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AGGRESSIVE SALES TACTICS ON THE INTERNET 

AND THEIR IMPACT ON AMERICAN CONSUMERS 

HEARING 

BEFORE THE

COMMITTEE ON COMMERCE, 

SCIENCE, AND TRANSPORTATION 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

NOVEMBER 17, 2009 

Printed for the use of the Committee on Commerce, Science, and Transportation 

( 

(II) 

SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

JOHN D. ROCKEFELLER IV, West Virginia, Chairman 

DANIEL K. INOUYE, Hawaii 

JOHN F. KERRY, Massachusetts 

BYRON L. DORGAN, North Dakota 

BARBARA BOXER, California 

BILL NELSON, Florida 

MARIA CANTWELL, Washington 

FRANK R. LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas 

CLAIRE MCCASKILL, Missouri 

AMY KLOBUCHAR, Minnesota 

TOM UDALL, New Mexico 

MARK WARNER, Virginia 

MARK BEGICH, Alaska 

KAY BAILEY HUTCHISON, Texas, Ranking 

OLYMPIA J. SNOWE, Maine 

JOHN ENSIGN, Nevada 

JIM DEMINT, South Carolina 

JOHN THUNE, South Dakota 

ROGER F. WICKER, Mississippi 

GEORGE S. LEMIEUX, Florida 

JOHNNY ISAKSON, Georgia 

DAVID VITTER, Louisiana 

SAM BROWNBACK, Kansas 

MIKE JOHANNS, Nebraska 

ELLEN L. DONESKI, Staff Director 

JAMES REID, Deputy Staff Director 

BRUCE H. ANDREWS, General Counsel 

ANN BEGEMAN, Acting Republican Staff Director 

BRIAN M. HENDRICKS, Republican General Counsel 

NICK ROSSI, Republican Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on November 17, 2009 ...................................................................... 1 

Statement of Senator Rockefeller ........................................................................... 1 

Statement of Senator LeMieux ............................................................................... 3 

Prepared statement .......................................................................................... 4 

Statement of Senator Dorgan ................................................................................. 5 

Statement of Senator Udall .................................................................................... 52 

Statement of Senator Klobuchar ............................................................................ 54 

Statement of Senator Nelson .................................................................................. 56 

WITNESSES

Ray France, Former United States Paratrooper ................................................... 6 

Prepared statement .......................................................................................... 8 

Linda Lindquist, Citizen of Sussex, Wisconsin ..................................................... 9 

Prepared statement .......................................................................................... 10 

Robert J. Meyer, Gayfryd Steinberg Professor of Marketing, The Wharton 

School, University of Pennsylvania .................................................................... 11 

Prepared statement .......................................................................................... 13 

Florencia Marotta-Wurgler, Associate Professor, New York University School 

of Law .................................................................................................................... 24 

Prepared statement .......................................................................................... 25 

Prentiss Cox, Associate Professor of Clinical Law, University of Minnesota 

Law School ............................................................................................................ 39 

Prepared statement .......................................................................................... 41 

APPENDIX

Hon. Mark Pryor, U.S. Senator from Arkansas, prepared statement ................. 99 

Response to written questions submitted by Hon. Claire McCaskill to: 

Robert J. Meyer ................................................................................................ 99 

Florencia Marotta-Wurgler .............................................................................. 101 

Response to written question submitted to Professor Prentiss Cox by: 

Hon. John D. Rockefeller IV ............................................................................ 102 

Hon. Claire McCaskill ...................................................................................... 106 

(1) 

AGGRESSIVE SALES TACTICS ON THE 

INTERNET AND THEIR IMPACT ON 

AMERICAN CONSUMERS 

TUESDAY, NOVEMBER 17, 2009 

U.S. SENATE, 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION, 

Washington, DC. 

The Committee met, pursuant to notice, at 2:58 p.m. in room 

SR–253, Russell Senate Office Building, Hon. John D. Rockefeller 

IV, Chairman of the Committee, presiding. 

OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 

U.S. SENATOR FROM WEST VIRGINIA 

The CHAIRMAN. This hearing will come to order. I’ll make an 

opening statement. 

Every single day, millions of American consumers sit down in 

front of their computers to make travel plans, to send somebody 

some flowers, or to order movie tickets or sundry other transactions. For many Americans, shopping online is now as routine as 

going to the grocery store for milk. According to a recent survey, 

59 percent of all adult Americans have now purchased goods or 

services over the Internet. 

Shopping online is, in fact, an exciting new way for people to 

learn about products, to compare prices, and to find a good bargain. 

In tough economic times when Americans are doing all they can to 

make ends meet, every nickel, every dollar counts. 

But when we go online to buy things, we all have a few very important expectations about how we should be treated, regardless of 

how and where we make a purchase. First of all, we expect the 

merchants that we do business with to treat us honestly, fairly, 

and we expect that on the Internet. 

We expect online merchants to clearly explain their prices and 

their terms to us, so that we know exactly what we’re getting if we 

decide to spend our money at their websites. And when we agree 

to buy something from them, we expect merchants to protect our 

credit card and other financial information that we share with 

them. 

That’s why it is so darn disturbing to me to learn through our 

investigation that we’ve done in this committee, over 300,000 pages 

of research, what’s happening to millions of American consumers 

every day who are shopping on the Internet, including the two consumers we have invited to testify today. 

2 

What’s happening is that many online merchants have decided 

to betray their customers’ trust. For a few extra bucks in profits, 

these merchants pass their consumers’ personal billing information 

on to mysterious companies with names like Affinion, Vertrue, 

Webloyalty, companies that have a long, troubling history of misleading sales practices. 

From the consumers’ point of view, here’s how it happens. Section one: the scam. You’re shopping online and you decide to send 

somebody flowers or buy a plane ticket or a movie ticket or whatever, or even order a pizza. You type in your home address, you 

type in your e-mail address and other information necessary to 

process the sale. 

Then at the very end of the process you do the really important 

thing. You pull your wallet out. You type in your 16-digit credit 

card or debit card number, and you press ‘‘Purchase.’’ 

What our Committee has been investigating is what can happen 

to you after you have made that purchase. It’s truly unbelievable. 

While you think that you’re going through the final checkout process—and I associate this with buying books on AOL.com. I mean, 

there’s a definite checkout process that takes a number of steps. 

What’s really going on is that some very sophisticated online businesses are tricking you into signing up for useless membership 

clubs. 

These businesses take the credit card number you typed in for 

your purchase and they use it to enroll you in a bogus club with 

names like ‘‘Reservation Rewards,’’ ‘‘Great Fun,’’ ‘‘Value Max,’’ 

‘‘Shopping Service.’’ Most consumers don’t realize they’ve been 

scammed until months later when they notice that the club has 

been charging their credit card $10.95 a month or whatever. 

Why does this matter? A ten dollar monthly charge may not 

sound like a big deal to some people in this room. There are these 

numbers to consider. Today as we conduct this hearing, there are 

more than 4 million American consumers whose credit cards are 

being charged by these clubs. And most of these 4 million customers don’t even know that it’s happening. 

According to a report the Commerce Committee staff presented 

to me about this problem, these online scams have made more than 

$1.4 billion through these tactics and charged more than 30 million 

American people. 

Consider these numbers for a moment. That is a lot of money 

and simply outrageous to me and, frankly, I think it’s un-American, and I know you share my views. I suspect you share my 

views. 

What I find most outrageous about these scams are the reputable 

online businesses that are willing to take part in these scams. 

Committee staff has provided me with a list of 88 well-known online businesses that each made more than a million dollars through 

sharing their customer credit card information with Internet 

scammers, so they get what they want. 

We have printed copies of this if anybody is interested. Several 

of them have already withdrawn since they knew this was going 

on, that we were going to have this hearing. They have already— 

USAirways, Continental Airlines, et cetera, they’ve withdrawn 

from all this, or say they’re about to get rid of all of this. 

3 

But we’ve all heard of these companies and we’ve probably 

shopped at some of their websites. 

Conclusion: America is a country of businessmen and businesswomen. We all have great respect for enterprising people who have 

developed good products and sell them in our competitive marketplace. But we are here today because we want to highlight the very 

important point that tricking customers into buying goods and 

services they do not want is not OK, not even close. It’s not ethical, 

it’s not right, and it’s not the way business should be done in 

America, and it should be stopped. It will be stopped. 

American consumers shouldn’t have to worry that their favorite 

websites are ripping them off during the checkout process. The 

checkout process is complicated. 

We haven’t completed this investigation yet, but what I’ve 

learned about these business practices so far is very, very troubling 

and, to be frank with my colleagues who are here, starting with 

this hearing today I’m thinking that the Committee needs to start 

thinking about legislative steps to make sure that this process 

comes to a complete halt. We did it with telemarketing. We did it 

with phone scams. We can do it on the Internet. 

That’s the end of my statement. Senator LeMieux, do you have 

a statement you’d like to make? 

STATEMENT OF HON. GEORGE S. LEMIEUX, 

U.S. SENATOR FROM FLORIDA 

Senator LEMIEUX. Thank you, Mr. Chairman. I want to commend you for holding this important hearing. The Chairman has 

a great record and reputation for fighting fraud and having this 

hearing today to talk about these issues is extremely important to 

the people of this country, as well as the people of America, the 

people of Florida who I represent. 

We have too many hardworking Floridians who are being 

scammed in transactions just like that, and one of our great Floridians, Mr. Ray France, is here today, and he has fallen prey to these 

exact type of predatory techniques on these post-transaction marketers. People are often unaware that they have signed up for 

these scams. That’s why they are scams. 

I had a chance to meet with Mr. France today, Mr. Chairman. 

He is an American hero. He served our country bravely in the 

Army as part of Airborne. In fact, he was so committed, Mr. Chairman, to be in the Airborne that when he sought to enlist, they said 

no, you can’t be in the Airborne, and he fought and he fought and 

he fought, and they said: Well, you can be in the Airborne, but you 

have to give up your $12,000 bonus we were going to give you for 

joining the Army. And he said: That’s OK because I want to serve 

my country and that’s why I’m volunteering for the Army. 

He was injured in Iraq fighting for our freedom. Now he came 

home and was living his life as a good Floridian, and he gets 

scammed. But like the good Army soldier that he is, he went after 

these fraudsters and he tracked them down and he helped figure 

out what they were doing and why they were doing it. You’ll hear 

more from him today. 

Mr. Chairman, I call this post-transaction marketing ‘‘click-andscam.’’ You go on, you’re purchasing something like you described 

4 

on AOL, buying a book or whatever it may be, and then all of a 

sudden this pop-up comes up. You think it’s one of those normal 

sort of disclosures that no one reads. You click it to go through 

with your transaction, and all of a sudden you’re signed up for ten 

dollars a month, like you said. 

These fraudsters are out there stealing from our people. My Attorney General in Florida, Bill McCollum, is doing a great job going 

after these folks and he has filed several actions and is working 

hard against them. But we need to do more, and you are drawing 

light to this problem, Mr. Chairman, and I really appreciate it because the people of this country need to know through information 

that these scams are out there. The best prophylactic they can 

have against these scams is knowing about them. 

Then later, as you suggest, perhaps we need to increase penalties 

or help on the enforcement side so we can stop these fraudsters 

from stealing from our people. 

I really appreciate you having this hearing today, Mr. Chairman. 

Thank you. 

[The prepared statement of Senator LeMieux follows:] 

PREPARED STATEMENT OF HON. GEORGE S. LEMIEUX, U.S. SENATOR FROM FLORIDA

Mr. Chairman, thank you for holding this important hearing. The aggressive online, click-and-scam, marketing techniques highlighted today are a problem in Florida and across this country, and I support your leadership in getting to the bottom 

of this. 

In Florida, far too many good, hardworking Americans, like Mr. France, are falling prey to the kind of predatory techniques used by these so-called ‘‘post-transaction marketers.’’ Often, people are unaware that they have purchased anything 

until the notice a fee added to their credit card bills. 

Because the process for signing up is hidden and fees are generally small, these 

companies are able to capture consumers and bill them for months and months with 

very little effort and very little risk. 

In these times of economic hardship, when Americans are trying to find ways of 

tightening the belt and making ends meet, it is simply unconscionable to allow this 

practice to continue. 

Unfortunately, the experiences described by Mr. France and Mrs. Linguist dealing 

with these companies are far too common. I had the opportunity to sit down with 

Mr. France this morning, and I can tell you that this Committee would be hard 

pressed to find a finer and more decent and proud American soldier to testify than 

this man. He is proud to have served this country, and he continues to serve our 

country here today. 

As we will hear from the professors testifying today, these practices are designed 

to lure consumers in using familiar looking websites, capture their information 

without their knowledge, and bill them for services they have no interest in. As Mr. 

Meyer stated in his testimony, these practices are ‘‘marketing’’ as is understood and 

taught—this click-and-scam fraud is an elaborate con perpetrated against consumers for the sole purpose of generating profit without any exchange of value. 

At the state level, officials are working to end these deceptive practices, but they 

need help. Just like other forms of consumer protection, we need to use Federal resources and standards at the front end to discourage these activities, rather than 

attempting to chase down bad actors after the fact. 

Florida’s Attorney General, Bill McCollum, get countless complaints about companies using deceptive techniques to lure and bill consumers, and they are working 

aggressively to prosecute companies that have violated Florida’s consumer protection laws. They doing a great job, but could use some assistance. The practices described here today are so prevalent on the web and in on-line purchases, that Federal action is needed. 

Simply put, this click-and-scam fraud is unacceptable, and we need to put a stop 

to it. I look forward to working with the Chairman and the rest of the Committee 

to meaningfully address this issue. 

Again, I would like to thank the Chairman for holding this important hearing. 

5 

The CHAIRMAN. Thank you, Senator. 

Senator Dorgan. 

STATEMENT OF HON. BYRON L. DORGAN, 

U.S. SENATOR FROM NORTH DAKOTA 

Senator DORGAN. Mr. Chairman, thank you very much. 

In the last Congress I held a couple of hearings on the issue of 

Internet privacy. The question is what’s happening to information 

that they have on virtually all of us—what sites do we visit, where 

do we navigate? I made the point then that if somebody followed 

you when you went to the shopping center and made notes about 

everywhere you went, everything you looked at, and so on, the 

question in your mind would be: Why are you following me, number one? And number two, who are you selling the information to 

about where I went and what I did? 

Well, the privacy issue is very important. We held two hearings 

on it and I hope that we will get some legislation together, which 

I’ve been working on, on that issue. 

But this is another piece of this issue of the Internet, the online 

activities. First of all, advertising on the Internet is what supports 

the Internet. The Internet is a remarkable thing. I mean, no one 

wants to withdraw the support that is necessary for the Internet 

to exist and survive. Online commerce is very important as well. 

That’s what we’re talking about, online commerce. 

But the question for all of this with online commerce is, who uses 

our credit card information and for what purpose? When you put 

your credit card information in in order to purchase something, as 

Senator Rockefeller indicated, you would always expect, especially 

on a reputable website, that that’s not going to be shared with anybody, that that’s protected. 

Well, we find out now by some good work by some investigators 

on our staff that that’s not the case. The issue of post-transaction 

marketing, data passing, free-to-pay conversions—I mean, that’s all 

a fancy way of describing practices that are engaged in by people 

that ought to be ashamed of themselves, really ought to be 

ashamed of themselves. 

Websites—I guess I’ve been to all these websites: Fandango to 

buy movie tickets, I’ve certainly done that. Pizza Hut, Continental 

Airlines. You have people go to websites that you know are reputable and then they do this bait-and-switch and that website is 

used by somebody else that pops something else that say ‘‘Free,’’ 

except it’s just free for a bit. Then it’s the monthly billing they’re 

after. And, oh, by the way, the reputable website shifts your financial data to the company that pops up the ad that says ‘‘Free’’ and 

is trying to sucker you into this. 

I mean, that’s unbelievable to me. Now, when you see things that 

are shameful, it seems to me that you would expect that that would 

stop immediately. But shame is not always an emotion that persuades people who are making a lot of money to stop. 

My understanding is that Affinion and some of the others that 

the Chairman mentioned have changed some of their practices 

since this investigation began, and we welcome that. But there are 

others out there, and I think this is a really important reason to 

have a hearing. 

6 

At the root cause here, the question is who gets financial information and how is it used or how is it misused? This investigation 

has turned up, I think, some shoddy business practices that have 

to stop, and I don’t think they’ll stop on their own necessarily. I 

think the Chairman has suggested there may well need to be required some legislation here, and I appreciate that work and the 

work of the Committee. 

Let me just finally quickly say I appreciate the witnesses who 

have been here and who are going to present testimony today. We 

thank you for traveling and being with us and shedding some light 

on these issues. 

The CHAIRMAN. Thank you, Senator. 

Incidentally, the work that Webloyalty and some of the others 

have pulled back a little bit is totally insufficient. I think some of 

our legal scholars are going to make that very clear. 

Ray France, we’re very proud to have you here. Linda Lindquist, 

you also. Florencia Marotta-Wurgler, who is an Assistant Professor 

at New York University School of Law, you too. Professor Prentiss 

Cox, University of Minnesota Law School—you’re one panel, so 

you’re all one person. Professor Robert Meyer, Wharton School, 

University of Pennsylvania, who’s done a lot of work on all of this. 

Mr. France, let me go to you first, if I might. Sort of pull that 

microphone up. First of all, I’d like to thank you, as the Senator 

did, for your service to our country, for your bravery, turning down 

that $12,000. 

STATEMENT OF RAY FRANCE, 

FORMER UNITED STATES PARATROOPER 

Mr. FRANCE. It was actually 13. 

The CHAIRMAN. OK. A superhero plus. Now I think we’ve got to 

defend you from some scams, and we’re going to. 

In your testimony you made the point that when you made a 

purchase on a website called Intelius—— 

Mr. FRANCE. Yes, sir. 

The CHAIRMAN.—you got automatically signed up in a so-called 

membership club called Value Max, and then Value Max started 

charging you $19.99 a month; is that correct? 

Mr. FRANCE. That is correct, sir. 

The CHAIRMAN. Oh, that would seem fair. Starting with you, Mr. 

France, forget my questions and make a statement. 

Mr. FRANCE. OK, sir. 

The CHAIRMAN. Questions will follow. 

I do this quite frequently. 

Mr. FRANCE. It’s your show, sir. 

The CHAIRMAN. That is true. 

[Laughter.] 

Mr. FRANCE. First of all, I would like to thank you, Chairman 

Rockefeller, and Ranking Member Hutchison, for inviting me out to 

speak. I would also like to thank the Senator of my beautiful home 

State of Florida for his kind words. It was unexpected, but greatly 

appreciated. 

My name is Raymond France. I’m a former United States paratrooper and a two-time combat veteran. I fought in Afghanistan 

and Iraq. In Iraq, I received a traumatic brain injury when my 

7 

Humvee was struck by an IED which exploded next to my vehicle. 

I was awarded the Purple Heart and now I have a service-connected disability of 100 percent. 

Early this year, I paid to use the service of an online company 

called Intelius to look up people on the Internet. It’s just an informational website. I had used this company in the past and was familiar with their website and their services. On this particular occasion, just like before, I got the information I was looking for, entered my billing information, and completed the transaction. 

The next day the fee I paid posted to my account, just as usual. 

About 2 or 3 months later, I was notified by my bank that my account had been overdrawn. I was unsure how this could happen 

since I live on a fixed income and I support myself within those 

means. 

I went to the bank to figure this out. At first they were only able 

to tell me it was due to an automatic withdrawal that was active 

on my account at the time. Eventually the bank was able to give 

me the name of the company that made these withdrawals, Value 

Max. The bank manager also informed me that this had been a reoccurring transaction that I had supposedly agreed to. They were 

unable to give me any more information. 

I had no idea who this company was and still to this day do not 

know what they do. I started searching the web in hopes of finding 

some way of contacting this company. What I found was hundreds 

of blogs asking the same question as I. Eventually I found an email address for Value Max and sent an e-mail, to which I received 

no reply. 

Later on I found a phone number. When I called, the person who 

answered repeatedly asked for personal information on myself, 

things such as social security number and e-mail addresses. When 

I was reluctant to give up this information, I was told I had 

reached the wrong division of the company and needed to call another branch in another state. 

This process repeated itself quite a few times, and through it all 

I still had no answers. So, I decided to write the Better Business 

Bureau. Quite some time passed with no reply from Value Max. 

Then I received an e-mail from the Better Business Bureau. 

Value Max had told them they would refund my money, but that 

it was my fault because I had agreed to a free 4-day trial and then 

a $19.99 fee every month after that. According to them, I had 

agreed to this when I used the service of the company I mentioned 

earlier, being Intelius. 

In total, this all took over 8 months, and the refund took even 

longer. If my account had not been overdrawn, who knows how 

long before I would have noticed these withdrawals? 

I’m a disabled vet who loves his country and served her with 

pride. Though I may not have it as bad as some of the soldiers returning from the front lines, I do have a lot of challenges I must 

face due to my service-connected disabilities. But this company, 

Value Max, caused me both financial and mental hardship. It took 

me close to a year to recover my money, money that I did not give 

them permission to take. 

I am 27 years old. I use the Internet constantly. I both understand it and am able to utilize it with ease. I have even earned colVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
8 

lege credits in computer applications. With that said, I believe it 

is easy to see I would not have agreed to a financial obligation 

which I knew nothing about nor wanted. 

It is still unclear to me at this point how they were able to access 

my account. That is, unless you consider the fact that this company 

chooses to use deceiving methods in correlation with other companies to take advantage of online consumers. This is nothing short 

of theft. 

My country promised to take care of me when I returned home. 

But without laws to govern these unethical practices, instead my 

country is allowing me to be taken advantage of. This is a problem 

that must be resolved. It is not just vets who are victims, but all 

Americans. If not today, then tomorrow or next week. The bottom 

line is, if left unchecked these kind of practices will spread out of 

control. Now that this issue has been brought to light, it is imperative that the leaders of this great country are proactive and aggressive in putting an end to it. 

Thank you. 

[The prepared statement of Mr. France follows:] 

PREPARED STATEMENT OF RAY FRANCE, FORMER UNITED STATES PARATROOPER

Thank you, Chairman Rockefeller and Ranking Member Hutchison, for inviting 

me to speak with you today. My name is Raymond France. I am a former United 

States Paratrooper and a two-time combat veteran. I served in Afghanistan and Iraq 

where I suffered a traumatic brain injury when an I.E.D. exploded next to my vehicle. I was awarded the Purple Heart and now have a service-connected disability 

rating of 100 percent. 

Early this year I paid to use the services of an online company called, ‘‘Intelius’’ 

to look up people on the Internet. I had used this company in the past and was familiar with their website and services. On this particular occasion, just like before, 

I got the information I was looking for, entered my billing information and completed the transaction. The next day the fee I paid for the service was posted on 

my account as usual. 

About 2 or 3 months later, I was notified by my bank that my account had been 

overdrawn. I was unsure how this could have happened since I live on a fixed income and support myself within those means. I went to the bank to figure this out. 

At first they were only able to tell me it was due to an automatic withdrawal that 

was active on my account. Eventually the bank was able to give me the name of 

the company that made these withdrawals, Value Max. The bank manager also informed me this had been a recurring transaction that I supposedly agreed to. They 

were unable to give me any more information. 

I had no idea who this company was and still to this day do not know what they 

do. I started searching the web in hopes of finding some way of contacting this company. What I found was hundreds of blogs asking the same question. Eventually, 

I found an e-mail address for Value Max and sent an e-mail to which I received 

no reply. Later I found a phone number. When I called, the person who answered 

repeatedly asked for personal information on myself. When I was reluctant to give 

up this information I was told I reached the wrong ‘‘Division’’ of the company and 

needed to call another branch in another state. This same process repeated itself 

quite a few times and through it all I still had no answers. So I decided to write 

the Better Business Bureau. Quite some time passed with no reply from Value Max. 

Then I received an e-mail from the B.B.B. 

Value Max had told them that they would refund my money but it was my fault 

because I had agreed to a free 4-day trial and then a $19.99 fee every month after 

that. According to them I had agreed to this when I used the service of the company 

I mentioned earlier. In total this all took over 8 months. And the refund took even 

longer. And if my account hadn’t been overdrawn, who knows how long it would’ve 

been before I noticed these withdrawals. 

I am a disabled Vet who loves his country and served her with pride. Though I 

may not have it as bad as some soldiers returning from the front lines I do have 

a lot of challenges I must face due to my service-connected disability. But this company caused me both financial and mental hardship. It took me close to a year to 

9 

recover my money. Money that I did not give them permission to take. I am 27 

years old. I use the Internet constantly. I both understand it and am able to use 

it with ease. I have even earned college credits in computer applications. With that 

said I believe it is easy to see I would not have agreed to a financial obligation I 

knew nothing about nor wanted. It is still unclear to me at this point how they were 

able to access my account. That is unless you consider the fact that this company 

chooses to use deceiving methods in correlation with other companies to take advantage of online consumers. This is nothing short of theft. 

My country promised to take care of me when I returned home but without laws 

to govern these unethical practices, instead my country is allowing me to be taken 

advantage of. This is a problem that must be resolved as it is not just Vets who 

are victims but all Americans. If not today then tomorrow, or next week. The bottom 

line is if left unchecked these kinds of practices will spread out of control. Now that 

this issue has been brought to light it is imperative that the leaders of this great 

country are proactive and aggressive in putting an end to it. 

The CHAIRMAN. Thank you very much. 

Ms. Lindquist. 

STATEMENT OF LINDA LINDQUIST, 

CITIZEN OF SUSSEX, WISCONSIN 

Ms. LINDQUIST. Good afternoon. My name is Linda Lindquist and 

I am from Sussex, Wisconsin. In April 2007, my 19-year-old daughter and I went to temporarily live in Atlanta, Georgia. My daughter 

had sustained a spinal cord injury in January 2007 while downhill 

skiing and was a quadriplegic. She started to get movement back 

in her legs and both my husband and I felt that she needed to go 

to a specialty spinal cord facility in order to give her the best possible opportunity for recovery. This would mean that my husband 

would have to care for our other three children solo back in Wisconsin. 

One of the best things about being in Atlanta was meeting and 

socializing with other families in the same situation. One of our favorite things to do was to go to the movie theater. In July 2007, 

I started purchasing tickets from movietickets.com. I remember 

that at the end of the transaction on the confirmation page was a 

coupon stating ‘‘Get $10 off your next purchase.’’ So I clicked on the 

coupon because it seemed that it was a legitimate offer from 

movietickets.com and I thought they were a reputable website. 

The next page needed my personal information. I then decided 

that I did not have enough time to fill out that page, so I closed 

out of the website. 

Approximately 2 weeks later, again I purchased tickets on 

movietickets.com. This time, however, I did start to fill out the personal information, but after going to the next page I realized that 

this was probably a scam. At no time did I ever include my credit 

card information or knowingly agree to any terms and conditions. 

After 4 months of physical rehab, my daughter was beginning to 

make great improvements and our stay ended up being lengthened 

by another year. We finally returned home in August 2008 and finally, in October 2008, my husband was paying our bills and asked 

me to take a look at the credit card statement. There were two 

charges for $10 each, one from Reservation Rewards and one from 

Shoppers Discounts. I did not know what these charges were for, 

but I told my husband that I would find out. 

I first called the 800 number that was listed on the credit card 

statement under Reservation Rewards. I spoke with a customer 

10 

service representative, who told me that I had signed up for Reservation Rewards and Shoppers Discounts online after a movie 

ticket purchase on movietickets.com. I told the representative that 

I had not knowingly signed up for this service and asked how they 

had gotten my credit card number. She stated that 

movietickets.com gave them my credit card number. 

I then asked what service exactly I was paying for. She stated 

they offered coupons and discounts for restaurants and hotels. I 

told the representative that I had never gotten any correspondence 

from them, either online or via mail, regarding my so-called membership and also to tell me how much money I had paid to date. 

She replied that I had paid $320. I was shocked. I asked if I could 

get a refund for my money since I had no idea that I had even subscribed to the service. She stated that she would cancel my membership and could credit me the last month’s payment of $20. 

At that time, I did not think I had any other options as far as 

getting my money back, but the more I thought about it the more 

I was upset with movietickets.com. Here was what I thought was 

a reputable website, when in reality they were allowing this scam 

at the end of the purchase. 

I then went on movietickets.com and sent them an e-mail regarding the money I had lost due to them giving my credit card number 

to a scam. Approximately 30 days later I had gotten a correspondence from them stating that I would be getting a full refund. 

I am a college-educated person who is online every day. I have 

made hundreds of online purchases over the last 10 years. I have 

seen many scams and offers on the Internet and have only been 

lured in by one, this one, due to the fact that the scam was associated with a reputable website and required just one click. 

Just last week, in fact, when I purchased the airline ticket for 

my son to travel here to Washington, D.C., with me on AirTran 

Airways, what should appear on their confirmation page but a ‘‘Get 

$20 cash back’’ offer from Great Fun? You can bet that I will be 

sending AirTran an e-mail regarding my disappointment in their 

choice of an affiliate. 

Thank you. 

[The prepared statement of Ms. Lindquist follows:] 

PREPARED STATEMENT OF LINDA LINDQUIST, CITIZEN OF SUSSEX, WISCONSIN

Good afternoon. My name is Linda Lindquist and I am from Sussex, Wisconsin. 

In April 2007, my 19-year-old daughter and I went to temporarily live in Atlanta, 

Georgia. My daughter had sustained a spinal cord injury in January 2007 while 

downhill skiing and was a quadriplegic. She started to get movement back in her 

legs and both my husband and I felt that she needed to go to a specialty spinal cord 

facility in order to give her the best possible opportunity for recovery. This would 

mean that my husband would have to care for our three other children, solo, back 

in Wisconsin. 

One of the best things about being in Atlanta was meeting and socializing with 

other families in the same situation. One of our favorite things was to go to the 

movie theater. In July 2007, I started purchasing tickets from movietickets.com. I 

remember that at the end of the transaction on the confirmation page was a coupon 

stating, ‘‘Get $10 off your next purchase,’’ so I clicked on the coupon because it 

seemed that it was a legitimate offer from movietickets.com and I thought they were 

a reputable website. The next page needed my personal information. I then decided 

that I did not have enough time to fill out the form, so I closed out of the website. 

Approximately 2 weeks later, I again purchased tickets on movietickets.com. This 

time, however, I did start to fill out the personal information, but after going to the 

11 

next page, I realized that this was probably a scam. At no time, did I ever include 

my credit card information or knowingly agree to any terms and conditions. 

After 4 months of physical rehab, my daughter was beginning to make great improvements and our stay ended up being lengthened by an additional year. We finally returned home in August 2008. In October 2008, my husband was paying our 

bills and asked me to take a look at our credit card statement. There were two 

charges for $10, one from Reservation Rewards and one from Shoppers Discounts. 

I did not know what these charges were for but I told my husband that I would 

look into it. I first called the 800 number that was listed on the credit card statement. 

I spoke with a customer service representative who told me that I had signed up 

for Reservation Rewards and Shoppers Discounts online after a movie ticket purchase on movietickets.com. I told the representative that I had not knowingly signed 

up for this service and asked how they had gotten my credit card number. She stated that movietickets.com gave them my credit card number. I then asked what service, exactly, I was paying for. She stated that they offer coupons and discounts for 

restaurants and hotels. I told the representative that I had never gotten any correspondence, either online or via mail regarding my so-called membership. I then 

asked her to cancel my membership and also to tell me how much money I had paid 

to date. She replied that I had paid $320. I was shocked! I asked if she could refund 

my money since I had no idea that I had even subscribed to this service. She stated 

that she would cancel my membership and could credit me the last month’s payment of $20. 

At that time, I didn’t think I had any other options as far as getting my money 

back, but the more I thought about it, the more upset I was with movietickets.com. 

Here was what I thought was a reputable website, when in reality they were allowing this scam at the end of the purchase. I then went on movietickets.com and sent 

them an e-mail regarding the money I had lost due to them giving my credit card 

number to a scam. Approximately 30 days later, I had gotten a correspondence from 

movietickets.com stating that I would be getting a full refund. 

I am a college-educated person who is online everyday. I have made hundreds of 

online purchases over the last 10 years. I have seen many scams and offers on the 

Internet and have only been lured in by one, this one, due to the fact that the scam 

was associated with a reputable website and required just one click. Just last week, 

in fact, when I purchased the airline ticket for my son to travel to Washington, D.C., 

with me on AirTran Airways, what should appear on their confirmation page, but 

a ‘‘$20 cash back offer from Great Fun’’. You can bet that I will be sending Airtran 

an e-mail regarding my disappointment in their choice of an affiliate. Thank you. 

The CHAIRMAN. Thank you very much. 

Professor Meyer. 

STATEMENT OF ROBERT J. MEYER, GAYFRYD STEINBERG 

PROFESSOR OF MARKETING, THE WHARTON SCHOOL, 

UNIVERSITY OF PENNSYLVANIA 

Mr. MEYER. Thank you. Good afternoon. My name is Robert 

Meyer. I am the Gayfryd Steinberg Professor of Marketing at the 

Wharton School of the University of Pennsylvania, where I have 

served on the faculty since 1990. Throughout my career, my research has focused on the study of consumer decisionmaking, particularly the psychological processes that lead consumers to adopt 

novel goods and services. In addition to my research, I have spent 

the past 27 years teaching the practice of marketing at the undergraduate, graduate, and executive levels in both the United States 

and abroad. 

I was invited by the Committee to offer testimony on a class of 

post-transactional marketing methods used by firms to sell subscription memberships in third-party benefit programs online. I 

originally became familiar with these practices while serving as an 

expert in a class action suit involving a direct marketing company 

in 2007 and more recently while serving as an expert for the Iowa 

Attorney General’s Office. 

12 

My overall opinion of these practices is threefold. First, the sales 

methods used by these firms do not constitute marketing as the 

term is commonly understood and practiced by ethical businesses 

and as is taught in major schools of management. In almost all 

cases, the membership programs being offered to consumers hold 

limited, if any, value, no attempt is made to communicate information about the programs in a way that would allow informed 

choices by consumers, and the firms who use these methods display 

little interest in building or nurturing long-term relationships with 

the contacted consumers. 

In contrast, the sales methods are the cornerstone of a scheme 

in which firms seek to earn profits by luring consumers into paying 

for memberships in programs that they would not subscribe to 

given their full awareness. 

Second, while the substantive content of these sales practices 

varies, the deception is achieved through a coordinated set of communications that display distinctive common architecture. These 

include the use of web designs that obscure the relationship that 

exists between the first and third-party sellers, offering enticements of free premiums or incentives that consumers will have little chance of ever obtaining, creating false beliefs that no financial 

risks are incurred by agreeing to the transaction, and by creating 

exit barriers that make it difficult to avoid and/or recover unintended membership payments, such as by making continued membership the default option for consumers who are not fully cognizant of what they have signed up for. 

Third, the architecture achieves deception by exploiting a series 

of well-known psychological biases that are known to limit consumers’ abilities to make fully-informed choices in markets. The 

most general of these is the creation of web environments that lead 

consumers to make decisions using automated or unconscious processes that do not fully consider all the information that is available 

on a website or presented in a decision setting. 

Examples include site designs that create the false impression 

that the offer is being made by a familiar, trusted seller, designs 

that misdirect consumers’ attention away from text that might describe the true nature of the transaction, and by exploiting tendencies to choose default or accept options when there is confusion 

about what the correct course of action would be in a web session. 

I should also note that the lack of ethicality of these practices is 

inflated by the fact that they are often targeted at vulnerable populations who are ill-equipped to absorb the financial losses they impose. Specifically, the practices may be particularly effective when 

targeted to consumers of limited means, for whom the small cash 

enticements promised by the programs would represent significant 

financial assets, and/or older consumers who have limited experience navigating the web. 

Naive consumers with limited web experience may be taken in 

for no other reason than harboring beliefs that the sellers on the 

web follow the same norms of ethical exchange that they have come 

to expect in traditional markets, where payment for goods and 

services is a volitional choice of the consumer, not something one 

has to opt out of. 

13 

Finally, the persistence of these sales schemes also pose a longterm risk to legitimate businesses who conduct sales in an ethical 

manner over the web. As these practices proliferate, the negative 

experience of consumers who are taken in by these schemes may 

serve to foster feelings of mistrust toward legitimate sellers, thus 

impeding the growth of a major modern channel of commerce. 

Thank you. 

[The prepared statement of Mr. Meyer follows:] 

PREPARED STATEMENT OF ROBERT J. MEYER, GAYFRYD STEINBERG PROFESSOR OF

MARKETING, THE WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA

Chairman Rockefeller, Ranking Member Hutchinson, members of the Committee: 

My name is Robert Meyer. I am the Gayfryd Steinberg Professor of Marketing at 

the Wharton School of the University of Pennsylvania, where I have served on the 

faculty since 1990. Prior to arriving at Penn, I served on the marketing faculties 

at the University of California, Los Angeles and Carnegie-Mellon University. 

Throughout my career my research has focused on the study of consumer decisionmaking, particularly the psychological processes that lead consumers to adopt novel 

goods and services. In addition to my research, I have spent the past twenty-seven 

years teaching the practice of marketing at the undergraduate, graduate, and executive levels both in the United States and abroad. My complete curriculum vitae is 

available at http://marketing.wharton.upenn.edu/documents/cv/MeyerlVitalDec 

l2007.pdf. 

I was invited by the Committee to offer testimony on a class of post-transactional 

marketing methods used by firms to sell subscription memberships in third-party 

benefit programs on line. I originally became familiar with these practices while 

serving as an expert in a private class-action suit involving a direct marketing company in 2007, and more recently while serving as an expert for the Iowa Attorney 

General’s office. The selling methods of concern are those where a customer makes 

a volitional purchase at a familiar website and is then transferred—often without 

their awareness—to a separate site maintained by a third-party. At this new site 

the customer is typically offered a free premium (such as a gift card or discount) 

for agreeing to trial membership in a program offering an array of benefits, such 

as the potential ability to obtain price discounts from known retailers. If the customer agrees to this trial, the credit card information that was provided to the first 

party during the original transaction is automatically transferred to the third party. 

