It's bad enough the Internet is a money-making machine for con artists and swindlers. Now you have to worry about “legitimate” companies that team up with dishonest marketing firms in order to boost their profits.
New York Attorney General Andrew Cuomo recently issued subpoenas to 22 big name retailers he claims tricked their customers into accepting offers from other companies via pop-up ads that looked like discount offers.
“This online scheme has impacted the finances and tried the patience of tens of millions of consumers nationwide,” Cuomo said in a news release.
The companies under investigation include Barnes & Noble, Orbitz, Expedia, Staples, FTD and Ticketmaster. None of these companies has been charged with anything. Cuomo wants to find out more about their marketing agreements.
Cuomo also subpoenaed records from three marketing companies — Webloyalty, Affinion/Trilegiant and Vertrue. Cuomo claims these three companies take in more than $1 billion a year. Much of that money, he claims “is amassed through fraud” by slamming people with hidden fees. All three companies have been accused of improper conduct in the past, but have always denied any wrongdoing.
Webloyalty and Vertrue tell me they have improved disclosures and procedures to eliminate any possible customer confusion. Both now require customers to enter their full credit or debit card number to confirm that they agree to the membership and want it charged to that card.
How ‘piggybacking’ works
You’re on the site of a well-know retailer and you make a purchase. As soon as you complete the transaction a pop-up window appears. It offers a discount on your next purchase. Click on the ad and you are automatically redirected to another company’s site where you are signed up for a buying club, travel club or credit card protection service. The yearly cost is usually $100 to $145.
Here’s where things really get smarmy. Even though you did not give that second company any account information, they will bill the credit or debit card number you used to make the original purchase. You didn’t have to provide your account number because the “trusted” retailer gave it to them for a cut of the action.
“Judging from the volume of complaints we receive, it’s pretty obvious there is a problem when it comes to disclosure,” says Allison Southwick with the Council of Better Business Bureaus. “And since the customer never had to provide their credit card or bank account information to this third party, they didn’t realize they were going to get charged.”
Horrible way to treat customers
“It is absolutely appalling,” says Prentiss Cox, an associate professor of clinical law at the University of Minnesota. “It’s a white collar mugging.”
Why would a supposedly reputable company decide to make money this way? Maybe it’s because the third party marketer shields them. When the charge shows up on the customer’s monthly statement, it usually has the name and phone number of the membership club, not the original retailer.
“Some of these clubs even have arrangements with their ‘partner’ to isolate them from any complaints,” Cox explains. “So the consumer never finds out where the credit card or other financial information came from.”
Here’s the real shocker. There is no federal law that says a retailer cannot share your bank account or credit card account information with another retailer in this manner.
“It’s perfectly legal, says Susan Grant, director of consumer protection at the Consumer Federation of America. “But one could argue that it’s unfair and deceptive to do this.”
Cox, who previously worked in the Minnesota Attorney General’s Office, believes retailers should be held responsible for selling their customers’ account information to other companies, “especially when the deceptive results of this arrangement are so obvious.”
Fandango settles
Fandango, the online ticket seller, has agreed to permanently stop sharing its customer account information to discount program sellers and make changes to protect it customers.
The company will now warn customers if they are about to be leave the Fandango Web site. It will also warn customers when an incentive is offered for joining a membership club from a separate company. Fandango has agreed to pay $400,000 in restitution to customers.
In a statement, Fandango said it is “pleased to play a leadership role…to promote responsible marketing practices for the e-commerce industry related to online membership programs.”
New York Attorney General Cuomo says he expects other companies to follow Fandango’s lead and change their business practices. The Associated Press reports that Priceline, Expedia and 1-800-flowers severed their ties with their third party marketers last fall.
Protect yourself
You need to very careful whenever you’re online and a promotional pops-up appears. There could be strings attached. What appears to be a discount could be a clever sales pitch. Look to see if you’ve been redirected to another site. Check for fine print. Find out what’s really going on.
As millions have learned the hard way, you can be billed without typing in your credit or debit card information. The third party company may already have it.
This is one more reason why it’s so important to check your credit card and bank account statement as soon as you get them. Look carefully for any charges or debits you didn’t authorize. If you find something — challenge it. These membership fees may be small, but they really add up over the course of the year.
And be sure to file complaints with the Better Business Bureau, your state’s Attorney General or consumer protection office and the Federal Trade Commission.