a Vertrue spokesman, said that it was Vertrue execs who requested the subpoena as they would refuse to give up consumers' privacy unless ordered to by authorities.

"We requested in writing that the subpoena be issued and that's because one of the items requested was consumer information," Thomas said, "including consumer complaints and inquiries over the course of a decade, which would include personally identifiable information about the consumer."

In a CNET News story published last week, WebLoyalty said that its service is popular with the vast majority of users. Typically, Web loyalty programs--which offer discounts or cash back if the customer just enters an e-mail--present offers as a consumer is about to finish a purchase. Many who complain about the programs say that the terms are tucked into a dense field of fine print and graphics.

Also, many consumers who allegedly "opt in" to the program don't know that by just keying in their e-mail address, companies like Vertrue and WebLoyalty can acquire access to their credit cards. WebLoyalty's CEO, Rick Fernandes, said last week that his company pays retailers such as Buy.com, Fandango, and Orbitz for access to their customers' cards.

It's worth noting that while Thomas and Vertrue say they wouldn't give up consumers' private information unless ordered to, Buy.com, Fandango and Orbitz appear to have a much lower threshold for sharing that information.

For anybody looking for more information, they should visit Consumerist.com, which has done an excellent job of covering WebLoyalty and Vertrue for several months. To see a long list of consumers complaints about these companies, try here.

WebLoyalty ad (top half) presented to Buy.com customers during the transaction process. (Call-outs by WebLoyalty)

(Credit: WebLoyalty)

Update: 11:20 a.m. Friday, July 24, 2009: To include comments from Orbitz.

Thousands of Web shoppers have complained that "mystery charges" are showing up on their credit card statements and have accused those who operate so-called Web loyalty programs of duping them into signing up.

As a result, the U.S. Senate Commerce Committee is investigating Vertrue, WebLoyalty, and Affinion--companies who make "cash-back" and coupon offers to consumers and charge those who enroll in their loyalty programs.

If you think that anyone who unwittingly signs up to one of these programs must be an e-commerce rookie and that it couldn't happen to someone as savvy as you, take care that your overconfidence doesn't cost you. Josh Lowensohn, a 26-year-old CNET reporter and longtime Web shopper, this week found that a credit card he rarely uses was billed $12 in each of the past eight months by WebLoyalty.

Last November, after almost completing a purchase at Buy.com, Lowensohn was presented with an advertisement that asked him for his e-mail address. (See top half of ad above and bottom half at the end of this story.) He couldn't quickly find a way to get past the page and said he remembers thinking he would type in one of his rarely used e-mail addresses just so he could complete his transaction. Lowensohn was confident he couldn't lose anything because the advertiser didn't have his credit card information.

But WebLoyalty didn't need Lowensohn to charge his credit card. WebLoyalty CEO Rick Fernandes said Buy.com--for a fee--enabled his company to charge Lowensohn.

Web loyalty to whom?
A 10-minute Google search turns up thousands of stories similar to Lowensohn's.

Apparently, many consumers are unaware that for years now, e-tailers such as Buy.com, Orbitz, Fandango, and hundreds of others have given Web loyalty programs, also known as post-transaction marketers, access to their customers' credit cards. Some online shoppers don't realize that when they enter their e-mail addresses into these ads, they are opting into the programs and authorizing the charges.

The retailers maintain they've done nothing wrong and say it's all disclosed in their terms of service agreements. But to those who say they were duped into joining these programs, their Web store has violated a trust.

Representatives from Buy.com, Orbtiz and Fandango say they are doing their customers a favor.

"Consumers find this of value otherwise we wouldn't have it on the site," said Brian Hoyt, an Orbitz spokesman. "We're not in the business of misleading consumers."

Hoyt said that in the past month Orbitz received maybe 30 complaints about WebLoyalty and the percentage of complaints is less than one percent. Buy.com also said the number of complaints is small.

"We have a longstanding relationship with WebLoyalty because we think they provide value to our customers," said Jeff Wisot, vice president of marketing at Buy.com. "They are a company that has millions of customers who are happy with them and they provide valuable discounts and other services to their customers."

What he didn't say is that WebLoyalty pays Buy.com and other retailers for the right to market to their customers. Adam Sarner, a marketing analyst for research firm Gartner, said he is skeptical that these kinds of relationships between marketers and retailers are good for consumers.

