The U.S. Congress needs to take action to protect consumers tricked into signing up for membership clubs that charge a monthly fee when they buy products or services from other Web sites, the chairman of a U.S. Senate committee said Tuesday.
Many legitimate Web sites selling items such as flowers or airline tickets have partnered with companies that lure consumers into signing up for monthly payments after being promised cash-back rewards, said Senator Jay Rockefeller, a West Virginia Democrat and chairman of the Senate Commerce, Science and Transportation Committee.
Rockefeller called the practice of membership clubs "darned disturbing." In many cases, a coupon or other offer is presented during the checkout process on a legitimate Web site, and if a customer agrees to the offer, they have a couple of days to cancel before being charged a monthly fee.
"What's happening is that many online merchants have decided to betray their customers' trust," Rockefeller said. "For a few extra bucks in profit, these merchants pass their consumers' personal billing information onto mysterious companies."
The Commerce Committee on Tuesday released the results of an investigation into these membership clubs. Three Internet companies, Affinion, Vertrue and Webloyalty, have generated more than US$1.4 billion in revenue through "misleading" tactics, the committee report said.
The three companies have enrolled more than 30 million consumers in their programs, and more than 450 Web sites and retailers have partnered with the three companies and received about 50 percent of the revenue from the membership clubs, the committee said.
Linda Lindquist, from Sussex, Wisconsin, told the committee she was charged $320 in less than a year-and-a-half after unknowingly being signed up to two membership clubs through a Web site selling movie tickets. Lindquist, who said she shops frequently online, was signed up for the membership club while simply clicking on a coupon for $10 off her next purchase.
Ray France, a disabled military veteran, was charged $20 a month for a membership club he was unaware he signed up for. "This is nothing short of theft," he said.
Rockefeller called on the U.S. Congress to draft laws prohibiting what happened to France and Lindquist. Other committee members also criticized the membership-club business model, with Senator George LeMieux, a Florida Republican, calling them "click and scam" businesses.
Affinion, Vertrue and Webloyalty all responsed to the hearing.
Vertrue and subsidy Adaptive Marketing announced this week they will strengthen their existing best practices, the company said in a statement. In membership-program offers that include account information from another source and a conversion from free to pay service, the company will collect the last four digits of a customer's payment account as further acknowledgement of the offer.
The company will also provide consumers with clear, conspicuous and repeated disclosure of all terms of the offer, including the membership fee and cancelation terms, Vertrue said. A U.S. judge, in dismissing lawsuits against Adaptive in August, wrote that the company's marketing "language is clear and easily understandable by anyone capable of making an online purchase," the statement noted.
Affinion, last week, also made changes, the company said in a statement. The company "voluntarily announced new enhanced marketing guidelines in order to make certain that consumers give clear and informed consent for online purchases and have access to easy-to-understand billing language and customer service information," the statement said.
Webloyalty also changed its marketing efforts earlier this year, a spokeswoman said.
"We've looked at the Senate staff report and nearly all of the Webloyalty practices described are no longer the way we do business," she added."We have made changes over the years culminating in the Aug. 1 requirement for consumers to enter the last four digits of their credit or debit card in order to join one of our discount programs. We agree with the committee that consent should relate to billing, and that is what we now require."