If the customer does not cancel the membership within the trial period, the third 

party then uses this billing information to charge the customer a monthly membership fee. A common characteristic of these transactions is that many consumers unwittingly agree to the trial memberships without being cognizant that they have 

purchased anything or are at financial risk, and, as a result, they incur several 

months of membership charges before they are able to cancel. 

Overall Assessment 

My overall opinion of these practices is threefold: 

• First, the sales methods used by these firms do not constitute marketing as the 

term is commonly understood and practiced by ethical businesses and as is 

taught in major schools of management. In almost all cases the membership 

programs being offered to consumers hold limited if any value, no attempt is 

made to communicate information about the programs in a way that would 

allow informed choices by consumers, and the firms who use these methods display little interest in building or nurturing long-term relationships with contacted customers. In contrast, the sales methods are the cornerstone of a 

scheme in which firms seek to earn profits by luring customers into paying for 

memberships in programs that they would not subscribe to given their full 

awareness. 

• Second, while the substantive content of the sales practices varies, this deception is achieved though a coordinated series communications that display a distinctive common architecture. These include the use of web designs that obscure 

the relationship that exists between the first and third party sellers, offering 

enticements of free premiums or incentives that consumers will have little 

chance of ever obtaining, creating false beliefs that no financial risks are incurred by agreeing to the transaction, and by creating exit barriers that make 

it difficult to avoid and/or recover unintended membership payments, such as 

14 

by making continued membership the default option for consumers who are not 

fully cognizant of what they have signed up for. 

• Third, this architecture achieves deception by exploiting a series of well-known 

psychological biases that are known to limit consumers’ abilities to make fully 

informed choices in markets. The most general of these is the creation of web 

environments that lead consumers to make decisions using automated or unconscious processes that do not fully consider all of the information that is available or presented in a decision setting. Examples include site designs the create 

the false impression that the offer is being made by a familiar, trusted, seller, 

designs that misdirect consumer’s attention away from text that might describe 

the true nature of the transaction, and by exploiting tendencies to choose default ‘‘accept’’ options when there is confusion about the correct course of action 

in a web session. 

I should also note that the lack of ethicality of these practices is inflated by the 

fact that they are often targeted at vulnerable populations who are ill-equipped to 

absorb the financial losses they impose. Specifically, the practices are likely to be 

particularly effective when targeted at consumers of limited means for whom the 

small cash enticements promised by the programs would represent significant assets, and/or older consumers who have had limited experience in navigating the 

web. Naı ̈ve consumers with limited web experience may be taken in for no other 

reason than harboring beliefs that the sellers follow the same norms of ethical exchange that they have common to expect in traditional markets, where payment for 

goods and services is a volitional choice made by the consumer, not something one 

has to opt out of. 

Finally, the persistence of these sales schemes also pose a potential long-term risk 

to legitimate businesses who conduct sales in an ethical manner over the web. As 

these practices proliferate, the negative experience of consumers who are taken in 

by these selling schemes may serve to foster feelings of mistrust toward legitimate 

sellers, this impeding the growth of a major modern channel of commerce. 

In the sections below I elaborate the basis of this opinion. The discussion is partitioned into two phases. I first provide an overview of the approach to selling used 

by firms and describe the common architecture that characterizes most web scripts. 

I then discuss the psychological mechanisms that explain why these scripts are effective in deceiving consumers into purchasing memberships in programs that have 

no material value. 

The Deceptive Architecture 

Overall Structure 

Although the web designs and program scripts used by the third-part firms vary 

in their specific content, almost all display a common architecture that is comprised 

of six essential parts: 

• An initial legitimate sales setting. A customer first visits a familiar first-party 

website in which they make a volitional purchase using a credit card provided 

by the customer; 

• A disguised link and enticement. After making the purchase customers are 

taken to a landing page maintained by a third-party seller that describes an opportunity to realize a free benefit, such as dollars off a previous purchase or a 

cash gift card. This page is disguised to look like it is maintained or endorsed 

by the first party seller, such as by featuring the first party seller’s logo on the 

website. 

• Distraction and confusion ploys. The landing page then describes the conditions 

required to receive the premium in a way that minimizes the likelihood that 

a consumer will pay close attention to its details, and potentially misconstrue 

what the premium is being awarded for. This is achieved by including distracting elements in the website—such as fake surveys—that direct the consumer’s attention away from critical details about the membership program and 

its terms. 

• Concealment of the payment mechanism. The landing pages never require customers to provide their credit card or billing information, an omission that fosters beliefs that nothing has been purchased, and that the consumer faces no 

financial risk going forward. 

• Post-acceptance retention ploys. To maximize the chances that monthly charges 

are incurred before the consumer can cancel, the firm employs such tactics as 

the use of modest charge levels and nondescript program names that are likely 

to be overlooked in consumers’ monthly credit card statements, and requiring 

15 

consumers to be an active member of the program for a longer than the ‘‘free 

trial’’ period before the promised premium is be awarded. 

• Negative-option pricing. Finally, the centerpiece of the architecture is a negative-option pricing scheme that makes acceptance of membership the default action for consumers, shifting the burden of effort in the sales process from the 

seller to the consumer. Whereas in traditional markets it is the burden of the 

seller to convince the buyer that offered goods or services are worth paying for, 

under negative-option pricing the default assumption is the opposite, making it 

the responsibility of the consumer’s to take action to stop payment if he or she 

feels the good or service is not worthwhile. 

Figures 1 through 3, I provide examples of how these elements are implemented. 

Figures 1a–1c illustrates the sequence of web pages that would be viewed by a customer who makes a purchase at Vistaprint, a familiar online merchant of pre-printed gift cards, labels, and home office supplies (www.vistaprint.com). As shown in 

Figure 1a, when the consumer concludes his or her purchase at Vistaprint, he or 

she does not leave the site, but is rather taken to a new page—seemingly still part 

of the Vistaprint site—that promises $10 cash back on the previous purchase as a 

‘‘special thank you’’ for their purchase (Figure 1b) . The website also seems to imply 

that the primary condition for receiving the cash back is the completion of a short 

survey that prominently appears on the right-hand side of the page (Figure 1c). 

What few consumers likely realize, however, is that both the ownership of the page 

and the survey are ruses; this new site is not part of the V istaprint site, but is 

a page maintained by an unaffiliated third-party direct marketing firm (in this case, 

Vertrue) who has no intention of using or analyzing the survey data. Rather, the 

goal of the survey is to direct the consumer’s attention away from dense text to the 

left that describes the real purpose of the site, which is attract monthly memberships in a subscription program. Specifically, by agreeing to apply for the $10 cashback discount the customer is consenting to trial membership in a program that 

costs $14.95 a month, and is giving Vertrue permission to secure his or her credit 

card information from Vistaprint for billing purposes (Figure 1d). Variations this 

same general sequence of tie-ins and mis-directs are illustrated in Figures 2 and 3 

(a–c). 

What is not depicted in the Figures is that the sequence of deceptive actions continues after the customer consents to participate—often unknowingly. Few consumers, for example, will ever receive the promised $10 ‘‘cash back’’ in the 

Vistaprint solicitation. The reason is that Vertrue, the direct marketer, deliberately 

attempts to minimize redemption rates by requiring the consumer to complete two 

phases of forms that must be completed and mailed back in, a process that takes 

up to 8–10 weeks. Because active membership is typically required at the time the 

refund is awarded, customers who manage to cancel their memberships within the 

‘‘free trial’’ period never receive the promised premium. Finally, for those few customers who are aware of their membership in these programs and attempt to utilize 

their advertised benefits, they will quickly encounter similar usage barriers. To illustrate, most programs promise discounts on gift cards that can be used at well 

-known merchants, but these can be secured only if the customer first purchases the 

cards at full price, then endures similarly-lengthy transaction costs to realize the 

savings. As a result, actual usage of the benefits of these programs is typically negligible—either because customers are never aware that they are members, or the 

costs of making claims are such as to render the programs useless. 

Summary Assessment 

It is my belief that these aspects of the web scripts—from the opening link to the 

programs themselves—form a carefully-crafted scheme for generating revenue by 

fostering and then arbitraging ignorance: maximizing the number of customers 

being makes lured in to the sales scheme on the front end, and then minimizing 

the number of customers who had the knowledge or ability to withdraw from it on 

the back end. 

Each aspect of the script plays a clear-cut role in achieving this goal. The initial 

setting of a familiar website not only provides a mechanism for securing the customer’s credit card information without their knowledge, but also fosters a misplaced sense of trust in the legitimacy of the subsequent disguised appeal by the 

third-party seller. The use of monetary enticements and distracters then lures customers into signing up for a membership program whose terms and conditions are 

not understood, or, in many cases, without the consumer’s conscious awareness that 

they have signed for anything. Finally, once agreement is secured from customers, 

an array of post-sale concealment tactics are used to insure that at least some 

charges are incurred by consumers before they discover their purchasing mistake. 

16 

How and Why the Schemes Work 

A remarkable feature of the numerous consumer complaints that have been filed 

with better business bureaus and state attorney general offices in connection with 

these practices is the ubiquity of claims by consumers that they have no recollection 

of ever having consented to membership in programs—even when confronted with 

evidence to the contrary. What is notable about these schemes is thus that their effect goes well beyond simply misleading consumers as to the real value of the trial 

memberships that they are consenting to. Rather, they induce many consumers to 

take actions that they have no conscious awareness of, and whose consequences are 

discovered only months after the initial web contact. 

While a number of factors contribute to the effectiveness of these schemes, the 

most fundamental is that they work by exploiting one of the most fundamental 

frailties of human decisionmaking: the tendency to make decisions using automated—and often unconscious—heuristics that respond to only limited aspects of an 

information environment. As noted by Kahneman (2002), human decisionmaking is 

currently widely seen as being governed by two cognitive systems: automated rules 

or heuristics (System I) that produce rapid actions and perceptions over which we 

have little conscious control, and a deliberative or reasoned rules (System II) that 

more carefully consider features of the environment, and over which we have considerable conscious control. The deceptive sales schemes used by direct marketers work 

by endowing websites with features that encourage decisions to be made by System 

I (instinctive) processes, while suppressing features that would activate System II 

(reasoned) processes—processes that would otherwise alert and discourage consumers from signing up for programs that have little real value. 

To elaborate on this idea, the schemes described above lure consumers into consenting to memberships by fostering and exploiting the following four decision biases that are often associated with System I (automated) problem solving: 

• Optimism biases that cause consumers’ to selectively interpret the information 

provided by the firm in a favorable (or trusting) light; 

• Conditioned-response biases, in which certain behaviors and perceptions are 

automatically triggered when a decisionmaker is exposed to familiar cues; 

• Inter-temporal judgment biases, which include tendencies to overweight shortterm prospects and to postpone deliberations when there is uncertainty about 

the best course of action; 

• Status-quo (default) biases, or the tendency to prefer inaction (accept the status 

quo) to action when confronted with uncertainty in a decision environment. 

Each of these biases and how they induced unintentional choices in response to 

the web schemes will be described and illustrated in turn. 

The Optimism Bias 

A central starting element of the various schemes is an initial tie-in to a familiar 

website—typically one that the consumer had just made a volitional purchase—followed, in most cases, by the promise of a free premium—such as cash, gift card or 

dollars-off the previous transaction. These features have two likely psychological effects. First, the tie-in works to insure that the feelings of positive affect and trust 

that the consumer had developed in the course of the initial, volitional, transaction 

would persist while the consumer was reading and processing the information presented in the new landing page. If consumers believed that the web screen they 

were viewing was merely a continuation of the same exchange with the initial seller, 

they would have little reason to ‘‘raise their antennas’’ when viewing this new information—thus making it more likely this new information would be processed using 

System I (automated, heuristic) thought processes rather than System II (deliberative). 

The second effect is that when these feelings of trust are accompanied by an offer 

of a free reward (a positive cue), this new information would be processed not just 

in a heuristic manner, but also with a positive bias. The basis of this conclusion is 

the large literature on biases in human inference, which has repeatedly laid credence to the adage that people tend to ‘‘hear what they hope to hear’’ when processing information. The academic term for this is confirmatory or goal-motivated 

reasoning (e.g., Kunda 1990; Weinstein 1980; Meyer, Zhao, and Han 2007) . Once 

a decisionmaker has a goal or desired outcome in mind for a task, he she will selectively process that information that consistent with the goal rather than inconsistent. Hence, for example, when asked to estimate how long it will take to finish 

a project people consistently underestimate durations—an effect called the ‘‘planning fallacy’’ (e.g., Buehler, Griffin and Ross 1994 ). The reason this arises is that 

when estimating completion times people are more likely to imagine those scenarios 

17 

that lead to early completion than late. Likewise, when imagining how useful newproduct features will be prior to their adoption, consumers often over-estimate later 

use by the same mechanism: given that the goal is to use features, scenarios in 

which we indeed use them come to mind more readily than those in which we do 

not. 

The same mechanism would be at work here. Given the goal of obtaining cash 

back on a purchase or a free gift card consumers would have been motivated to selectively process information in a way that most easily rationalize their attainment—such as by believing that the offers were legitimate and there would not be 

‘‘catches’’ that put them at risk. In short, once a consumer adopted a belief that the 

lures were real and being made by a seller for which he or she felt trust, he or she 

would have been hooked; the consumer would have no motivation to search for and/ 

or interpret information on the site such in a way that would disconfi rm this belief. 

Conditioned Response Biases 

A central feature of System I processes is that consumer perceptions and behaviors are often driven more by the cues consumers expect to see an environment rather the cues that are objectively there. Hence, in the same way that a hiker in a forest who has a phobia for snakes might jump when seeing a rope on the ground, 

when processing website information consumers may be prone to perceive and respond to what they expect to website to contain rather than what it objectively does. 

The schemes considered here are designed to exploit these illusory perceptions. 

For example, a consumer who quickly views the solicitation illustrated in Figure 1b– 

1d and sees the Vistaprint logos would presume that it is a Visatprint site, which 

would trigger a set of expectations about the kind of content and offer terms that 

would be normally be associated with a legitimate Vistaprint promotion. For example, a consumer would naturally assume that the survey on the page was there as 

part of Vistaprint’s marketing research efforts, and that the ‘‘$10 cash back’’ was 

being awarded as an incentive for completing this survey—a well-established practice. Likewise, and most critically, the consumer would have no perception of having 

purchased anything (or committing to purchase) after having clicked the ‘‘yes’’ button at the bottom of the survey for the simple reason that all of the cues that are 

normally when making a purchase from Vistaprint—such as provision of credit card 

information and a description of what is being purchased—are absent. The fact that 

some many consumers leave the site unaware that they have committed to making 

a purchase is thus not surprising; for most, the transaction was never perceived as 

such. 

Another example of the exploitive use of conditioned responses is given in Figures 

3a–3c, which shows a different kind of solicitation tied to the I ntel ius peoplesearch site (www.Intelius.com) . When a customer visits the Intelius site, for a small 

fee they can get a report of available public information on a person of interest. 

After paying the fee with a credit card, they click a red button that says, ‘‘confirm 

the purchase and show my report’’ (Figure 3a). But when clicking this button, they 

are not shown the report, but are rather unexpectedly taken to a new site maintained by Vertrue designed to solicit membership in a benefit program called ‘‘24 

Protect Plus.’’ A central feature of the page is a request for an e-mail address, under 

which is a prominent red button labeled ‘‘yes and show my report’’—presented in 

the same font as the earlier button. Having no expectations of having to navigate 

a promotion, and simply wanting to see the report that has been paid for, many consumers will reflexively click the red button again—an action that will trigger automatic membership. 

Inter-temporal Judgment Biases: Hyperbolic Discounting and Preferences for 

Deferral 

One of the most robust findings in studies of decisionmaking is that when consumers are asked to consider options that promise up-front benefits at the expense 

of delayed costs they tend to put excessive weight on the former—a bias known as 

hyperbolic discounting (e.g., Loewenstein and Prelec 1992; Trope and Lieberman 

2003). This bias helps why consumers who are exposed to the prospect of a free premium in exchange for trial membership in a program might under-attend to fineprint descriptions of its terms and conditions, such as the what would be required 

to cancel. When considering the notion of afree-trial period, consumers would tend 

to mentally focus more on the pleasure that will be derived from the up-front premiums (e.g., the promise cash back) than the costs of time and energy that might 

be involved in later canceling the service—something that would lead them to accept 

trial membership in a program that they would later regret. 

Curiously, the third-part promoters of these schemes then exploit this bias again 

after a consumer accepts membership as a means of discouraging attempts to claim 

18 

the premium or utilize their membership programs. As noted above, redemption 

typically requires the consumer to incur significant up-front transaction costs (such 

as sending in forms and/or paying full price for gift cards), with benefits being significantly delayed by multiple week ‘‘processing times’’. A consumer prone to hyperbolic discounting would thus likely conclude that the up-front effort is not worthwhile, thus fulfilling the firm’s hope that they will never utilize the program benefits that they signed up for. 

A tendency for consumers to be lured by prospects of free trial periods could also 

be explained by the widely-documented tendency to defer deliberations when presented with choices for which the best course of action is uncertain (e.g., Tversky 

and Shafir 1992). In many cases such instincts are rational; deferral allows more 

time for a thoughtful analysis of the decision problem and/or allows other options 

to emerge that are superior to the ones currently being considered (Meyer 1997). 

In other cases the appeal lies simply in a preference for making errors of omission 

rather than commission; in most consumer contexts decisions not to buy a product 

are more easily reversible than decisions to buy (Dhar 1997; Samuelson and 

Zeckhauser 1988). 

The web schemes can be seen as exploiting this instinct as a way of ‘‘freeing 

them’’ from the need to read in close detail terms and condition of the programs and 

learn about their benefits. Consumers are encouraged to believe that the effortful 

task of deciding whether the program can be delayed until later, whereas the benefits of the prize can be enjoyed immediately. In other words, the consumer is persuaded to believe that they are not immediately purchasing anything or contracting 

for any future purchase; they are being awarded a free prize simply if they would 

agree to consider the programs for possible purchase at a later point. 

Status-Quo Biases 

The payment mechanism used by the third-part sellers—negative-option pricing— 

here is an unusual one. While negative-option pricing is sometimes justified on the 

basis of consumer convenience (to avoid the need for effortful renewal), the motivation is anything but that; the goal was to extract unwanted charges by exploiting 

another well-known bias in consumer decisionmaking alluded to above: the preference for default or status-quo courses of action given uncertainty (e.g., Johnson, 

Hershey, Meszaros, and Kunreuther 1993; Kahneman, Knetch, and Thaler 1991; 

Samuelson and Zeckhauser 1988). 

Once the firm has access to the consumer’s credit card information and charge authorization, they are, in essence, holding the consumer’s wallet hostage. The longer 

it takes for consumers to discover that they have unwittingly signed up for membership, or the longer it takes for them to discover that the benefit programs have limited value, the more money they make as pure profit; each month of delay means 

more charges to the consumer. 

Consistent with this, the firms set up significant barriers to charge detection. The 

monthly charges levels—typically $14.95—are designed to be low enough to just fall 

under the radar screen for many consumers who do not careful reconcile their credit 

card statements each month. For consumers who focus only the size of the overall 

bill, they would know something was amiss only if the total amount (or monthly 

minimum payment) was significantly higher than in the past—a perception that a 

$14.95 charge is unlikely to induce. In addition, even for consumers who do carefully 

reconcile their bills, the firms are careful to use program names that could easily 

be confused with legitimate firms or businesses. Finally, a consumer who signs up 

for one of these programs is typically sent a ‘‘membership package’’ in the mail— 

but it is commonly designed to resemble a junk-mail solicitation would be discarded 

by many consumers, particularly if they had no awareness that they had signed up 

for anything. 

The negative-option pricing mechanism essentially turns the tables on how transactions are normally conducted in a marketplace; whereas not buying a good or 

service is normally the default action in markets, here it is the default. This is a 

reversal that consumers would have had little experience dealing with, something 

that would likely lead to numerous cases of automatic purchases being made for 

programs that they neither wanted or, possibly, even knew they were acquiring. The 

reversal also highlights an unfortunate paradox of the transaction: as noted above, 

consumers were drawn to the appeal of a ‘‘free trial’’ period in the belief that it allowed them to avoid taking the overt action of purchasing the services—when in 

fact, it had just the opposite effect. By accepting the free trial they were implicitly 

making the decision—which was surely unintentional—to to make purchasing the 

passive act, and not purchasing the effortful one. 

19 

Conclusion and Remedies 

My overall assessment of these web schemes is straightforward: they represent an 

enterprise whose primary purpose is to foster and exploit weaknesses in consumer 

decisionmaking in an effort to con consumers into purchasing memberships that 

hold limited value and without their fully informed consent. The combination of the 

sellers’ perceived need to use deceptive selling tactics and the low rate of utilization 

of the benefits supposedly provided by their programs implies they did not believe 

they were marketing a good or service that held value for consumers. As such, the 

operation cannot be defined as either a legitimate marketing operation or a legitimate consumer business. 

In my view the suggested remedies for these practices are also straightforward: 

• Negative-option pricing should be prohibited for any service or program that enlists customers through ‘‘free-trial’’ periods. When the trial period has expired 

the default assumption must be that the consumer has elected not to adopt the 

program. Adoption would occur only if, at the end of the trial period or earlier, 

the consumer takes a positive action to secure membership, providing complete 

payment and billing information. 

• Firms that partner in selling goods and services on the web should be prohibited enacting automatic ‘‘hand-offs’’ and from passing on customers’ credit card 

and billing information. While at the end of a sale at one site a customer may 

be presented with the option to visit a new site offering potential benefits, visiting the new site should require a volitional act by the consumer. Likewise, if 

a new purchase is to be made at the new site, it should require the consumer 

to re-provide his or her billing information. 

• In such partnership arrangements, firms should also be required to utilize web 

designs and scripts that make it unambiguous that the consumer has left the 

original website and is now in site managed by separate firm, so as to minimize 

confusion as to the identity of the seller a customer was dealing with. 

Of course, the enactment of such remedies would likely eliminate the profit potential current direct marketers who use the web scripts of concern, as few consumers 

would voluntarily choose to pay for memberships in the programs if fully informed. 

But they would have the positive effect of precluding a recurrence of the losses suffered by consumers who fell prey to the deceptive practices discussed here. 

References 

Buehler, R., D. Griffin, M. Ross. 1994. Exploring the planning fallacy: Why people overestimate their task completion times. Journal of Personality and Social Psychology. 67 (3) 366–381. 

Dhar, Ravi (1997), ‘‘Context and Task Effects in Choice Deferral,’’ Marketing Letters Special 

Issue on the Time Course of Preferences, 8 (1). 

Johnson, E. J., Hershey, J., Meszaros, J., and Kunreuther, H.. 1993. Framing, Probability Distortions, and Insurance Decisions. Journal of Risk and Uncertainty, 7, pp. 35–51 

Kahneman, Daniel (2002), ‘‘Maps of Bounded Rationality: A Perspective on Intuitive Judgment and Choice’’, Nobel Prize Lecture, December 8, 2002. 

Kahneman, D., Knetsch, J. L. and Thaler, R. H.. 1991. Anomalies: The Endowment Effect, 

Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives, 5, 1, pp. 193–206 

Kunda, Ziva. 1990. The case for motivated reasoning. Psychological Bulletin. 108 (3) 480–498. 

Loewenstein, G. and D. Prelec (1992), ‘‘Anomalies in Intertemporal choice: Evidence and an 

Interpretation,’’ Quarterly Journal of Economics, 107, 573–598. 

Meyer, R. J. 1997, ‘‘The Effect of Set Composition on Stopping Behavior in a Finite Search 

Among Assortments’’, Marketing Letters Special Issue on the Time Course of Preferences, 8 (1). 

Meyer, Robet, Shengui Zhao and Jin Han. 2007., ‘‘Biases in Valuation and Usage of Innovative Product Features’’, Marketing Science, in press. 

Samuelson, W. and R. J. Zeckhauser. 1988. Status quo bias in decisionmaking. Journal of 

Risk and Uncertainty, 1, pp. 7–59. 

Trope, Yaacov, Nira Liberman. 2003. Temporal construal. Psychological Review. 110 (3) 403– 

421. 

Tversky, Amos, and Eldar Shafir. 1992. ‘‘Choice Under Conflict: The Dynamics of Deferred 

Decisions’’, Psychological Science, 3 (November), 358–361. 

Weinstein, Neil D. 1980. Unrealistic optimism about future life events. Journal of Personality 

and Social Psychology. 39 (5) 806–820. 

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The CHAIRMAN. Thank you very much. 

Now, Professor Marotta-Wurgler. 


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STATEMENT OF FLORENCIA MAROTTA-WURGLER, ASSOCIATE 

PROFESSOR, NEW YORK UNIVERSITY SCHOOL OF LAW 

Ms. MAROTTA-WURGLER. Chairman Rockefeller, members of the 

Committee: Thank you for inviting me to testify on the issue of aggressive sales tactics on the Internet and their impact on American 

consumers. My name is Florencia Marotta-Wurgler and I’m an Associate Professor at New York University School of Law. I teach 

courses in contract law, ecommerce, and sales, but much of my research focuses on contracting practices in electronic commerce. 

The key question regarding post-transaction marketing in today’s 

hearing is whether consumers are legitimately entering into these 

transactions or whether they’re being effectively tricked into them. 

My general assessment based on both the norms of online commerce and academic research is that consumers may indeed need 

further protections from these marketing practices. 

My first point is that post-transaction marketing techniques violate consumer expectations. One of the well-established norms of 

online commerce is that sellers require consumers to complete a 

checkout process that includes entering their payment information 

whenever they want to make a purchase online. This norm allows 

consumers to be comfortable with online purchases and greatly facilitates ecommerce activity. 

Post-transaction marketing techniques interfere with these established norms. The timing of these third-party offers interrupts 

the standard checkout process with the original vendor, thus increasing the likelihood that consumers end up subscribing to an 

unwanted service without even noticing, because they were 

prompted to enter an e-mail address instead of payment information for the second transaction. 

So, what I would like to highlight here is that these practices violate norms of online commerce. Consumers associate purchases 

with payment details and e-mail addresses with e-mail messages. 

The next question is then whether fine print explaining the nature of the transaction can substitute for this deviation from norms 

and provide a legitimate basis for the transaction. So my second 

point is that current methods of disclosure of the terms of the posttransaction marketing offers are insufficient to provide adequate 

notice. The basic problem with relying on disclosures in fine print 

is that people simply don’t read it. 

For example, two co-authors and I have studied the extent to 

which people who buy software online choose to click on and read 

the fine print governing the use of the software. We found that 

only one or two out of every thousand shoppers chooses to read 

these contracts. Moreover, those who did actually click on the contract spent too little time on it to have actually read it. 

In a follow-up study, we found that the prominence of the disclosure did little to increase the probability that contracts would be 

read. In fact, consumers are unlikely to read the fine print even 

when sellers put the terms right in front of them and require explicit assent by checking a box immediately below the terms. 

Even if it were the case that consumers were inclined to read 

fine print, which they’re not, post-transaction marketers structure 

and display fine print in a format that further discourages reading 

and comprehension. These marketers often present their offers in 

25 

a format that is deceptively similar to that one used by the original 

selected vendor and even include the selected vendor’s brand name 

and logo. Consumers who are induced to believe that they are dealing with similar vendors can easily be lulled into complacency. Our 

study suggests this is a genuine problem. 

We found that even fewer than two in 1,000 consumers read fine 

print when they were dealing with bigger, more reputable sellers. 

This makes sense, as consumers will feel a lessened need to read 

the fine print when dealing with known vendors. Post-transaction 

marketing firm offers exploit this trust. 

Another way in which these marketers discourage reading is by 

identifying their offers as rewards or bonuses that consumers 

should, in fact, be grateful to receive. The offers also splash relatively larger-font terms on the page, such as ‘‘Congratulations’’ 

and ‘‘Thank you.’’ Studies have shown that consumers focus on only 

a few salient aspects of a product or service when deciding on a 

purchase. These bells and whistles have the effect of diverting attention from important information about fees. 

Just as good news is conspicuously splashed on the screen, the 

bad news is suspiciously hidden. The terms related to the fees and 

automatic transfers of payment information appear in small print, 

in the left or bottom of the page, and appear under another layer 

of unrelated and boldly displayed happy titles, such as ‘‘Congratulations’’ and ‘‘Great News.’’ 

The relevant disclosures appear at the end of dense paragraphs. 

Of course, the problem with this is that research has also shown 

that the manner in which sellers display information affects the attention consumers pay to it. So, given the way some of this fine 

print is written, even the rare consumer who actually does take a 

quick look at it could be forgiven for not understanding it. 

I have a few suggestions to help remedy these problems. First, 

automatic transfers of payment information from known vendors to 

post-transaction marketers should not be allowed. Instead, consumers should be asked to enter their credit card information at 

each transaction. This will preserve the well-established norms of 

ecommerce. 

Second, they should be required to identify themselves prominently and differentiate themselves from the original selected vendors. 

Third, they should clearly and prominently explain the fees and 

services. 

Finally, they should plainly explain how enrolled consumers can 

cancel or seek a refund. 

Thank you very much. 

[The prepared statement of Ms. Marotta-Wurgler follows:] 

PREPARED STATEMENT OF FLORENCIA MAROTTA-WURGLER, ASSOCIATE PROFESSOR, 

NEW YORK UNIVERSITY SCHOOL OF LAW

Chairman Rockefeller, Ranking Member Hutchison, members of the Committee: 

Thank you for the invitation to testify on the issue of aggressive sales tactics on 

the Internet and their impact on American consumers. 

My name is Florencia Marotta-Wurgler and I am an Associate Professor at New 

York University School of Law. Much of my research focuses on contracting practices in consumer mass market transactions and especially online transactions. In 

26 

other words, I study the fine print, and whether online consumers read the fine 

print. 

Today’s hearing examines an online business practice known as ‘‘post-transaction 

marketing’’ in which third-party companies offer discount subscription services for 

a fee while consumers complete the check-out process from selected vendors. Consumers are generally invited to accept these offers by entering their e-mail address. 

Consumers’ payment information is then automatically transferred to the thirdparty marketers from the known vendors. This practice has been the subject of numerous buyer complaints, critiques by consumer advocates, and class action litigation. 

Here, in brief, is essentially how sellers and buyers view this practice. Marketers 

are likely to claim that a legitimate transaction took place because consumers explicitly communicated assent by actively entering their e-mail address (or, in some 

recent cases, the four last digits of their credit card number). Because the fine print 

of the offer discloses the fees and other key terms, the marketers argue the assent 

is legitimate and not the result of an oversight or misunderstanding. 

On the other hand, consumers may argue that they didn’t meaningfully assent to 

the terms of the offer because based on years of experience in both online and realworld settings, a transaction that triggers financial obligations doesn’t take place 

until the consumers provide and confirm payment details, including personal financial information, often a credit card. Consumers don’t feel compelled to read the fine 

print informing them that have completed a transaction because, as everyone 

knows, financial obligations don’t arise until a payment is explicitly given. Moreover, the consumers would argue, if the fine print was supposed to alert them of 

this change in practice, they didn’t read it because it was presented in a deceptive 

manner and because consumers generally don’t pay attention to fine print. 

Whose interpretation is correct? The marketers’ perspective that consumers are 

willingly subscribing to these services, or the consumers’ perspective that they are 

effectively being tricked into a transaction? 

In this statement I will start with some general observations about the nature of 

online transactions and then I will discuss some academic research that is relevant 

to answering this question. Generally, the well-settled norms in online commerce 

and research findings suggest to me that consumers may need further protections 

from these marketing practices. I will conclude by recommending some measures 

that might help to address some troubling aspects of these transactions. 

1. Post-Transaction Marketing Techniques Violate Consumer Expectations 

Online 

Consumers who access the Internet can quickly access the sites of thousands of 

different vendors. The reason why consumers can comfortably browse and window 

shop without having to delve into the fine print governing each vendor’s site is that, 

based on experience, they know that until they follow some well-established steps, 

they are not financially bound to the vendor. In almost all consumer transactions 

online, consumers select a product or service and complete a multi-step checkout 

process that requires entering a preferred payment method as well as shipping and 

billing addresses. When the transaction is completed, consumers are presented with 

a confirmation page with details of the completed transaction. This norm of online 

commerce is what allows consumers to safely explore the web, become informed 

about advertisement offers, and complete transactions online. The fact that this 

norm has been widely accepted and in a way standardized has helped drive the explosive and economically beneficial growth of online transactions. 

So called ‘‘post-transaction marketing techniques’’ interfere with these established 

norms, creating consumer confusion in a way that would appear deceptive. Posttransaction marketing offers are generally presented to consumers while they are 

in the process of checking out from a selected merchant. Usually, the consumer selects a product in the site of the selected vendor and begins a check-out process to 

complete the transaction. However, instead of receiving a confirmation page from 

the selected vendor notifying the consumer that the transaction has been successful, 

the consumer receives a post-transaction marketing offer from a third party vendor. 

The offer is often deceptively entitled ‘‘Reward’’ or ‘‘Bonus’’ and at first glance appears to be some sort of gift, something to be happy about. The consumer can then 

accept the offer by entering his or her e-mail address or by completing a survey. 

Once this step is completed, the selected merchant will automatically transfer the 

consumer’s payment information to the third-party vendor and the consumer’s credit 

card will be automatically billed $12 a month, for example, until the consumer notices the charge and figures out how to cancel it. An amount of $12 is small enough 

often to go unnoticed, but it is large enough to add to $50 or $100 within a few 

months. 

27 

1 ‘‘Does Anyone Read the Fine Print? Testing a Law and Economics Approach to Standard 

Form Contracts,’’ Yannis Bakos, Florencia Marotta-Wurgler, David R. Trossen (NYU Law and 

Economics Research Paper No. 09–40, 2009). 2 ‘‘Does Disclosure Matter?’’ Florencia Marotta-Wurgler and Yannis Bakos (mimeo, 2009). 

3 Even less than 0.1 percent of consumers that were presented these contracts chose to access 

the contract. 

This practice obviously raises concerns. The presentation of the offer by a third 

party interrupts the normal checkout process with a selected vendor. Consumers 

who reasonably expect to receive a confirmation page as a signal that a transaction 

is finalized may be deceived into thinking that the third-party offer is part of the 

selected vendor’s checkout process. Wishing to complete the transaction with the selected vendor, consumers thus might end up subscribing to an unwanted service 

without even noticing. 

Alternatively, even if consumers understand that the third-party offer is not part 

of the checkout-process, they nevertheless may be deceived into subscribing because 

they are never prompted to enter their payment information. Given the aforementioned norms, consumers may thus reasonably expect that no financial obligation attaches. If anything, by providing their e-mail address, consumers might expect at 

worst to receive some advertising that e-mail account provided. Consumers associate 

purchases with payment details and e-mail addresses with e-mail messages. 

So what I would like to highlight here is the violation of norms of online commerce. Now I will turn to some academic research that addresses the issue of 

whether fine print can substitute effectively for this deviation from norms and provide a legitimate basis for the transaction. 

2. Disclosure of the Terms of the Post-Transaction Marketing Offers are 

Unlikely to Provide Adequate Notice Because Research Shows that 

Most Consumers Simply Do Not Read Fine Print Online 

Post-transaction marketers argue that their offers adequately disclose to consumers the terms and fees associated with the transaction. Although this is the 

case, one of the reasons these disclosures are unlikely to correct consumers’ likely 

mistaken beliefs is that the vast majority of consumers do not read the fine print 

online. 

In a recent study, two co-authors and I examined the detailed online browsing behavior of 45,091 households with respect to 66 software vendors that made their 

products available online. We studied the extent to which consumers chose to become informed about the fine print governing the purchase and use of the products 

(in the context of software, these contracts are known as End User License Agreements).1 Although we expected to find that relatively few consumers would bother 

reading the fine print, we were surprised to find that the number was so low. 

What we found was that one or two of every thousand shoppers choose to access 

these contracts. We were also surprised by how consistent this attitude was. Consumers generally don’t read contracts regardless of age and income level. And even 

though consumers are only slightly more likely to read contracts of products that 

command higher prices, the percentage of people who read contracts remains tiny. 

Moreover, those who did access the contract spent too little time on it to have actually read it. The median time spent on these contracts was 29 seconds. Given that 

the average contract in the sample 2,277 words long, making it impossible that the 

typical consumer reads more than a tiny fraction of it. 

In a follow-up study, we found that the prominence of the disclosure did little to 

increase the probability that contracts would be read.2 Consumers remained similarly apathetic when finding the contract is several ‘‘mouse-clicks’’ away as when the 

contract appears in the familiar link next to a box mandating consumers to click 

on ‘‘I agree’’ to finish the transaction.3 We also found that consumers are unlikely 

to read the fine print even when sellers put the terms right in front of them and 

require explicit assent by checking a box immediately below the terms. We found 

that consumers spent a median of 72 seconds in single checkout pages that presented the contract to consumers (and required them to explicitly agree to it) but 

also required consumers to enter their name, address, and credit card information. 

A contract of this type is attached as Exhibit A of this testimony. Given all the tasks 

that consumers had to complete in these pages, I believe that it is highly unlikely 

that consumers spent more than a fraction of their time reading it. (To be clear, 

I do not view Exhibit A as an example of a deceptive presentation of fine print, rather it is fairly typical contract, and of course, another aspect to note is that the transaction is fully with the selected vendor as opposed to a transaction connected to a 

third party.) 

28 

4See Bakos et al., supra note 1. 5See Russell Korobkin, ‘‘Bounded Rationality, Standard Form Contracts, and 

Unconscionability,’’ U. Chi. L. Rev. 1203, 1243–44 (2003), for an overview of these studies. 

