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TODAY   |  November 16, 2009

Senate cracks down on sneaky membership club dues

Nov. 17: Authorities are warning online shoppers to be careful of mysterious membership charges to their credit cards, part of a growing industry that uses deliberately misleading tactics. NBC’s Lisa Myers investigates.

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>>> this morning on "today investigates," an alert for online shoppers. authorities say if you are not careful, you could be getting mysterious and unwanted charges on your credit card every month. nbc's senior investigative correspondent lisa myers is here with details. lisa, good morning to you.

>> good morning, meredith. you may have seen some of these money-back offers on popular websites when you're shopping online . well, today, a senate committee is cracking down on this industry, which investigators say engages in deliberately misleading tactics and may be duping consumers out of millions of dollars. the offers pop up when you least expect it.

>> i felt like i was being pick-pocketed.

>> reporter: on websites that you know and trust.

>> it's just very deceptive business practices .

>> reporter: ann makai had been on shutterfly buying photos, mike genevieves, two movie tickets on fandago, when they got some strange, unwanted charges on their credit cards , monthly fees for a membership club called reservation rewards.

>> this was going for a service which i did not want, did not need and had no knowledge of getting.

>> reporter: authorities say millions of online shoppers are signing up and getting billed for these clubs without knowing it, a billion-dollar business they say is built on deception.

>> just a shameful, outrageous, embarrassing, un-american tactic.

>> reporter: chairman jay rockefeller of the senate commerce committee has been investigating three membership club companies behind these offers. in a scathing report released monday, he charges them with aggressive sales tactics intentionally designed to mislead online shoppers.

>> fundamentally, it's a bait-and-switch.

>> reporter: ben ettleman is a web marketing expert at harvard business school . he showed us how these clubs lure you in while shopping on popular websites.

>> so, here i am at buy.com. i'm going to buy these headphones.

>> reporter: we put in our credit card number and made a purchase. then, another offer appeared on the screen.

>> save $10 on your next order.

>> reporter: $10 off.

>> $10 off. doesn't that sound fabulous?

>> reporter: these coupons look like they're from the retailer, but they're actually offers from third-party companies that will cost you money. click on them like ann and mike did when shopping, and you'll be billed every month for a discount membership club, something many of these offers only disclose in the small print .

>> everywhere you look, they are boasting of the money you'll save -- $15. it's in red, in blue, in bold, underlined and in blue. only here at the very bottom do they finally mention the $19.95 per month that you have to pay.

>> reporter: so, deliberately deceptive.

>> absolutely.

>> reporter: ettleman says these club offers are pitched on hundreds of popular websites, for airlines, travel and hotels, movie tickets and flowers. and while the clubs offer real shopping discounts, many consumers have no idea they're even enrolled. it took mike more than a year to catch the monthly charges on his card.

>> it was such a small charge that you don't notice it. i think they purposely don't want you to know that you're a member of this club.

>> reporter: are you actually tricking people into signing up as members?

>> no.

>> reporter: rick fernandez is ceo of web loyalty, which sold mike and ann their membership clubs, and is one of the firms under investigation by the senate. this is a senate committee having looked at your practices over a period of months, which finds that they're both deceptive and intentionally deceptive.

>> with all due respect, i would disagree with that statement. we've worked hard over time to try to make our sign-up process clear to ensure that people understand what they're signing up for.

>> reporter: do you at least concede there's a problem here?

>> unfortunately, when we deal with the millions of people that we deal with, there are some complaints.

>> reporter: some offers are more clear than others. these from web loyalty's competitors tell you up front they're for a membership club. still, investigators say none actually ask you for your credit card . so, how can they charge you? if these offers don't require you to enter your credit card number , where do these companies get your number?

>> they get your number from the website where you had just submitted it a moment before.

>> reporter: that's right. one click and the retailer simply gives your credit card number to the membership club. in exchange, they get a handsome fee.

>> the retailers make good money from selling users' credit card numbers .

>> reporter: shutterfly, the photo site ann was shopping on, made over $6 million last year from these partnerships. classmates.com, the popular reunion site, has made $70 million, the most of any online retailer .

>> they're part of scamming the american consumer. they can scam all they want legally. that's got to stop.

>> reporter: as for the membership club companies, all three insist their offers are clear, conspicuous and unambiguous. affinion says it's worked openly with the senate committee and employs the best marketing practices in the industry. vertrue says it takes affirmative steps to ensure consumers know they're signing up and that recent lawsuits claiming its practices were deceptive were dismissed. in august web loyalty began asking consumers to enter the last four digits of their credit card number , which affinion now says it will do, too. if there is no intent to deceive, why not have customers to enter their entire credit card number ?

>> that's a good question. we think what we've done is gone a long way to make this sign-up process clear.

>> reporter: so your position is your offers are neither deceptive, nor misleading, and if consumers are confused, it's basically their own fault?

>> no, i would never say that. obviously, if consumers are complaining, there's something that's frustrating them about the process. we've made major changes just a few months ago and we'll continue to change if it's not clear.

>> senate investigators say these steps are inadequate, that all these companies are still engaging in deception. investigators also found that consumers who complain have a very tough time getting their money back. the companies deny that. as for the retailers who allow their sites to be used this way, they claim that these offers are completely clear and say less than 1% of their customers complain, meredith.

>> a lot of people may not even notice, as that guy said. so, what should people do to protect themselves, short of just not clicking on anything that looks too good?

>> well, be very careful where you click, read all the fine print before you click, and then check your credit card bill carefully each month. if you find an unwanted charge, go to the company, demand a full refund. if that doesn't work, go to your state attorney general or the better business bureau , and they should be able to help you.

>> all right, lisa myers . thank you very much.

>>> and still ahead, new research