Feds: Top e-tailers profit from billion-dollar Web scam
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."The more aggressively an e-commerce company is willing to market Affinion, Vertrue, or Webloyalty's membership clubs to its customers, the more money it will earn," the Senate Commerce committee wrote in the report.• Their programs are designed to mislead consumers into signing up.
• 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)
Greg Sandoval covers media and digital entertainment for CNET News. He is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at http://twitter.com/sandoCNET. 
- by November 17, 2009 3:49 PM PST
- AXG, that $10 off coupon offer is what they're talking about.<br /><br />I've shopped at Buy.com for years. Yes, the first time I saw that page, it did take some time to read through, and to figure out how to skip it. However, all the information regarding what you're signing up for is there, including that it's something you have to pay for. After that first time, it wasn't a problem.<br /><br />I agree with those who point out that you should review your account statements to make sure that unexpected things aren't showing up there.<br /><br />I recall a story (possibly an urban legend) about a guy who put an ad in the newspaper that simply said, "Send $1 to <address>". No mention of getting anything for that dollar. He got a fair number of dollar bills.<br /><br />Keep in mind, an actual service of some sort is being offered. When I've checked into such things, I haven't found enough benefit to make the subscription worthwhile, but some people might.<br /><br />Also - this isn't new, nor is it limited to the web. I remember getting phone calls for this sort of offer back when I was a new college grad, in the mid 1980's. You get some free trinket, then get signed up for their service - the first three months are free. If you use the service, you'd want to continue; if you don't you probably won't remember to call back and cancel after 3 months. Same basic concept.<br /><br />I can't see where it would be necessary to do more than add a check box ("I understand that I'm signing up for a service, and that doing so is not required to complete my transaction") to remove even the hint of fraudulent intent.
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- by Kiljoy616 November 19, 2009 11:04 PM PST
- I can't see where it would be necessary to do more than add a check box ("I understand that I'm signing up for a service, and that doing so is not required to complete my transaction") to remove even the hint of fraudulent intent.<br /><br />But the reason you don't see that is because these people are really scam artist, their money comes form the scam not from the products they sell. Amway anyone.
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