The conclusion from this study is that there is an overwhelming tendency to ignore the fine print in online transactions, regardless of how clearly or prominently 

terms are disclosed. Although these studies only give us a general picture of consumer behavior online and they are drawn from a slightly different context, I believe that in combination with common sense and introspective observation, these 

studies strongly suggest that it is unlikely that consumers actively peruse the details of many online transactions. To summarize, I believe that it is unlikely that 

disclosure of the post-transaction marketing offers in fine print can effectively alert 

consumers of the transaction that they are undertaking. 

3. Post-Transaction Marketers Structure and Display Fine Print in a Way 

that Discourages Consumers From Becoming Informed About Their 

Terms 

I’ll now turn to consider several features of post-transaction marketers’ offers that 

based on common sense and academic research seem likely to further reduce the 

effectiveness of their disclosures. 

3.1. The Method of Disclosure Exploits the Empirical Fact that Consumers are Less 

Likely to Read the Terms Offered by Known Vendors 

Post-transaction marketers often present their offers in a format that is deceptively similar to that one used by the originally selected vendor. For example, if the 

vendor is a site that sells movie tickets the third-party vendor will include pictures 

of popcorn and reels. In many cases, the page with the third-party offer will have 

the brand name and logo of the known vendor, implying that the new offer comes 

from the known vendor. Consumers who are induced to believe that they are dealing 

with familiar vendors can be easily lulled into complacency. 

Our study of consumer online behavior supports the validity of this concern. We 

found that as rarely as our sample consumers accessed contracts, they were even 

less likely to read when the terms were offered by bigger, more reputable sellers.4

This makes sense. When consumers become familiar with firms or know their reputation, they will feel a lessened need to read the fine print. Post-transaction marketing offers exploit that trust. 

3.2. Many Offers Are Deceptively Framed as Rewards or Rebates 

Post-transaction marketers often identify their offers as rewards or bonuses that 

the consumers in fact should be grateful to receive. Offers may feature a prominently displayed coupon with a title such as ‘‘$10 off your next purchase—Good for 

your next Fandango Purchase’’ or ‘‘$10 CASH BACK ON YOUR PURCHASE 

TODAY!’’ Fandango is a very popular vendor of movie tickets, among other products. (See for example, Exhibits B and C.) It is natural to imagine that the new offer 

is part of the original transaction. 

The offers also splash relatively larger-font terms around the page such as ‘‘Congratulations,’’ ‘‘MEMBER REWARDS,’’ and ‘‘Thank You . . . Please Complete Your 

Survey and Claim Your Reward.’’ These phrases are likely to distract attention from 

the disclosures that explain the new charges associated with the new offer. Given 

the general emphasis on the reward component and consumers’ aforementioned expectations that financial liability is incurred only after entering a payment method, 

it seems unlikely that barely noticeable disclosures will correct consumers’ 

misperceptions. 

Existing research supports this view. Studies have shown that consumers focus 

only on a few, salient aspects of a product or service when deciding on a purchase.5

By highlighting the ‘‘reward’’ component of the offer and framing it as something 

that the consumer should be pleased to receive, marketers make the ‘‘good news’’ 

as salient as possible. 

3.3. Key terms are Designed and Positioned in Way That Makes it Likely that They 

Will be Overlooked 

Just as good news is emphasized, the bad news is suspiciously hidden. The terms 

related to the fees and automatic transfers of payment information appear in small 

print, in the left or bottom of the page, and appear under unrelated and boldly displayed happy titles such as ‘‘Congratulations,’’ ‘‘Great News,’’ ‘‘Thank You,’’ and 

‘‘Register for Reservation Rewards and get our Money-Saving Discounts up to 50 

percent . . . plus your $10 cash back incentive at your next Fandango Purchase.’’ 

Moreover, the relevant disclosures appear at the end of dense paragraphs that for 

the most part again recite the bonus or reward aspect of the offer. Even consumers 

29 

6See, e.g., J. Edward Russo, ‘‘The Value of Unit Price Information,’’ 14 J. Marketing Rsrch. 

193, 194 (1977). Don N. Kleinmuntz & David A. Schkade, ‘‘Information Displays and Decision 

Processes,’’ 4 Psy. Sci. 221–27 (1993). 

who glance at the fine print might think there are few strings attached. Indeed, research has shown that the manner in which sellers display information affects the 

attention consumers pay to it and, consequently, the likelihood of it being a salient 

component in purchase decisions.6

To offer some perspective, the vast majority of contracts in our study that were 

for the most part ignored by consumers in the sample were clearly labeled as contracts or disclaimers, and included titles in bold or capital letters explaining the provisions that would follow. For example, paragraphs explaining liability disclaimers 

would be titled ‘‘DISCLAIMERS,’’ or ‘‘IMPORTANT: PLEASE READ THIS CONTRACT.’’ If contracts with clear and prominent titles were not able to successfully 

catch consumers’ attention, the terms of post-transaction marketers are even less 

likely to do so. Indeed, they seem designed to attract as little attention as possible. 

Even if some consumers have become savvy enough to detect these deceptive practices and stay away from them, it is well worth the effort to help as many consumers as possible fully understand the contract that they are being offered. 

4. Recommendations 

I have a few suggestions to help remedy the problems created by post-transaction 

marketing techniques. 

First, automatic transfers of payment information from known vendors to posttransaction marketers should not be allowed. Instead, consumers should be asked 

to enter their credit card information at each transaction. This will preserve the 

well-established norm that financial liability in these contexts arise only after the 

consumers takes certain well-established steps. The benefit of clarity outweighs any 

cost of inconvenience. 

Second, post-transaction marketers should be required to identify themselves 

prominently and differentiate themselves from the originally selected vendors. To 

avoid confusion, they should not present themselves before the transaction with the 

selected vendor is completed. This will put consumers on notice that they are dealing with a different entity. 

Third, post-transaction marketers should improve the quality of their disclosures 

by framing their offers in a manner that is not deceptive and by clearly and prominently explaining the fees and services. These disclosures should also include regular e-mail updates reminding them of the subscription and any ongoing charges. 

They should be written in short, clear, and plain language with no distracting features. 

Fourth, post-transaction marketers should implement a clear process by which enrolled consumers can easily cancel or seek a refund. This alternative should be 

prominently present in every periodic e-mail communication with consumers. 

To summarize, because post-transaction marketers present themselves to consumers in an unexpected fashion at an unexpected juncture of the transaction, they 

violate the norms of online commerce and should be held to a higher standard of 

disclosure and transparency. 

Thank you very much for hearing my views. I hope they are helpful in your consideration of these practices. 

30 

Exhibit A 


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Exhibit B 


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Exhibit C 


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STATEMENT OF MY EXPERIENCE SIGNING UP FOR WEBLOYALTY’S RESERVATION

REWARDS—FLORENCIA MAROTTA-WURGLER, ASSOCIATE PROFESSOR OF LAW, NEW

YORK UNIVERSITY SCHOOL OF LAW

On Saturday, November 14, I visited the website Fandango.com with the intent 

of purchasing a movie ticket. After having selected the ticket (for ‘‘Where the Wild 

Things Are’’), I proceeded to checkout. The first step of the Fandango checkout process, entitled ‘‘Checkout: Order,’’ required that I enter the number of tickets desired 

and to either register using my existing account with my username and password 

(which I did), or register as a guest. The second step, entitled ‘‘Review,’’ provided 

information about the date and time of the show, the selected number of tickets, 

and a summary of my billing information, including my name, e-mail address, last 

four digits of my credit card number, and zip code. As I clicked on a button entitled 

‘‘Complete my Purchase,’’ a large pop-up page with a prominent $10 coupon promising me $10 off my next purchase at Fandango appeared on my screen. It is notable 

that I was not presented at this point with the typical purchase confirmation page. 

The page with the coupon was a typical post-transaction marketing offer. This 

time the third-vendor was Webloyalty. At the top of the page was a prominent statement ‘‘***IMPORTANT: Limit 1 per person***.’’ The $10 coupon was the focal point 

of the page, with notes such as ‘‘$10 cash back incentive’’ and ‘‘$10 off your next 

purchase.’’ Immediately to the left of the coupon a colored text read ‘‘Congratulations . . . Here’s your Special Offer for Fandango Customers!’’ followed by ‘‘Register 

for Reservation Rewards and get your Money Saving Discounts up to 50 percent 

. . . plus your $10.00 Cash Back Incentive on your next Fandango Purchase.’’ (A 

copy of the page is attached as Exhibit A of this statement.) One paragraph below, 

under a title labeled ‘‘Great News’’ and after several lines highlighting the reward 

component of the offer, was a disclosure of the fees stating ‘‘Enjoy this FREE for 

the next 30 days and only $12 a month thereafter billed to the credit card or deducted from the debit card you used at Fandango today.’’ Any person in my position 

could easily have ignored this last line, thus concluding that the offer came from 

Fandango (after all, it was displayed during the checkout process) and that it was 

for some sort of genuine reward (perhaps to create brand loyalty). 

As I scrolled down the page to enroll I was told to ‘‘Complete the information 

below and click YES to sign up for your membership in Reservation Rewards.’’ I was 

asked to enter the last four digits of the credit card number I used to purchase my 

Fandango ticket and to enter my e-mail address. Not wanting to stand up to reach 

my wallet to look for my credit card number, I remembered that Fandango had conveniently showed me the last four digits of my credit card number in the previous 

checkout step. I clicked on ‘‘My Account’’ in the Fandango page and I saw just the 

last four digits of my credit card number displayed on the page. After simply entering these numbers and typing my e-mail address in the Reservation Rewards page, 

I clicked YES and signed up for the service. 

I should note that companies typically ask users to provide the last four digits 

of their credit card number as a way of verifying the identity of the user and not 

as a part of a regular checkout process. Consumers in this situation who mistakenly 

believe they are dealing with Fandango would understand this request as a mere 

request for identity verification. In the absence of reading the fine print, consumers 

are unlikely to understand they are entering a new transaction by simply entering 

the last four digits of their credit card number. 

I then checked my e-mail account to see whether I had received any notifications 

explaining in detail the characteristics of the transaction. Companies that sell products online routinely send confirmation e-mails explaining the item purchased, the 

amount charged, the payment method used, and information about shipment. The 

e-mail I received was entitled ‘‘Get Your $10 Monthly Member Bonus Today!’’ (attached as Exhibit B to this Statement). The e-mail was as deceptive as the original 

offer. The text, phrased as a letter, offered a friendly reminder of the $10 discount 

from the next Fandango purchase. It then listed a series of other rewards I should 

be able to claim as a member of the club. Next, it explained that I could obtain 

these rewards by sending an e-mail to reservation rewards. The letter was signed 

by the Senior Vice President of Reservation Rewards. Disclosures regarding the 

costs and payment for this service were minimal. At the bottom of the e-mail, significantly away from the general text of the letter, there appeared the following 

statement: ‘‘You can view the Billing Details of your membership on your Member 

Profile page. For questions, e-mail customer service or call 1–800–732–7031. To use 

your benefits visit Reservations Rewards.’’ Just like the terms of the original offer, 

this statement does not provide notice sufficient to inform the average consumer of 

the nature of the services offered. The confirmation e-mail thus does not correct any 

prior beliefs about the offer being a no-strings reward. 

36 

As soon as I completed the sign-up process, I used the number posted in the fine 

print of the offer to cancel my services. I was greeted by a recording that gave me 

a menu of options and asked me if I wanted to cancel my subscription. After selecting that option, the recording asked me whether I was sure that I wanted to cancel 

my subscription, and if I did not want to cancel, I should press the number 1 on 

the phone, and if I did want to cancel, I should press the number 2. 

After I pressed the correct number, I was told that my subscription was terminated. I later received an e-mail confirming my cancellation (included as Attachment C to this statement). 

Thank you very much. 


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1117MAR2.eps
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1117MAR3.eps
39 

The CHAIRMAN. Thank you very much. 

Before I go to you, Professor Cox, you both talked about fine 

print and the fine print is just the greatest scam of all time. I see 

some charts over there. Do any of those have fine print on them? 

Mr. MEYER. Yes, they do. 

The CHAIRMAN. I’d like to see. 

I wouldn’t make this the Metropolitan Art Show. 

Actually, that’s not as good as some that I’ve seen, where they’ll 

have ‘‘$10’’ in bright blue, a big square up at the top, and then 

there will be like 5 more of those paragraphs, small print, which 

I’m not 20, but I have good eyesight, and if I had a Galilea telescope I would not be able to read that fine print. I mean, it is absolutely impossible. 

In that fine print, if I’m not mistaken, is all the damage that 

they’re going to do to you. But of course you don’t read it because 

underneath in the same bright blue that I’m thinking of, which 

said ‘‘$10,’’ underneath that in big print is ‘‘Yes.’’ So what do you 

do? You go ‘‘$10, yes,’’ and you don’t read anything in between because—you said one out of every one million do it? 

Ms. MAROTTA-WURGLER. One out of every 1,000. 

The CHAIRMAN. Out of 1,000 do it. 

So anyway, I just want to make that point and, Professor Cox, 

go on to you. 

STATEMENT OF PRENTISS COX, ASSOCIATE PROFESSOR OF 

CLINICAL LAW, UNIVERSITY OF MINNESOTA LAW SCHOOL 

Mr. COX. Thank you, Mr. Chairman. 

For over a decade, first as an Assistant Attorney General within 

the Minnesota Attorney General’s Office and then as a Law Professor, I’ve attempted to combat and call attention to the practices 


1117MAR4.eps
40 

examined here, practices that drain the financial accounts of Americans without legitimate purpose, cause cynicism about commerce, 

and harm competitors who are trying to be honest. I’d like to make 

three points. 

First, the practices examined here are not limited to the Internet. They’re part of a bigger problem, a problem called ‘‘pre-acquired account marketing.’’ The essence of ‘‘pre-acquired account 

marketing’’ is the sale by retailers and financial institutions of special access to consumers’ accounts, so that third parties can charge 

these accounts without obtaining account numbers from consumers. 

It occurs through every channel of direct marketing, including direct mail, inbound telemarketing, as well as Internet transactions. 

It involves all the Nation’s largest financial institutions at some 

point and continues to involve the vast majority of the Nation’s 

largest banks, credit card issuers, and mortgage companies. Interestingly, it is not something that is widespread among independent 

and community bankers or credit unions. 

It works by circumventing the shorthand methods we all use to 

signal consent to a transaction. We know we’re done when we hand 

somebody our credit card, we swipe it in a machine, we read them 

the number over the phone, or we enter it into the Internet. 

This problem is especially bad with those with mental impairments due to illness or other reasons and those who do not speak 

English as a primary language. They are particularly victimized by 

the complexity of these transactions. 

My second point is that it is difficult to control this problem with 

existing deceptive practices laws and other consumer protection 

laws. Like it or not, they’re fully disclosed even if in a fundamentally misleading context. This causes some courts to struggle with 

whether the consumer should be held responsible for carefully 

reading the fine print, as we’ve gone over. 

I think this is like blaming the crime victim for getting pick 

pocketed in a street where it says ‘‘Beware of pickpockets’’ on it. 

But the existence of disclosure does cause some confusion in the 

courts. 

This debate of law about deceptive practices is distinct from the 

larger and more important point. Pre-acquired account marketing, 

of which this is a prominent example, is a giant, insidious sorting 

machine, the result of which is millions of consumers have their accounts charged without their knowledge and without wanting the 

products they’ve supposedly purchased. 

The evidence on this point is absolutely overwhelmingly, and I’d 

like to say your staff report on this, I literally got up and cheered 

when I read it. It’s phenomenal. It’s detailed, it’s thorough, and it’s 

beautifully presented. And it’s consistent with all the other information about this form of marketing and other direct marketing 

channels. 

For instance, Illinois Attorney General, Lisa Madigan, did a 

phone survey of people who were supposedly active paying members of membership clubs involving a direct mail solicitation with 

live checks, involving an agreement between a national bank and 

a membership club, and found literally nobody who was aware that 

they were a member, even though they were paying for it. 

41 

1These cases included publicly filed consumer protection actions by the Minnesota Attorney 

General against Fleet Mortgage Corporation, Memberworks, Inc. (now known as Vertrue, Inc.), 

Damark International, Inc. (now known as Provell, Inc.) and U.S. Bancorp. 2 An article examining this issue in more detail, including a proposed model law to control 

the problem, can be viewed at: http://ssrn.com/abstract=1460963. The article, entitled The Invisible Hand of Pre-acquired Account Marketing, will be published in June 2010 in Volume 47, 

Issue 2 of the Harvard Journal on Legislation. 

Iowa Attorney General, Tom Miller, did a mail survey with 

Vertrue members and found essentially the same result. In my experience with the Minnesota Attorney General’s Office prosecuting 

several of these cases, including one against Fleet Mortgage Company, where people’s mortgage accounts were charged through both 

direct mail and telemarketing, and they did a survey of the consumer services representatives with Fleet Mortgage, and you got 

almost the same exact responses that are reported in your staff report from those consumer services representatives, quotes such as 

‘‘This is a fraud,’’ ‘‘This is a scam,’’ ‘‘Why do we allow our customers 

to be charged like this?’’ 

The third and final point is that, unlike the often difficult and 

tricky consumer regulatory problems where you have to balance 

how exactly you intervene in the market so as not to prevent legitimate commerce, this is one of those rare cases where there is a 

clear and obvious solution: Prohibit retailers and financial institutions from selling access to consumers’ accounts to third parties. 

There is no legitimate commercial reason to do this. Consumers 

mostly already think this is the law and it should be the law. 

It is with great appreciation to you, Mr. Chairman, for calling 

this hearing. It has been a very frustrating decade trying to call 

attention to this problem, and with one fell swoop you’ve already 

made more impact on this than a decade worth of work by many 

other people who are trying to combat this problem. 

Thank you very much. 

[The prepared statement of Mr. Cox follows:] 

PREPARED STATEMENT OF PRENTISS COX, ASSOCIATE PROFESSOR OF CLINICAL LAW, UNIVERSITY OF MINNESOTA LAW SCHOOL

It is with great appreciation that I thank Chairman Rockefeller for holding this 

hearing, for exposing and carefully examining this problem, and for his obvious commitment to protecting consumers from abuses in the marketplace. I have had the 

pleasure of working with Senator Klobuchar, from my home state of Minnesota, on 

consumer protection issues, and I know she also understands the inadequacy of current regulatory systems for protecting consumers in today’s marketplace. 

Unauthorized charges for membership clubs following consumer website purchases flow from Internet retailers selling access to the financial accounts of their 

customers. This problem is part of a larger practice known as pre-acquired account 

marketing, which has festered largely unattended for more than a decade. Today’s 

hearing is long overdue. The business practices that are being examined in this 

hearing drain the financial accounts of American consumers without legitimate purpose. 

I first encountered the problem of unauthorized account charges resulting from 

pre-acquired account marketing as a public attorney enforcing consumer protection 

laws. Prior to joining the University of Minnesota Law School faculty in 2005, I 

worked as an Assistant Attorney General and Manager of the Consumer Enforcement Division in the Minnesota Attorney General’s Office. I was involved in the 

prosecution of a series of cases against banks, mortgage companies, retailers, insurers and membership club sellers using pre-acquired account marketing.1 For the 

last few years, I have studied and written about this practice, including its rapid 

growth as an Internet marketing system.2

Pre-acquired account marketing creates the same result in all of its modalities— 

massive consumer confusion and extraordinary numbers of consumer complaints 

42 

3The Better Business Bureau, which rates Vertrue with a grade of ‘‘F’’, describes consumer 

problems with the company’s business practice as follows: ‘‘Complaints reported to the Bureau 

primarily involve claims of unauthorized charges by the Company’s affiliates. In such cases, customers reported no recollection of having agreed to the programs that were billed to their credit 

card, debit card or bank account. In some of the cases, consumers reported being charged for 

two or 3 years.’’ 4 Affinion, one of the largest pre-acquired marketing seller of membership clubs, lists its ‘‘affinity partners’’ as including ‘‘18 of the top 20 U.S. credit card issuers, 17 of the top 20 U.S. 

debit card issuers, 5 of the top 5 U.S. mortgage companies.’’ 

about unauthorized charges to financial accounts. It accomplishes this result by acting as a sorting mechanism to identify vulnerable and distracted consumers unaware that their accounts have been charged. My testimony will focus on how this 

sorting occurs and why current laws are inadequate to control the problem. I will 

conclude by asking you to consider a law that bans e-retailers, other retailers and 

financial institutions from selling special access to their customers’ financial accounts. Further disclosure requirements will not solve the problem of consumer confusion and harm caused by pre-acquired account marketing. 

I. Pre-acquired Account Marketing Results In Unauthorized Account 

Charges 

An Internet retailer acquires an account number, such as a credit card number, 

when selling goods or services to a consumer. The consumer enters his or her account number on the e-retailer’s website when the consumer believes he or she understands and agrees to the terms of the transaction. Internet transactions mimic 

traditional retail transactions in this respect—consumers signal consent to a charge 

by providing an account number to the seller, much as a consumer swipes or hands 

over a debit or credit card to a physical retailer. 

A. How Pre-acquired Account Marketing Works 

The flood of consumer complaints about unauthorized charges following website 

purchases is the predictable result of using pre-acquired account marketing techniques on the internet. The e-retailer agrees to sell the consumer’s account number 

it obtained, or sell the ability to charge its customer’s account, with a membership 

club seller. After the initial e-retailer transaction, the membership seller solicits the 

consumer for a free trial in a membership club or an insurance policy. If the marketing company determines the consumer consented, and the consumer fails to cancel in time, the marketing company charges the consumer’s account. The retailer 

who sold the consumer’s account number shares in the revenue. 

This is the same process, with the same result, that occurs when pre-acquired account marketing is used in other contexts, including direct mail, outbound telemarketing and various forms of inbound call marketing.3 Most of the Nation’s largest financial institutions also sell the right to charge their customers’ accounts to 

membership club sellers and other companies employing pre-acquired account marketing.4 Credit card, checking and mortgage accounts all are commonly accessed 

through pre-acquired marketing. 

These are not trivial charges. Membership clubs now routinely charge about $100 

or more per year. Membership club sellers claim tens of millions of members. 

Affinion alone asserts that it adds one million members per year through Internet 

solicitations alone. 

B. The Deception Problem with Pre-acquired Account Marketing 

Consumers are confused and misled by this marketing system for three reasons. 

First, this type of selling process circumvents the short-hand methods used by consumers to indicate consent to a transaction. In an Internet transaction, the entry 

of an account number, and perhaps CVV code, alerts consumers that they are providing that authorization. When e-retailers sell the right to charge their customer 

accounts, membership club sellers can defeat consumer expectations that withholding this information prevents consent to a charge for the transaction. 

Second, membership club sellers and other pre-acquired account marketing companies layer multiple sales practices with deceptive potential. These sellers invariably provide a ‘‘free trial offer’’ or similar inducement to begin the solicitation, suggesting a lack of commitment required of the consumer. This is consistent with the 

consumer’s expectation that he or she has not provided an account number authorizing a charge. These sellers then employ a ‘‘negative option’’ method to charge the 

consumer’s account without further action by the consumer if he or she fails to cancel during the trial period. Finally, agreements purportedly entered into through 

pre-acquired account marketing typically include an ‘‘automatic renewal’’ provision 

so that the charge is re-assessed periodically, often at a higher rate on later charges, 

43 

5The Iowa Attorney General action against Vertrue was recently tried before the trial judge 

and the parties currently are submitting post-trial briefs. 

until canceled by the consumer. Combining the circumvention of short-hand consent 

signals and the layering of multiple suspect sales methods makes it inevitable that 

many consumers will not understand the complicated solicitation terms. 

Third, pre-acquired account marketing raises special concerns for deception of vulnerable consumers. The elderly who have substantial mental diminishment, those 

with mental impairment from illness and non-native English speakers are more susceptible to the deception potential with this form of marketing. It is one thing to 

have individuals in these groups read or enter an account number, but quite a different experience to allow vulnerable populations to be charged for failing to notice 

and comprehend complicated disclosures when they have not provided an account 

number to the seller. 

C. The Sorting of Distracted and Vulnerable Consumers 

Membership club sellers will respond that the entire transaction sequence is fully 

disclosed to the consumer. This assertion generally is true, especially on the Internet where human deviation from script is not possible. Are we left with a debate 

about whether these disclosures are adequate to overcome the problems with consumer deception described above? No. The fundamentally corrupt business model 

that drives this form of marketing gains focus if we shift perspective from the various experiences of millions of individual consumers during the solicitation process 

to the net effect of this system on consumer account charges. 

This result occurs because pre-acquired account marketing acts as a sorting system to identify consumers who will have their financial accounts charged without 

their full understanding. Pre-acquired account marketers (and the enabling e-retailers, banks and other companies that sell account access) rely on a combination of 

consumers who never understand the solicitation and consumers who grasp it at the 

time of solicitation but fail to remember the terms of the transaction through the 

trial period. For consumers in these groups who notice the charge on their account 

statement, the sellers take a pro-rated amount of the charge. The bulk of revenue 

lies in those consumers who do not notice the charge and are assessed the full 

amount, and who later suffer automatic renewal charges at higher rates, sometimes 

for years, before canceling. These consumers not only pay all of the cost of the membership club, but do not demand anything of value from the service because they 

do not even know they are members. 

This situation could present a difficult public policy problem if a substantial number of consumers were charged for membership services of which they were unaware, but where most members understood the process and happily paid for the 

service. Mounting evidence, however, shows this latter group is almost non-existent—that almost every consumer charged through pre-acquired account marketing 

is unaware of or did not want the membership service they allegedly agreed to purchase. This evidence includes the following: 

• The Iowa Attorney General sued Vertrue, a pre-acquired seller, in 2006. As part 

of the investigation, Attorney General Tom Miller surveyed consumers that 

Vertrue had identified as paying for one of its membership programs. Of the 

88 club members who returned surveys, 59 (or 67.0 percent) were unaware of 

the membership and stated that the charge was totally unauthorized, 24 (or 

27.3 percent) stated that they were aware of the club but they never used it 

and believed they had already canceled, 6 (or 6.8 percent) stated generally that 

the charges were ‘‘unauthorized,’’ and 3 (or 3.4 percent) gave unclear answers 

that indicated some awareness of the club but dissatisfaction with the service, 

including one member who ‘‘felt coerced’’ into paying for the membership.5

• In 2004, Illinois Attorney General Lisa Madigan surveyed by telephone customers of a national bank that had cashed ‘‘live check’’ direct mail offers for a 

free trial offer in membership programs solicited under a pre-acquired account 

marketing arrangement. Of the 56 bank customers who were listed as active 

members of a membership program, 37 indicated no awareness that they were 

club members. None of the 56 customers stated that they were both aware of 

the charge and intended to sign up for the program by cashing the live check. 

• When Minnesota Attorney General Mike Hatch sued the mortgage subsidiary 

of Fleet National Bank in 2001 for pre-acquired marketing, he presented evidence that Fleet’s own customer service agents overwhelmingly objected to 

these charges, calling them ‘‘unethical,’’ ‘‘a scam,’’ and ‘‘a fraud’’ based on their 

conservations with homeowners whose mortgage accounts were charged for 

membership clubs and insurance policies through pre-acquired marketing. 

44 

6This data does not include usage information for these membership programs. It would be 

instructive to know how many consumers charged for these membership clubs actually use the 

service, which would be evidence of awareness of the charge. For example, many of these membership clubs offer to their members as a primary benefit reimbursements for certain types of 

purchases. If a majority of members are taking advantage of this offer, one could infer awareness of at least club membership, although not necessarily awareness of the account charge. 7 It is worth a brief word about why the market fails to control pre-acquired account marketing. The most obvious market correction for the problem is the adverse reputational consequences for the companies involved in a practice that generates angry, voluminous complaints 

of account theft by consumers. In fact, membership club sellers routinely change their trade 

names (Memberworks became Vertrue; Damark became Provell; Trilegiant became Affinion; 

etc.), which might suggest some concern of this sort. Yet reputational problems are lessened 

when consumers just respond to a direct marketing solicitation rather than making affirmative 

choices to seek out the seller and because the primary initial brand presentation with pre-acquired marketing is the name of the retailer or financial institution, not the membership club 

seller. This leads to the more promising possibility of financial institutions and referring retailers who sell access to their customers’ accounts abandoning pre-acquired marketing because of 

substantial reputational interests. Unfortunately, adverse reputational consequences for the account issuers and referring retailers are mitigated by the structure of the free trial offer. The 

solicitation is usually closely tied to the reputation of the account issuer or referring seller, but 

when consumers discover weeks or months later the account charges on their statements that 

they believe are unauthorized, the pre-acquired seller typically is listed as the initiator of the 

charge. As the consumer is likely to have no idea how this charge appeared on his or her account, there is less risk of harm to the reputation of the financial institution or retailer that 

obtains revenue from selling the access to its customers’ accounts. 8See 12 C.F.R. § 40.12. Regulation P was adopted jointly by the Federal banking regulators, 

the Federal Reserve Board and the Federal Trade Commission. Regulation P allows the sharing 

of encrypted account numbers. Financial institutions, therefore, can sell access to their customers’ accounts to direct marketers as long as they encrypt the numbers given to the marketers, which does nothing to control the problem of account charges unknown to the consumer. 

The data collected so far strongly supports the conclusion that there appears to 

be few, perhaps almost no, consumers among the club members who are aware they 

are paying for the service.6 This situation makes irrelevant the issue of whether 

some or even most of the consumers accepting the free trial offer understood the 

disclosures at the time of solicitation. The evidence indicates that the business 

model underlying pre-acquired account marketing works as a sorting scheme that 

results in account charges to consumers who do not know they have been charged 

and do not want the purported service. 

After a decade of observing the membership club industry develop on the foundation of pre-acquired account marketing, I have little doubt that this business sector 

would cease to exist almost overnight if it had to sell its products like every other 

retailer. In other words, these membership clubs could not survive if they had to 

get consumers to give them a credit card number to purchase the services the membership clubs are selling. 

II. Failure of Existing Law to Control These Unauthorized Charges 

Current law does not control the problem of pre-acquired account marketing, particularly in the context of e-retailers selling customer account access in post-transaction offers. Neither laws of general application nor specific rules in consumer protection statutes or regulations contain adequate tools to stop this unfair practice.7

A. Legislative and Regulatory History 

The most promising avenue for controlling pre-acquired account marketing in the 

last decade was the prohibition against financial institutions sharing customer account numbers enacted in 1999 as section 502(d) of Title V of the Gramm Leach 

Bliley Act (codified at 15 U.S.C. § 6802(d)). Unfortunately, this Act gave Federal regulators the authority to promulgate rules for the implementation of section 502(d), 

and the resulting regulations essentially made section 502(d) meaningless as a limit 

on pre-acquired marketing.8 Even if this prohibition had not been undermined by 

Federal regulators, it would not have prevented retailers that are not financial institutions from engaging in pre-acquired account marketing. 

The Federal Trade Commission promulgated amendments to the Telemarketing 

Sales Rule in 2003 that put some limits on the use of pre-acquired account marketing in the telemarketing context, 16 C.F.R. § 310.4(a)(6). The amendment proposed in the initial rule-making notice would have prevented the practice entirely, 

but the FTC substantially limited the reach of the final rule while noting that it 

would continue to watch the evolution of this suspect marketing practice. Again, 

these rules do not apply to Internet transactions and thus would have no impact 

on e-retailers selling account access. 

45 

9See, e.g., Assurance of Discontinuance, In re Citibank (NYS Dept. of Law filed Feb. 22, 2002) 

(multistate settlement), available at http://www.oag.state.ny.us/medialcenter/2002/feb/feb 

27bl02attach.pdf; Press Release, Office of the Washington Attorney General, Settlement with 

Discount Buying Club Highlights Privacy Concerns (August 4, 2000), available at http:// 

www.atg.wa.gov/pressrelease.aspx?&id=5010; Assurance of Discontinuance, Minnesota ex rel. 

Hatch v. Damark Int’l, Inc., No. C8–99–10638 (Ramsey County Dist. Ct. Dec. 3, 1999). 10The lawsuit filed by Iowa Attorney General Tom Miller against Vertrue, Inc. was based in 

part on a broader theory that encompassed the assertion that consumers who pay for Vertrue 

membership clubs rarely know they are members whose accounts have been charged for the 

service. See Iowa ex rel. Miller v. Vertrue, Inc., Equity No. EQ53486 (Polk Co. Dis Crt. May 15, 

2006), available at http://www.state.ia.us/government/ag/latestnews/releases/may2006/Mem 

berWorksVertuePETITION). 11 No. MDL 4:08–md–1994 (S.D.Tex 8/31/09), available at 2009 WL 2884727. 

B. Legal Actions 

Lawsuits brought by state attorney generals, the FTC and private attorneys have 

had some impact on pre-acquired account marketing, but so far have been of limited 

value in addressing the underlying issues driving the consumer complaints of unauthorized charges. State attorneys general and FTC actions alleging consumer deception and misunderstanding have been successful, but the cases against the largest 

membership club sellers by state attorneys general have so far mostly yielded only 

modest reforms in the form of improved disclosures.9 This outcome is consistent 

with the theory of these cases, which is that the solicitation process misled or deceived consumers.10

Private legal actions have had less success. Of particular interest to the subject 

matter of this hearing is a multi-district litigation case recently dismissed in the 

United States District Court for the Southern District of Texas, In Re VistaPrint 

Corp. Marketing and Sales Practice Litigation.11 Plaintiffs alleged that the posttransaction sale of membership clubs following sales of business cards on the 

VistaPrint website were deceptive and violated numerous state and Federal laws. 

The court granted the defendants’ motion to dismiss on the substance of the plaintiffs’ legal claims, but denied defendant VistaPrint’s attempt to have the case dismissed because the VistaPrint form contract required that all actions by its customers be filed in Bermuda courts. The trial court judge held that consumers ordering business cards on the VistaPrint website had a duty to read all of the disclosures about the free trial offer. The judge concluded that the disclosures were sufficient to make the website post-transaction solicitation not deceptive to the ‘‘reasonable’’ consumer as a matter of law. The case is on appeal. 

C. Consumer Misunderstanding and Abuse Is What Matters 

The VistaPrint decision presents the fault line in a part of the legal debate associated with pre-acquired account marketing. Sellers who employ and profit from the 

practice stress the obligation of consumers to search and read website disclosures 

that set forth this unusual procedure leading to account charges. Consumer advocates assert that the disclosures are insufficient to overcome the misleading overall 

impression of the solicitation. While this makes for an interesting legal theory dispute that explores the current state of the law of deception, this argument is utterly 

misplaced for considering the public policy issue presented by pre-acquired account 

marketing. It is a red herring. 

If the net effect of this business practice is that the overwhelming numbers of consumers paying for a service are unaware that their accounts are being charged year 

after year, we should explore how to stop this real-world result from occurring. It 

should not matter whether this result occurs because the consumer failed in his or 

her alleged ‘‘duty’’ to closely read all website disclosures and thus misunderstood the 

solicitation terms, because the consumer does not speak English well and could not 

really understand the dense disclosures, because the consumer understood the disclosures when using the website but forget about the solicitation and thus failed to 

exercise the negative option during the attenuated free trial offer period, or because 

of any other such reason. No one should want a practice to continue that amounts 

to a predacious sorting out of consumers to have their financial accounts charged 

without their awareness. 

III. Prohibit Pre-acquired Account Marketing 

Unlike the complex regulatory trade-offs typical when drafting consumer protection regulations, an obvious solution exists for the problem motivating this hearing. 

A retailer should be required to obtain from the consumer his or her account numVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00049 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
46 

12See, e.g., Supplemental Comments of the Vermont Attorney General’s Office, Telemarketing 

Sales Rule Review Forum Before the Federal Trade Commission, FTC File No. R411001, available at: http://www.ftc.gov/os/comments/dncpapercomments/supplement/vtag.pdf (describing 

AARP study showing a plurality (46 percent) of consumers thought that a telemarketer could 

not charge a credit or debit card without obtaining the account number from the consumer, 

while a majority (51 percent) didn’t think a bank account could be charged in this manner, and 

another 15 percent and 13 percent, respectively, didn’t know if this type of charge was possible). 13 67 Fed. Reg. at 4538. 14 68 Fed. Reg. at 4617. 

ber before charging the account. Most consumers think this is the state of law 

now.12

There is no legitimate commercial purpose supporting pre-acquired account marketing. A seller can always avoid a pre-acquired account marketing transaction by 

having the consumer provide his or her account number. This, of course, is how the 

referring e-retailer got the account number from the consumer that it later sold to 

the membership club. Put another way, a seller that has the consent of the consumer to be charged for a transaction can obtain payment by acquiring the account 

number it would otherwise charge through the pre-acquired account method. Therefore, the only benefit in allowing such conduct derives from the seller avoiding the 

act of acquiring the account number from the consumer who owns the account. 

The companies employing this practice have given few reasons for allowing the 

circumvention of this routine, but critical, part of a typical consumer transaction. 

In amending the Telemarketing Sales Rule, the Federal Trade Commission expressly sought industry input on this issue and asked in its Notice of Proposed RuleMaking: ‘‘What specific, quantifiable benefits to sellers or telemarketers result from 

pre-acquired account telemarketing?’’ 13 In its comments accompanying the final rule 

changes, the FTC characterized the industry’s failure to provide a satisfactory response to this question as follows: 

[A]lthough business and industry representatives acknowledged during the Rule 

Review that the practice of pre-acquired account telemarketing was quite common, maintaining that it was ‘‘very important’’ to them, they provided scant information that would help to quantify the benefits conferred by this practice or 

better explain how these benefits might outweigh the substantial consumer 

harm it can cause.14

The two arguments most commonly asserted in favor of permitting pre-acquired 

marketing are that it better protects consumer privacy and that it lowers the costs 

of transaction. Both arguments are patently wrong. 

