More Crackdown on Post-Transaction Marketing

Crackdown on Post-Transaction Marketing

Some recent news and government actions affecting online retailers enrolling consumers in membership clubs warrants a follow up to my blog a few months ago about post transaction marketing.

In late January, NY Attorney General Cuomo made some strong moves in the battle against post-transaction marketing.  His office reached an agreement with Fandango, in which the online movie ticket retailer will no longer engage in any marketing practices that enroll consumers in membership/discount clubs – without the consumer’s approval.   Additionally, Cuomo launched an investigation into 22 well-known online retailers who deceptively enroll consumers in these membership clubs.  Cuomo stated that while the enrollments in the discount clubs weren’t “illegal per se,” they could be considered deceptive practices.  The investigation resulted from monumental consumer complaints who say they were lured by coupons or cash-back offers while buying things such as flowers and movie tickets and then enrolled in clubs which charged their cards monthly without their consent.  Complaints included the difficulty in finding out who to contact to cancel the membership once it is discovered.

Affinion, Vertrue and Webloyalty, the three main discount club sellers (all based in Norwalk, CN), have been accused of improper conduct numerous times before and have even been sued or are currently under investigation by several states over their sales tactics. Last June, a federal judge in Massachusetts approved a settlement agreement to a class action lawsuit against Webloyalty.  Up to 20 million people are eligible for refunds from the company.  In 2006, a multi-state lawsuit against Affinion (formerly Triligiant) resulted in $14.5 million in consumer restitution and penalties. They are now in the hot seat for possible violations of its settlement order.

A report on aggressive sales tactics issued by the U.S. Senate Committee on Commerce in November said the three companies have taken $1.4 billion from customers in a little more than a decade. The billing information is generally passed through to the club sellers without the consumers’ direct consent.  Online retailers linked to the sellers earned revenue as well.  According to the report, 19 online retailers generated more than $10 million and 69 online retailers generated between $1 and $10 million in revenue.  Classmates.com received more than $70 million from these practices.  The report also stated that more than 450 retailers were partnered with the three companies.

In its agreement with the NY Attorney General, Fandango has agreed to suspend contracts with all discount club sellers.  The company also agreed to pay $400,000 into a consumer redress fund. Fandango will also adopt the following reforms:

  • Review and approve all Fandango incentive offers made in connection with online purchases and require any contracted discount club seller to provide the numbers of New York customers enrolled and complaints received from those customers
  • Explicitly warn consumers that the incentive is offered for joining a separate company’s membership club
  • Explicitly notify consumers when they are redirected to a discount club seller’s site that they are leaving Fandango’s Web site
  • Ensure that all cash-back or rebate offers made by contracted membership club sellers comply with New York state rebate laws by providing redemption forms and information at the time of the offer

The subpoenas from Cuomo’s office seek information about each retailers’ practices of sharing consumers’ account information with membership program companies; their knowledge of any deceptive solicitations; and compensation from the membership companies.  The downside to Cuomo’s (or any individual state efforts) is that any resulting legislation will only affect consumers in that state.

In addition to Fandango and Barnes & Noble, retailers being investigated include Orbitz, Buy.com, Ticketmaster, MovieTickets.com, FTD, Shutterfly, 1-800Flowers, Avon, Budget, Staples, Priceline, GMAC Mortgage, Classmates.com, Travelocity, Vistaprint, Intelius, Hotwire, Expedia/Hotels.com, Columbia House, Pizza Hut and Gamestop/EB Games.

Vistaprint, Priceline, Expedia and 1-800-Flowers.com said they severed ties with the companies last fall.  William Lynch, President of Barnes & Noble.com states that they “welcome the NY Attorney General’s review because it will show that Barnes & Noble does not, nor has it ever, shared customer debit or credit card information with discount clubs.”

Some companies are staying with the clubs, despite complaints. Orbitz.com said in a statement that it had “improved its sign-up process with Webloyalty in a way that will ensure consumers know they are consenting to membership in a paid club.”

As part of a continuing investigation by the Commerce Committee, Senator Rockerfeller (D-WV) has sent letters to Visa, American Express, and MasterCard requesting information relating to cardholder inquiries about unauthorized charges stemming from “data pass” and any efforts made by the companies to reduce the number of chargeback requests from cardholders. The letters also requested information regarding continuity programs that trigger a high chargeback percentage.

The club sellers claim their practices are legal but have promised changes.  Following the Commerce Committee report accusing them of acting unethically, all three club sellers began requiring customers to re-enter all 16 digits of their credit card number for enrollment.

Continuity plans, upsells /cross-sells and post transaction marketing can be a BIG benefit to online retailers and club program marketers, as long as they are executed ethically.  Consumers who get burned end up losing trust with all online retailers and marketers using similar sales tactics.  So even if an online retailer is on the up-and-up, sales and conversions can be hurt by the negative experiences customers have had with other online retailers and marketers.

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