In January, New York’s Attorney General announced that his office was investigating 22 popular online businesses that link consumers to fee-based membership clubs, allegedly without their knowledge. The NY AG also announced a settlement agreement with the online movie ticket retailer Fandango, which linked consumers to online membership clubs and transferred consumers’ credit and debit card information to them.
According to the NY AG’s investigation, consumers shopping online often are presented with a discount or cash-back incentive offer as they complete their purchases. When consumers click on an offer banner, they are unknowingly directed to a membership program’s website where they are urged to accept the discount offer or cash-back incentive. The AG’s investigation found that consumers do not realize that by accepting such offers they are joining a fee-based membership program because information about the program and its fees are buried in the website’s fine print. Small, recurring charges then appear on the consumers’ credit or debit card statements. The three major online discount clubs reportedly take in US$1 billion annually, much of which the NY AG alleges is fraudulently acquired.
The NY AG’s investigation follows on the heels of a report issued in November 2009 by the Senate Committee on Commerce, Science, and Transportation. The Report, “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers,” summarizes the Committee’s investigation of online discount clubs operated by the direct marketing companies Webloyalty, Affinion/Trilegiant, and Vertrue. The Report concludes that “these three companies use highly aggressive sales tactics to charge millions of American consumers for services the consumers do not want and do not understand they have purchased.”
The NY AG’s settlement with Fandango requires the company to stop sharing customers’ credit and debit card information with online discount clubs; suspend contracts with existing discount clubs until Fandango can implement reforms to protect online shoppers from being deceived by discount and cash-back advertisements that appear on Fandango’s website; notify customers when they are redirected to a discount club’s website; and pay $400,000 into a consumer redress fund.
E-commerce businesses that link to online discount clubs operated by companies like Webloyalty, Affinion/Trilegiant, and Vertrue should consider taking steps to inform consumers when they are entering a website operated by one of these companies and to avoid sharing financial information about their customers with such companies. These steps could avoid an investigation and/or enforcement measures like those imposed on Fandango.