The privacy argument is that pre-acquired account marketing allows fewer employees to see personal financial information because the information is electronically transmitted from seller to seller. Whether or not this is true, one need only 

reflect for a few moments to see the irony in this position. In the archetype situation 

presented by an e-retailer collaborating with a membership club seller in a posttransaction free trial offer, the eretailer sells the consumer’s account number, or the 

ability to charge the consumer’s account, to the membership club without the consumer’s consent to this transaction. Any negligible benefit from the membership 

club’s employees not seeing the consumer’s account number, if this is even the case, 

must be compared to the violation of the consumer’s privacy right and trust by the 

e-retailer selling access to the consumer’s account without the consumer’s permission. Furthermore, in situations where the actual account number is transferred by 

the e-retailer, the privacy concerns are multiplied rather than reduced. 

The argument about lowering costs is equally wrong and ironic. There is no meaningful reduction in cost to the membership club in an Internet pre-acquired account 

transaction because it is the consumer that has to enter his account information. 

The costs of handling this information cannot be materially less than the costs of 

coordinating with the e-retailer to obtain the information needed to charge the consumer’s account at the end of the trial period. In any case, these costs are truly negligible compared to all the work that the membership club must incur to implement 

this complex system. Just the costs of handling tens of thousands of consumers complaining about unauthorized charges must exceed many fold any purported savings 

from not having a web system that allows consumers to enter account information. 

Finally, the discussion about pre-acquired account marketing often gets confused 

with the more difficult question of customer account data retained by sellers. There 

are legitimate commercial reasons for a seller to retain and re-use customer account 

numbers. For instance, the customer may regularly order merchandise from that 

seller. Sellers retaining account information can use that data in ways that are beneficial to and within the expectations of the consumer, or they can use the data in 

47 

15Statement of Basis and Purpose, Telemarketing Sales Rule, 68 Fed. Reg. at 4598 (citing to 

public enforcement actions resulting from sellers using retained account information in ways 

that mimic the abuses of pre-acquired account marketing). 

ways that mimic the deception problems of reacquired marketing.15 This situation, 

therefore, presents the more usual consumer protection regulatory quandary of how 

to proscribe the abusive conduct without needlessly burdening legitimate commerce. 

The mixed character of seller retained account information does not mean the preacquired account marketing practices at issue in this hearing ever create public benefit. There is a clear line between the following two situations: (1) a consumer voluntarily gives retailer A his account number and retailer A uses that data in a later 

transaction with the same consumer (seller-retained data); and (2) a consumer voluntarily gives retailer A his account number and retailer A sells to membership club 

seller B the right to charge the consumer’s account without the consumer providing 

his or her account number to membership club seller B. The former situation may 

(or may not) be with the reasonable expectations of the consumer, and may (or may 

not) cause consumer confusion and misunderstanding. The latter situation, pre-acquired account marketing, probably is not within the reasonable expectations of 

many people, and definitely causes mass and nearly universal consumer confusion 

and misunderstanding as to the legitimacy of account charges for membership clubs. 

Conclusion 

Pre-acquired account marketing has no legitimate commercial reason to exist yet 

drains the wealth of consumers who are unaware their accounts are being charged. 

Consumers are exposed to these charges for unwanted services when e-retailers, 

other retailers and financial institutions sell special access to their customers’ accounts in return for a share of the gain. Congress should enact legislation to protect 

American consumers from such abuse. 

The CHAIRMAN. Thank you, Professor Cox. You’re very kind to 

the Committee and its staff. 

I want to go back, Mr. France, to exactly where I was, because 

I think it’s very important to get this stuff on the record so that 

we can achieve what some of you have called for. 

We were already at the part where you said then Value Max 

started charging you $19.99 a month, you said. 

Mr. FRANCE. Yes, sir. 

The CHAIRMAN. Had you ever heard of Value Max Club before it 

started charging you $19.99? 

Mr. FRANCE. Never before, sir. 

The CHAIRMAN. Did you ever authorize Value Max to charge your 

credit card $19.99 a month? 

Mr. FRANCE. In no way knowledgeable to me, sir. 

The CHAIRMAN. Did you ever give Value Max your credit card 

number or bank account number? 

Mr. FRANCE. No, sir. 

The CHAIRMAN. If you had been asked to type in your 16-digit 

credit card number to join this Value Max Club, would you have 

done it? 

Mr. FRANCE. No, sir. 

The CHAIRMAN. Thank you. 

Ms. Lindquist, I’d like to ask you—and for your son, thank you 

for coming up today from Wisconsin, over, up, whatever. Your testimony is that you were using a website called movietickets.com, you 

thought that you were buying just movie tickets, but in return, it 

turns out that you also bought memberships in two clubs called 

‘‘Reservation Rewards’’ and ‘‘Shopper Discounts,’’ and both of these 

clubs were charging you $10 a month; is that correct? 

Ms. LINDQUIST. Yes. 

48 

The CHAIRMAN. Had you ever heard of the Reservation Rewards 

or Shopper Discounts club before these clubs started charging you 

$10 a month? 

Ms. LINDQUIST. No. 

The CHAIRMAN. Did you ever authorize Reservation Rewards or Shopper Discounts to credit your card $10 a month? 

Ms. LINDQUIST. No, not knowingly. 

The CHAIRMAN. Did you ever give Reservation Rewards or Shopper Discounts your credit card number or your bank account number? 

Ms. LINDQUIST. No. 

The CHAIRMAN. If you had been asked to type in your 16-digit 

credit card number to join the Reservation Rewards or Shopper 

Discounts club, would you have done so? 

Ms. LINDQUIST. No. 

The CHAIRMAN. So, Mr. France and Ms. Lindquist, I’m very sorry 

that you got caught in this scam. You clearly did. You’re clearly 

highly literate, thus taking away this thing that people can get 

scammed even though they don’t know the Internet very well. You 

know it very, very well and you got scammed. 

One of our members, Claire McCaskill from Missouri, has to be 

at something the Administration asked her to do. But her mother 

got scammed, and she is absolutely in a rage about it, and so she 

may come tearing in here in a few minutes. 

Millions of other Americans have been ripped off in the same 

way that you two have been. It’s outrageous and we’re going to find 

a way to stop it. 

Mr. France and Ms. Lindquist, one of the most disturbing things 

we have learned in our investigation is that hundreds of websites 

like Intelius and movietickets.com are selling their customers’ information to these bogus membership clubs. In fact, we’ve discovered 

that every time a customer gets tricked into joining one of these 

clubs the online merchant gets what is known as a ‘‘bounty.’’ They 

literally put a price on the customer’s head. 

Mr. France, how does it make you feel to learn that Intelius got 

paid a bounty for selling your credit card information to Value Max 

club? 

Mr. FRANCE. Hard to put that into words, sir. 

The CHAIRMAN. Try. 

Mr. FRANCE. But the easiest, disgust that they could even do 

that and enjoy it and profit off of it and believe that they’re doing 

right, or that they can even sleep, especially if they’re American 

companies, because if we claim that America is the greatest country in the world then it starts with taking care of our fellow citizens and not taking advantage of them. So ‘‘disgusted’’ would have 

to be the best way to describe that. 

The CHAIRMAN. And you, Ms. Lindquist? 

Ms. LINDQUIST. I would have to agree. It’s shocking that they can 

basically sell my credit card information to an unknown company. 

Everybody I talked to that I told I was coming here, it has happened to so many people I know, but they just maybe got charged 

a month or two and then found out. Maybe that’s the goal of these 

companies, is just to charge these people $10 or $20, but multiply 

that by millions of people. 

49 

The CHAIRMAN. Like 30 million people at different times. You’re 

right. 

My time is up and I turn to Senator Dorgan. 

Senator DORGAN. Ms. Lindquist, my understanding is you say 

that you were charged by this company and never received any 

product; is that correct? 

Ms. LINDQUIST. Correct. 

Senator DORGAN. No mailing from them? 

Ms. LINDQUIST. Hmm-hmm. 

Senator DORGAN. No coupons, no product of any kind? 

Ms. LINDQUIST. Nothing. 

Senator DORGAN. Does this sound like fraud to you? 

Ms. LINDQUIST. Yes. 

Senator DORGAN. So someone is charging you because they say 

you purchased something from them, except you got—you received 

nothing—— 

Ms. LINDQUIST. Right. 

Senator DORGAN. —and they’re charging your bank account. It 

just seems to me—I mean, I don’t know the legal niceties. Maybe 

one of the professors can suggest this. But it just seems to me if 

someone is taking money out of your checking account and giving 

you nothing in return, that’s something beyond just shameful. 

There must be a legal term there. 

The other issue that I find really troublesome here is that reputable sites—I buy movie tickets online from time to time, and you 

go to these sites because they’re reputable, presumably. Reputable 

sites are actually being reimbursed by the companies that are 

scamming you, and I assume they’re being reimbursed because 

they’re able to be a rider on that company’s website. That’s where 

they get their customers. You show up at the website wanting to 

make a transaction buying a ticket for a movie or an airline ticket, 

and that brings you to this page, and then they pop up with some 

sort of an ad that suggests you get something free, and then the 

reputable website gives that company your—provides that company 

your credit card number. 

Ms. LINDQUIST. I know. 

Senator DORGAN. Mr. France and Ms. Lindquist, that’s just unbelievable to me. That is so—in addition to being shameful, so dishonest. I think Professor Cox said it right, that this is a very important hearing in the sense that my hope from this hearing is that 

we will find ways to shut down this activity. There’s no nice way 

of describing this. This is wholesale cheating of a lot of people, and 

I think it just has to stop. 

I had not previously, as I indicated earlier, I had not previously 

been even aware of the terms that are being used. But I’m aware 

there are a lot of charlatans out there looking for ways to cheat 

people to the extent that they can get by with it. 

Mr. France, you indicate you have no knowledge of how someone 

even got your credit card information; is that correct? 

Mr. FRANCE. Absolutely not, unless Intelius worked with this 

company and gave them my credit card information, put a so-called 

‘‘bounty’’ on me. 

Senator DORGAN. Mr. Cox, you worked for the Attorney General’s 

Office of Minnesota? 

50 

Mr. COX. I did. Senator Dorgan, Mr. Chairman, I used to run the 

Consumer Protection Division at the Minnesota Attorney General’s 

Office. Five years, 4–1/2 years ago, I left to go to the University of 

Minnesota Law School. 

Senator DORGAN. It looks like we’ve got some consumers here 

that need protecting pretty badly, right? Probably millions of people. 

But what do you make of the notion of somebody extracting 

money from Ms. Lindquist and Mr. France’s accounts, adding it to 

their credit card, without providing a product to them, without 

them even knowing they’d purchased something? That seems to me 

like fraud. 

Mr. COX. Mr. Chairman, Senator Dorgan, I have been astounded 

for 10 years that this goes on and on, and tried every way to call 

attention to it that I could. The fundamental problems here are 

that the disclosures are made, so when you try to attack the problem you wind up in this legal battle about the sufficiency of the disclosures. 

You have to really shift focus and ask exactly the question you’re 

asking: Who in God’s name agrees that we should allow a practice 

where everyone who winds up getting charged is unaware, essentially everyone—maybe 1 or 2 percent—is essentially unaware that 

they’re a member and they’re being charged for something they 

don’t know and they don’t want. 

One other point. It partly works because you would think that 

the market might self-correct by the reputational hit to the 

eretailers with the legitimate sites or the banks that are involved, 

et cetera. But the problem is when the charge comes through, it 

comes through, in the name of the membership club and all the attention is directed to the club. So, you get this problem where the 

market doesn’t take care of it because the reputational interests 

aren’t at stake. 

Senator DORGAN. Let me ask. The very reputable websites are 

playing ball and making money off of this scam. Maybe we ought 

to take a look at saying to the reputable websites: You know what, 

you allow that sort of thing to bounce up on your web page, you’ve 

got some liability here. You better be finding out who’s using your 

web page, and you certainly better find out who you’re providing 

financial information on your consumers to. You buy an airline 

ticket, Ms. Lindquist, to come out here and if that company that 

you bought the airline ticket from provides your credit card to 

somebody else, shame on them. 

Ms. LINDQUIST. Right. 

Senator DORGAN. They have some liability in my judgment. They 

may not now, but maybe we ought to find out if there ought not 

to be some way to do that. 

My time is about up, but let me ask an obvious question, Ms. 

Lindquist. You started by talking about your personal situation. 

Tell me about your daughter? Is she better as a result of your trip? 

Ms. LINDQUIST. She is doing a lot better because we went to Atlanta. She can walk with crutches short distances. She’s very lucky, 

but she’s still walking. She still wants to get as far as she can. 

Senator DORGAN. Good for her. 

Ms. LINDQUIST. Thank you. 

51 

The CHAIRMAN. Thank you, Senator Dorgan. 

These are available if anybody wants them. These are the bad 

guys that you’re talking about, some very big companies who—they 

like their $10 every month or their $20 every month, and the 

money can go up or down at the discretion of the scammer. So if 

you want a copy, we’ll be glad to give it to you. 

Senator LeMieux. 

Senator LEMIEUX. Thank you, Mr. Chairman. 

Thank you, all the witnesses, for your testimony today. I wanted 

to talk about some legal issues, if I could, with Professor MarottaWurgler and Professor Cox. I, too, had the honor to serve in the 

Attorney General’s Office down in Florida and go after unfair and 

deceptive trade practices with our Economic Crimes Unit. And our 

folks in that office, now under Bill McCollum, are going after these 

different vendors. 

But I want to ask you and follow up on what Senator Dorgan 

was saying, because it seems to me that an Attorney General could 

go after one of these so-called reputable companies who are enabling these scam artists to steal the information from unsuspecting 

consumers. So if an airline, for example, allows this company to operate on its website without proper disclosures and to unwittingly 

take this money from consumers on this annuity scam that happens month after month after month, couldn’t an Attorney General 

go under FUDTPA, the Unfair and Deceptive Trade Practices Act, 

or some other statute and hold these folks accountable? 

Mr. COX. Mr. Chairman, Senator LeMieux, yes. These cases are 

a little more difficult to prosecute under what’s called UDTPA authority than you would think they are. They’re just extremely costly. As you know, they don’t shake a lot of money on Attorney Generals’ offices and you have to make tough choices between going 

after all kinds of bad guys. 

But yes. And thank you. As an academic, I’ll plug my article. 

That’s one of the suggestions I make in the article, is to shift the 

focus away from the nature of the disclosures to the usage and the 

fact that nobody knows it and to go after these other entities. But 

frankly, I think the hearing you’re doing here is probably more effective at doing that than anything else. But the answer to your 

question is yes and it should happen. 

Senator LEMIEUX. Professor? 

Ms. MAROTTA-WURGLER. My answer is similar to that of Professor Cox. I believe that going under UDAP might be more effective. Clearly there are disclosures. The disclosures are not effective. 

Some courts might say that in order to have meaningful assent, 

particularly in fine print contracts in consumer transactions, there 

has to be notice and assent must be unambiguous. 

I’m highly suspicious that, given the way the offers are presented, assent is obtained in an unambiguous fashion. I believe 

some courts would believe that assent was not meaningful and 

thus not valid. However, there might be other courts who might believe that the disclosure is in fact valid. That’s why I think that 

going under UDAP might be more effective. 

That doesn’t mean that attacking the appropriateness of disclosure part has no bite. It certainly does. It just might not be that 

certain. 

52 

Senator LEMIEUX. I agree with you. If I was still in the AG’s office I would love to go after this case, because it’s not just deceptive; it’s unfair. It makes no sense, Mr. Chairman, that you can be 

in a situation where you’re buying movie tickets and someone signs 

you up for a product or alleged product or service that you never 

receive, and yet you get charged monthly for it. Just, it’s outrageous. It’s unconscionable. 

I think that the Chairman is right and that Senator Dorgan’s 

right, that there should be—and I want to follow up on Professor 

Cox’s comment. You should be prohibited from selling this financial 

information. Businesses who are working on the Internet should be 

no different than businesses who are working in regular commerce. 

If I went to 7–11 to buy a cup of coffee and used my credit card 

and they took my financial information and sold it to somebody 

else, who then started charging me $10 a month, we all recognize 

that that is outlandish and outrageous. 

It’s no difference if you’re on the Internet. We are now so accustomed to these etransactions, and as you said, no one reads these 

disclaimers. I don’t read them, nobody reads them. And they know 

that when they put them out there. It’s one thing to give you information on these disclaimers about what you can or cannot do when 

you’re using this product or service. It’s another thing to bury deep 

within that you are buying a service, which probably is not even 

a real service or a real product. 

So, I commend and support the comments that were made by my 

colleagues earlier that there should be a prohibition in the law that 

prevents it, unless all sorts of hoops are jumped through, all sorts 

of hoops which would show knowledge and consent by the customer, that your financial information be sold to somebody else. 

And shame on these companies, these reputable companies who 

are allowing this to occur on their websites. 

I want to thank again, Mr. France and Ms. Lindquist, for coming 

forward and spending your time and being involved here, because 

you’re shining light on a problem that I assume and believe is 

probably affecting thousands of Americans, and but for your willingness to come forward we might not know about it. So, I appreciate you and I appreciate the staff that’s done such a great job in 

bringing these issues forward. And thank you for all of our experts 

who’ve testified here today. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. Thank you very much. 

Senator Udall. 

STATEMENT OF HON. TOM UDALL, 

U.S. SENATOR FROM NEW MEXICO 

Senator UDALL. Thank you very much, Chairman Rockefeller. I 

want, in particular, to thank you for doing this investigation and 

doing this hearing today because I think it raises consumer awareness in such a way that really brings sunlight to this process. 

As one of our witnesses said earlier, you could go and do a lot 

of things, but a hearing like this I think brings it out to the public. 

In a way, I’m reminded of my days as State Attorney General, 

where we used to say when we worked on the consumer protection 

context a good business wants bad business out of business. 

53 

As Senator LeMieux just said, any legitimate business that’s 

teaming up with these kind of scam operators, I wouldn’t call them 

a good business any more. The good businesses should be stepping 

forward, they should be distancing themselves from this kind of behavior, and they should be working with prosecutors, with State 

district attorneys, with attorneys general to get this done and to 

get people prosecuted and to say we’re going to take this very seriously. 

I have a case in New Mexico that I believe Professor Meyer has 

highlighted. Here you have a Santa Fe woman who was bilked out 

of $700 after multiple visits to Vista Print’s website to purchase 

materials for a real estate business. You describe it in your written 

testimony, that the confusing charges appeared on her credit card 

long after the original online purchases. She didn’t have a clue 

what was going on. 

It goes to, Professor Cox, I think what you were saying, is the 

sufficiency of these disclosures. I want to ask any of the witnesses 

here. We ought to be putting people that do this in jail. These are 

the same kinds of operators that we put in jail in New Mexico for 

doing telemarketing fraud. I would ask the witnesses that have the 

expertise here to tell me, should the Federal Trade Commission update its existing rules for telemarketing and mail order sales to address these new online scams, or does the agency lack authority? 

I mean, how do we get it so that State prosecutors, attorneys 

general, others, can focus on this, focus on this area and make sure 

that the bad guys are being brought to justice? 

You can all jump in, but just don’t do it at once. 

Mr. COX. I’m a little embarrassed. I’ve been talking too much. 

But I will add one little thing, which is at 18, I was the youngest 

member of the Udall for President national campaign staff. 

Senator UDALL. Well, thank you for that. 

He was also a prosecutor in his old age. 

Mr. COX. And a nice gentleman. 

Just real quickly, the problem with the FTC and the problem 

with, the civil enforcement problem here, is that this thing is, to 

use technical language, rotten at its core. It’s not a matter of separating out the good parties from the bad parties, which it usually 

is in a civil enforcement context. This type of practice just shouldn’t 

be allowed. Inevitably—I’ve never seen it ever, in any of its many 

modalities, ever do anything but result in millions of charges, overwhelming, 98, 99 percent of people being charged for things they 

don’t know. So, I think the problem is regulatory. 

Real quickly on the Federal Trade Commission, many of these, 

in fact—I’m not sure what the percentages are these days. It used 

to be—it’s primarily run through banks, and of course, the Federal 

Trade Commission has limited jurisdiction there. So, it’s going to 

be a difficult problem to sort out exactly where the regulatory authority needs to happen in order to control fundamentally this 

problem of selling access to consumer accounts by retailers and financial institutions. 

Senator UDALL. Do either of you? 

Mr. MEYER. Yes. My view of it is that sort of the web introduces 

sort of—basically opens the door to a wide array of exploiting people’s frailties and vulnerabilities in processing information. I think 

54 

a lot of existing legislation was designed for a previous world and 

in some sense it significantly needs to be updated. 

I agree with Professor Cox that the structure of these businesses 

is such that the only way these companies make money is through 

open outright deception. The one thing I’ve noticed is that they’re 

incredibly good psychologists. You basically get them to cut back on 

one area and they find incredibly ingenious ways of luring people 

into these programs through other means. They’re constantly doing 

online experiments. Essentially, if they find out that people catch 

on to existing methods, then they use experiments to find new ones 

that work. 

Senator UDALL. Well, the folks ought to know that Chairman 

Rockefeller and AGs and district attorneys are going to focus on 

them and bring this out into the sunlight and bring these people 

to justice. 

Thank you, Mr. Chairman, for focusing the Commerce Committee on this issue. This is a very important issue to consumers 

and I think you’ve done the American people a big favor in focusing 

on consumer protection in a new way that I don’t think has been 

done in the Commerce Committee in a long time. 

Thank you. 

The CHAIRMAN. Thank you, Senator Udall, very much. 

Senator Klobuchar. 

STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM MINNESOTA 

Senator KLOBUCHAR. Thank you very much. 

Was it you, Professor Cox, that was on the Udall for President 

Committee? 

Mr. COX. Yes, I’m ashamed to admit. 

Senator KLOBUCHAR. I was distracting Senator Udall because I 

was trying to figure out if you then jumped ship on Humphrey or 

Mondale during that time. But it appears that you did not. 

Mr. COX. Actually, I will say I ran ‘‘get out the vote’’ in Illinois 

for Jimmy Carter that year. 

Senator KLOBUCHAR. OK, all right. 

Mr. COX. Very poorly, you might add. I actually got notices of 

how bad the ‘‘get out the vote’’ was in Illinois that year. 

Senator KLOBUCHAR. Well, all right. I wanted to welcome you, 

Professor Cox, and for the purpose of the record Professor Cox has 

been very active in a number of very important consumer issues 

and has helped me on some of the work we’re doing with cell 

phones, which has now emerged again this week with the early termination fees charged by Verizon, and other things. So, I want to 

thank you for that. 

I know—were you working with Mike Hatch, the Attorney General? Did you file suit on similar things like this before? 

Mr. COX. Senator Klobuchar, yes. I filed suit against 

Memberworks, which was the predecessor to Vertrue, against U.S. 

Bancorp, against—there was about five suits filed, including Fleet 

Mortgage Company and several. We tried to do exactly what you’re 

saying, which is go up the chain and try to hold people responsible 

at the financial institution level. We had some success, but then 

55 

this whole thing just sort of died away. This is just—I’m giddy that 

you’re taking a look at this huge problem. 

Senator KLOBUCHAR. So do you think that there are things that 

we can do? What would you suggest that we do, the easiest thing 

to make the current laws and regulations sufficient to curb the 

abuses online? 

Mr. COX. Thank you, Senator Klobuchar. This really again has 

an actual easy solution, which rarely is the case when you confront 

these problems. Financial institutions and retailers shouldn’t sell 

account numbers and access to accounts to third-party sellers, period. There’s just no reason, there’s no legitimate commercial reason to allow that. 

I think in my testimony, as well as in a longer article, I explain 

some of the attempted justifications and why they’re just almost 

pitiful. There’s really not much of an argument here. 

Now, you get into a more tricky legislative problem when you get 

the problem of sellers retaining account information and then later 

re-using it. 

Senator KLOBUCHAR. For their own purposes, you’re talking 

about? 

Mr. COX. Right. For instance, you might let a website that you 

order contact lenses from every quarter retain your information 

and then just regularly bill you with that information. But then 

that information also can be misused in ways that mimic this problem. So I think you can attack that problem, but that’s a little 

trickier legislative drafting issue. I really do think that there is an 

obvious and clear solution to this and it’s just to shut down selling 

access to consumers’ accounts. 

Senator KLOBUCHAR. Have there been any attempts by online retailers to try to stop this, to try to exert pressure on this? Or do 

you think it’s just because they’re giving access, so why would they 

do anything? 

Mr. COX. The online retailers are actually the ones that are profiting from selling this. I will say that if you look at section 502 of 

the Gramm-Leach-Bliley Act and Title 5, the privacy provisions 

that were enacted, section 502[d] has something that pretty much 

on its face says you can’t do—financial institutions anyway, which 

is a big part of this problem, can’t do that, they can’t make those 

sales. 

But the OCC, along with other Federal banking regulators, were 

authorized to enact regulations and they instituted regulations that 

essentially completely circumvented what I thought was the intent 

of that legislation and allowed access to consumers’ accounts as 

long as the actual sharing of the information was just encrypted. 

But then the membership club says, yes, they consented, and then 

they just decrypt the numbers. So it didn’t effectively do anything, 

even though on its face it seems to really solve the problem. 

Senator KLOBUCHAR. So what do you think—evidence also shows 

of these people—maybe you know this. The people that get sucked 

into one of these, do most of them eventually cancel them? 

Mr. COX. You can sort out into certain subgroups exactly—great 

question, Senator Klobuchar. You can sort out into subgroups who 

the people are. Some people will cancel during the 30-day trial period. But what’s interesting, in a very large database sample, 

56 

which is consistent with some of the information your staff report 

pulls forth, shows that, in fact, most people who wind up getting 

this, catch it after it’s initially billed, not during the 30-day period, 

which is totally counterindicated if you thought that it really 

worked the way they said it did. 

So most people catch it in like the 60- and 90-day timeframe. A 

lot of people—some people, some people, don’t catch it, particularly 

when it’s billed annually. They will sometimes be billed 3, 4, 5 

years. So when I would talk to consumers who had this problem, 

if it looked like an annual bill I would say, go back and look at 

your bill, your credit card or bank statement or mortgage account 

for the year before and the year before and the year before and find 

out how long this has happened to you. 

These companies in part live on these consumers who pay full 

revenue and then are automatically renewed. 

Senator KLOBUCHAR. Right. I’ve gotten into some of these situations, those kind of customers. Then I go back and look at the Visa 

bill and try to fix it. 

But still then, eventually do most people cancel it? 

Mr. COX. Of course, because nobody—essentially nobody really 

wants it. 

Senator KLOBUCHAR. Right, they don’t want it. 

Mr. COX. When you boil it all down, at the end of the day I don’t 

think—it’s not a partisan issue. I just can’t imagine why anyone— 

and I’m so glad to see that it’s not that way—anyone would say we 

want people to sell products where the people being charged have 

no idea they’re being charged for it and don’t want it. It’s just absurd. 

Senator KLOBUCHAR. Professor Meyer, and then I’m out of time 

here. Well, if you want to add. 

Mr. MEYER. I just wanted to add that they also, in terms of those 

multi-charges, that for people that don’t cancel, essentially every 

year they increase the charge by a couple dollars. So essentially, 

they keep increasing the charge until finally you do catch it. And 

like Professor Cox said, it could be 3, 5 years before some people 

find out. 

The CHAIRMAN. So there’s an art form to seeing how far you can 

raise it without getting people too suspicious. 

Senator Nelson. 

STATEMENT OF HON. BILL NELSON, 

U.S. SENATOR FROM FLORIDA 

Senator NELSON. Thank you, Mr. Chairman. 

Mr. France, I’m sorry you had to go through what you went 

through just to get back your money, not even to speak of all of 

the trauma and time and so forth that you had to go through. 

Mr. FRANCE. Thank you, Senator. 

Senator NELSON. But you are an example of what’s happening 

with this explosion of technology. We have people that are now, instead of using a crowbar to steal, now use technological improvements, and they’re doing the same thing. And they’re doing it with 

a lot of deception, as the Chairman’s hearing has pointed out. 

This Committee has been handling a lot of other things called 

‘‘phishing’’ with a p-h and ‘‘pharming’’ with a p-h, and spoofing, 

57 

which is another one. We just had it in Florida, a spoofing case. 

That’s when you look on your cell phone and you see the number 

that’s calling you. Well, if you alter that number to make it appear 

like you’re looking—what happened to this lady, a single woman, 

and suddenly she’s getting a call from her own residence. Of 

course, somebody was doing this just to play a prank on her. Well, 

the lady’s absolutely petrified. She thinks somebody’s in her house. 

Or one of the worst ones is that they call 911 masquerading at 

a certain number, home, that there’s a burglary going on. 911 dispatches the SWAT team, and you can imagine what mayhem might 

happen on an unsuspecting household with the police suddenly 

breaking in. 

This is what technology has gotten us to and this is what we’ve 

got to change. So thank you for sharing your story with us, Mr. 

France. 

Mr. FRANCE. You’re welcome. Thank you for having me. 

Senator NELSON. We’re going to try to do something about it, and 

thanks to you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Nelson, very much. 

I would point out again that this is not just a few people we’re 

talking about. At any given point, I think the fact is that there are 

about 4 million people who are being scammed. And over—we have 

comments here from people in 2003, 2002. Over the years, we’re 

talking about tens and tens of millions of people. So the amount 

may be small, but the amount is not small to those who are struggling to get by. You made, Ms. Lindquist, that point very, very 

well, as did you, Mr. France. Ten dollars, $19.95, can put you in 

bankruptcy, can have people all over you, can add to whatever 

other traumas are already taking place in your life. 

A question for our experts. There are thousands and thousands 

of businesses out there on the Internet trying to sell us their goods 

and services. They have to convince us that their product is good 

if they want us to purchase from them and stay with them and to 

be seen, from our point of view, as a trustworthy company. 

Then only after they’ve convinced us that their product is trustworthy, they are trustworthy, and their product is worth it, do we 

then pull out our credit cards and enter the 16 digits to complete 

the purchase. In fact, according to Visa’s, new to me, rules for merchants, to complete a valid online purchase customers must type in 

their billing information, their 16-digit full credit card number, and 

their digit security code, called CVV–2. 

So here’s my question to any of the three of you. If anybody else 

can charge credit cards only after consumers have entered their 

full credit card information, how is it possible that those companies—Affinion, Vertrue, Webloyalty, et cetera—can charge millions 

of shoppers who have never given them their credit card numbers? 

Ms. MAROTTA-WURGLER. They can’t and they shouldn’t. Their argument is that the selected vendors disclose or demand authorization of this by the consumers by seeking authorization of automatic 

transfers of payment information in their privacy policies. If you go 

to the privacy policy—which nobody reads, by the way—of Fandango or other businesses, they actually say we’re protecting all 

sorts of information, but you’re also authorizing us to transfer your 

58 

payment or personally identifiable information to some selected 

partners. 

So the authorization stems from this type of contract, which is, 

I should mention, unenforceable because the assent is not unambiguous enough. It would thus seem to me that there is no reasonable way in which this would be an enforceable—I’m sorry—a legal 

way of transferring payment information, without the consumer 

ever entering the numbers his or herself. Of course, it has been, 

but theoretically I don’t think it should be. 

Mr. MEYER. I think the other related part of that is the question 

of how consumers suddenly find themselves having agreed to the 

transfer of this information. I think the answer is that in many circumstances consumers are making these decisions very quickly 

using automated processes that they’re not really aware of, such 

that in many cases they think they’re still in the original site. They 

think in many cases what they’re being part of is the original purchase process of the original site. 

I should say that, for Mr. France, I actually was taken in by the 

Intelius site as well. What happened there was is you go to the site 

and you think you’re getting some information and there’s a little 

part where you have to pay a dollar on a credit card—to get the 

information. You then click a red button that says ‘‘Give me my information’’ and when you click it, you are not given the information, but suddenly you’re at a new page, and you’re wondering, 

‘‘where’s my information’’? Then you’re looking around for a button 

to click to get the information and there’s a red button at the bottom that says ‘‘Show my report.’’ And you click on the report, and 

as soon as you’ve done that, you’ve become a member of this program. 

You would have no awareness whatsoever as to what you had 

agreed to do. 

The CHAIRMAN. You said, Professor Cox, in your testimony that 

this membership club industry, quote, ‘‘would cease to exist almost 

overnight’’ if it had to sell its products like every other retailer. 

Can you explain that? 

Mr. COX. Thank you, Mr. Chairman. If nobody is aware that 

they’re actually, quote, ‘‘buying’’ their product, that rather suggests 

that you’re going to have a problem actually selling your product, 

if you have to convince people to pay you the money that you’re demanding for the service. 

After 10 years of observing this, I have no question that if they 

had to sell this in a legitimate way that these companies would not 

exist. 

The CHAIRMAN. My time is out. Before I go to Senator LeMieux, 

one of the things I regret about this hearing actually is the lack 

of focus on the evilness and lethality of fine print, of small print; 

that if you can put something in in small print and you know—I 

mean, it’s like you take a prescription out of a brown paper bag 

and you take the little bottle out and then there’s this paper which 

you immediately throw in because you can’t read it, or you would 

have to set aside an evening to read it. I mean, it’s so phoney, and 

yet it’s a flat-out practice that we allow to continue. 

Senator LeMieux. 

59 

Senator LEMIEUX. Again, Mr. Chairman, thank you for holding 

this hearing. 

I just have one final question for our experts. That is, is there 

anything that we did not talk about today that you would offer as 

suggestions to how to best combat this fraud? We can start with 

Professor Meyer and go down, and then maybe we’ll finish up with 

our citizen consumers and see if there’s anything else they think 

of which would be a good way to prevent this fraud from happening 

to other unsuspecting Americans. 

Mr. MEYER. Sure. Well, some of this had been mentioned before, 

but one that, I think, is really important is that if you have a handoff from one site to the next, the consumer really needs to know 

that they are no longer dealing with the original merchant that 

they have. As an example, I have this figure over here on the right. 

This was a case where a customer was at a Vista Print site buying 

online labels, and this is sort of the site they’re immediately taken 

to, and throughout the site there is all these references to the fact 

that it’s Vista Print and it’s Vista Print thanking you and Vista 

Print everywhere. 

And only if you look at the tiny fine print at the very bottom, 

do you find out that this is actually a site maintained by a firm 

that has nothing to do with Vista Print, and that they have no connection with any other merchants that are named on the site. 

One of the reasons why this happens is that customers are lured 

into not thinking very carefully and making decisions very quickly. 

Whatever could be done to sharpen customers’ antennas to alert 

them that they are no longer in a safe zone—that they are at a new 

site where they have to be wary and attend to the fine print, then 

that would be one small step. 

Senator LEMIEUX. They’re trading off the credible brand. 

Mr. MEYER. Yes, absolutely. And there’s no reason when you look 

at this to think that there’d be any reason for—that you couldn’t 

totally trust whatever offers they’re providing. 

Ms. MAROTTA-WURGLER. I guess what I’d like to highlight is the 

importance of preserving online norms. The reason why people 

don’t have to delve into the fine print is because they know that 

with certain steps there are expected consequences, particularly for 

financial liability. If you enter your credit card information, you expect to be liable for something. If you enter e-mail information, you 

expect to get an e-mail. So that’s extremely important. Otherwise, 

these trusted online markets will be seriously damaged and people 

might be reluctant to enter online transactions. 

The second point I’d like to make is that disclosures in the form 

of fine print are terribly ineffective at alerting consumers. Much of 

our current law focuses on the idea of disclosure, that as long as 

you disclose things in fine print, it’s fine because consumers know 

what they’re getting into and so they’re actually assenting to the 

transaction that’s being described in the fine print. 

Research after research, studies after studies, have shown that 

this is not the case. This is not the way consumers behave. So, I’d 

like to highlight the importance that disclosure is really not that 

effective into duping consumers into these types of transactions. 

60 

Mr. COX. Senator LeMieux, I’d just like to thank you because I 

always try to teach my students the value of the ‘‘Anything else’’ 

question. But I think I’ve been heard today. 

Senator LEMIEUX. Mr. France, anything else that you think that 

we need to be aware of that might be helpful in preventing this 

fraud from happening in the future? 

Mr. FRANCE. I think one of the biggest steps that could be done 

is, like had been mentioned earlier, is to actually hold these reputable, or at one time reputable, companies responsible for allowing 

these other sites to come in and do that. Essentially, they’re one 

and the same. They may not be taking as much money, but by allowing these other companies to come in they’re just as guilty. If 

we can discourage them from allowing these companies in, then I 

think that we’ll see a lot less of this problem in the future. 

Senator LEMIEUX. Thank you. 

Ms. Lindquist? 

Ms. LINDQUIST. I agree with Mr. France that the companies, the 

reputable websites, they need to be held more responsible for who 

they’re affiliated with. 

Senator LEMIEUX. Thank you again, Mr. Chairman. I think 

we’ve gotten some good direction from our witnesses today. Thank 

you again for holding this hearing. 

The CHAIRMAN. I agree with you, Senator LeMieux, and thank 

you. 

Before—we’re going to have a vote on a very good judge who 

turned out to be controversial, but isn’t, in about 10 minutes, so we 

need to close. I wanted to ask one question and put something in 

the record. I ask and give unanimous consent to place several items 

in the record of today’s hearing. One is a copy of the Commerce 

Committee staff report called ‘‘Aggressive Sales Tactics on the 

Internet,’’ which was circulated to members yesterday afternoon. 

The prepared statement of Robert McKenna, the Attorney General of Washington. 

The prepared statement of Professor Benjamin Edelman of the 

Harvard Business School. 

A letter and other material sent to the Committee by Richard 

Fernandes, the CEO of Webloyalty. 

