CUOMO INVESTIGATING 22 POPULAR ONLINE RETAILERS FOR LINKING CONSUMERS TO DISCOUNT CLUBS THAT CHARGE HIDDEN FEES

Cuomo forges groundbreaking agreement with Fandango to protect online shoppers from hidden charges;
Company to permanently stop passing customers’ information to discount club sellers

NEW YORK, N.Y. (January 27, 2010) - Attorney General Andrew M. Cuomo today announced his office is investigating 22 popular online businesses that deceptively link unsuspecting consumers to fee-based membership programs that charge unauthorized fees under the guise of discount offers. His office has also reached an agreement with online movie ticket retailer Fandango to end similar practices.

Cuomo’s investigation has found that when consumers shop online from familiar retailers, they are often presented with a discount or cash-back incentive offer as they complete their purchase. When consumers click on the discount or incentive banner, they are unknowingly directed to a membership program seller’s Web page that is separate from the online retailer’s site. The consumer is then instructed through large, colorful print and voice prompts to accept the discount or incentive. Information about joining the membership program and its ramifications, including the fact that the consumer is agreeing to transfer his or her credit or debit card account information, is buried in fine print and cluttered text. Small and recurring charges then begin to appear on consumers’ credit or debit card bills from unfamiliar companies. Because of the low dollar amount, the charges may go unnoticed for some time.

“This online scheme has impacted the finances and tried the patience of tens of millions of consumers nationwide. Well-known companies are tricking customers into accepting offers from third party vendors, which then siphon money from consumers’ accounts,” said Attorney General Cuomo. “I commend Fandango for doing the right thing by ending the practice of sharing consumers’ financial information with these discount club sellers. I expect the other businesses to follow Fandango’s lead and adopt these reforms to protect consumers who shop online.”

Cuomo has sent subpoenas to 22 well-known merchants that have deals with the three major companies that offer these discount programs: Webloyalty, Affinion/Trilegiant and Vertrue. The subpoenas seek information about retailers’ practices of sharing consumers’ account information with membership program companies; their knowledge of any deceptive solicitations; and compensation from the membership companies. The merchants being investigated include: Barnes & Noble, Orbitz.com, Buy.com, Ticketmaster.com, MovieTickets.com, FTD.com, Shutterfly.com, 1-800Flowers.com, Avon.com, Budget, Staples.com, Priceline.com, GMAC Mortgage, Classmates.com, Travelocity, Vistaprint, Intelius, Hotwire.com, Expedia/Hotels.com, Columbia House, Pizza Hut and Gamestop/EB Games.

Membership program companies enter into highly lucrative deals with the retailers and banks, which bring in millions of dollars in revenue when their customers click on deceptive incentives or become unknowingly enrolled. The three program sellers being investigated bring in revenues of more than $1 billion per year, much of which is amassed through fraud.

The scheme also takes place via postal mail: membership program sellers mail checks to consumers accompanied by solicitations branded with the name of the business or bank with which the consumer has transacted. Consumers frequently do not realize that by cashing these checks, they are enrolling in a membership program with a monthly fee because the solicitations often create the false impression that consumers are being provided with the check as a rebate or reward for their past business. The fact that consumers are enrolling in a fee-based program for which they will incur monthly charges is only inconspicuously disclosed above the endorsement line on the check.

The Attorney General’s Office has received numerous complaints from New Yorkers who have incurred unauthorized charges under these circumstances. Many consumers have reported that the companies offering membership programs make it difficult for consumers to cancel memberships and obtain full refunds of the unauthorized charges. At least one membership program company tries to limit refunds to a single month’s charges, even if a consumer has been subjected to months’ or even years’ worth of unauthorized charges.

Recently, Attorney General Cuomo’s Office intervened in a class-action lawsuit against Webloyalty to ensure that a settlement included full refunds to eligible customers who were scammed. Prior to the Attorney General’s intervention, the settlement limited refunds to only two months.
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