Watch for ‘mystery charges’ after shopping online

Wednesday, November 18, 2009

John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, released a new investigative report called “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers," which outlines how "post transactional" marketing methods trick consumers into joining worthless fee-based shopping clubs. As if this is not bad enough, the original companies then pass credit card account numbers to the third-party vendor.

Consumer Action wants to warn online shoppers to carefully read each screen during the online shopping process. Do not agree to "free trials" for loyalty or shopping clubs. If you unwittingly enroll in a free trial, contact the retailer immediately to cancel.

“After six months, this Committee has found that the companies we are investigating have figured out very clever ways to manipulate consumers’ buying habits so they can make a quick buck," said Senator Rockefeller (D-WV). "American consumers have been complaining for years about these misleading practices and asking for answers—and rightly so. Millions of Americans are getting hit with these mystery charges every month. We have to do all we can to protect the hard working families relying on us to look out for their wallets and well-being.”

Among the findings in the Committee report:

• Three Internet companies—Affinion, Vertrue, and Webloyalty—exploit consumers’ expectations about online shopping to trick them into joining their membership clubs.
• Consumers often do not know these companies have their credit card numbers until they start seeing charges on their bank statements.
• Affinion, Vertrue, and Webloyalty and their e-commerce partners have earned over $1.4 billion in revenue with their misleading tactics.
• There have been more than 30 million consumer enrollments in these clubs and several million people are unknowingly enrolled in these clubs at any one time.
• More than 450 e-commerce websites and retailers have partnered with Affinion, Vertrue, and Webloyalty to employ aggressive sales tactics against their online customers splitting the revenue about 50-50.
• Eighty-eight companies have made more than $1 million by partnering with Affinion, Vertrue, and Webloyalty, including Classmates.com, which made more than $70 million.
• Almost no one receives the “cash back award” that Affinion, Vertrue, and Webloyalty offer to online consumers at the time of enrollment.

Yesterday, the Committee held a hearing on on these aggressive sales tactics. Professor Robert Meyer, Gayfryd Steinberg Professor of Marketing at Wharton School of Business, was one of the witnesses. Professor Meyer spoke about post transactional marketing methods that trap unwitting consumers:

The selling methods of concern are those where a customer makes a volitional purchase at a familiar website and is then transferred—often without their awareness—to a separate site maintained by a third-party. At this new site the customer is offered a free premium (such as a gift card or discount) for agreeing to trial membership in a program offering an array of benefits, such as the potential ability to obtain price discounts from known retailers. If the customer agrees to this trial, the credit card information that was provided to the first party during the original transaction is automatically transferred to the third party. If the customer does not cancel the membership within the trial period, the third party then uses this billing information to charge the customer a monthly membership fee. A common characteristic of these transactions is that many consumers unwittingly agree to the trial memberships without being cognizant that they have purchased anything, and, as a result, they incur several months of membership charges before they are able to cancel.

The full report written by the staff of the U.S. Senate Committee on Commerce, Science, and Transportation is available online. Click here for a copy of the report.