[The information referred to follows:] 

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION—OFFICE OF OVERSIGHT

AND INVESTIGATIONS—MAJORITY STAFF

Staff Report for Chairman Rockefeller—November 16, 2009 

Aggressive Sales Tactics on the Internet and Their Impact on American 

Consumers 

Executive Summary 

In May 2009, Chairman Rockefeller launched an investigation into a set of controversial e-commerce business practices that have generated high volumes of consumer complaints. Since that time, Commerce Committee staff has been investigating three Connecticut-based direct marketing companies—Affinion, Vertrue, 

and Webloyalty—as well as the hundreds of online websites and retailers that partner with these three companies to sell club memberships to online shoppers. Although this investigation is not yet complete, it is clear at this point that these 

three companies use highly aggressive sales tactics to charge millions of American 

consumers for services the consumers do not want and do not understand they have 

purchased. 

61 

Controversial Sales Practices Migrate to the Internet 

Over the past fifteen years, the Internet has grown into an important commercial 

channel for American consumers and businesses. More than half of all American 

adults have either made an online purchase or an online travel reservation, and in 

the first half of 2009, e-commerce revenue accounted for more than $60 billion of 

U.S. retail sales. 

The rapid growth of e-commerce has promoted business innovation, but it has also 

attracted direct marketing businesses that use aggressive sales tactics against online shoppers. These tactics involve selling unfamiliar membership programs to consumers who are in the process of purchasing familiar products offered by trusted 

websites. Many of these controversial practices are new to e-commerce, but are wellknown in other commercial channels, especially in direct mail and telemarketing, 

and have been the subject of numerous legal actions. The three direct marketing 

companies that are the subject of this investigation—Affinion, Vertrue, and 

Webloyalty—are all operated by management teams that have years of experience 

in employing these aggressive sales tactics against consumers. 

The three companies gain access to online consumers by entering into financial 

agreements with reputable online websites and retailers. In exchange for ‘‘bounties’’ 

and other payments, reputable on-line retailers agree to let Affinion, Vertrue, and 

Webloyalty sell club memberships to consumers as they are in the process of buying 

movie tickets, plane tickets, or other online goods and services. The sales tactics 

used by these three companies exploit consumers’ expectations about the online 

‘‘checkout’’ process. 

With the cooperation of their online ‘‘partners,’’ the three companies insert their 

sales offers into the ‘‘post-transaction’’ phase of an online purchase, after consumers 

have made a purchase but before they have completed the sale confirmation process. 

These offers generally promise cash back rewards and appear to be related to the 

transaction the consumer is in the process of completing. Misleading ‘‘Yes’’ and 

‘‘Continue’’ buttons cause consumers to reasonably think they are completing the 

original transaction, rather than entering into a new, ongoing financial relationship 

with a membership club operated by Affinion, Vertrue, or Webloyalty. 

Even more misleading and confusing is the ‘‘data pass’’ process Affinion, Vertrue, 

Webloyalty, and their partners use to automatically transfer consumers’ credit or 

debit card information from the familiar web seller to the third-party membership 

club. Passing consumers’ billing information directly to Affinion, Vertrue, or 

Webloyalty, without requiring consumers to re-enter it, deprives consumers of notice 

that they are entering a new, ongoing financial relationship with an unfamiliar company. After a 30-day ‘‘free trial’’ period, Affinion, Vertrue, or Webloyalty begin 

charging the consumer a monthly fee of $10–$20 until the consumer cancels the 

membership. 

The Senate Commerce Committee Investigation 

The Committee opened this investigation because thousands of online consumers 

have complained to state attorneys general, the Better Business Bureau, and other 

consumer advocates that the enrollment process described above is misleading and 

deceptive. These consumers complain that they did not consent to sharing their billing information with a third party membership club. They also say they only 

learned they had been enrolled in one of these membership clubs after seeing a 

‘‘mystery charge’’ on their monthly credit card or checking account statement 

months after the purchase. 

These complaints suggest that the aggressive sales tactics of Affinion, Vertrue, 

Webloyalty, and their partners are harming large numbers of American consumers. 

They also suggest that these companies’ tactics may be negatively affecting consumers’ overall attitude toward online commerce. 

Since opening this investigation, Committee staff has collected and reviewed thousands of pages of documents produced by Affinion, Vertrue, and Webloyalty; interviewed dozens of Internet consumers who have complained about unknowingly and 

inadvertently enrolling in the programs offered by the three companies; interviewed 

employees of e-retailers currently and formerly in partnerships with the three companies; and met with numerous e-commerce experts. 

Although it is not yet complete, the key findings of the Committee staff’s investigation thus far are the following: 

• Using aggressive sales tactics to enroll consumers in unwanted membership 

clubs is a billion-dollar business. Affinion, Vertrue, Webloyalty and their e-commerce partners have earned over $1.4 billion in revenue by using aggressive 

tactics to charge Internet shoppers for club membership programs. Since 1999, 

Internet consumers have been enrolled more than 35 million times in Affinion, 

62 

1Pew Internet & American Life Project, Online Shopping: Internet Users Like the Convenience 

but Worry about the Security of Their Financial Information (Feb. 2008). In a 2009 survey, 59 

percent of adult Americans said they had purchased products online and 52 percent had used 

the Internet to book travel reservations. Pew Internet & American Life Project, The Internet and 

the Recession (July 2009). 2 U.S. Census Bureau, Estimated Quarterly U.S. Retail Sales (Adjusted): Total and E-Commerce (Aug. 17, 2009) (available at http://www.census.gov/retail/mrts/www/data/pdf/ 

09Q2.pdf). 

Vertrue, and Webloyalty’s membership clubs. In June 2009, there were 4 million Internet consumers currently enrolled in these three companies’ membership programs. 

• Hundreds of well-known websites and online retailers have earned hundreds of 

millions of dollars employing aggressive online sales tactics. More than 450 ecommerce websites and retailers have partnered with Affinion, Vertrue, and 

Webloyalty to employ aggressive sales tactics against their online customers. Of 

the $1.4 billion in total revenue earned through using these tactics, $792 million 

of this total was earned by Affinion, Vertrue, and Webloyalty’s e-commerce partners. Eighty-eight e-commerce companies have earned more than $1 million 

through using these tactics, including 19 that have made more than $10 million. 

Classmates.com has made more than $70 million using these controversial practices. 

• Affinion, Vertrue, and Webloyalty have knowingly charged millions of consumers 

for services the consumers do not use and are unaware they have purchased. Internal documents reviewed by Committee staff show that Affinion, Vertrue, and 

Webloyalty know that most of the ‘‘members’’ they acquire through their aggressive online sales tactics do not understand they have been enrolled in a program 

that charges their credit or debit card on a recurring basis. Most consumers enrolled in the clubs cancel their memberships when they discover the monthly 

charge and never receive any benefit from their club membership. One 

Webloyalty employee candidly commented in an e-mail that, ‘‘at least 90 percent 

of our members don’t know anything about the membership.’’ 

• Affinion, Vertrue, and Webloyalty’s customer service centers are almost entirely 

dedicated to handling the large volume of calls from angry and confused consumers requesting cancellations. Affinion, Vertrue, and Webloyalty receive millions of calls every year from angry, frustrated consumers canceling their membership or asking questions about the charge on their credit or debit card. One 

Webloyalty employee acknowledged in an e-mail that most of its calls were 

‘‘from members who are questioning charges or want to cancel their membership,’’ while a Vertrue employee had estimated that ‘‘cancellation calls represent 

approximately 98 percent of call volume.’’ The companies’ internal manuals 

train their call center representatives to answer questions such as, ‘‘what is this 

charge?’’ or ‘‘who are you?’’ 

• E-Commerce companies know that their customers are being harmed by the aggressive sales tactics of Affinion, Vertrue, and Webloyalty. The e-commerce companies partnered with Affinion, Vertrue, and Webloyalty understand that more 

aggressive sales tactics lead to higher revenue. In the words of one company official, ‘‘to generate more revenue through Webloyalty, it seems we must be more 

aggressive (and deceptive) in our marketing techniques.’’ Thousands of customers have contacted the companies using words like ‘‘fraud,’’ ‘‘tricked,’’ ‘‘deceptive,’’ ‘‘misleading,’’ ‘‘scam,’’‘‘deceitful,’’ ‘‘dishonest,’’ ‘‘betrayed,’’ and ‘‘robbed’’ 

to describe their experiences. This ‘‘customer noise’’ has led a number of e-commerce partners to request a more ‘‘conservative’’ approach or to end their relationships with Affinion, Vertrue, or Webloyalty. 

I. Background on Aggressive Online Sales Tactics 

In the past fifteen years, the Internet has rapidly grown from an entertaining diversion to an integral part of the daily life of hundreds of millions of Americans. 

By 2008, more than seventy percent of Americans were using the Internet on a regular basis for a variety of purposes, including online banking and shopping, and 

over half of all American adults had either made an online purchase or an online 

travel reservation.1 For the first two quarters of 2009, e-commerce revenue accounted for more than $60 billion of U.S. retail sales.2

While these figures show that American consumers are increasingly taking advantage of the convenience and efficiency of Internet shopping, they continue to express 

concerns about the security of their personal information when they are shopping 

63 

3Pew Internet & American Life Project, Online Shopping: Internet Users Like the Convenience 

but Worry about the Security of Their Financial Information (Feb. 2008). 4David Pogue and J.D. Biersdorfer, The Internet: The Missing Manual (2006). 5 Id. 

online. Large percentages of online consumers also report that they sometimes feel 

frustrated, overwhelmed, or confused by online shopping.3

One of the factors contributing to consumers’ lingering unease about online shopping is the aggressive sales tactics that many companies are using against their customers. The tactics the Committee has focused on involve offering consumers unfamiliar services from unfamiliar third party companies as consumers are in the process of purchasing familiar products offered by trusted websites. The unfamiliar services offered are typically discount club memberships which charge a monthly fee between $9 and $20. A prominent feature of the post-transaction offers is up-front 

gifts, such as ‘‘$10 Cash Back on Your Next Purchase!’’ which is presented to consumers as if it is related to the websites where they have just made purchases. 

While these club membership offers are presented to online consumers in different 

ways, they all share the following elements: 

Post-Transaction Marketing: The third party offer comes as online consumers are 

completing their purchases on familiar retailers’ websites. After consumers have 

completed inputting their billing information into a ‘‘check out’’ purchase page 

on familiar e-retailers’ sites, but before they have completed confirmation of the 

transaction, unfamiliar third party companies will attempt to enroll consumers 

in membership clubs offering discounts or other services. Due to the positioning 

of these offers in the purchase process, they are commonly referred to as ‘‘posttransaction’’ offers. 

Data Pass: Consumers do not have to enter their billing information again to 

be enrolled in the clubs offered by the third party. Internet consumers can usually accept the third party post-transaction membership club offer without having to type in their credit or debit card numbers again. As a result of so-called 

‘‘data pass’’ or ‘‘card-on-file’’ arrangements between retailers and the third party 

companies, online consumers’ credit card or debit card account numbers can be 

automatically transferred from the websites where the consumers are shopping 

to the third party companies. 

Free-to-Pay Conversions: Consumers enrolled in the clubs are automatically 

charged a monthly fee after a free trial period. The membership programs offered by the third parties are generally free for the first 30 days. This practice 

is also known as ‘‘free-to-pay conversion.’’ Online consumers will be charged on 

a monthly basis after the 30-day period unless they actively opt out of the program, commonly referred to as a ‘‘negative option.’’ 

The combination of these aggressive online sales practices has caused thousands 

of consumers to complain to state attorneys general, the Better Business Bureau, 

and other consumer advocates that unfamiliar companies have charged them 

monthly fees for services they did not want and were unaware they had purchased. 

A. Post-Transaction Marketing 

Online consumers shopping at websites that do not use the controversial tactics 

described above typically progress through several standard pages as they make a 

purchase. Once consumers select their merchandise and click the ‘‘Buy’’ or ‘‘Add to 

Shopping Cart’’ button, they typically have four remaining steps: (1) proceeding to 

checkout by clicking another link usually labeled ‘‘Proceed to Checkout’’; (2) entering 

their shipping, billing, and credit card information in data fields on the checkout 

page; (3) clicking a button labeled, ‘‘Accept’’ or ‘‘Confirm’’ to finish the transaction; 

and (4) obtaining a receipt or order number confirming the purchase on the confirmation page.4

In a manual for Internet users, the confirmation process was summarized for novice users in the following manner: 

Once you submit your credit card billing and shipping information, the site 

processes the transaction just like the clerk at Macy’s who swipes your 

MasterCard at the register. In a few seconds, you should see a receipt, complete 

with order number and purchase summary. You can print this out for your 

records.5

E-commerce companies engaged in aggressive third party post-transaction marketing add additional steps to this process, making it much less like ‘‘the clerk at 

Macy’s’’ referenced in the manual. They make it less akin to a ‘‘brick and mortar’’ 

purchase by using: ‘‘interstitial’’ sales offer pages, which appear between the checkVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00067 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
64 

out page and the confirmation page; ‘‘pop up’’ windows which appear on top of the 

confirmation page; and hyperlinks or ‘‘banners’’ that are included directly on the 

confirmation page itself. 

On the ‘‘interstitial’’ page, third party e-commerce companies offer ‘‘$10 Cash 

Back on This Purchase’’ or ‘‘$10 Cash Back on Your Next Purchase’’ combined with 

an offer to purchase a club membership. The offer to purchase a discount club membership is secondary in placement to the ‘‘$10 Cash Back on this Purchase’’ and is 

typically located in the page’s fine print. This ‘‘interstitial’’ page presents consumers 

with an offer they must accept or reject before they can reach the page that provides 

confirmation and the order number for the original purchase. (See Exhibits 1 and 

2). 


1117REP1.eps
65 

For customers to reach the confirmation page, they must either accept the offer 

to join a membership club offered by the third party sellers (by clicking a large, 

colorful ‘‘Yes’’ button) or click a much less conspicuous ‘‘No Thank You’’ hyperlink. 

In general, the name of the familiar website with which the consumer has just completed a transaction is displayed on this page, making it more difficult for the consumer to discern that this ‘‘interstitial’’ page is actually owned and operated by the 

third party company, not the website on which the consumer has been shopping. 

E-commerce companies also use ‘‘pop up’’ windows that appear on top of, but do 

not totally conceal, the consumer’s confirmation page. These pages look very similar 

to the enrollment offers presented via ‘‘interstitial’’ pages, but they do not require 

the customer to accept or reject the offer in order to proceed to the confirmation 

page. 

A less intrusive post-transaction marketing technique also used by e-commerce 

companies is placing a hyperlink to an enrollment offer (‘‘banner’’) on the confirmation page, which can be accessed via clicking a button labeled, ‘‘Continue.’’ A ‘‘Continue’’ button is used despite the fact that the customer has completed the transaction at this point. An example of a ‘‘Continue’’ button displayed on a confirmation 

page is provided here. 


1117REP2.eps
66 

6 In August 2009, Webloyalty’s attorney informed the Committee that ‘‘in response to its own 

analysis and testing over time, as well as in connection with resolution of class action litigation 

and concerns raised by the Committee’s inquiry and state regulators, [that] . . . as of August 

1, 2009 . . . current Webloyalty enrollment pages require that consumers re-enter the last four 

digits of their credit card or debit card before they are enrolled.’’ Letter from Jane Sherburne 

to Senator John D. Rockefeller IV (Aug. 31, 2009). On November 13, 2009, Affinion announced 

that, in ‘‘responding to concerns raised by the Senate Commerce Committee’’, it would now be 

‘‘[r]equring that the consumer gives—at a minimum—the last four digits of their account or 

credit card number for every online transaction involving pre-acquired account information and 

a free to pay conversion.’’ Affinion Group, Affinion Unveils Enhanced Online Marketing Standards (Nov. 13, 2009). On November 16, 2009, Vertrue also announced it ‘‘will obtain from the 

consumer the last four digits (at a minimum) of their payment account as further acknowledgement of the offer’’ to address ‘‘concerns specifically identified by the U.S. Senate Committee on 

Commerce, Science and Transportation with regard to certain post-transaction marketing practices on the Internet.’’ Adaptive Marketing LLC, Adaptive Marketing LLC Calls for IndustryWide Internet Marketing Standards (Nov. 16, 2009). 7Federal Trade Commission, Telemarketing Sales Rule, 68 Fed. Reg. 4580, 4595 (Jan. 29, 

2003) (final amended rule). 

B. Data Pass and ‘‘Preacquired Account’’ Marketing 

A central element of the aggressive online tactics the Committee staff has been 

investigating is that a consumer can be signed up for a third party membership program without entering his or her credit card information. Instead of requiring the 

consumer to enter this billing information a second time to confirm acceptance of 

the new offer, the retailer will pass the consumer’s credit card and billing information to the third party once the consumer has provided information the third party 

company regards as ‘‘proof of enrollment,’’ such as an e-mail address.6

This ‘‘data pass’’ or ‘‘card on file’’ process—where a third-party company obtains 

a consumer’s billing information not directly from the consumer, but from a website 

where the consumer has just made a purchase—is a well-known and controversial 

practice in the direct mail and telemarketing industries. In these retail channels, 

it is generally known as ‘‘preacquired account’’ marketing. 

In the telemarketing setting, ‘‘preacquired account information’’ has been defined 

by the Federal Trade Commission (FTC) as ‘‘any information that enables a seller 

or telemarketer to cause a charge to be placed against a customer’s or donor’s account without obtaining the account number directly from the customer or donor 

during the telemarketing transaction pursuant to which the account will be 

charged.’’ 7

Preacquired account marketing conducted over the telephone, like ‘‘data pass’’ on 

the Internet, has caused consumers to complain that they unknowingly and inadvertently enrolled in membership programs. Due to the problems inherent in 

preacquired account telemarketing, the FTC chose to regulate the practice in 2003 

after concluding that: 

The record makes clear, in fact, that it is the very act of pulling out a wallet 

and providing an account number that consumers generally equate with consenting to make a purchase, and that this is the most reliable means of ensuring that a consumer has indeed consented to a transaction . . . [T]he Commission still believes that whenever preacquired account information enables a seller or telemarketer to cause charges to be billed to a consumer’s account without 

the necessity of persuading the consumer to demonstrate his or her consent by 


1117REPT1.eps
67 

8 Id. at 4619. 9Letter and Comments from the National Associations of Attorney Generals (NAAG) to Donald Clark, Secretary Federal Trade Commission, FTC File No. P994414 (May 30, 2000). 10 Id. 11Prepared Statement of Professor Benjamin Edelman to the U.S. Senate Committee on Commerce, Science, and Transportation (Nov. 2009). 12Federal Trade Commission, Telemarketing Sales Rule, 67 Fed. Reg. 4494, 4501 (Jan. 30, 

2002) (proposed amended rule). 13 Id. 14Federal Trade Commission, Telemarketing Sales Rule, 68 Fed. Reg. 4580, 4621 (Jan. 29, 

2003) (final amended rule). 

divulging his or her account number, the customary dynamic of offer and acceptance is inverted.8

In recommending regulations for preacquired account telemarketing to the FTC 

in 2000, the National Association of Attorneys General told the FTC that the use 

of preacquired account information presents ‘‘inherent opportunities for abuse and 

deception.’’ 9 Requiring a consumer to re-enter his or her account information ‘‘is a 

readily recognizable means for a consumer to signal assent to a deal’’ and gives a 

consumer final control over purchase decisions. The Attorneys General noted: 

The telemarketer with a pre-acquired account turns this process on its head. 

The pre-acquired account telemarketer not only establishes the method by 

which the consumer will provide consent, but also decides whether the consumer actually consented.10

The online data pass process that is the subject of the Committee’s investigation 

presents exactly the same informational problems that concerned state and Federal 

officials examining the telemarketing industry. As Harvard Business School Professor Benjamin Edelman recently told the Committee: 

Consumers rely on the process of providing a credit card number as a barrier 

to unexpected charges. Users rightly expect that by clicking from site to site, 

button to button, they do not incur financial obligations. This expectation is 

part of what makes the web fun, flexible, and low-risk: Users believe they cannot incur financial obligations except by typing their credit card numbers, and 

users expect to be able to cancel an unwanted transaction if a site requests a 

credit card number that a user does not care to provide.11

C. ‘‘Free-to-Pay Conversions’’ 

The e-commerce marketing practices being examined by the Committee also employ a marketing technique known as ‘‘free-to-pay’’ conversion, which enrolls consumers in a membership program for free for a period of time (usually 30 days) before their credit card or checking account is charged. In the course of proposing 

amendments to the Telemarketing Sales Rule, the FTC explained that consumers 

are often ‘‘confused about their obligations when a product or services is offered to 

them for a trial period at no cost.’’ 12

Citing testimony submitted by state attorneys general, the FTC explained that 

free trial offers are presented to consumers as ‘‘low involvement marketing decisions.’’ Because consumers often do not understand that the marketers already have 

their billing information, consumers ‘‘mistakenly believe they must take some action 

before they will be charged.’’ At the end of the free trial period, the marketer starts 

billing the consumer, ‘‘even when consumers have taken no additional steps to assent to a purchase or authorize the charge, and have never provided any billing information themselves.’’ 13

Based upon this evidence, the FTC concluded that, ‘‘in any transaction involving 

both preacquired account information and a ‘‘free to pay conversion,’ the evidence 

of abuse is so clear and abundant that comprehensive requirements for obtaining 

express informed consent in such transactions are warranted.’’ 14

D. Consumers’ Experience of Aggressive Online Sales Tactics 

Over the past few months, Committee staff has reviewed thousands of complaints 

written by consumers who claim they were unknowingly enrolled in membership 

clubs while they were shopping online. Committee staff has spoken with many of 

these consumers about their experiences. These consumers regularly cite the placement of the third party offers, the data pass process, and delayed charges as the 

sources of their confusion and dissatisfaction. 

Committee staff believes that these consumer experiences are typical. Most consumers, even very web savvy consumers, do not clearly understand the third party 

companies’ membership club offers and do not understand that they can be enrolled 

68 

15Letter from Kari Glennon to Shopping Essentials (May 26, 2009) (Vertrue Doc. 18957). 16 Id. 17 E-mail from Chris Steffen to Movietickets.com employee (Apr. 11, 2007) (Webloyalty Doc. 

50825–26). 18 E-mail from Chris Steffen to Webloyalty employee (Apr. 12, 2007) (Webloyalty Doc. 50827). 19 E-mail from David Murray to 1–800-Flowers employee (Feb. 4, 2008) (Affinion Doc. AFSE– 

4–5078–79). 

without entering their credit card numbers. The cases discussed below provide several representative examples of how consumers experience this process. 

Kari Glennon—In May 2009, Kari Glennon, a resident of Bellingham, Washington, realized that she had been signed up for a membership club called ‘‘Shopping Essentials’’ while buying a gift certificate on the Restaurants.com website in 

October 2008. She wrote Vertrue, the operator of the ‘‘Shopping Essentials’’ club, to 

ask for a refund and to let them know that ‘‘I am being charged a monthly fee of 

$14.95 for a membership that I was unaware of.’’ In her letter, she describes how 

she called Vertrue and discovered she was a Shopping Essentials club member. 

When I called into your organization on 5/26/09 to inquire about the charges 

to my credit card, I spoke with Sherry . . . and her supervisor Jamie . . . I 

was told by Jamie during my conversation that there was a banner on that site 

and that if I clicked it and entered my e-mail address, I was automatically a 

member. Becoming an on-line member to an organization seems obvious when 

entering an e-mail address, but paying for it is another matter. I did not give 

my credit information for the purpose of signing up for a membership. I gave 

my credit card information to Restaurants.com for a purchase of a gift certificate 

only. If my credit card information was used for more than that purpose, it was 

done so without my knowledge or authorization.15

Ms. Glennon concluded her letter with the following comment: 

As someone who has been in the professional marketing field for over 16 years, 

I find it unfortunate that situations like this still arise. Whenever you have a 

product to market, intangible or otherwise, it should be made clear to the consumer what the process is and what they are purchasing. Anything else creates 

confusion and situations like the one I am writing in about.16

Chris Steffen—In April 2007, a frustrated consumer from Los Angeles, California, 

named Chris Steffen wrote the following complaint to Movietickets.com. 

I’m not sure how or when this happened and I’m sure part of it is oversight 

or my own fault. But somehow through the purchasing of movie tickets through 

your site I was signed up for Reservation Rewards and charged 10 dollars a 

month membership for multiple months. This means that when I ordered tickets through your service, the cost to me was not only the price of the tickets, 

but the inadvertent cost of being enrolled in a service plan I was not aware of.17

Mr. Steffen also wrote a complaint to Webloyalty, the operator of the Reservation 

Rewards club. Addressing his complaint to ‘‘Joni,’’ the Webloyalty representative he 

had communicated with, Mr. Steffen expressed his frustration. 

Imagine yourself, Joni, getting on a computer to book movie tickets for the next 

big show and you’re in a hurry because you and your friends decided to go at 

the last minute. You want to make sure you order your seats in time so you 

can go have dinner before the show. Then, at first glance you get what looks 

like a coupon for 10 bucks off your next purchase of tickets. You don’t read the 

fine print because you’re in a hurry and next thing you know you’re signed up 

for some worthless service.18

David Murray—In February 2008, a Massachusetts hospital executive named 

David Murray realized he had been enrolled in Affinion’s ‘‘LiveWell’’ membership 

club while shopping at 1–800–Flowers.com several months earlier. Mr. Murray 

wrote an e-mail to 1–800–Flowers.com expressing his concerns about the LiveWell 

enrollment process and asking the company, ‘‘Do you really think what you did was 

morally right?’’ One of his criticisms focused on the confusion surrounding the origin 

of the discount offer. He wrote: 

The Order Confirmation states the following: ‘‘Your purchase is complete. Click 

here to claim $15.00 Cash Back on this purchase!’’ This is not true and is deceitful. You aren’t offering $15.00 back unless the client signs up to this company called ‘‘LiveWell.’’ And even then, you’re not offering it—LiveWell is. Who 

in the hell is LiveWell? It doesn’t say on the e-mail. So there is no $15.00 to 

be had from 1800Flowers at all.19

69 

20 Id. 21 Id. 

Mr. Murray also complained that the data pass process made it unclear that he 

was actually making a purchase. 

At no time, during this process, is there an opportunity to keep this from happening. There is no warning, no interim message telling me what I’m actually 

about to do. Had there been that opportunity, I readily concede that it was my 

fault for clicking. But there wasn’t that opportunity. As you can see, the consumer (in this case, me) is automatically enrolled and you have to call to cancel 

within a month of the ‘‘free membership’’ to keep from getting charged $11.99 

per month.20

Finally, Mr. Murray expressed his anger that 1–800–Flowers.com, a company with 

which his earlier experiences were ‘‘nothing but positive,’’ would allow him to be enrolled in the LiveWell club. 

What I feel terrible about is that your Customer Service is doing this to unsophisticated consumers who don’t know what steps they should take when a corporation does that to them, and how many people are signed up to this company 

and are going to get charged for something they didn’t want? Worse, is this 

really something 1800Flowers wanted to be associated with? It was just a mean 

thing to do to someone. I have an old saying. It may be legal, but is it moral? 

Well, I don’t think it’s legal. And I know it wasn’t moral. Don’t be immoral.21

II. Background on Affinion, Vertrue, and Webloyalty 

Affinion, Vertrue, and Webloyalty—the three leading companies engaged in the 

aggressive online sales tactics described above—are all located in or around Norwalk, Connecticut. All three companies are managed by executives who started their 

careers at CompU-Card (CUC), a Connecticut company that pioneered the marketing of discount membership clubs. 

All three companies have also been the targets of law enforcement investigations 

and private lawsuits stemming from their use of aggressive marketing practices. 

Affinion and Vertrue have used direct mail, telemarketing, and e-commerce channels, while Webloyalty has used only the e-commerce channel, to enroll members 

and charge their credit cards or checking accounts. Committee staff has compiled 

a list of nearly 100 different clubs and services these three companies sell or have 

sold to consumers (See Exhibit 3). 


1117REP3.eps
70 

22 Affinion Group, Inc., Form 10–K Annual Report for Period Ending Dec. 31, 2008 (Feb. 27, 

2009). 23 How Two Whistle-Blowers Sparked Fraud Probe That Crushed Cendant, Wall Street Journal (Aug. 13, 1998). 24Securities and Exchange Commission, Order Instituting Public Administrative Proceedings 

Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing 

a Cease-and-Desist Order, In the Matter of Cendant Corporation, Respondent (File No. 3–10225) 

(June 14, 2000). 25 U.S. Department of Justice, U.S. Attorney, District of New Jersey, Former Cendant Chairman Walter Forbes Sentenced to 151 Months in Federal Prison for Lead Role in Massive Accounting Fraud (Jan. 17, 2007). 26 Cendant Scions Navigate Credit Crunch, Wall Street Journal (Sept. 16, 2009). 27State of Florida, Office of the Attorney General, Attorney General Reaches Settlement Over 

Club Memberships (Mar. 18, 2005). 28State of California, Department of Justice, Office of the Attorney General, Attorney General 

Lockyer Files Consumer Lawsuit Against Chase, Trilegiant in Membership Club Scheme (July 

12, 2005). 29State of California, Department of Justice, Office of the Attorney General, Attorney General Lockyer Announces $14.5 Million, Multi-State Settlement with Chase Bank and Trilegiant to Resolve Allegations of Deceptive Practices Related to Membership Plans (Dec. 11, 2006). The other 

states involved in this settlement were: Alaska, Connecticut, Illinois, Iowa, Maine, Michigan, 

Missouri, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Vermont, and 

Washington. 30Order of Final Approval and Judgment, (Jul. 18, 2008), Pederson v. Trilegiant, IL 3rd Jud. 

Circuit Ct. (No. 01–L–1126). For further information on these cases, see the information collected on www.Trisettlement.com. 31Fertile Sales Turf: Fee-Based Card Services; MemberWorks’ Gary Johnson Counts the Ways 

He Can Sell to Cardholders, The American Banker (Apr. 10, 1997). 

A. Affinion/Trilegiant/Cendant/CUC 

Affinion is a successor corporation to CUC which was started in 1973 and sold 

memberships to various auto, dining, shopping and travel discount clubs. In 1997, 

CUC merged with HFS Incorporated and the new company rebranded itself as 

Cendant.22

Shortly after the merger, Cendant announced that CUC had falsely inflated the 

number of club memberships it had sold, thereby overstating its 1995–97 earnings 

by at least half-a-billion dollars.23 A later investigation by the Securities and Exchange Commission determined that CUC had been filing false financial statements 

since 1985, and that the company’s misstatement of its income ‘‘was of historic proportions.’’ 24 CUC’s founder and former chief executive, Walter A. Forbes, was criminally prosecuted and sentenced to more than 12 years in Federal prison. CUC’s 

former Vice Chairman, E. Kirk Shelton, was also prosecuted and sentenced to 10 

years in Federal prison. Both CUC executives were ordered to pay $3.2 billion in 

restitution.25

In 2001, Cendant rebranded its membership club unit as ‘‘Trilegiant’’ and, in 

2005, sold it to Apollo Management, a New York-based private-equity group, which 

in turn renamed the company Affinion.26 Trilegiant/Affinion has been the subject of 

numerous law enforcement actions and private lawsuits in connection with its aggressive marketing practices. 

On March 18, 2005, for example, Florida Attorney General Charlie Crist announced that his office had reached a settlement with Trilegiant under which 

Trilegiant ‘‘agreed to provide compensation to consumers wronged by the company’s 

tactics in marketing various club memberships.’’ Trilegiant also agreed to pay the 

State of Florida an additional $400,000.27

A few months later, California Attorney General Bill Lockyer filed suit against 

Trilegiant and Chase Bank charging that the companies ‘‘mislead consumers into 

becoming members of various membership programs without the consumers’ knowledge or consent.’’ 28 According to the Attorney General, Trilegiant and Chase sent 

‘‘reward’’ checks to consumers and did not adequately disclose that if consumers 

cashed the checks the defendants would automatically and repeatedly charge the 

consumers’ bank accounts. In December 2006, California and 15 other state attorneys general reached a $14.5 million settlement with the two companies.29

In July 2008, Trilegiant settled a number of class action lawsuits. The suits alleged that Trilegiant enrolled consumers in membership clubs through deceptive or 

unfair means. Trilegiant agreed to pay up to $25 million in refunds to settle the 

lawsuits.30

B. MemberWorks/Vertrue/Adaptive Marketing 

In 1989, Gary Johnson, a former CUC vice president, founded Cardmember Publishing Company. In 1996, the company’s shares began to be publicly traded under 

the name MemberWorks.31 In 2004, MemberWorks changed its name to Vertrue. 

71 

32 Vertrue, Inc., Vertrue Inc. Announces Agreement to Be Acquired by an Investor Group In- cluding Management for $48.50 Per Share or Approximately $800 Million (Mar. 22, 2007) (available at http://investors.vertrue.com/phoenix.zhtml?c=60678&p=irol-newsArticle&ID=976542& 

highlight). 33Second Amended Complaint, (Apr. 17, 2000), Hatch v. MemberWorks, Inc., Minn. Dist. Ct. 

4th Jud. District (No. MC99–010056). 34 New York State Attorney General, National Telemarketing Firm to Reform Practices. Bank 

Privacy Investigations Result in Settlement on Unauthorized Credit Card Charges (Sept. 18, 

2000). 35 Id. 36State of California, Department of Justice, Office of the Attorney General, Attorney General, 

District Attorneys Settle Consumer Protection Complaint Against MemberWorks, Sears Over Discount Club Memberships (Apr. 27, 2001). 37State of Florida, Office of the Attorney General, Attorney General Announces Settlement 

with MemberWorks, (Jun. 29, 2004). 38State of Iowa, Depart of Justice, Office of the Attorney General, Miller Sues MemberWorks, 

Inc., (May 15, 2006). 

Three years later, in 2007, Vertrue was de-listed and sold for approximately $800 

million to a group of private equity investors led by One Equity Partners, the private equity arm of J.P. Morgan.32 Vertrue currently markets club memberships 

under the auspices of its subsidiary Adaptive Marketing, LLC. 

The Attorneys General of Minnesota, New York, California, and Iowa have all 

sued MemberWorks/Vertrue alleging that it engaged in deceptive practices in connection with the aggressive sale of membership programs. In 1999, the Attorney 

General of Minnesota, Mike Hatch, filed suit against MemberWorks alleging that 

the company used deceptive and misleading practices to sell club memberships to 

Minnesota consumers.33 MemberWorks paid $75,000 to settle the Minnesota action 

and agreed to make a number of changes to its business practices. 

In 2000, New York Attorney General Eliot Spitzer announced a settlement with 

MemberWorks as part of a ‘‘continuing investigation of banks and credit card 

issuers that violated their cardholders’ privacy rights by selling their personal account information to telemarketers in return for a substantial commission.’’ 34 According to the Attorney General: 

MemberWorks made wide use of negative option plans with its ‘‘risk free’’ 30- 

day free trial membership offer. Although these plans offer consumers a free period in which to consider the advantages of the service, many who accepted the 

initial free trial did not understand that MemberWorks had access to their credit card numbers and would charge them if they failed to cancel during the trial 

period.35

In order to settle the matter, MemberWorks agreed to, among other stipulations, 

tape every consumer’s consent to ensure it was knowingly given. MemberWorks also 

paid $75,000 to cover the cost of the investigation. 

In 2001, MemberWorks and Sears, Roebuck and Co. agreed to pay $2 million to 

settle charges made by California Attorney General Bill Lockyer that the companies 

misled and confused consumers about their membership programs. The suit alleged 

that ‘‘consumers were not informed that defendants had the ability to charge their 

credit cards without the consumers providing their credit card numbers or ever signing anything.’’ 36

In 2004, MemberWorks paid $950,000 to settle a complaint brought by Florida Attorney General Charlie Crist, alleging that the company had placed unwanted 

charges on Floridians’ credit cards. According to the Attorney General: 

The company typically marketed its products in conjunction with infomercial 

products, and consumers calling to order products were told they would receive 

a MemberWorks membership as a bonus for their purchase. The bonus actually 

resulted in a credit card charge for MemberWorks’ membership programs if the 

consumer did not actively seek to cancel the purchase.37

Most recently, in 2006, Iowa Attorney General Tom Miller sued MemberWorks/ 

Vertrue and explained that: 

The suit concerns a marketing scheme in which consumers’ credit cards and 

bank accounts are charged for memberships in so-called discount buying programs—even though many consumers don’t know they are members, are not 

aware that they are being charged yearly or monthly membership fees, and 

make no use whatsoever of the so-called membership benefits.38

The Iowa Attorney General took the case against MemberWorks/Vertrue to trial 

earlier this month, and an opinion is likely early next year. 

72 

39 In re VistaPrint Corp. Marketing and Sales Practices Litigation, No. 4:08–md–1994 (S.D. 

Tex.) (Aug. 31, 2009). 40 eLOT Appoints New Board Member, Business Wire (Mar. 7, 2000). 41 Never Heard of Reservation Rewards? Check Your Credit Card, Wallet Pop Blog (Mar. 31, 

2009) (available at http://www.walletpop.com/blog/2009/03/31/never-heard-of-reservation-rewards-check-yourcredit-card/). 42 Class Action Complaint, (Sept. 11, 2006), Kuefler v. Webloyalty.com (D. Mass.) (No. 06–cv– 

11620–JLT) (later consolidated with four similar cased by the Judicial Panel on Multidistrict 

Litigation and restyled In re: Webloyalty.com, Inc. Marketing and Sales Practices Litigation, 

MDL 07–01820). 43 Id. 44Letter from Sen. John D. Rockefeller IV to Mr. Gary A. Johnson (May 27, 2009); Letter from 

Sen. John D. Rockefeller IV to Mr. Richard J. Fernandes (May 27, 2009). 45Letter from Sen. John D. Rockefeller IV to Mr. Nathaniel Lipman (July 10, 2009). 46Letter from Sen. John D. Rockefeller IV to Mr. Gary A. Johnson (July 28, 2009). 47Senate Committee on Commerce, Science, and Transportation, Chairman Rockefeller Requests Information from Web Retailers in ‘‘Mystery Charges’’ Investigation (Nov. 6, 2009). 

Not every case against Vertrue has resulted in a negative outcome for Vertrue. 

