By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)
The report, released before a hearing Tuesday on aggressive Internet sales tactics, cites three marketers, Affinion Group Inc., Vertrue Inc. (VTRU) and Webloyalty Inc., that it says enrolled consumers in club memberships, sometimes without the consumers' knowledge or consent.
No executives from the companies or their online partners are scheduled to testify Tuesday. The three firms previously have settled lawsuits brought by consumers or by states on behalf of consumers, and recently have made changes to their marketing practices.
The report focuses on enrollments that came as consumers shopping on popular Web sites such as Priceline.com Inc. (PCLN) or 1-800-Flowers.com Inc. (FLWS) clicked on pop-up windows offering rewards for joining an online membership service. Pop-ups typically appeared after consumers provided payment information to the Web site operator, which was passed along to the marketers automatically, the report found.
More than 35 million have enrolled since 1999, and several million did so "unknowingly," according to the report prepared by the committee's Democratic staffers. It said those consumers found out they had joined the club only after seeing the monthly charges, typically between $10 and $20, on their credit or debit cards. It said others enrolled for 30-day "free trials" that charged monthly fees unless the consumer opted out of the program.
Call centers operated by the three Connecticut-based companies "are almost entirely dedicated to handling the large volume of calls from angry and confused consumers requesting cancellations and an explanation for the charge," the report states.
Web sites that partnered with the three companies reaped a "bounty" for each of their customers who enrolled in the membership clubs, receiving $792 million out of the $1.4 billion collected, according to the report.
Hundreds of firms established such partnerships, and 19 were found to have been paid more than $10 million, including Expedia Inc. (EXPE) and its Hotwire.com unit, Fandango, a unit of Comcast Corp. (CMCSA), Orbitz Worldwide Inc. (OWW), privately held Travelocity and US Airways Group Inc. (LCC).
Interviews and email correspondence offer "abundant evidence" that the online partners knew that consumers were being misled by Affinion, Vertrue and Webloyalty, and some ended their partnerships because they concluded it was not in their consumers' interest, the report added.
Affinion said Friday that it now will bill a consumer for a discount-club membership only after obtaining "express informed consent" and that those who enroll will receive an email message confirming the transaction.
Webloyalty made similar changes in August.
"We agree with the committee that consent should relate to billing and that is what we now require. And we will continue to work with the committee and others on ways to improve industry practices to provide assurance that consumers are affirmatively choosing to join our programs," a Webloyalty spokeswoman said in a statement Monday.
Congress and the Federal Trade Commission have not developed rules for post-transaction Internet marketing, Vertrue noted in a statement. But it said given concerns about industry practices, it will add another layer of consumer protection by requiring consumers to provide payment information, such as the last four digits of their credit-card number. It said that reinforces its existing protections, including email verification and a "no questions asked" credit or refund to consumers who say they didn't authorize membership charges.
Webloyalty markets club memberships exclusively online, while Affinion and Vertrue use direct mail and telemarketing in addition to Web-based marketing, the report said.
All three firms have tangled with disgruntled consumers: Webloyalty agreed to pay $10 million to settle a consumer class-action lawsuit earlier this year, and Affinion, then known as Trilegiant, agreed to pay up to $25 million in a 2008 settlement, the report said.
Vertrue, formerly known as MemberWorks, has settled with California, Florida, Minnesota and New York, and a ruling in a case brought by Iowa's attorney general is expected early next year. It scored a victory in August when a federal district court judge in New Jersey dismissed a lawsuit against it and its Adaptive Marketing subsidiary, finding its Web pages were not deceptive; the plaintiffs are appealing that ruling.
Affinion and Webloyalty cooperated with the investigation, but Rockefeller subpoenaed Vertrue to obtain documents the company was withholding, according to the report.
- By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns@dowjones.com
(Fawn Johnson contributed to this article.)