A report by the Senate Commerce Committee found that millions of Internet shoppers, buying goods ranging from air plane tickets to pizzas, have been tricked into signing up for loyalty discount clubs that charge members monthly fees up to $20.
Loyalty clubs offer incentives and rewards to loyal shoppers in the form of discounts and special offers. Three companies promoting these loyalty clubs, Affinion, Vertrue and Webloyalty, offer different versions of these programs, but the one common element is that they have a monthly fee after an initial free trial period.
According to the committee report, the loyalty club memberships were offered after an Internet transaction at a trusted Web site was nearly complete. After the sale but before confirmation, shoppers were asked if they would like a discount coupon offered by a loyalty club. Shoppers could click what a Senate report described as a "large, colorful, 'Yes' button or a much less conspicuous 'No Thank You' hyperlink."
According to the Senate Commerce Committee, unless shoppers read the fine print they did not realize they were authorizing regular monthly charges to join a loyalty club. The shopper's credit card billing information is provided to the club by the merchant where the original transaction occurred.
The Senate report, citing information provided by the three loyalty club companies, said that of the 34 million members who signed up in the last decade, only "3 percent actually received the promised enrollment benefit."
At a hearing on Tuesday, Raymond France, an Internet shopper and Army veteran, told senators, "my country promised to take care of me when I returned home, but without laws to govern these unethical practices, my country is allowing me to be taken advantage of."
It took eight months to resolve the disputed charges and "even longer" to get a refund, France said at the hearing.
"Tricking consumers into buying goods and services they do not want is not okay, not even close," said Senate Commerce Committee Chairman, John D. Rockefeller, who launched the investigation last May.
Rockefeller called for the practice to be stopped, adding although the companies say they are not breaking any laws "doesn't make it right."
All three companies deny any deceptive practices, but they say they have changed or are in the process of changing the way they do business. The most significant change will be requiring Internet shoppers to provide the last four digits of a credit card before loyalty club membership is complete.
The Senate report said loyalty club revenue is $1.4 billion, with $792 million being paid to partner Web sites. The report claimed more than 450 e-commerce businesses participated.
Among the highest paid was Classmates.com, which received $70 million in loyalty club compensation. Other companies that received what the report called a "bounty" included Continental Airlines, MovieTickets.com, Pizza Hut and Priceline.com.
North Dakota Senator Byron Dorgan told the committee hearing that they should take a closer look at the Web sites that profit from the practice, warning that if those sites "allow that sort of thing to bounce up on (the) Web page, you’ve got some liability here."