Vertrue and its subsidiary Adaptive Marketing recently won a motion to dismiss a 

lawsuit alleging that Vertrue and the e-retailer V istaPrint deceived consumers into 

joining a rewards programs by offering them cash back if they completed an online 

survey. The Federal judge dismissed the case, finding that the defendants’ web 

pages were not deceptive. The plaintiffs have appealed this decision to the 5th Circuit Court of Appeals.39

C. Webloyalty 

Webloyalty was founded in 1999 by another CUC/Cendant veteran, Richard 

Fernandes. According to press reports, Mr. Fernandes ran CUC’s Auto Service division and then its Interactive Services division, ‘‘where he launched many of the 

Company’s major Internet programs.’’ 40 Webloyalty is owned by the Greenwich, 

Connecticut private-equity group, General Atlantic, LLC. 

Although Committee staff is unaware of any formal law enforcement actions 

against Webloyalty, according to media reports, Webloyalty is currently under investigation by Connecticut Attorney General Richard Blumenthal because of the high 

number of consumer complaints about the company.41

Earlier this year, Webloyalty agreed to settle a class action lawsuit, in which the 

plaintiffs alleged that they had been harmed by Webloyalty’s ‘‘Coupon Click Fraud’’ 

scheme. According to the lawsuit: 

The scheme involved fraudulent and deceptive sale of its ‘‘Reservation Rewards’ 

discount products to unwitting consumers who make legitimate online purchases from various web retailers, including Fandango, and the unauthorized 

transfer of private credit and debit card account information by the web retailer 

to Webloyalty.42

In order to settle the case, Webloyalty agreed to make a number of changes to its online offers and disclosures, and it also agreed to pay out up to $10 million to 

consumers who had inadvertently signed up for Webloyalty’s membership clubs.43

III. The Committee’s Investigation 

In May 2009, the Committee opened an investigation into the use of aggressive 

sales tactics on the Internet. On May 27, 2009, Chairman Rockefeller sent letters 

to Webloyalty, Inc., and Vertrue, Inc., requesting information and documents related 

to their online business practices.44 On July 10, 2009, Chairman Rockefeller expanded the investigation by sending a similar information request letter to Affinion 

Group, Inc.45 On July 28, 2009, Chairman Rockefeller issued a subpoena to Vertrue 

to obtain documents responsive to the May 27, 2009, requests, which were being 

withheld by the company.46 Affinion and Webloyalty have voluntarily cooperated 

with the Committee’s requests. 

On November 6, 2009, Chairman Rockefeller sent requests for information to sixteen companies that are partnered with Affinion, Vertrue, or Webloyalty and have 

apparently engaged in the controversial online sales practices with the companies. 

The letters were sent to: 1–800–Flowers.com, Inc.; AirTran Holdings, Inc.; Classmates.com, Inc.; Continental Airlines, Inc.; FTD, Inc.; Fandango, Inc.; Hotwi re, Inc.; 

Intelius, Inc.; MovieTickets.com, Inc.; Orbitz Worldwide, Inc.; Pizza Hut, Inc.; 

Priceline.com, Inc.; Redcats USA, Inc.; Shutterfly, Inc.; U.S. Airways Group, Inc.; 

and VistaPrint USA, Inc.47

In the course of the investigation, the Committee has received over 300,000 pages 

of documents from the three companies: approximately 80,000 from Affinion, approximately 128,000 from Vertrue, and approximately 104,000 from Webloyalty. The 

73 

documents include over 100,000 pages of documents related to complaints from the 

companies’ former customers. The companies also produced screenshots of the enrollment offers used by the companies on the Internet, employee handbooks, contracts, correspondence between the companies and their partners, and internal emails and correspondence. 

Committee staff has interviewed dozens of former customers who have complained 

to Affinion, Vertrue, and Webloyalty about their business practices, executives for 

the e-commerce companies and e-retailers that have partnered with the three companies, and experts in e-commerce marketing. 

IV. Overview of the Online Post-Transaction Sales Industry 

Documents reviewed by Committee staff show that more than 450 e-commerce 

companies and e-retailers have entered into ‘‘partnership’’ agreements with Affinion, 

Vertrue, and Webloyalty over the past 10 years. Under the terms of these contracts, 

the ‘‘partners’’ allow the three companies to market membership programs to their 

customers, and Affinion, Vertrue, and Webloyalty agree to share a portion of their 

revenues with the partners. 

Financial information provided to the Committee by the companies shows that 

Affinion, Vertrue, and Webloyalty and their e-commerce partners have generated 

over $1.4 billion in revenue from Internet consumers who have been charged for 

membership programs. Of the $1.4 billion in total revenue, $792 million went to the 

e-commerce companies that partnered with Affinion, Vertrue, and Webloyalty. 

The websites and e-retailers that have partnered with Affinion, Vertrue, and 

Webloyalty include some of the most well-known and high-traffic e-commerce 

websites on the Internet. They include travel sites, airline sites, electronics sites, 

movie ticket sites, and the websites for popular ‘‘brick and mortar’’ companies. 

Eighty-eight e-retailers have made more than $1 million through partnering with 

Affinion, Vertrue, and Webloyalty and, of the 88, 19 companies have made more 

than $10 million (See Exhibit 4). Classmates.com, which has been partnered with 

each company at different times and has earned more than any other partner, generated approximately $70 million in revenue. 

Since 1999, Internet consumers have been enrolled more than 35 million times 

in Affinion, Vertrue, and Webloyalty’s membership clubs. In June 2009, there were 

4 million Internet consumers currently enrolled in the membership programs. 


1117REP4.eps
74 

48Webloyalty presentation to Aloha Airlines (Jan. 2006) (Webloyalty Doc. 29325). 

A. Partnership Terms 

While the specific terms and conditions between Affinion, Vertrue, and Webloyalty 

and their e-commerce partners differ from contract to contract, their agreements 

typically give partners a financial incentive to expose their shoppers to aggressive 

third-party offers. Generally, the more aggressively an e-commerce company is willing to market Affinion, Vertrue, or Webloyalty’s membership clubs to its customers, 

the more money it will earn. 

Affinion, Vetrue, and Webloyalty’s e-commerce partners are paid based upon either the number of customers who sign up for the membership clubs (‘‘joins’’), or 

the number of customers who see the offer (‘‘impressions’’). In some partnerships, 

both payment methods are used to calculate a retailer’s profits. 

Payments based on the number of consumers who join an Affinion, Vertrue, or 

Webloyalty club are called ‘‘bounties.’’ This payment system (also known as CPA, 

‘‘Cost Per Acquisition’’) provides a very straightforward incentive to the retailer to 

use more aggressive sales tactics. Every consumer ‘‘join’’ means an additional bounty payment usually ranging between $10 and $30. When Webloyalty pitched its 

marketing program to Aloha Airlines in January 2006, it explained the method of 

payment and the potential partnership by stating, ‘‘Aloha Airlines wins by getting 

. . . $$$ bounty from Webloyalty for every customer who elects to accept offer.’’ 48

Payments based on impressions are calculated using a term known as CPM (Cost 

Per Mil). Under this system, e-commerce partners receive a payment for every 1,000 

of their customers who view the enrollment offer from Affinion, Vertrue, or 

Webloyalty. This method can be very profitable for e-commerce companies with 

high-traffic websites because the enrollment offer can be shown to millions of Internet consumers. If the e-commerce partner is willing to show the offer to each one 

of its customers who make a purchase on its website, this can result in millions of 

‘‘impressions’’ and millions of dollars in profit. 

Payment terms in the contracts are routinely tied to a statistic known as the ‘‘conversion rate.’’ This statistic measures the success of the enrollment offers by comparing the total number of customers who view the offer to the subset who actually 

enroll in the club. This statistic is tracked very closely by Affinion, Vertrue, and 

Webloyalty and each company uses it as a method to determine payments to its 

partners. 

Affinion, Vertrue, and Webloyalty typically pay higher CPMs as the conversion 

rate increases. The table below provides an example of a sliding scale used in a contract reviewed by Committee staff. 

CPM Net Conversion 

$2,650 ≥9.50% 

$2,525 9.00%–9.49% 

$2,375 8.50%–8.99% 

$2,250 8.00%–8.49% 

$2,100 8.00%–8.49% 

$1,950 7.50%–7.99% 

$1,825 7.00%–7.49% 

$1,675 6.50%–6.99% 

$1,550 5.50%–5.99% 

$1,400 5.00%–5.49% 

$1,275 4.50%–4.99% 

$1,125 4.00%–4.49% 

$1,000 3.50%–3.99% 

$925 3.30%–3.49% 

$850 ≤3.29% 

To illustrate how this system works, if a company displayed the enrollment offer 

to one million visitors on its site every year, and 2 percent of its customers joined 

an Affinion, Vertrue, or Webloyalty club, the company would receive a payment of 

$850,000, according to the rates listed in the table. But if its conversion rate were 

75 

49 E-mail from Webloyalty employee to 1800Petmeds employee (Feb. 11, 2009) (Webloyalty 

Doc. 88550). 50Webloyalty document ‘‘Average Conversion Rates Per Quarter—All Flows’’ (Jan. 10, 2008) 

(Webloyalty Doc. 19371). 51Webloyalty presentation ‘‘Revenue Continuum’’ (Webloyalty Doc. 27485). 

a higher 5 percent, the company would receive $1.4 million. This sliding scale payment system gives retailers a strong financial incentive to allow Affinion, Vertrue, 

and Webloyalty to employ aggressive sales tactics that mislead customers but increase conversion rates. 

An important fact to keep in mind is that the revenue web retailers earn from 

their partnerships with Affinion, Vertrue, and Webloyalty has no associated costs 

for the web retailers and is therefore 100 percent profit. Revenues from these partnerships, therefore, can become very important to a company’s overall profitability. 

For example, when the CEO of 1800Petmeds, a Webloyalty partner, requested that 

the ‘‘Continue’’ button be removed from the company’s offer page because it was 

misleading customers, a Webloyalty employee responded: 

We can do that, but with these changes your CEO is decimating a program that 

delivered more than $516,000 in pure profit to you in 2008. If you operate your 

website on a 10 percent net profit margin, our payments to you represent over 

$5 million in sales revenue.49

B. The Financial Advantages of Data Pass 

As discussed in Section I above, most companies automatically transfer their customers’ billing information to Affinion, Vertrue, and Webloyalty once consumers 

have presented what the companies call ‘‘proof of enrollment,’’ such as an e-mail address. Documents reviewed by Committee staff show that Affinion, Vertrue, and 

Webloyalty are well aware that this ‘‘data pass’’ process produces higher rates of 

‘‘joins’’ than an enrollment process that requires consumers to re-enter their credit 

card information to accept a membership club offer. 

For example, a Webloyalty document tracking average conversion rates in 2006 

and 2007 presents the following conversion information for consumers who join 

membership clubs through the data pass process (referred to in this document as 

‘‘card on file’’) versus those who join by entering their credit card information (‘‘noncard on file’’):50

‘‘Card on File’’ 

Net Conversion Rate 

‘‘Non-Card on File’’ 

Net Conversion Rate 

Q3 2006 4.51% 1.26% 

Q4 2006 4.54% 0.91% 

Q1 2007 4.04% 0.68% 

Q2 2007 3.84% 0.89% 

Q3 2007 4.04% 0.94% 

Q4 2007 3.91% 1.65% 

According to these figures, consumers are about four times more likely to join 

Webloyalty’s membership clubs if their credit card data is transferred automatically 

from the retailer. 

Not surprisingly, based upon statistics such as these, Affinion, Vertrue, and 

Webloyalty push their partners and potential partners to display offer pages that 

allow their customers to enroll in the membership programs without re-entering the 

credit card or debit card number they used for the original purchase. In a presentation to a potential partner, Webloyalty provided the following graphic to explain 

its point that ‘‘non-card on file’’ enrollment offers would lead to ‘‘Low $Revenue’’, 

while ‘‘card on file’’ would lead to ‘‘High $Revenue’’ for the e-commerce company.51

76 

52Webloyalty presentation ‘‘Non-card on file’’ (Webloyalty Doc. 27691). 53 Affinion document ‘‘Products Overview’’ (Feb. 19, 2009) (Affinion Doc. A FSE 04–736). 

In another presentation to a partner, Webloyalty bluntly stated that requiring the 

consumer to re-enter credit card information would hurt conversion. It noted, ‘‘with 

data collection on the page [y]ou can expect at least a 70 percent decrease in conversion.’’ 52 In an e-mail to a potential partner, Affinion estimated that the conversion 

rate would be four times higher if the partner used data pass than if the partner 

required its customers to re-enter their credit card number (‘‘non-data pass’’).53

V. Evidence of Misleading Offers and Consumer Confusion 

Affinion, Vertrue, and Webloyalty understand that ‘‘data pass’’ and other aggressive online sales tactics drive up the rate of consumer ‘‘joins’’ to their programs. 

They also know that most of the consumers who ‘‘enroll’’ in their membership clubs 

through these aggressive tactics do so unknowingly and inadvertently. 

Internal documents and information produced by Affinion, Webloyalty, and 

Vertrue to the Committee indicate that the three companies receive an overwhelming amount of negative feedback from consumers once the consumers learn 

they are paying ‘‘members’’ of clubs they have never heard of. The three companies’ 

‘‘customer service’’ operations are almost entirely dedicated to handling the large 

volume of calls from confused and angry consumers requesting cancellations, and 

asking how the company obtained their credit card information. 

Given that most ‘‘members’’ are unaware they were enrolled in the programs, information provided by Affinion, Vertrue, and Webloyalty not surprisingly shows that 

most ‘‘members’’ cancel their membership once they realize they are being charged 

on a monthly basis. It also shows that a very large percentage of the members never 

utilize the benefits of the programs or even take the simple step of logging into the 

companies’ websites to access the benefits they are paying for each month. 

A. Low Levels of Member Awareness 

Internal data and member surveys commissioned by Affinion, Vertrue, and 

Webloyalty clearly show that the three companies understand that the majority of 

their paying ‘‘members’’ have little or no awareness of their financial relationship 

with the companies. 

One of the documents Vertrue produced to the Committee, for example, is a summary of June 22, 2009, feedback from consumers who had visited one of its membership websites. Of the ‘‘members’’ who completed the survey, 43 percent indicated 

they were visiting ‘‘to find about the charge on my credit card that I did not recognize’’ and 44 percent indicated they were visiting ‘‘to cancel the program.’’ Only one 

member indicated he or she was there ‘‘to find out more about my membership benVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00080 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE

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54 Internal Vertrue e-mail (Jun. 23, 2009) (Vertrue Doc. 118778–84). 55 Id. 56Webloyalty document ‘‘Disposition Report by Product—Last Full Month’’ (Sept. 1, 2003) 

(Webloyalty Doc. 97613). 57 Internal Webloyalty e-mail (Oct. 21, 2008) (Webloyalty Doc. 89166). 58Webloyalty document, ‘‘Web Loyalty & Brylane Customer Research. A Quantitative Assessment’’ (Jul. 2004) (Webloyalty Doc. 84776 et seq). 59 Id., at 804785 60Webloyalty presentation ‘‘Choice Hotels International Reservations Rewards Study’’ (Jan. 

14, 2004) (Webloyalty Doc. 80623); Webloyalty document ‘‘Webloyalty thoughts on Classmates 

Market Research Member Survey’’ (May 11, 2006) (Webloyalty Doc. 84884). 

efits’’ and none of the respondents were there ‘‘to obtain my member ID.’’ 54 In another question, 60 percent of the respondents indicated they were ‘‘extremely dissatisfied’’ with the site. In response to Vertrue’s invitation to offer a comment or explain why they were satisfied or dissatisfied with the website, members provided 

more than 100 highly negative comments, including: 

• ‘‘Don’t know how I got it, I don’t use it, I don’t want it . . . you’ve heisted 

money from me for several months for something that I have no idea what it 

is and will never use it, so I’m cutting you off, both here and at my bank;’’ 

• ‘‘Because I didn’t authorize this service or know how my card # was gotten;’’ 

• ‘‘Stop tricking people into your phony service;’’ 

• ‘‘I never willingly joined, I want a reimbursement. I have never even heard of 

you;’’ and 

• ‘‘I have no idea why you charged me 19.95. Where did you get my debit card 

information? I have no recollection of doing business with valmax.’’ 55

Internal data tracked by Webloyalty shows that it has known for years that the 

majority of its members were unknowingly enrolling in the membership clubs it offered. A ‘‘Disposition Report’’ run in September 1, 2003, appears to show that, of 

the 66,922 members who canceled their Reservation Rewards membership in August 2003, 51,560, or 77 percent, had indicated ‘‘Did Not Authorize/Was Not Aware’’ 

as their reason for cancellation.56 ‘‘Disposition Reports’’ run in the following years 

showed similar trends and, in 2008, a Webloyalty call center employee, while participating in a discussion about proposed call center script changes, acknowledged 

in an e-mail message that ‘‘[a]t least 90 percent of our members don’t know anything about the membership.’’ 57

Customer surveys commissioned by Webloyalty and its e-commerce partners in 

2004 and 2006 further confirm that most of Webloyalty’s members were unaware 

they had enrolled in the company’s membership clubs. A July 2004 telephone poll 

commissioned by Webloyalty and conducted at the request of its partner Redcats 

USA, which owns brands such as Brylane and Jessica London, showed that few of 

Redcats’ customers knew they were paying members of Reservation Rewards, a 

Webloyalty membership program. As part of the survey, 308 past or current members of Reservation Rewards—half of whom were described as ‘‘active’’ members— 

were asked a series of questions. Among the findings of the survey were the following: 

• 234 of these members (76 percent) either did not recall being offered a Reservation Rewards membership or said they had declined a membership offer; 

• Only 62 of the members (20 percent) remembered receiving an e-mail notifying 

them of their Reservation Rewards membership; 

• Only 5 of the members (1.6 percent) said they had received a $10 cash back 

offer; and 

• Only 4 of the members (1.3 percent) said they had used Reservation Rewards 

discounts.58

In analyzing the results for Redcats USA, a marketing research firm noted, ‘‘It 

is quite concerninq that only half (51 percent) of the Active segment clearly remembered signing up for the program.’’ 59 Customer surveys conducted for Choice Hotels 

International, Inc. and Classmates.com, both Webloyalty partners, produced similar 

results. For Choice Hotels, a marketing research firm found that ‘‘[o]ne-half of 

guests reached on the member list did not know for sure if they are members of 

Reservation Rewards’’ and, based upon the survey of members who enrolled through 

Classmates.com, Webloyalty concluded that ‘‘[a]wareness of WL services is low 

among respondents.’’ 60

Although Affinion has not provided the Committee with member surveys, it has, 

at different times, tracked members’ reasons for complaining to the Better Business 

78 

61 Affinion letter, ‘‘Additional Information Provided by Affinion to Senate Committee on Commerce, Science, and Transportation’’ (Nov. 5, 2009) (Affinion Doc. ASFW 05–01). 62 Affinion letter, ‘‘Affinion Response to Committee Follow-up Questions 1–3’’ (Oct. 9, 2009) 

(Affinion Doc. ASFW 06–01). 63 Affinion spreadsheet, ‘‘Reason by Service & Client’’ (Aug. 21, 2009) (Affinion Doc. ASFE 04– 

59–82). 64 Id. 65 Internal Webloyalty employee e-mail (Feb. 16, 2009) (Webloyalty Doc. 88263). 66 Affinion training manual, Great Fun New Hire Training Manual (Oct. 2, 2006) (Affinion 

Doc. AFSE 04–18772). 67 Internal Vertrue e-mail, ‘‘Call Center optimization meeting’’ (Mar. 20, 2008) (Vertrue Doc. 

111093). 

Bureaus and state attorneys general. From January 2007 through February 2009, 

85 percent, of the 1,550 serious complaints forwarded by the Better Business Bureaus and state attorneys general were related to online customers ‘‘asserting that 

they never agreed to join’’ the membership programs.61

From January through April 2009, Affinion also tracked ‘‘customer contacts with 

the Affinion Support Desk, which handles customer requests that are not satisfied 

by the Customer Service Representative (also referred to as the Front Line Agent) 

and are elevated to a supervisor.’’ 62 The spreadsheet showed that thousands of ‘‘customer contacts’’ could not be handled by ‘‘Front Line Agents’’ because the customers 

were categorized as ‘‘Unaware of Service’’ or ‘‘Disputing Enrollment.’’ While this 

data is limited to escalated contacts and does not include the millions of consumers 

who likely canceled their Affinion membership programs once they learned their 

credit card was being charged, it further suggests that a substantial percentage of 

Affinion’s members are unaware they were enrolled in Affinion’s membership programs. 

For example, from January through April 2009, Affinion’s Support Desk received 

7,649 elevated ‘‘customer contacts’’ related to ‘‘billing’’ or ‘‘cancellation and suppression requests’’ from customers of 1–800–Flowers.com, AirTran Airways, Classmates.com, and Priceline who had been enrolled in Great Fun, an Affinion discount 

program.63 Of the 7,649 customer contacts, Affinion categorized a large percentage 

as ‘‘Unaware of Service,’’ ‘‘Disputing Enrollment,’’ or ‘‘Bank Representative Cancelled.’’ Despite placing these ‘‘contacts’’ in categories which suggest customer confusion and frustration, Affinion did not categorize these customer ‘‘contacts’’ as complaints.64

Escalated Customer Contacts with Affinion’s ‘‘Support Desk’’ Regarding Its ‘‘Great Fun’’ Discount Club: 

January–April 2009 

Affinion Partner Escalated ‘‘Customer Contacts’’ Regarding ‘‘Billing’’ and ‘‘Cancellations 

and Suppression Requests’’ 

1–800–Flowers.com 618 

AirTran Airways 838 

Classmates.com 872 

Priceline 5,221 

B. Employee Training on Cancellations and Member Questions 

When consumers realize they are being charged for a club membership they did 

not intend to enroll in and do not use, they contact Affinion, Vertrue, and 

Webloyalty to stop the monthly charges to their credit card or debit card. As a result, the three companies’ customer service centers are almost entirely dedicated to 

handling the large volume of calls from angry and confused consumers requesting 

cancellations and an explanation for the charge. As a Webloyalty employee recently 

acknowledged in an internal e-mail, the call center representatives spend most of 

their time answering calls ‘‘from members who are questioning charges or want to 

cancel their membership.’’ 65 Affinion and Vertrue’s internal documents show that 

most of their calls are also related to cancellations or members questioning enrollment or the charge on their credit card or bank statement. 

In a training manual, Affinion has informed its newly hired call center representatives that during an ‘‘8-hour shift’’ they will take ‘‘between 75–100 calls’’ and that 

‘‘approximately 80 percent of these calls will be from members wishing to cancel 

their membership.’’ 66 In March 2008, Vertrue employees acknowledged a similar 

problem in an e-mail regarding a ‘‘Call Center Optimization’’ meeting.67 In discussing methods for reducing the cost associated with the call centers, Vertrue emVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00082 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
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68 Vertrue, ‘‘Adaptive Call Center Optimization’’ (Mar. 18, 2008) (Vertrue Doc. 111095). 69Webloyalty document, Quick Reference Guide: October 2006 (Webloyalty Doc. 26561). 70Webloyalty document, Manual/Introduction—February 2006 (Webloyalty Doc. 56370). 71Webloyalty training manual, ‘‘What is this Charge?/Who are you?:’’ (Webloyalty Doc. 26055). 72 Affinion document, Great Fun Merged Product Script: (Sept. 18, 2006) (Affinion Doc. AFSE 

03–1810, 1813). 73 Vertrue document, Online/Internet Marketing Main Menu (May 31, 2007) (Vertrue Doc. 

82269). 74 Id. 

ployees estimated that it received ‘‘7 million customer calls per year’’ and that ‘‘cancellation calls represent approximately 98 percent of call volume.’’ 68

In addition to cancellations, the employee manuals and scripts that Affinion, 

Vertrue, and Webloyalty provide to their call center representatives show that each 

company dedicates a significant amount of time training their employees on how to 

respond when members call to ask questions related to how they were enrolled, 

what the membership program is, or why there is a charge on their credit card or 

bank account statement. 

A ‘‘Quick Reference Guide’’ distributed to Webloyalty employees explained that it 

was important to ask members why they were canceling their membership for Travel Values Plus, a membership program offered by Webloyalty. It stated, ‘‘[m]any 

times the reason is that they had no idea what Travel Values Plus was and you 

will then have the opportunity to explain.’’ 69 Another page in a Webloyalty manual 

offered a list of the ‘‘Top Ten Reasons a Member Calls’’ and offered ‘‘Cancel my 

membership’’ and ‘‘What is this charge?’’ as the top two reasons.70 Other Webloyalty 

manuals provided call center representatives with a process for handling members 

asking the questions: ‘‘what is this charge?’’ or ‘‘who are you?’’ 71

The ‘‘Great Fun Merged Product Script’’ that Affinion has provided to its call center representatives also shows they are trained on how to handle members who are 

calling to question enrollment or the charge on their bank statement. The second 

heading in the manual’s table of contents refers to a section entitled, ‘‘If Questioning 

the Charge/Enrollment,’’ which instructs call center representatives to answer the 

member’s question by stating, ‘‘The charge you see posted on your account is the 

(Monthly/Annual) membership fee for (Product). We received a positive response online that activated your membership.’’ 72

A manual for Vertrue employees provides instructions remarkably similar to those 

provided to Affinion and Webloyalty employees. It provides a ‘‘Scripted Response’’ 

to answer the question, ‘‘How Did I Get Signed Up for this???’’ 73 The provided response states: 

Our records indicate that you agreed to try [AM PROGRAM NAME] while visiting the [Client/Partner name] website. For the order to be processed, you were 

required to enter and confirm your e-mail address. Additionally, by accepting 

the trial membership, you agreed to be enrolled using the billing source that 

you authorized and that after the 30 day trial membership, you would be billed 

the program fee.74

C. High Rates of Cancellations and Low Rates of Usage 

Affinion, Vertrue, and Webloyalty’s internal data on their members’ rates of cancellations and their rates of usage of the programs’ benefits provide further evidence 

that online consumers are not aware they have been enrolled in membership clubs 

offered by the companies. Overwhelmingly, consumers cancel their memberships 

once they realize they are being charged on a monthly basis and very few consumers 

use the benefits offered by the membership programs. 

Information provided by Affinion, Vertrue, and Webloyalty shows that the majority of the consumers the companies charge for services cancel their membership 

within 5 months of receiving the first charge on their credit card or checking account statement. Exhibit 5 to this report shows the number of members who have 

enrolled in Affinion, Vertrue, or Webloyalty’s membership programs and remained 

members for at least 1 month, 6 months, 1 year, and 5 years. For the three companies, about a quarter of their members (26.2 percent) cancel during the free 30-day 

period, less than a third of their members (29.5 percent) are still members after 6 

months and only 13.9 percent remain members for more than 1 year. 

80 

75Prentiss Cox, Invisible Hand of Preacquired Account Marketing, forthcoming in Harvard 

Journal on Legislation, Vol. 47, No. 2 (2010). (Available at SSRN: http://ssrn.com/ 

abstract=1460963. He explains, ‘‘If all consumers understood the free trial offer . . . the temporal pattern of cancellations should be heavily weighted toward cancellations during the free 

trial period.’’) 76 Id., at 24. 

The cancellation pattern observed for these online consumers is similar to the one 

observed by the Minnesota Attorney General’s office during its investigation into a 

preacquired account marketing campaign. In that case, where hundreds of thousands of bank customers were sold membership clubs or insurance policies through 

preacquired account marketing, investigators observed that most of these bank customers canceled not in the 30-day free trial period, but in the following months 

when they started seeing their credit card charges.75 According to Professor Prentiss 

Cox, who supervised the Minnesota Attorney General’s investigation, this pattern 

is ‘‘consistent with a large majority of the canceling customers not understanding 

the solicitation and canceling only after the charge appears on their accounts.’’ 76

Information provided to the Committee by Affinion, Vertrue, and Webloyalty also 

shows that the vast majority of consumers who enroll in their programs never receive the ‘‘cash back award’’ or other incentive promised them in the enrollment 

offer. As discussed in Section I above, a prominent feature of the post-transaction 

offers Affinion, Vertrue, and Webloyalty make to consumers is an up-front gift offer 

such as ‘‘$10 Cash Back on Your Next Purchase!’’, which appears to be related to 

the website where the consumer has just made a purchase. 

While the language and appearance of the offer suggests that clicking the ‘‘Yes’’ 

button automatically gives consumers a discount on their next purchase, the fine 

print informs consumers that they must take additional steps to receive the benefit. 

According to information provided by the three companies, of the 34,262,674 members who were promised automatic cash gifts or other incentives, only 3 percent actually received the promised enrollment benefit. 

Another indication that online consumers are unaware of their Affinion, Vertrue, 

or Webloyalty club memberships is their failure to log on to the clubs’ websites to 

view and use the purported benefits offered by the clubs. Evidence currently available to Committee staff suggests that the so-called member ‘‘usage rates’’ for 

Affinion, Vertrue, and Webloyalty are very low. 

For example, Vertrue provided the Committee with the number of members who 

log in to their membership club websites. In 2006, 100,091 members logged in to 

the membership clubs’ websites; in 2007, 215,191 members logged in to the membership clubs’ websites; and in 2008, 377,428 members logged in to the membership 


1117REP5.eps
81 

77Webloyalty document, Product Usage Statistics (Feb. 28, 2005) (Webloyalty Doc. 56115). 78Webloyalty document, ‘‘Reservation Rewards: Member Site Usage’’ (March 27, 2006) 

(Webloyalty Doc. 103997). 79Prepared Statement of Professor Benjamin Edelman to the U.S. Senate Committee on Commerce, Science, and Transportation (Nov. 2009). 80FTC v. Cyberspace.com, 453 F.3d 1196, 1201 (9th Cir. 2006). 

clubs’ websites. While Vertrue has not yet explained to Committee staff whether 

these numbers include consumers attempting to cancel their membership, how 

many are multiple logins by the same consumer, or how many of these consumers 

actually received a club service after logging in, these figures, at best, represent only 

a small percentage (approximately 10–20 percent) of the total number of Vertrue 

club ‘‘members’’ in these years. 

Information Webloyalty provided to the Committee also suggests its clubs have 

very low member usage rates. A February 28, 2005, Webloyalty document titled, 

‘‘Product Usage Statistics,’’ appears to show that the rate of benefit usage for members enrolled through the data pass process ranged between .2 percent and 11.4 percent for a 6-month period between 2004 and 2005.77 A ‘‘Site Usage’’ table presented 

to the Webloyalty Board of Directors in March 2006 reported that between 70 percent and 80 percent of Reservation Rewards club ‘‘members’’ enrolled through data 

pass had either never visited the Reservation Rewards site at all or viewed only the 

club’s home page without ever accessing additional pages.78

In his statement to the Commerce Committee, Professor Benjamin Edelman cites 

publicly available web traffic data to reach a similar conclusion. He notes that while 

Webloyalty claims to have more than two million paying club members, none of the 

company’s club web pages rank among the Internet’s top 100,000 sites for web traffic. Professor Edelman concludes that, ‘‘this gap between signups and users confirms 

that Webloyalty’s marketing failed to obtain meaningful consent from the users who 

purportedly ‘‘accepted’ Webloyalty’s offer.’’ 79

At this point in the investigation, Affinion, Vertrue, and Webloyalty have not provided the Committee with comprehensive data related to their rates of usage. Committee staff has reason to believe that this information is kept by the companies 

as a matter of course and that it would not be difficult to provide the information 

to the Committee. Consumer usage of these services is a key question because a low 

usage rate ‘‘is highly probative to show that a practice is likely to mislead consumers acting reasonably under the circumstances.’’ 80

VI. Partner Awareness of the Problem 

Committee staff has spoken to more than a dozen e-commerce partners of 

Affinion, Vertrue, and Webloyalty and has reviewed thousands of pages of e-mail 

communications between Affinion, Vertrue, and Webloyalty and their e-commerce 

partners. The interviews and the e-mail communications provide abundant evidence 

that the e-commerce partners are aware that their customers are being misled by 

the enrollment offers from Affinion, Vertrue, and Webloyalty. This evidence also 

shows that e-commerce partners have repeatedly raised concerns about customer 

confusion over the data pass process and the enrollment offers. Many partners terminated their relationship because they determined it was not in the best interest 

of their customers. 

A. ‘‘Customer Noise’’ 

When e-commerce partners enter into financial partnerships with Affinion, 

Vertrue, and Webloyalty, the three companies promise to handle cancellations, complaints, and other ‘‘customer service’’ issues. As a result of this arrangement, when 

consumers see a membership club charge on their credit card or bank statements, 

they are provided only a club name and a toll free number operated by Affinion, 

Vertrue, and Webloyalty. 

The purpose of routing customer service issues through the three Connecticut 

companies is to prevent what Webloyalty promotional materials call ‘‘negative impact on partner brands.’’ Affinion, Webloyalty, and Vertrue handle dissatisfied customers in order to insulate the partners from their own customers’ criticism, which 

is commonly described as ‘‘customer noise’’ by the companies. 

For example, in November 2008, 1–800–Flowers.com’s Director of Third Party 

Marketing wrote an e-mail to her Affinion contact complaining that ‘‘we have had 

increasingly more frequent feedback from our own teams that your agents are telling our customers to call us. . . .’’ She asked for Affinion’s help ‘‘to determine . . . 

how we can reduce the negative comments from our customers back to our internal 

82 

81 E-mail from 1–800–Flowers.com Director of Third Party Marketing to Affinion Vice President, Relationship Management (Nov. 20, 2009) (Affinion Doc. ASFE 04–31). 82 E-mail from Affinion Vice President of Relationship Management to 1–800–Flowers Director 

of Third Party Marketing (Nov. 20, 2008) (Affinion Doc. ASFE 04–30). 83 Internal AirTran Airways e-mail from Manager—Customer Relations Department (Apr. 29, 

2009) (Affinion Doc. AFSE 04–3803). 84 E-mail from AirTran employee to Affinion employee (May 6, 2009) (Affinion Doc. AFSE 04– 

3904). 85 E-mail from Priceline call center employee to Affinion employee (June 17, 2009) (Affinion 

Doc. AFSE 04–1653). 86 Id. 

agents.’’ 81 Affinion’s Vice President of Relationship Management quickly responded 

to this e-mail. She wrote: 

I am troubled by this report. This is a STRICT no-no in our centers. We tell 

agents not to do it and don’t give them our client’s phone numbers and so on. 

If we hear instances [of] it in our monitoring/test calls, they will ‘‘fail’’ that call 

and get dinged on their incentive payments.82

In spite of the elaborate precautions Affinion, Vertrue, and Webloyalty take to 

prevent negative feedback about their membership clubs from getting back to their 

partners, most, if not all, of the e-retailers partnered with Affinion, Vertrue, and 

Webloyalty know that the companies’ aggressive sales tactics make many of their 

customers dissatisfied and angry. Committee staff has reviewed thousands of pages 

of communications from angry consumers sent directly to the partners. Under 

standard procedures followed by all three companies, partners forward the complaints to Affinion, Vertrue, and Webloyalty for resolution. 

For example, in April 2009, the Manager of the Customer Relations Department 

(CRD) for AirTran Airways sent an e-mail to one of AirTran Airways’ marketing executives stating: 

We continue to receive complaints in CRD from customers regarding the Great 

Fun option. The complaints are mainly focused around: 

Customer received a charge on their credit card for the membership, however 

the customer claims they never authorized the charge or requested the membership. 

Customers attempted to cancel the membership; but continue to get charged for 

the monthly membership fee. They often call Great Fun several times to cancel 

to no avail. 

In CRD we explain the process for signing up for the membership. However several customers on separate occasions have been adamant that they have never 

signed up with Great Fun.83

The AirTran marketing executive forwarded this e-mail to his contact at Affinion, 

requesting help in addressing what he called ‘‘a growing concern about the raising 

[sic] complaints.’’ 84

In June 2009, another Affinion partner, Priceline.com, forwarded Affinion a 

‘‘tracker’’ document detailing serious consumer complaints the company had received in May and June of 2009.85 The comments included in this document show 

that Priceline is aware that Affinion’s club membership offers are making Priceline 

users extremely unhappy. A few examples are: 

• Hi, I just noticed a recurring monthly charge of $11.99 on my VISA bill for 

TLG* GREATFN. . . . I called the 800 number referenced and canceled . . . I 

have no idea how this charge got on my VISA or what it is for. I certainly didn’t 

get anything from it. They said it was through something I did on Priceline. 

Are you guys in on this? Is this part of a scam? Is Priceline an accessory to 

this fraud? I feel like I’ve been tricked and robbed. 

• A few months ago, I purchased the tickets through priceline. I was not aware 

that in the process of purchasing tickets I was somehow enrolled in an organization called Great Fun. I feel that this happened very deceitfully. I just wanted 

you to know that this will be a consideration in the future. 

• How do I send a message to you regarding your product of Great Fun. This company has billed me for over a year without my concent [sic] or knowledge. 

Priceline should be more responsible than to subject their customers to this sort 

of unsuspected, unwanted solicitation! I have written the company, my credit 

card company & the office for Consumer Protection for Connecticut.86

83 

87 E-mail from Webloyalty partner Director of Business Development to Richard Fernandes, 

Chief Executive Officer of Webloyalty (Sep. 10, 2002) (Webloyalty Doc. 75740). 88 Internal Webloyalty e-mail (Jan. 07, 2003) (Webloyalty Doc. 102451). 89 E-mail from Webloyalty partner Operational Vice President of Customer Marketing to 

Webloyalty employee (Nov. 5, 2004) (Webloyalty Doc. 74077). 90 Internal Webloyalty E-mail from Senior Vice President for Business Development and Account Management to Richard Fernandes, Chief Executive Officer of Webloyalty, and other 

Webloyalty employees (Aug. 25, 2003) (Webloyalty Doc. 14019). 

