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.
The U.S. Senate on Tuesday afternoon passed the Webcaster Settlement Act, the legislation that lays the groundwork for Web radio stations to negotiate reduced royalty rates for the songs they stream over the Web.
The bill passed through the House of Representatives on Saturday and is now headed to the White House, where President Bush is expected to sign it.
"I'm relieved, optimistic, and grateful to our listeners," said Tim Westergren, founder of Pandora, a Web radio station and music-suggestion engine.
Webcasters have long complained that the royalty rate to stream music is too high for Web radio stations to generate any profit. Representatives from Internet radio and the music industry have been in negotiations for more than a year. Recently, the two sides have gotten closer to an agreement and both say they are confident a deal is within reach.
The deal needs the blessing of Congress because the parties seek a statutory license. Under such a license, any Web station is allowed to play songs that fall under the license without seeking permission. In return, Webcasters are required to pay the negotiated rate.
Westergren, who emerged as a de facto spokesman for the bill, said that had it not made it through Congress, a long delay would have ensued before an agreement could be reached, a situation he says would have driven some Web stations out of business. That's why Webcasters and representatives from the music sector, including representatives of the Recording Industry Association of America, teamed up to get the bill passed.
Believe it or not, the RIAA was in there fighting shoulder-to-shoulder with Pandora and the Web radio stations to fend off any threats to the legislation.
The most imposing obstacle came from traditional broadcasters, who lobbied hard the past weekend to snuff the bill for reasons that are still unclear. Rep. Howard Berman (D-Calif.), who has a history of voting for pro-copyright-holder issues, helped mediate a settlement with the National Association of Broadcasters, and the group dropped its opposition.
"This is a welcome and encouraging development and a sign of the constructive working relationship between the music industry and Webcasters," said Mitch Bainwol, the RIAA's chairman and CEO. "Together, we want to make this marketplace work for both music fans and music creators."
It's important to note that the bill doesn't guarantee a settlement between the Webcasters and music industry. They now have until February 15 to reach an agreement.
See Kara Tsuboi's interview on Monday with Westergren, in which he explains why he's fighting to save Web radio.
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