"If you demonstrate value and a benefit for both sides," Sarner said, "customers shouldn't be complaining about being tricked into accepting your offer. Obviously, companies that bury terms in fine print or get (credit card information from someone other than the customer) already know consumers don't want their products."

Complaints, lawsuits, investigations
A spokeswoman for the U.S. Senate Commerce Committee told CNET on Wednesday that what started as a preliminary inquiry into WebLoyalty, Vertrue, and Affinion is now a "full-blown" investigation. She said: "It's becoming clearer and clearer that consumers can be at risk for these mystery charges when they shop online."

Fernandes and a spokesman for Vertrue say their practices are legal and even surpass the law's expectations. "There has never been a determination anywhere that (Vertrue's) marketing has failed to comply with the law," said George Thomas, a company spokesman. "I think after a full and fair review by the committee it will find...the practices employed by the company are specifically permitted by (Federal Trade Commission) rules."

Be that as it may, any retailer that knows how to do a Google search could have a tough time explaining to customers why it chose to associate with firms dogged by so much controversy.

Class action lawsuits have been filed against both Vertrue and WebLoyalty. In Vertrue's case, a complaint filed last year in Massachusetts alleges "consumers almost never legitimately join any of Vertrue (or its brand) Adaptive Marketing's various membership programs." In 2006, a complaint was filed that accused WebLoyalty of perpetrating a "coupon click-fraud scheme" that involved the "deceptive sale" of discount products and the "unauthorized transfer of private credit and debit card information." Fandango was also named in the suit.

That case was settled out of court for an undisclosed amount and some people who claim they were misled by WebLoyalty may be entitled to some money, according to a Web site that appears to be created to handle claims.

In February, about a half dozen British retailers, including HMV, the country's biggest chain, either "severed or suspended ties" with WebLoyalty, after receiving "a wave of complaints," according to a report in The Independent, a British publication.

Back here in the States, the Better Business Bureau has received thousands of complaints about WebLoyalty and Vertrue. WebLoyalty has a "C+" rating from the bureau and Vertrue has an "F."

WebLoyalty and Vertrue assert the complaints come from a tiny fraction of their overall customers.

Happy customers
In Lowensohn's case, he was presented with a coupon worth $10 off his next purchase. Fernandes said Lowensohn was informed three times on the page that he would be billed after 30 days and was shown a graphic that underscored the terms. Following that, Lowensohn was sent a dozen e-mails that notified him he would be getting billed.

This is how Lowensohn saw it: the page with the offer appeared during the buying process when all he wanted to do was to confirm his transaction, he said. The page was stuffed with fine print and it wasn't apparent to him how to move past the page without keying in his e-mail address.

As for the e-mails WebLoyalty sent him, Lowensohn, like millions of other Internet users, tries to avoid spam by providing advertisers with an e-mail address he rarely uses or checks. He never saw WebLoyalty's e-mails. He also never knew that Buy.com had cut a deal to turn over his credit card information to marketers.

"In the terms and conditions," wrote Buy.com's Wisot, "it's very clear that (customer) credit card information is going to be transferred over to WebLoyalty."

A check of Buy.com's terms of use and privacy policies didn't turn up WebLoyalty by name. But there is this: "Except as limited below, we reserve the right to use or disclose your personally identifiable information for business reasons in whatever manner desired."

That appears to leave Buy.com plenty of room to do as it pleases with customers' personal information.

In the end, WebLoyalty says it gives unhappy customers their money back when they ask. The company has agreed to refund most of Lowensohn's $96. Before he gets it all he must submit an affidavit and the company must OK it after a review. Fernandes said his company's refund policy is "easy."

It's safe to say that many people don't check their statements carefully. What happens to people who go for years without catching charges? They would presumably be paying the balance on their credit card charges as well as interest.

Sarner, from Gartner, said that even if the Web loyalty programs affect only a small percentage of an online store's customers, it's bad for consumers as well as the retailer:

"What good is it going to do for your brand if these people hate you."

Bottom half of WebLoyalty ad presented to Buy.com customers during the transaction process. (Call-outs by WebLoyalty)

(Credit: WebLoyalty)