B. Concerns Raised by Partners 

In response to these ‘‘customer noise’’ issues, Affinion, Vertrue, and Webloyalty’s 

partners regularly raise concerns about the companies’ aggressive sales tactics. In 

some cases, partners ask the companies to take steps to reduce consumer complaints. In other cases, partners have decided to end their relationship with 

Affinion, Vertrue, or Webloyalty due to negative consumer experiences. The concerns expressed by partners in these communications seem to have changed very little over the past decade. 

In 2002, the Director of Business Development for an e-commerce company 

partnered with Webloyalty wrote directly to Rick Fernandes, the Chief Executive 

Officer of Webloyalty, stating: 

We have worked with webloyalty for about 5 weeks now and have had enough 

time and data to make a solid assessment that the execution of the program 

is not in our best interest. Even with what we thought might be a suitable authorization process, has turned out to have extremely negative consequences 

and we have been unable to correct with the flexibility that we need to address 

a problem of this magnitude. . . . We feel that if the customer is interested in 

participate [sic] in this program, your website should sell them without us passing their secure info in the process.87

In January 2003, a Webloyalty employee described the customer complaints that 

another Webloyalty partner had received: 

Let me clarify that we ARE in jeopardy with this client and these represent a 

small number of many more complaints their staff insiders consider ‘‘brutal and 

unprecedented’’. . .88

The company later terminated the partnership in 2005 and stated, ‘‘This decision 

comes after detailed discussions with Senior management. They understand what 

this program generates and that it has the potential to generate even more. However, we are going through a re-branding mobilization in 2005 and the Webloyalty 

banners do not fit into that plan.’’ 89

In August 2003, Webloyalty’s Senior Vice President for Business Development and 

Account Management sent an e-mail summarizing partners’ concerns to senior 

Webloyalty executives, including Rick Fernandes, the Chief Executive Officer, that 

stated: 

What clients tell us . . . 

1. Pre-bill notification is buried in pre-bill e-mail. Make it more upfront. 

2. Special reward is perceived as misleading. It’s not a reward it’s an obligation. 

Test special offer. 

4. [sic] The segue ‘‘Congratulations, Thank you for your purchase’’ is misleading. 

Sounds like it’s a thank you from client and it’s not, it’s an offer from WL 

[Webloyalty]. 

5. Continue button is misleading—customer does not have to continue. 

6. Yes button is misleading, should say enroll, sign up, etc. 

7. Language about data pass is buried. Customers are unaware their data is 

being passed. 

8. Trial and price point is buried—it’s clear you get 30 days free, but not clear 

you’ll be automatically renewed if you don’t cancel. And then the fee is buried 

too.90

In April 2004, the employee of a Webloyalty e-commerce partner, which operated 

a virtual shopping cart for Internet merchants, sent an e-mail to a Webloyalty employee stating the following: 

. . . I do keep hearing the same thing from our merchants who are calling up 

wanting the program removed. They are telling us their shoppers are saying: 

1. They have been tricked into buying and or signing up for something. 

2. They did not know there was a cost involved with the program. 

84 

91 E-mail from Webloyalty partner employee to Webloyalty employee (Apr. 30, 2004) 

(Webloyalty Doc. 74483–84). 92 Internal Webloyalty e-mail (Jan. 9, 2006) (Webloyalty Doc. 76770). 93 E-mail from Avon eMarketing Manager to Affinion Associate Client Manager (May 22, 

2006) (Affinion Doc. 04–16516). 94 Id. 95 E-mail from Avon employee to Affinion employee (Oct. 26, 2007) (Affinion Doc. AFSE 04– 

16527). 96 E-mail from Webloyalty partner employee to Webloyalty employee (Jan. 15, 2007) 

(Webloyalty Doc. 95116). 97 Id. 98 E-mail from Webloyalty partner employee to Webloyalty employees (Mar. 02, 2007) 

(Webloyalty Doc. 81039). 99 Internal 1–800–Flowers.com e-mail (Nov. 7, 2007) (Affinion Doc. AFSE 5–3452). 100 Id. 

3. The cost was hidden at the bottom of the page, or not very clear. 

4. They do not know who to call to get more info, so they call the merchant 

(who gets ticked off, calls us and wants out of the program). 

5. They do not know who is offering the program or who to contact so again 

they call the merchant (who gets ticked off, calls us and wants out of the program).91

In January 2006, Webloyalty employees discussed concerns that an e-retailer 

partner had raised. The e-mail stated: 

He mentioned that they are getting a lot of noise with our program and that 

people are writing blogs about . . . what a scam WLI RR [Webloyalty Reservation Rewards] is . . . He’s very concerned . . . Bottom line is he wants to test 

more conservative pages against the control to find a page that’s more clear and 

see what it does to his financials.92

In May 2006, an employee for Avon informed Affinion that a customer complaint 

had ‘‘been escalated to our CEO and the customer . . . felt it was completely misleading.’’ 93 The Avon employee went on to state that ‘‘[w]e need to discuss how we 

can modify the offer page to make it more clear to the user that their credit card 

info will be passed upon their approval, possibly by adding a check box.’’ 94 An information technology specialist working with Avon.com to resolve a customer complaint 

later advised: 

I think the big problem was that it was pretty misleading. It wasn’t clear that 

we were passing the customer details (cc number etc) across when they clicked 

on the banner. I think people often proceeded through out of curiosity, believing 

that if they didn’t provide they [sic] billing data that they couldn’t be charged, 

regardless of what they clicked on or accepted. What they don’t realise [sic] is 

that Great Fun did have their billing details already.95

In January 2007, an e-retailer that had partnered with Webloyalty sent an e-mail 

to Webloyalty stating that, ‘‘. . . we have had regular complaints from our customers . . . [w]e simply cannot have complaints such as this.’’ 96 He went on to note 

that, ‘‘The particularly cheerless concern is that to generate more revenue through 

Webloyalty, it seems we must be more aggressive (and deceptive) in our marketing 

techniques.’’ 97

In March 2007, an employee for another e-retailer partnered with Webloyalty sent 

an e-mail expressing concerns about complaints. He stated, ‘‘We are getting an unbelievable number of complaints on our current set-up. Customers (ours are older) 

are feeling tricked and many state they are not coming back to our sites because 

of it. Don’t know if that is true, but I still want to talk about it.’’ 98

In November 2007, a 1–800–Flowers.com employee raised ‘‘a major red flag’’ about 

the company’s partnership with Affinion. He cited a number of recent consumer 

complaints about the company’s partnership with Affinion to sell the ‘‘LiveWell’’ 

membership club, and he noted that, ‘‘for every one who complains vociferously, 

there are dozens, even hundreds that do not.’’ 99 He continued: 

I know that our relationship with Affinion is a huge boost to our revenue; on 

the other hand, I am gravely concerned that for every dollar we get from Live 

Well, we may be trading off many more dollars in angry and lost customers.100

In February 2008, another e-retailer expressed concerns to Webloyalty in an email by stating: 

We’re all still very concerned about the negative impact we are experiencing to 

our reputation online. And, we continue to get enough angry callers that our 

85 

101 E-mail from Webloyalty partner employee to Webloyalty employees (Feb. 6, 2008) 

(Webloyalty Doc. 95894). 102 E-mail from Webloyalty partner employee to Webloyalty employees (April 16, 2008) 

(Webloyalty Doc. 96060). 103 Internal Affinion e-mail (May 20, 2008) (Affinion Doc. AFSE 06–2506). 104 Vertrue questionnaire (May 7, 2008) (Vertrue Doc. 111917). 105 E-mail from Vertrue Director, Client Services to Restaurant.com employee (Jun. 9, 2008) 

(Vertrue Doc. 105186). 106 Id. 

call center manager . . . has to personally field about 3 of the angriest callers 

a week. (we estimate that if [our call center manager] is getting 3 our call center is getting 15 and your team is probably getting 75 or more per week) . . . 

Webloyalty has been unwilling to share with us any data that would help us 

to understand how our customers are using the program—or whether they are 

. . . To be quite candid . . . we don’t have a clue how our customers feel about 

this program. Maybe 99 percent of them love it and 1 percent complain. Maybe 

99 percent hate it but only 1 percent complain.101

Two months later, the e-retailer informed Webloyalty that ‘‘we have decided to 

part ways because as time went by it became clear to us that our customers don’t 

want this program.’’ 102

In May 2008, an Affinion employee discussed concerns raised by Hotwire, an 

Affinion partner, in an e-mail to a colleague. She stated, ‘‘Hotwire is claiming that 

they’re receiving a high volume of CS [customer service] noise—approx 1 out of 

every 6 members calls them to complain.’’ 103

Also in May 2008, Vertrue supplied a ‘‘New Product Questionnaire’’ to one of its 

retailer partners, VistaPrint, in order to learn VistaPrint’s thoughts about the rewards program the two companies had partnered on. One question asked, ‘‘What are 

the top 3 likes and dislikes with VistaPrint Rewards?’’ For dislikes, VistaPrint replied, ‘‘Customer Noise’’; ‘‘Ability/Difficulty to redeem benefits, including $10 Cash 

Back’’; ‘‘Clarity of the offer’’; and ‘‘20 percent off not on purchase of gift card but 

later.’’ 104

In June 2008, the Director of Client Services for Vertrue’s Adaptive Marketing acknowledged that Restaurant.com had raised concerns by stating, ‘‘we will create 

some mockups for ways the Restaurant.com marketing flow can be changed for the 

purpose of making the marketing less aggressive, in hopes of reducing customer 

noise and negative impact to the Restaurant.com brand.’’ 105 This official also admitted that while more ‘‘conservative’’ marketing would ‘‘help to reduce consumer 

noise,’’ it would also likely have ‘‘some negative impact on conversion and revenue.’’ 106

VII. Conclusion 

Affinion, Vertrue and Webloyalty use aggressive sales tactics intentionally designed to mislead online shoppers. These three companies exploit shoppers’ expectations about the online purchasing process to charge millions of consumers each year 

for services the consumers do not want and do not understand they have purchased. 

Hundreds of e-commerce merchants—including many of the best-known, respected 

websites and retailers on the Internet—allow these three companies to use aggressive sales tactics against their customers, and share in the revenues generated by 

these misleading tactics. While Congress and the Federal Trade Commission have 

taken steps to curb similar abusive practices in telemarketing, there has not yet 

been any action to protect consumers while they are shopping online. 

PREPARED STATEMENT OF ROBERT M. MCKENNA, ATTORNEY GENERAL OF THE STATE OF WASHINGTON

Thank you to Chairman Rockefeller, Ranking Member Hutchinson, and the members of the Committee on Commerce, Science, and Transportation for inviting me 

to provide my written statement to the Committee. 

I am Robert M. McKenna, Attorney General of the State of Washington. The subject matter of this hearing is of great importance to the consumers of this country, 

and I therefore commend the Committee for being responsive to the increasing number of consumer complaints regarding the marketing and billing practices of the 

companies under investigation by the Committee. 

The Attorney General is the primary state official who responds to consumer complaints and enforces state laws designed to protect consumers from unfair and deceptive business practices. My office has taken the lead in enforcing those laws in 

the Internet marketplace with the creation of our High-Tech Unit over 10 years ago. 

86 

As e-commerce has flourished, so, too, unfortunately, have deceptive practices on the 

Internet. One of the significant advantages for consumers to shopping online has 

been the convenience and efficiency of the experience. What might take hours in the 

brick and mortar world to accomplish may take only a few minutes online. This has 

not been lost on some unscrupulous marketers who are exploiting consumers’ expectations of a quick and efficient transaction process. Certain sellers and marketers 

have been interrupting consumers’ online transactions by making offers that appear 

to relate to the consumers’ transaction, but, in fact, do not. The marketing offers 

instead involve a subscription to an unrelated membership program that is billed 

on a recurring basis. As soon as my office noticed a trend in complaints relating 

to this form of marketing, we opened several investigations into companies conducting such marketing. These investigations have been time-consuming, resourceintensive, and complex, but they have provided us with voluminous evidence of the 

harmful effects of these marketing practices on consumers. 

There are three general marketing methods that our office has found, when combined, deceive a substantial portion of consumers and result in their unknowing enrollment in membership programs. First, sellers offer consumers free trials for services or products that automatically convert to paid subscriptions unless the consumer affirmatively cancels during the free trial period to induce consumers to purchase services or products (known as ‘‘free-to-pay conversion offers’’). Second, sellers 

obtain consumers’ financial account information from third parties so that they are 

able to bill consumers for products or services without the consumer having to provide their account information directly to the seller during the transaction process 

(referred to as ‘‘preacquired account marketing’’ or a ‘‘data pass’’ process). And third, 

sellers market their products and services during the consumer’s transaction process 

with a third party (sometimes referred to as ‘‘post-transaction marketing’’ or ‘‘interstitial marketing’’). Unscrupulous marketers and sellers have designed marketing 

campaigns that combine each of these marketing methods in such a way as to deceive consumers into enrolling in membership programs for which consumers are 

billed on a recurring basis. 

A typical example of this type of marketing as it appears on the Internet is as 

follows: 

After a consumer places an order for a product or service and enters his or her 

payment information on an ecommerce site, an offer for $10 cash back for filling 

out a survey appears on the screen. The impression left on the consumer by the 

Web page is that he or she should fill in the survey, enter his or her e-mail 

address (sometimes twice) and click on the button to complete his or her purchase and claim the $10 cash back. In fact, by clicking on the button, the consumer is purportedly agreeing to be enrolled in a free trial for a membership 

program that will be charged automatically on a recurring monthly (or, in some 

cases, annual) basis to the account the consumer used to make the purchase 

of the product or service. The fine print on the Web page discloses that by 

clicking on the button associated with completing the purchase or submitting 

the survey, the consumer is purportedly authorizing the e-commerce site to 

transmit the consumer’s financial account information to an undisclosed third 

party. Despite the disclosures, the offer misleads consumers into believing that 

the offer is for $10 cash back for taking a survey, not an offer for a trial in a 

membership program, which is the ‘‘true’’ offer and is disclosed only in the fine 

print. In general, the offers appear to be coming from the e-commerce site and 

do not disclose the third party that is actually making the offer. 

The Washington Attorney General’s Office has been able to identify several hundred consumer complaints filed with our office in the last 2 years alone that involve 

the consumer having been enrolled in a membership program without his or her 

knowledge and having been automatically billed for the program without his or her 

authorization. 

Based upon these complaints and extensive investigations, we have observed a 

number of significant problems with this form of marketing, including: 

1. Consumers do not expect that the financial account information that they 

provide for one transaction will result in ongoing charges placed by a thirdparty company; 

2. Consumers have difficulty identifying and contacting the seller of the membership program to cancel or otherwise terminate any ongoing or recurring obligation because the sellers frequently do not identify themselves in the offers; 

3. Sellers use a variety of distractions to obscure the ‘‘true’’ offer, e.g., offering 

cash back on the consumer’s primary purchase and using ‘‘consumer surveys’’; 

and 

87 

4. The use of words ‘‘free’’ or ‘‘trial offer’’ to market free-to-pay conversions leads 

consumers to believe that they do not have to take further action in order to 

avoid ongoing charges. 

More specifically, our investigations have shown that hundreds of thousands of 

consumers in Washington State alone have found themselves subscribed to membership programs as a result of shopping online and that the vast majority of enrolled 

members have not used the benefits associated with the membership programs. 

I cannot overstate the consumer injury that is occurring because of these marketing methods. Based upon our office’s investigations, we estimate that well over 

$50 million has been deceptively obtained from Washington consumers over the 

course of the last 4 years by a relatively small handful of businesses conducting the 

type of marketing at issue in this Committee’s investigation. 

Our investigations have gathered an extraordinary amount of evidence showing 

that companies engaging in this form of marketing are aware that their marketing 

and billing practices are deceiving consumers and that the vast majority of consumers enrolled in their membership programs never authorized the enrollment. 

The companies under investigation in Washington have received thousands of consumer complaints both directly from consumers and through the Better Business 

Bureaus and the offices of the state attorneys general. These companies have done 

little to nothing to stop the deception despite knowing that they are obtaining unauthorized enrollments. Some of these companies make it very difficult for the consumer to cancel the membership if and when the consumer discovers the charges. 

They add insult to injury by refusing to provide complete refunds to consumers unless they complain to an outside agency, such as an Attorney General’s office. 

Many of these companies believe that the disclosures that are made in the marketing offers insulate them from liability, despite the substantial evidence in front 

of them that consumers are inadvertently enrolling in the membership programs. 

Our investigations have shown that disclosures in this kind of marketing are not 

sufficient to overcome the inherent potential for deception. Because there is such 

overwhelming and compelling evidence that this form of marketing deceives consumers, I have requested state legislation to regulate the practices at the heart of 

the deception. My office proposes state law that would require sellers using free-topay conversion offers to obtain the consumer’s financial account information directly 

from the consumer during the transaction for the free-to-pay product or service. The 

proposed legislation, which did not pass when originally introduced in the Washington legislature last year, was opposed by some businesses. We expected such opposition, because our investigations have revealed that marketing using a free-topay conversion where the seller has preacqui red account information or uses a data 

pass process is extremely lucrative; however, these profits are the result of unfair 

and deceptive practices and belong back in the pockets of consumers. 

Of course, using preacquired account information or a data pass process to market 

products and services by means of free-to-pay conversion offers during the consumer’s transaction with a third party is not a new marketing technique. A $14.5 

million multistate settlement with Trilegiant, now known as Affinion, and Chase 

Bank in 2006 attempted to curtail deceptive marketing practices involving free-topay conversion offers and preacquired account marketing by imposing greater disclosure requirements in direct mail offers. Furthermore, numerous states have entered 

into settlements with MemberWorks, now known as Vertrue, to address that company’s deceptive negative-option marketing. In fact, both the Federal Trade Commission (‘‘FTC’’) and the states have a decade-long history of enforcement and consumer education efforts to tackle the deceptive marketing of services and products 

through free trial offers and the improper transfer or misuse of consumers’ account 

information. However, we have found that truthful disclosures are insufficient to 

cure the inherent potential for deception in preacquired account marketing or the 

data pass process in conjunction with free trial offers. 

The FTC recognized the inherent potential for consumer deception in sales situations in which the seller had preacquired consumer account information when it created the requirement in the Telemarketing Sales Rule (TSR), which implements the 

Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101– 

6108, as amended, that sellers must audiotape transactions involving free-to-pay 

conversions where the seller has preacquired account information of the consumer. 

In addition, the seller must obtain from the customer, at a minimum, the last four 

digits of the account number to be charged. 

The complaints we have received, along with our investigations, point to one conclusion: preacquired account marketing (or use of a data pass process) in conjunction 

with free-to-pay conversion offers has the inherent potential to deceive, despite the 

presence of disclosures. The stark fact of how many consumers have actually been 

88 

deceived by this form of marketing—in the telemarketing, direct mail, and Internet 

channels—is overwhelmingly persuasive. 

Thank you for the opportunity to provide this statement and to inform the Committee of the experiences my office has had in investigating and combating the deceptive business practices that are at issue in the Committee’s investigation. I would 

be happy to provide further information at the Committee’s request. 

PREPARED STATEMENT OF BENJAMIN EDELMAN, 

ASSISTANT PROFESSOR, HARVARD BUSINESS SCHOOL

Chairman Rockefeller, Ranking Member Hutchison, members of the Committee: 

My name is Benjamin Edelman. I am an Assistant Professor at the Harvard Business School, where my research focuses on the design of electronic marketplaces, including designing online marketplaces to assure safety, reliability, and efficiency. 

My full biography and publication list are at http://www.benedelman.org/bio and 

http://www.benedelman.org/publications. Relevant disclosures appear on the final 

page of my testimony. 

Today the Committee considers important questions of consumer protection in the 

context of certain online marketing offers with a special tendency to deceive. I apologize for my absence (the result of prior commitments), but I applaud the committee’s 

efforts. My bottom line: 

• Post-transaction marketing offers systematically reach consumers in a time 

when consumers are particularly vulnerable. Post-transaction offers feature deceptive designs that invite consumers to conclude, mistakenly, that the offers 

comes from the companies the consumers have chosen to frequent, and that the 

offers are a required part of the checkout process. 

• The automatic transfer of consumers’ payment information from a merchant to 

a post-transaction marketer runs contrary to consumer expectations, and creates a heightened risk that consumers will ‘‘accept’’ financial obligations they 

did not intend to incur. 

• Disclosures fail to cure the deception created by post-transaction offers, their 

timing and formatting, and their automatic transfer of consumers’ payment information. 

• Straightforward remedies could protect consumers who have suffered unwanted 

charges, and could prevent further consumers from incurring similar charges. 

Post-Transaction Marketing Generally 

It is all too easy for a consumer to stumble into a post-transaction marketing 

offer. Typically, a user requests a merchant site to browse products and perform a 

purchase. Having added items to an electronic shopping cart, the user presses a button to check out, then completes a series of forms to provide a shipping address, 

billing address, payment method, shipping speed, and more. At the conclusion of 

that process, the user expects to receive a page confirming that the order has been 

accepted and will be processed. Instead, the user receives a ‘‘post-transaction offer’’ 

from an unrelated third party. If the user responds to that offer, the user comes 

to be enrolled in the third party’s program. Typically, such programs entail recurring fees of $10 or more per month—charges that continue unless and until the user 

takes action to insist that the charges cease. 

An ordinary web search for the names of top post-transaction marketers reveals 

thousands of dissatisfied users. Post-transaction marketers have earned unsatisfactory ratings from the Better Business Bureau, and their practices have been subject 

to consumer class actions. In the following sections, I analyze specific practices that 

have led to consumers becoming enrolled in post-transaction recurring-billing 

schemes without meaningful knowledge or consent. 

The Timing, Placement, and Format of the Post-Transaction Offers 

Deceptively Suggest that the Offers are Part of the Checkout Process 

Users in an online checkout process have a reasonable expectation, well-grounded 

in standard practice at most websites, that checkout will consist of a series of steps, 

each with a button (usually in the bottom-right corner) required to proceed to the 

next step. Users rightly expect that a checkout process will end in a page that 

prominently reports that the transaction was successful. Post-transaction marketing 

flies in the face of these expectations. 

Checkout sequence. Post-transaction marketing challenges norms for checkout sequencing. A post-transaction offer generally appears as a screen that a reasonable 

consumer might mistake for an intermediary step toward the completion of the reVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00092 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
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1http://usa.visa.com/download/merchants/rulesXforXvisaXmerchants.pdf. 

quested purchase. The post-transaction offer’s color scheme, layout, and overall design are typically consistent with the prior screens in the checkout sequence, and 

there is usually no large and prominent report that the requested transaction has 

been completed. Committed to finishing the desired purchase, and burdened by a 

lengthy checkout process, a user is especially likely to press a button with an affirmative label without reading the details and without learning that the button actually 

accepts an unrelated offer. Haste is reasonable in this context: The many steps in 

an online checkout processes leave users unusually vulnerable to unrelated offers 

that, through their timing, appear to be a necessary part of the checkout sequence. 

Size and shape. The unusual shape and size of post-transaction offers further 

hinder consumers’ efforts to recognize the offers as advertisements. From experience 

around the web, consumers recognize that most online ads conform to certain standard shapes and sizes. But post-transaction offers appear in unusual sizes—making 

them less readily recognizable as advertisements. 

Format and design elements. The format of post-transaction offers compounds deception. On many sites I have examined, post-transaction offers mimic the color 

scheme, fonts, and other design characteristics of the sites in which they appear. 

Post-transaction offers even present design elements thematically linked to the surrounding merchant’s site. (For example, a post-transaction offer on a florist’s 

website often shows flowers as part of its pitch.) These design elements further blur 

the boundary between the requested site and the post-transaction offer. 

Buttons versus links. Post-transaction offers often use a button for a positive option (e.g., to accept the offer), while a negative option is a bare hyperlink. From experience around the web, users naturally expect that buttons, not mere hyperlinks, 

advance from page to page in an online checkout process. By presenting the affirmative choice in a button but the negative option in a hyperlink, post-transaction offers 

make the affirmative choice that much more appealing—closer to what users expect 

to need in order to proceed through checkout. 

Automatic Transfer of Consumers’ Payment Information Removes a Key 

Warning that Users Are Incurring a Financial Obligation 

A distinctive characteristic of post-transaction marketing is the automatic transfer 

of users’ payment information from a merchant website to the post-transaction marketer. As a result, a user can end up facing recurring credit card charges from a 

post-transaction marketing program without the consumer ever typing a credit card 

number into any site or form operated by the post-transaction marketer. 

To most users, automatic transfer of payment information is quite unexpected. 

For one, it violates widespread norms about how online advertising works. Clicking 

an ad on a newspaper’s website does not give the advertiser the user’s credit card 

number, even if the user is a paying subscriber of the newspaper. But, remarkably, 

clicking a similar post-transaction offer can indeed transfer a credit card number— 

eliminating a key warning that would otherwise alert consumers to the impending 

financial obligation. 

Consumers rely on the process of providing a credit card number as a barrier to 

unexpected charges. Users rightly expect that by clicking from site to site, button 

to button, they do not incur financial obligations. This expectation is part of what 

makes the web fun, flexible, and low-risk: Users believe they cannot incur financial 

obligations except by typing their credit card numbers, and users expect to be able 

to cancel an unwanted transaction if a site requests a credit card number that a 

user does not care to provide. Here too, post-transaction marketing defies settled 

norms. By obtaining a user’s credit card number directly from an affiliated merchant, a post-transaction marketer can charge a consumer who has not performed 

the evaluation that consumer would naturally impose before knowingly entering 

into a paid relationship. 

Credit card network rules confirm the impropriety of automatic transfer of users’ 

payment information. Visa’s Rules for Merchants 1 say charges may occur after a 

‘‘cardholder provides the merchant with the account number, expiration date, billing 

address, and CVV2’’ (page 12). Visa’s requirement is clear: the ‘‘cardholder’’ must 

provide the information; Visa does not indicate that any designee (such an independent website) may provide this information to a partner who will later charge 

the consumer for separate and unrelated services. 

In a summer 2009 change, one post-transaction marketer began to require that 

a user retype the last four digits of a credit card number before becoming enrolled 

in that company’s service. Although this requirement may reduce some accidental 

enrollments, it does not address the core deception that yields unrequested signups. 

In no other context site can typing just four digits begin a recurring billing relationVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00093 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
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2http://bto.cnet.com/i/bto/20090723/WEBLOYALTY.jpg. 

ship; consumers rightly and reasonably expect that entering a paid relationship requires typing an entire card number. Indeed, Visa’s Rules for Merchants require 

that the consumer provide ‘‘the account number’’—the entire account number, not 

a small portion thereof. To a typical consumer, a request to reenter a portion of a 

card number looks more like a verification process than authorization: Thanks to 

Verified By Visa, nonretention of customers’ CVV codes, and other efforts to reauthenticate online purchases, consumers expect these extra requests in their online 

purchases. But typing four digits does not indicate that a consumer authorizes credit card charges from a company with which the consumer otherwise has no relationship. 

Disclosures Fail to Cure the Deception of Post-Transaction Marketing 

Practices 

Post-transaction marketers typically argue that their disclosures tell consumers 

what they’re signing up for—suggesting that any consumer who signs up must in 

fact want the service. I disagree. Although post-transaction marketers typically do 

mention pricing and selected product details, the substance and format of these disclosures fail to cure the deception created by the substance and context of the offer. 

For one, post-transaction disclosures are typically positioned where they are easily 

overlooked. For example, consumers naturally begin their inspection of a web page 

at the top-left corner (where key information usually appears), and consumers naturally proceed diagonally toward the bottom-right (which, especially in a checkout 

page, typically contains the button to proceed to the next step). Following this 

standard pattern, a disclosure in the bottom-left corner is naturally overlooked. Yet 

the bottom-left corner is exactly where many post-transaction offers present key details of their service. 

Post-transaction offers also often bury mention of key terms—for example, the 

monthly charge and the fact that charges recur each month—within long paragraphs. In the example disclosure that post-transaction marketer Webloyalty provided to CNET News.com in July 2009,2 the first mention of Webloyalty’s ‘‘$12 per 

month’’ charge appears six lines into the second paragraph of text- a location easily 

overlooked by a consumer skimming the text. Furthermore, that mention appears 

under headings labeled ‘‘Thank you . . .’’ and ‘‘Sign up to claim your rewards!’’— 

headings giving no suggestion that the paragraph actually discloses a charge. 

In the context of unprecedented automatic transfer of credit card numbers from 

one company to another, disclosures must be exceptionally effective to overcome consumers’ longstanding expectation that only typing a credit card number can create 

a financial obligation. I suspect consumers’ confusion is so fundamental that no disclosure can cure the problem. The confusion certainly is not cured by ordinary plaintype text presented within extended boilerplate below an irrelevant header. 

Credit Card Network Rules Disallow Key Post-Transaction Marketing 

Practices 

Credit card networks rules specifically disallow important post-transaction marketing practices. For one, as detailed above, Visa’s Rules for Merchants require that 

the ‘‘cardholder’’—not any intermediary or merchant—provides the card number to 

the company seeking to charge the consumer’s card. To the extent that post-transaction marketers obtain customers’ card numbers in other ways, e.g., from other 

merchants that already hold consumers’ card numbers, credit card networks should 

disallow such charges. 

Post-transaction marketers also appear to violate credit card network rules about 

recurring payments. Visa’s Rules for Merchants state that ‘‘Cardholders should be 

routinely notified of regular recurring payments . . . at least 10 days in advance’’ 

of each such charge (page 57). Most recurring billing merchants comply with this 

rule; for example, I receive monthly notifications from my mobile phone carrier and 

my broadband provider. However, I understand that post-transaction marketers do 

not provide such notifications. Visa’s rules are clear, and post-transaction marketers 

should comply with Visa’s requirements. 

Low Service Usage Rates Support an Inference of Deception 

When consumers pay for a service but systematically fail to use that service, there 

is ample basis to conclude that consumers did not intend to buy the service and that 

the service’s marketing is deceptive. See FTC v. Cyberspace.com, LLC, 453 F.3d 

1196, 1201 (9th Cir. 2006), drawing an inference that solicitation was deceptive from 

the fact that less than 1 percent of consumers ever used an Internet service they 

allegedly accepted by cashing or depositing a solicitation check. 

91 

3 ‘‘ Webloyalty Announces Relationship with Clipper Magazine.’’ August 19, 2009. 

4 At the suggestion of the Center for Democracy and Technology, similar accountability was 

added to certain adware popups-telling consumers what software caused them to receive the 

bundled adware that later showed popups. Such accountability helped put an end to deceptive 

adware bundles. 

The FTC’s reasoning is directly on point in the context of post-transaction marketing. A Webloyalty press release from August 2009 claims ‘‘over 2 million memberships.’’ 3 Yet traffic analysis service Alexa.com reports that neither Webloyalty .com nor any of its product sites (Reservationrewards.com, Shopperdiscounts 

andrewards.com, Travelvaluesplus.com, Walletshield.com, and Completesavings.com) 

appear within Alexa’s top 100,000 sites. The difference is readily explained: Blogs, 

new stories, litigation allegations, and other sources all report systematic user complaints that they did not know they were enrolled in a Webloyalty program and that 

they certainly never used any Webloyalty services. As in Cyberspace.com, this gap 

between signups and users confirms that Webloyalty’s marketing failed to obtain 

meaningful consent from the users who purportedly ‘‘accepted’’ Webloyalty’s offer. 

Ordinary Market Mechanisms Do Not Hold Post-Transaction Marketers 

Accountable 

The structure of post-transaction marketing impedes users’ efforts to determine 

which merchants passed their payment information to a post-transaction marketer—preventing users from complaining to those merchants. As a result, the merchants that provide users’ credit card numbers to post-transaction marketers generally escape criticism for supporting these practices. 

Meanwhile, users sometimes blame companies that in fact had no role in posttransaction marketing. For example, I have read complaints blaming Amazon, AOL, 

eBay, and Paypal for subscribing users to Webloyalty, when in fact not one of these 

companies has ever promoted Webloyalty. 

Competition between firms further hinders accountability. When a sector includes 

some sites that promote post-transaction offers and some sites that refuse to include 

such offers, the former group enjoys a revenue advantage that the latter lacks. As 

a result, the former can tout lower prices—knowing that some portion of users will 

see a post-transaction offer, respond, and incur charges that make up for the lower 

up-front price. Users appreciate the low posted prices but cannot readily assess the 

costs of post-transaction marketing. As a result, sites that participate in post-transaction offers appear to offer lower prices and a better value, when in fact their revenue advantage is, for many users, illusory and in any event, ill-gotten. 

Suggested Remedies 

I suggest seven specific remedies for deceptive post-transaction marketing practices: 

• End automatic credit card transfer. Merchants should cease providing, and posttransaction marketers should cease receiving, consumers’ credit card numbers. 

If a consumer is to sign up for a post-transaction offer, the consumer should 

retype her credit card number -just as is required for all other online purchases. 

This additional step will help the consumer understand that the post-transaction offer is separate from, and additional to, the transaction the user had initially requested. 

• Improved disclosures. Under a clear heading (‘‘monthly fee’’), separate and apart 

from other text, a post-transaction disclosure should present the essence of the 

consumer’s obligation. Language should be clear and direct—concise declarative 

sentences, without unnecessary complication or excess detail. Formatting should 

be designed to draw attention to these key disclosures, separating this material 

from marketing copy. 

• Monthly reminders of impending charges. Consistent with credit card network 

rules, post-transaction marketers should notify each consumer before each 

monthly charge. 

• Disclosure of consumer signup sources. In monthly e-mails to consumers, in an 

online account management interface, in call center scripts, and/or in credit 

card charge details, post-transaction marketers should remind consumers how 

they signed up.4 No consumer should be left wondering which website presented 

a post-transaction offer. 

• Easy reversal of unauthorized charges. Pursuant to a class action settlement, 

Webloyalty currently agrees to refund historic charges if a user completes and 

mails a four-page affidavit. But Webloyalty was happy to enroll users with just 

a few clicks, and cancellation of charges should be equally easily—not requiring 

92 

a lengthy form, signature, certification, and more. Nothing in the settlement 

prohibits Webloyalty from granting refunds more easily than the settlement requires. Nor should these refunds become unavailable when the settlement 

claims period comes to a close. 

• Notification and easy refunds for current non-users. For current subscribers of 

post-transaction services who have not used such services recently (or at all), 

there is good reason to doubt the efficacy of prior ‘‘consent’’ for associated 

charges. Such users should receive individual e-mail and postal notification of 

the programs in which they have been enrolled, the duration of enrollment, and 

the charges they have incurred. Withdrawal and refund should be as easy as 

possible—a single hyperlink or a return postcard. All charges should be refunded to the consumer’s original form of payment or by check, without requiring an extended refund procedure or affidavit. 

• Ongoing cross-check of usage rate. If a paid service has an unusually low usage 

rate, that is prima facie evidence that users may be enrolling in the service 

without understanding what they’re getting. The FTC, state attorneys general, 

or this committee could monitor usage rates at large post-transaction marketers 

to confirm that large numbers of consumers are not tricked into paying for services they are not using. 

Last month FBI Director Robert Mueller admitted that he nearly succumbed to 

a phishing scheme. In response, Mueller’s wife banned him from further online 

banking. That’s a troubling outcome—in part for the public’s ongoing losses to 

phishing, but also for the costs and inefficiencies that will result if others follow 

Mueller’s lead and abandon online banking. 

Through its current work, this committee can protect the balance of online commerce from the deterioration of trust currently tainting online banking. I seek an 

Internet that is safe for commerce—safe not just for the savvy shopper and tech expert, but also for regular users, including users who are busy, hurried, distracted, 

or even naı ̈ve. Conversely, the Internet cannot achieve its full potential if convoluted 

schemes trick consumers into incurring charges for services they did not request 

and did not fairly accept. Trusted Internet commerce has no place for credit card 

numbers copied from merchant to merchant, for obfuscated disclosures, or for tricky 

charges disguised as ‘‘savings.’’ Ongoing oversight by this committee can help put 

an end to these important problems. 

Disclosures 

I appear on my own behalf, not on behalf of Harvard Business School or anyone 

else. 

I serve as a consultant to a variety of companies on subjects unrelated to those 

issue here, though often generally on the subjects of online advertising and fair 

treatment of consumers. My biography, http://www.benedelman.org/bio, details 

those of my clients for which I have had occasion to make public disclosure. 

WEBLOYALTY.COM

Norwalk, CT, November 16, 2009 

Hon. JOHN D. ROCKEFELLER IV, 

Chairman, 

Hon. KAY BAILEY HUTCHISON, Ranking Member, 

U.S. Senate Committee on Commerce, Science, and Transportation, 

Washington, DC. 

Dear Mr. Chairman and Ranking Member Hutchison: 

I write in regard to the hearing that is scheduled for tomorrow, Tuesday, November 17, 2009, on Internet marketing practices. As you are aware, Webloyalty has 

been cooperating with the Committee’s investigation and we agree that this is an 

important inquiry. 

Please know that I readily agreed to your staff’s invitation to testify this week, 

but that invitation was withdrawn. Even though I have not been permitted the opportunity to testify today and I strongly disagree with some of the characterizations 

that your staff has used in promoting this week’s hearing, I remain hopeful that 

you will afford Webloyalty a fair hearing on the issues surrounding point-of-sale 

marketing on the Internet. 

Our company stands ready to testify at any time and I repeat the offer we have 

made many times to your staff: we are fully prepared to work with the Committee 

in crafting industry-wide rules that protect consumers and allow them the benefits 

93 

of what we believe are our valuable membership programs that provide significant 

advantages. 

Toward that goal, I thought it might be helpful to provide you with some background, elaborated in the attached Webloyalty Fact Sheet, on our company and how 

we do business. In particular, I want to address the concerns raised regarding consumers’ awareness that they are joining a subscription program and the value they 

receive when they join. 

