(Adds comments from hearing throughout)
By Judith Burns
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)
Affinion Group Inc., Vertrue Inc. (VTRU) and Webloyalty Inc., enrolled consumers in club memberships, sometimes without the consumers' knowledge or consent, researchers said in the report, released before a hearing Tuesday.
None of the companies or their online partners testified Tuesday. The three firms previously have settled lawsuits brought by consumers or by states on behalf of consumers, and recently made changes to their marketing practices. Lawmakers suggested that may not be enough and that legislation may be needed.
At issue are 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 ads 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 learned they had joined the club only after seeing the monthly charges, typically between $10 and $20, on their credit or debit cards.
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, according to the report. It said hundreds of firms established such partnerships, 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.
"What's happening is that many online merchants have decided to betray their customers' trust," Rockefeller said at the hearing. He said such practices are "outrageous" and that Congress may need to consider legislation to end them.
Consumers and consumer advocates told the Senate panel that such practices should be barred by law.
"This is nothing short of theft," said Ray France, a disabled former U.S. paratrooper who said it took him nearly a year to recover money withdrawn from his bank account without his consent after an Internet transaction with Intelius.
Linda Lindquist testified that she was shocked to find she'd been charged $320 after clicking on an online coupon offering $10 off movie purchases. When she called to inquire about the charges, the marketing company told her that it got her credit card data from the site she'd visited, movietickets.com.
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," a Webloyalty spokeswoman said in a statement Monday.
Vertrue said in a statement that given concerns about industry practices, it will require 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.
All three firms have tangled with disgruntled consumers: Webloyalty paid $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 in Iowa 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.
-By Judith Burns, Dow Jones Newswires, 202-862-6692; judith.burns@dowjones.com
(Fawn Johnson contributed to this article)