At the point of sale by one of our e-retailer partners, Webloyalty offers subscription programs that can save consumers hundreds of dollars each year on travel, entertainment, shopping and dining out. This type of marketing has existed for many 

years in the off-line world. We are all familiar with, for example, being offered an 

extended warranty when purchasing an appliance or personal training sessions 

when joining a gym. We have learned much about adapting this approach to the 

Internet to ensure consumers know what they are buying and how they are paying 

for it. We have made significant strides in listening to consumers and working with 

our e-retailer partners to continually improve the clarity of our offers and the quality of our services. 

Effective August 1, 2009, we introduced several changes to the way consumers 

join our programs and how we communicate with them once they become members. 

Most significantly, in addition to enhanced written disclosures, Webloyalty began requiring consumers to enter the last 4 digits of the credit or debit card they used 

to pay for the purchase from our e-commerce partner to confirm they want to charge 

that card for their membership after a 30-day trial period. The Company stands 

ready to discuss with the Committee this and other possible solutions that provide 

assurance that consumers are affirmatively choosing to join our programs. 

We do not want members in our programs who are unaware they have joined. Our 

programs work best for consumers and our company when our members are active 

users of the savings and discounts we provide. Following enrollment we send new 

members at least five e-mails during the 30-day trial period to encourage use of the 

service and remind them about billing. We also make it easy to cancel a subscription, if a member so chooses. Every communication includes our toll-free customer 

service number that members can use to ask questions about program benefits or 

to cancel their membership. 

We believe the changes we have made over the years culminating in our most recent changes in August demonstrate our commitment to learning from our experience and continuously improving the way we engage with consumers. We believe 

our current practices set a new standard for the industry and we are gratified that 

others in the industry are now adopting the measures we implemented last August. 

We appreciate the efforts of the Committee to ensure that firms that engage in 

point-of-sale marketing on the Internet use appropriate consumer protection measures. Webloyalty is strongly of the view that our membership programs bring great 

value to our customers and we hope you will be mindful of the many changes that 

we have made in our marketing approaches in an effort to bring greater transparency and meaningful communication to consumers. 

We are hopeful that the changes we have adopted address many of the concerns 

raised by this Committee’s inquiry. We look forward to working with the Committee 

to help you understand and continue to improve our industry. 

Thank you for the courtesy of receiving this communication; I respectfully request 

that this letter and the attached Webloyalty Fact Sheet be made a part of tomorrow’s hearing record. 

Respectfully yours, 

RICHARD FERNANDES, 

CEO. 

Cc: Members of the Committee 

Webloyalty Fact Sheet 

November 2009 

Company Description 

As the leading provider of online membership subscription programs, Webloyalty 

provides easy access to dining, shopping, travel discounts and additional travel protection benefits. Through its ever growing network of benefit providers, Webloyalty 

offers more than 60,000 dining discounts, 25,000 shopping discounts and 10,000 attraction discounts throughout the U.S. and Canada. 

Webloyalty provides savings and offers through four membership programs—Reservation Rewards, Shoppers Discounts & Rewards, Travel Values Plus, and ComVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00097 Fmt 6633 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
94 

plete Savings—to consumers who have already established relationships with an online commerce site. Our members typically join by responding to an offer made as 

they complete a purchase with one of our e-commerce partners. They immediately 

gain access to all the program’s benefits on a 30-day trial basis at no cost to the 

consumer and for a monthly subscription fee thereafter. 

Webloyalty is dedicated to upholding the highest standards of fair conduct and 

transparent practices, as described in our Principles, which influence all that we do: 

Value —Webloyalty is committed to providing value to all online consumers who 

join our programs. 

• Webloyalty wants customers to take full advantage of our products and services 

to save money and access benefits they may not be able to find on their own. 

Transparency—Webloyalty wants consumers to know what they are buying and 

how they are paying for it. 

• The key terms of any membership offer, including cost, methods of payment and 

opportunity for cancellation must be easily identifiable and readily understood. 

• The key terms of any membership offer must be provided to the consumer before the consumer consents to join a program. 

Affirmative Consent—Webloyalty believes that the consumer should authorize 

every billing-related transaction with information plainly related to billing. 

Privacy and Security—Webloyalty meets, and seeks to exceed, the most stringent 

industry standards for protecting consumers’ personal information. 

Customer Service—We are committed to providing the highest level of customer 

service to all consumers and addressing their concerns promptly and satisfactorily. 

Services/Programs 

Webloyalty offers are a form of point of sale marketing, similar to a magazine at 

a supermarket checkout or receiving an offer for a car rental following the purchase 

of an airline ticket. After completing a sale with one of our e-commerce partners, 

we offer benefits that, if accepted, provide consumers the ability to save on their 

next purchase from the partner’s site as well as access to savings on other products 

and services. 

Webloyalty offers subscription membership programs that can save consumers 

hundreds of dollars each year on entertainment, shopping and dining out. Some examples of our combined program benefits include but are not limited to: 

• Discounted gift cards (typically 20 percent off) for popular stores, sites and restaurants 

• $5 movie tickets for national chains, including AMC Entertainment; Cinemark 

Theatres (Cinemark, Century Theatres, Cinearts and Tinseltown); Mann Theatres; National Amusements Theatres and Pacific Theatres 

• Coupons and values from national distributors including Clipper Magazine, 

MoneyMailer and ValPak 

Enrollment Process 

Webloyalty’s practices have evolved over the years and, since August, the company has made a number of changes to the enrollment process including requiring 

consumers to take the additional step of entering the last four digits of the credit 

or debit card they used to pay for the purchase from our e-commerce partner to confirm they want to charge that same card for their membership following a 30-day 

free trial period. The process is as follows: 

• Consumers are shown a full-page solicitation offering one of Webloyalty’s programs for $12 per month after a 30-day free trial period and $25 cash back for 

trying the service. If consumers wish to accept the offer to join the program, 

they must enter an e-mail address twice and, as of August, 2009, must enter 

the last 4 digits of their credit or debit card to indicate consent to have that 

card billed for the membership following the free trial period. The consumer 

then clicks the ‘‘YES! Click Here to Sign Up’’ button. 

To the left of the ‘‘YES!’’ button are the ‘‘Offer and Billing Details’’ which explain 

that consumers will be billed on the credit or debit card used for the transaction 

with our e-commerce partner. The following information appears above the ‘‘YES!’’ 

button, with the following language: 

• ‘‘Enter the last 4 digits of your credit or debit card and your e-mail address as 

your electronic signature to confirm that you have read and agree to the Offer 

and Billing Details and authorize <online-retailer> to securely transfer your 

95 

name, address and credit or debit card information to <Webloyalty Service 

Name> for billing after your 30-day free trial.’’ 

• After the consumer has consented, the consumer’s billing information is passed 

from the e-commerce partner to Webloyalty in an encrypted format to help ensure security and protect privacy. 

• In sum, Webloyalty cannot and will not enroll a consumer in one of our programs without that individual’s express and informed consent. The data transfer process works only if the consumer: 

»Enters the last 4 digits of his or her credit or debit card and it matches the 

data on the card used in the transaction with our e-commerce partner; 

»Enters his or her e-mail address twice; and 

»Clicks on the ‘‘YES! Click Here Now to Sign Up’’ button. 

Member Communication 

Webloyalty regularly communicates with its members by sending at least five emails in the initial 30-day trial membership period, all prior to consumers incurring 

any costs. 

• All of the e-mails encourage members to use the service and provide a 1–800 

number for customer service; 

• Two of the e-mails provide reminders that the member’s credit card will be 

charged $12 per month at the conclusion of the 30-day trial period. The e-mails 

also provide information about how to cancel the membership before billing begins. If either of the two billing reminder e-mails is returned undeliverable, 

Webloyalty sends an offline letter with the same information. If that letter is 

returned, the membership is canceled. 

• Thereafter, members continue to receive regular communications highlighting 

specific or new benefits. 

• We also make it easy for members to reach out to us by phone, Internet or email. In addition to a voice response system that is available 24 hours 7 days 

a week, operators are available 15 hours a day, Monday through Friday, and 

8 hours a day on Saturday and Sunday. 

Statement from Webloyalty CEO Rick Fernandes 

Webloyalty offers subscription programs that can save consumers hundreds of dollars each year on entertainment, shopping and dining out. We want consumers to 

know what they are buying and how they are paying for it, and we will listen to 

consumers and work with our e-retailer partners to continually improve the clarity 

of our offers and the quality of our services. Effective August 1, 2009, we introduced 

a significant change to our enrollment process: Webloyalty now requires consumers 

to enter the last 4 digits of their credit or debit card to confirm they want to charge 

that same card for their membership. 

We believe the changes we have made over the years and continue to make show 

that we are committed to learning from our experience and continuously improving 

the way we engage with consumers. We believe our current practices set a new standard for the industry and address many of the concerns raised by the Senate Commerce Committee inquiry. We are glad to see that others in our industry are following 

our lead. 

The CHAIRMAN. And statements by members of the Committee 

who wanted to be here but were unable to be here because, as 

usual, there are many, many hearings going on. 

A final question from our experts. I guess to you, Professor 

Marotta-Wurgler. Affinion and Vertrue and Webloyalty have recently announced their reincarnation and they’ve decided to pull 

back a little bit. It’s interesting, it’s interesting. I mean, it’s just 

like, you know, I get a letter from the CEO of US Airways Group, 

Inc., saying they’re not going to do this any more. We haven’t even 

had the hearing and I got it yesterday. Then Continental Airlines 

is going to check in and probably pull out of the whole thing. It just 

shows how fragile this whole situation is and how devastating it 

is and how easy it is to make it devastating. 

96 

So Affinion, Vertrue, and Webloyalty have sort of pulled back a 

little bit, and what they’re now going to require their customers, 

consumers, is to enter the last four digits of their credit card for 

proof of acceptance of their offer. Now, Vertrue announced this 

move just yesterday and Affinion announced their move on Friday 

of last week. 

Professor Marotta-Wurgler, I understand you recently enrolled in 

one of these programs after you purchased movie tickets from Fandango. Did they ask for your last four digits of your credit card as 

proof of enrollment? 

Ms. MAROTTA-WURGLER. Yes, Mr. Chairman, I did, on Friday 

night. I thought it would be a good experience before the hearing 

to actually enroll in this service. I was actually concerned about 

whether the confirmation e-mails disclosed anything. 

And yes, I did purchase a movie ticket to see ‘‘Where the Wild 

Things Are,’’ which I didn’t go to. And I received a pop-up telling 

me of a ‘‘$10 reward’’ everywhere, asking me to please claim my 

reward, and requested that I enter my e-mail address and the last 

four digits of my credit card number. 

I was too lazy to pick up my credit card from my wallet, which 

was far away from the chair where I was sitting. So what I did, 

given that I was at the Fandango website, I went to my account, 

where I saw my billing information, and of course there were little 

stars crossed off on my credit card number, except for the last four 

digits, which I just copied and pasted onto the box that requested 

it, and I clicked ‘‘I Agree.’’ 

I don’t think this is enough notice. It’s clearly a little bit better 

than it used to be, but it is clearly not enough notice, for two main 

reasons. One is that these offers appeared to come from the original vendor. So, it seems that when one’s dealing with the original 

vendor and given current business practices, not only online but 

also offline, one associate giving the last four digits of a credit card 

number as a way of verifying one’s identity, not as a way of paying. 

So when you call your credit card company, they want to know who 

you are, and they ask for the last four digits of your credit card 

number or the last four digits of your social security number as a 

way of identifying you. 

So inserting the last four digits of my credit card number didn’t 

require any extra effort. It didn’t really require that much more attention, because I thought that Fandango was the one offering me 

$10 for being a loyal customer and that they were just trying to 

see that I was the person who I was claiming to be, because now 

they have a little legend that says ‘‘Limit One Per Person,’’ just in 

case people are flooding to be part of these types of services. 

So yes, they give you on one side, but they take away on the 

other. So I don’t believe these are enough. They’re clearly better 

than the default, but they’re certainly not enough. 

The CHAIRMAN. I agree, and I thank you for that. 

The great news is that Senator McCaskill is on her way over 

here at about 127 miles per hour and she wants to get in one round 

of questions before the vote. So I’ll defer to her the moment she 

steps in. 

From my point, just a few closing thoughts. This investigation, 

I think, starts and ends with the American consumer. Everybody’s 

97 

taking advantage of everything they can. The buck is always a 

temptation, and when it comes up, like in telemarketing, we stop 

it. When it comes up here, we’ve got to stop it. You can argue 

whether it should be the FTC or legislation, whatever. But the 

point is, we have to stop it. We have to stop it from happening ever 

again and expose it for those who continue to do it. 

My message to consumers I guess would be, be very careful. 

Make sure your glasses are good so you can read fine print, but you 

probably will never get there on that. That’s a subject that really 

makes me very, very angry, the use of fine print to deceive Americans at all levels on many subjects which we have not even covered 

at this hearing, the use of small print to hide pharmaceutical secrets—you know, does this mix with that, et cetera? Well, it’s in 

the fine print. Well, you should have read the fine print. 

That infuriates me. So I think this is a huge problem. It’s a Main 

Street problem, it’s an American problem. It’s sort of classic greed. 

The sad part is that, you know, these big companies, they’re getting 10 bucks a month or $19.95 a month, and actually Webloyalty, 

et cetera, they can raise it to whatever they want. There’s nothing 

stopping them, right? So they can raise it to whatever they want. 

As I indicated, they get to try to figure out what the very point 

is where Ms. Lindquist goes bananas because she suddenly realizes 

she’s really being had, and then she closes down. So that fine art. 

Beware if you’re a consumer. 

I worry about this, frankly, because the holiday shopping season 

is just beginning, and all over this country, people who are in economic distress will be spending what few dollars they have on holiday shopping because they have children and grandchildren and 

that’s what parents and grandparents tend to do. 

That brings me to my second thought, and that is my message 

for the companies that profit from tricking consumers into joining 

their clubs, yet say over and over again that what they do is legal 

and they operate within the law. I’m not a lawyer, but this is what 

I think. Just because you say what you do is legal, it doesn’t make 

it right. 

Professor Cox, I’d like you to finish my sentence. 

Mr. COX. Amen. 

The CHAIRMAN. All right. 

We’re waiting now on Senator McCaskill. Believe me, it’s worth 

the wait. 

If we did this to telemarketers and stopped them cold, what’s the 

big problem? 

Mr. COX. Mr. Chairman, I don’t actually agree that we’ve stopped 

telemarketers cold. One of the things we did—and I was intimately 

involved in the telemarketing sales rule promulgation. But the 

original rule was exactly what we’re talking about: You just can’t 

sell billing information and can’t give it to a third party. 

Then somewhere in the process between the proposed rule and 

the final rule, we wound up with this very complex process that involved this concept of free-to-pay conversions. So actually companies started to circumvent all of that by just charging a dollar. Instead of saying it’s free, they say it’s a dollar to get your $10 coupon or whatever. So there actually are still problems, particularly 

with inbound telemarketing, where you just call your customer 

98 

service representative at the bank and then when they’re done 

talking to you they say: Oh, by the way, would you like to do this? 

An example of that would be Ticketmaster. You call Ticketmaster 

and when they’re done, depending on the kind of ticket you called 

in for, they’ll say: Are you interested in a free trial offer in this? 

I’m not sure that the telemarketing sales rule completely solved 

that problem. In fact, I’m almost sure it didn’t. I think it raised the 

stakes just a little bit and that made it enough so that companies 

shifted most of their resources over the direct mail and the Internet. But the problem is if you push those down, maybe this becomes more attractive. I don’t think we’ve completely solved that 

problem. 

The CHAIRMAN. You know, granted I’m waiting for Senator 

McCaskill, but the Internet is very interesting to me, because it 

was discovered by DARPA and is the source of almost everything 

that everybody does. I don’t go on AOL.com; I go on Amazon.com 

for books. 

Then yet, under President George Bush and under President 

Barack Obama, there are two Directors of National Intelligence, 

who are the most powerful people in their two administrations’ respective intelligence worlds, have both said that the number one 

national security threat is not North Korea, is not China, is not 

Iran; it is cybersecurity. That is the use of the Internet from any 

place in the world, undetectable for the most part, to shut down already portions of Brazilian cities. They’ve already done a lot of 

damage to the Pentagon, to a variety of—downloading endless 

amounts of information from secret U.S. Government sources. 

So the Internet is our friend and the Internet is our enemy and 

the most dangerous thing that confronts us in terms of surviving. 

They can shut down a grid, they can shut down hospital systems. 

I mean, it’s a very tricky business to me, the Internet. 

If somebody can’t tell me that Senator McCaskill is about here, 

I’m going to close the hearing. 

I’m sorry, I can’t wait. If you want to, she’ll pop in here and she’ll 

be worth it, because she’s terrific. And she’s a prosecutor, attorney 

general, all this kind of stuff, and she’s just wonderful, and aggrieved on this subject. 

I want to thank you all very, very much for taking the time. I 

think I agree with you, Professor Cox, that this will have, this 

hearing will have an effect. It already has. It may be $10 or $20 

a month, but its a wrongful $10 or $20 and it’s not fair to do that 

to the American people under any circumstances, and we have to 

stop it. 

Having said that, this hearing is adjourned. 

[Whereupon, at 4:34 p.m., the hearing was adjourned.] 

(99) 

A P P E N D I X 

PREPARED STATEMENT OF HON. MARK PRYOR, U.S. SENATOR FROM ARKANSAS

I’d like to thank Chairman Rockefeller for holding this hearing today. I welcome 

our expert witnesses and I thank them for being here. Their testimony and feedback 

are important to inform our discussion. 

I thank the Committee and staff for their hard work as they continue to investigate in this area. 

Today we examine certain Internet sales tactics and their impact on the American consumer. As the Subcommittee Chairman of jurisdiction over the Federal Trade Commission, I am very interested in this subject. Protecting consumers from unfair or deceptive acts or practices is one of the FTC’s core missions in its base statute. 

For me, it’s essential to determine whether and the extent to which consumers 

are being misled or taken advantage of in this domain. If consumers are being 

abused, this Committee will work together to protect them. 

I know many state Attorneys General have filed suit against the players under 

investigation by the Committee. As a former state Attorney General, their actions 

indicate to me that more scrutiny and light must be shed on this subject. 

If third parties are manipulating Arkansans and Americans’ online purchasing 

power, this causes a decline in the integrity of e-commerce. Less consumers will be 

willing to make online purchases if they are being charged for membership clubs 

they did not know they had enrolled in. 

Consumers must be empowered to control their purchase decisions—whether the 

exchange occurs face to face or over the Internet. The insertion or typing of credit 

card information online appears to signal a consumer’s consent to a purchase. Without this consent or requisite action, I am skeptical of third parties that claim the 

rights to consumers’ hard earned dollars. 

I look forward to learning more about the complex dynamics of this debate. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

ROBERT J. MEYER

Question 1. These companies have a long history in the telemarketing business 

and I’m sure have utilized research to figure out who they want to go after. Do you 

know if these companies target certain groups with their Internet practices? Do they 

deliberately target seniors or vulnerable groups? 

Answer. The number of customers taken in by these schemes is quite large and 

cuts across age, education, and income classes. Within this large pool, however, 

some segments are inherently more vulnerable than others to the schemes, and the 

firms display evidence of exploiting these selective vulnerabilities. Vulnerable subpopulations include consumers of limited income for which the sign-up premiums 

would hold particular appeal, older consumers who have had limited experience in 

making purchases on line and may have not fully comprehend the complex web layouts that typically accompany the solicitations, and younger (or older ) consumers 

who are overly trusting of on-line solicitations. Elderly consumers are also vulnerable in cases where their monthly large statements are handled by third parties 

(e.g., a son or daughter) who are less likely to noticed errant charges. 

While I am not aware that these companies have an a priori goal to target certain 

consumer groups, disclosures made to the Iowa Attorney General’s office by Vertrue, 

Inc. suggest they actively engage in experimentation with different web designs, 

premiums, and program content to discover those that maximize consumer take-up 

while minimizing pay-outs of initial premiums and the filing of benefit claims within 

the programs themselves. These experiments have yielded a de facto targeting strategy that maximizes revenue from the groups identified above. To illustrate, the 

schemes make use of sign-up premiums that are likely to hold particular appeal 

among budget-conscious consumers, such as free credit reports, small discounts on 

purchases and gift cards that could be used at economy-focused retailers such as 

100 

Walmart. Likewise, the content of many of the benefit programs themselves are also 

implicitly designed to hold special appeal to either lower-come and/or older consumers, such as those that are designed to look like health plans and financial privacy -protection programs. 

Question 2. Once people find out they have signed up for the memberships, how 

difficult is it to cancel? Do the companies have tactics they utilize to try to retain 

customers? How truthful or not are they about what programs the customer has unwittingly entered into? 

Answer. There are three parts to this question, and it is best answered by describing the overall business objective of these firms and the steps they take to achieve 

this objective. In essence, the business model of these firms is rooted in an attempt 

to arbitrage consumer ignorance; they seek to secure one or more months of un-refunded membership payments from customers for a discount membership program 

for which consumers are unaware that they are members, or for which they are unable to secure any benefits. 

While the programs vary quite a bit in specific content, in almost all cases they 

are dead-loss propositions as viewed by the firm, in the sense that the monetary 

value of the advertised benefits typically exceeds the cost of providing those benefits. For example, a primary feature of several of the shopping programs offered by 

Vertrue, Inc. is the ability to secure gift cards to a variety of merchants at less than 

face value—e.g., $25 Target Gift cards for $20. Because the programs offer consumers no benefits other than the ability to obtain such discounts, a consumer 

would rationally agree to pay for membership only if the realized savings exceeds 

the monthly membership charge. Disclosures made to the Iowa Attorney General’s 

office, however, indicated that in most cases the cost to the firms of securing the 

gift cards is close to (and in some cases fully) face value. Hence, the firms have a 

financial incentive to insure that consumer make little or no use of the programs 

that they are unrolled it—-that is, that consumers pay more each month for membership than they get back in discounts. 

Because few consumers would likely voluntarily enter into such an exchange, the 

firms are economically viable only if they are successful in deception. Specifically, 

the firms seek to maximize the difference between monthly membership payments 

from consumers and benefits paid out by: 

1. Making consumers unaware that that they are members of the program to 

begin with and; 

2. Constructing transaction costs that are not revealed at the time of enrollment 

that make it unlikely that consumers who are aware of their memberships will 

file claims. 

The firms involved are fully aware that as soon as consumers discover that they 

are members and/or discover the transaction costs involved in securing benefits they 

will cancel. Hence, the goal is ‘‘keep them on the line’’ as long as possible, securing 

at least 2–3 months of payments from each before cancelation. While the firms have 

become increasingly compliant in allowing consumers to cancel when they discover 

that they are members, disclosures made to the Iowa Attorney General’s office by 

Vertrue suggest that the firms have written policies designed to make it difficult 

for consumers to recoup unintended past monthly payments. Such restitution is 

typically only made if the consumer takes such actions as file formal claims with 

a Better Business Bureau, or threatens to contact a lawyer or law enforcement. 

Once hooked, the firms use a number of means to insure that they secure from 

consumers at least a few months’ membership payments. These include: 

1. Monthly billing amounts that maximize the chance that the charge will fall 

‘’under the radar’’ of consumers’’; 

2. Lengthy procedures for recurring sign-up premiums that, in essence, require 

that the consumer makes 1–2 months of payments before they can realize the 

sign-up benefit (which will be less than the monthly payments); and 

3. Initial descriptions of the programs that conceal the transaction costs required to secure benefits. 

To illustrate point (2), some programs offered by Vertrue lure consumers with a 

promise of a ‘‘free’’ $25 gift card for use at certain retailers (such as Walmart), in 

exchange for agreeing to a 30-day ‘‘risk-free’’ trial membership in a discount program. Not revealed at the time of the solicitation, however, is the fact that to receive this premium consumers must fill out two waves for forms which are sent back 

to the company, with the total time between the initial sign-up and the receipt of 

the premium being up to 3 months. Because of an ‘‘active membership’’ requirement, 

101 

the firm thus insures that it has received $30–$45 from the customer (based on a 

$15/month fee) before the $25 premium is awarded. 

To illustrate point (3), similar transaction costs are also imposed on consumers 

who attempt to claim benefits within the programs. For example, the initial solicitation does not inform consumers that while indeed they can get $25 gift cards for 

$20, they are required to first pay the firm (e.g., Vertrue) full price for the card, 

file for a rebate, and finally receive the $5 benefit several month later. In addition, 

each claim requires the consumer to submit a separate round of paperwork. It is 

not surprising that the imposition of such costs has had the effect of reducing usage 

rates of the programs to near zero. 

Question 3. The disclosure and full details of the offer is buried in small print on 

the example page that I have here. Most people won’t see this because they will 

want get to the purchase fast and think they are getting a discount. Moreover, seniors will often miss details like this when purchasing items. In your view, what level 

or type of disclosure is needed to make these practices fair for consumers? 

Answer. The most fundamental fix is to prohibit the agreement that is contained 

within the fine print—-current provisions that allow one seller to pass credit-card 

information obtained from a consumer to another seller. If consumers—of any age— 

had to fully re-enter their credit and address information when exposed to the new 

solicitation they would: (1) realize that this a new transaction, not a continuation 

of the previous one; and (2) have a greater motivation to carefully examine the details of the offer they were agreeing to. Other—and perhaps legally more viable— 

options include: 

1. Prohibiting automatic re-enrollment in ‘‘trial membership’’ programs. If a 

firm offers a consumer the chance to examine a program for 30 days so they 

can see the benefits, the default action has to be non-enrollment, not enrollment. This would bring on-line practices in congruence with norms in most 

other areas in commerce where ‘‘free trial’’ does not come with an implicit 

agreement to purchase. 

2. Prohibiting masking the identity of the seller promoting a given web page. 

One of the reasons consumers are often unwittingly drawn in to these 

schemes—and overlook fine print—is that they are led to believe that the solicitation is being made by the company with whom they made their primary purchase, and for whom they hold trust. 

RESPONSE TO WRITTEN QUESTIONS SUBMITTED BY HON. CLAIRE MCCASKILL TO

FLORENCIA MAROTTA-WURGLER

Question 1. These companies have a long history in the telemarketing business 

and I’m sure have utilized research to figure out who they want to go after. Do you 

know if these companies target certain groups with their Internet practices? Do they 

deliberately target seniors or vulnerable groups? 

Answer. It’s quite apparent that post-transaction marketers employ tactics to deceive consumers by highlighting the reward part of their offers while effectively concealing in fine print the financial obligations that are attached to them. In my view, 

their approach is to deceive as many people as possible, without really focusing on 

a particular group. Given that consumers are not required to enter their credit card 

information to sign up, even the savviest consumers can be easily tricked into these 

memberships. But there are indeed groups of individuals who are especially vulnerable. Seniors who are less acquainted with online commerce and who might be less 

inclined to peruse the fine print are especially vulnerable. The same applies to individuals whose first language is not English and who might be unable to understand 

the terms of the offer. 

Question 2. Once people find out they have signed up for the memberships, how 

difficult is it to cancel? Do the companies have tactics they utilize to try to retain 

customers? How truthful or not are they about what programs the customer has unwittingly entered into? 

Answer. Even though the terms of these offers often list a number where consumers can call to cancel their memberships, most consumers only find out about 

their subscription after having spotted the post-transaction marketers’ charges in 

their credit card statements months (or years) later. As a result, many simply don’t 

know whom to call to cancel. Some companies list an 800 number as a reference 

where consumers can call in and cancel their services, but this number is often obVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00105 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
102 

1See, e.g., ‘‘Aggressive Sales Tactics on the Internet and Their Impact on American Consumers, Staff Report for Chairman Rockefeller’’ [hereinafter Staff Report] (November 16, 2009) 

at pg. 26, outlining some customer experiences in attempting to cancel. 2See Staff Report, id., at page 23. 

scured in the fine print. Consumers’ success in canceling has been mixed.1 Some call 

many times and are unable to cancel. I’ve had limited personal experience with this 

issue when I purposely signed up for Reservation Rewards after purchasing movie 

tickets at Fandango.com and soon after tried to cancel. Unlike most consumers who 

want to cancel, I had obviously read the terms of the offer and was thus aware of 

the company providing the service as well as the number I was supposed to call. 

Once I called the number I was asked if I wanted to cancel. After indicated that 

I did, I was asked again where I indeed wanted to cancel and was prompted to press 

the number 1 if I wanted to stay and the number 2 if I wanted to cancel. These 

additional steps are likely set up to confuse consumers into not canceling. That 

being said, after pressing the right number, I received an e-mail notifying me of the 

effective cancellation. 

Not only do these companies deceive consumers into registering for (and subsequently canceling) their services, they are also deceitful in their description of the 

proffered benefits offered to consumers. For instance, most companies offer consumers rewards that would appear to become effective immediately after the consumer signs up to the service. This is almost never the case. Soon after registering, 

text in fine print reveals that consumers must take many additional steps to claim 

their rewards. It thus shouldn’t be surprising that few consumers do. Moreover, in 

order to enjoy the benefits of the membership, consumers must be aware of the service and log on to their page to become informed about the benefits. Given that most 

consumers are unaware that they are enrolled, they are unlikely to participate. 

Data confirms that usage rates of these services are extremely low.2

Question 3. The disclosure and full details of the offer is buried in small print on 

the example page that I have here. Most people won’t see this because they will 

want get to the purchase fast and think they are getting a discount. Moreover, seniors will often miss details like this when purchasing items. In your view, what level 

or type of disclosure is needed to make these practices fair for consumers? 

Answer. In my view, the existing fine print disclosures do not effectively communicate the terms the relevant terms of the offer. My first suggestion would be to 

require these companies to ask consumers to enter their payment information before 

registering. Even if consumers don’t read the terms, regardless of how prominent 

they are, the act of entering payment information should provide them sufficient notice about the nature of the transaction. Second, these companies should identify 

themselves prominently as distinct from the selected vendor. This also will reduce 

consumer confusion. Third, these companies should improve the quality of their disclosures by framing their offers in a manner that is not deceptive, e.g., by clearly 

and prominently explaining fees and services, following disclosure norms of the typical online transactions. These disclosures should be followed up with regular e-mail 

updates informing consumers of the monthly charges, their usage rates, and cancellation procedures. All disclosures should be written in clear, short, and plain language with no distracting features. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. JOHN D. ROCKEFELLER IV TO

PROFESSOR PRENTISS COX

Question. In response to the Senate Commerce Committee’s investigation into 

their business practices, Affinion, Vertrue, and Webloyalty recently announced that 

they have changed their policies for establishing whether a consumer has consented 

to their post-transaction offers. Under their old policies, the companies assumed 

they had obtained a consumer’s consent to their offers when the consumer typed in 

an e-mail address or other personalized ‘‘proof of enrollment.’’ Under the new announced policies, the companies will assume they have obtained consent when the 

consumer types in the last four digits of his or her 16-digit credit or debit card number. In your opinion, does this policy change sufficiently protect consumers against 

accidentally or inadvertently signing up for the companies’ offers? 

Answer. No. This change almost surely will not prevent the problem of unknown 

and unwanted account charges. The answer to this question requires a focus on the 

core problem at issue here. 

103 

1 I use ‘‘membership clubs’’ in this response because that has been the focus of the Committee’s inquiry, but it is worth noting that these same companies, and other companies, also sell 

insurance and other programs through preacquired account marketing. 2See, e.g., section 3D below discussing Iowa Attorney General Tom Miller’s consumer protection lawsuit against Vertrue. 

1. A Focus on the Real Problem Shows This Is an Inadequate Solution 

Preacquired account marketing is an unfair business practice because it sorts out 

consumers for account charges of which they are unaware for services they do not 

want to purchase. The evidence available indicates that very close to 100 percent 

of the millions of consumers charged each year for membership clubs 1 through 

preacquired account marketing do not know of the charge or want the service. It 

achieves this remarkably unfair result by a combination of two techniques: (1) the 

sale of account number or account access by the referring retailer so that the consumer can be charged without providing his or her account number; and (2) the 

layering of a series of sales practices with deceptive potential (free trials, negative 

options and automatic renewal). 

The collection of four digits of a 16 digit account number does nothing to change 

either of these practices, and thus is highly unlikely to eliminate the problems with 

preacquired account marketing. Collecting four digits likely will ameliorate some of 

the concerns created by the first problem identified above. Some consumers, perhaps 

even many, will no doubt refuse to enter even the first four digit of their account 

number because it will trigger some concern for them that their account may be 

charged. This probably will result in a decrease in the number of consumers confused by the practice. While that is a good result, it is not a solution to the problem 

because it helps some of the consumers who have money taken from their account 

and leaves others in the same undesirable situation. 

There are reasons to believe that many consumers will continue to be deceived 

about the terms of the offer, including the fact that four digit collection is used as 

a short-hand to confirm consumer identity in commerce rather than as confirmation 

of an account charge. If nothing else, this proposed solution leaves wholly unaffected 

the problem of the layering of problematic sales techniques. The ultimate question, 

however, is not whether it increases consumer awareness during the moment of the 

post-transaction solicitation, but whether it radically alters the percentage of consumers who are charged for a service they do not want to purchase. The very limited public data on the impact of the use of four digit collection is not supportive 

of the argument that the collection of four digits resolves this fundamental problem 

with preacquired account marketing.2 Some membership club sellers have previously used this method with some retailer partners or other account access sellers, 

and there is no indication that the result meaningfully improves the percentage of 

consumers who are aware of or desire the account charge. 

2. A Focus on the Real Solution Shows This Is an Inadequate Solution 

Another way to look at this problem is to ask why the membership club sellers 

don’t take the obvious step to avoid the first part of the preacquired marketing problem entirely. In other words, why don’t the membership club sellers have the consumer enter his or her account number just like the retailer that obtained the account number from the consumer and sold it to the membership club seller (and just 

like every other legitimate retailer in the market)? Obtaining the whole account 

number would not stop the layering of problematic sales practices, but it would be 

a simple and virtually cost-free solution to the practice of membership clubs buying, 

or preacquiring, the consumer’s account number. 

As with the devilishly clever preacquired marketing system itself, this proposed 

four digit ‘‘solution’’ is shrewd because it has superficial appeal. Collecting four digits mimics the appearance of legitimate consumer protection regulation. Smart regulation for most consumer protection problems requires carefully separating legitimate commerce from deceptive or abusive transaction. The solution often results in 

an approach that leaves sellers with as much flexibility as possible while prescribing 

limits that protect as many consumers as possible from transactions that mislead 

or take unfair advantage. 

The difference here is that there is almost no legitimate commerce to protect. We 

don’t need to permit a half-way measure because there is no evidence that any substantial number of consumers charged for these purported services wants to buy 

them. Even if there are a few such consumers, they will want to enter their full 

account number to obtain the service. 

Requiring the entry of the consumer’s entire account number solves the first core 

problem of preacquired marketing while protecting the right of all consumers and 

sellers to enter legitimately desired transactions. The proposal to collect four digits, 

104 

3 16 C.F.R. § 310.4(a)(6). 68 Fed. Reg. at 4621–22. 4 16 C.F.R. § 310.2(o). The FTC also added a definition for negative option as part of its implementation of this requirement. 16 C.F.R. § 310.2(t). 5TSR Statement, 68 Fed. Reg. at 4622. 

6See, e.g., 68 Fed. Reg. at 4617. 7TSR Statement, 68 Fed. Reg. at 4621. 

8The FTC’s recognition of the problem with preacquired account marketing and attempt to 

control it stands in contrast to the approach of the Office of the Comptroller of the Currency. 

The OCC facilitated national bank involvement in preacquired account marketing by issuing rulings defining agreements with membership club sellers as an ancillary banking activity; specifically, as a finder’s fee. When Congress passed the Gramm Leach Bliley Act in 1999, it included 

a provision that appeared to prohibit financial institutions from selling access to their customers’ accounts in this manner. 15 U.S.C. § 6802(d). The OCC and other Federal banking regulators, with FTC approval, then issued regulations completely neutering the effect of the law. 

See, e.g., 12 C.F.R. § 40.12. When Minnesota Attorney General Mike Hatch later sued the mortgage subsidiary of Fleet National Bank for preacquired marketing, he presented evidence that 

Fleet’s own customer service agents overwhelmingly objected to these charges, calling them ‘‘unethical,’’ ‘‘a scam,’’ and ‘‘a fraud.’’ The OCC’s response was to file an amicus brief on behalf of 

Fleet. 

on the other hand, perpetuates abusive transactions while no better protecting the 

possibility of legitimate commerce. Limiting pickpockets to operating on weekdays 

only is better than 7 days a week of pickpocketing. But it is not a solution to the 

problem of such theft. 

The promise by membership club sellers to police themselves by collecting four 

digits of the account number also is illusory for two other reasons. First, it is a voluntary measure adopted in response to attention focused on this problem by this 

Senate Committee. As quickly as it appeared, it can disappear. Second, these companies are expert at manipulating consumer impressions. The four digit collection 

system can be ensconced in distracting details or circumvented entirely. For an example of the latter, consider the third and final section of my response to your question. 

3. The Meaning of the 2003 Telemarketing Sales Rule Amendments 

There appears to be some perception that the four digit collection requirement in 

the 2003 Amedments to the Telemarketing Sales Rule solved the problem of 

preacquired account marketing in the telemarketing context. This is a gross 

misreading of the 2003 TSR Amendments and its aftermath. 

A. The 2003 TSR Amendment. 

The amendments to the TSR published for comment by the FTC on January 30, 

2002, expressly prohibited the use of preacquired marketing in telemarketing and 

declared it an abusive practice. The final rule adopted a year later required that 

telemarketers using preacquired account information in combination with a ‘‘freeto-pay conversion’’ must obtain from the consumer the last four digits of the consumer’s account number to be charged.3 The free-to-pay conversion concept was intended to capture the use of free trial offers.4 The FTC Statement on the rule summarized the intended effect as forcing the consumer ‘‘to reach into his or her wallet, 

and provide at least a portion of the account number to be charged.’’ 5

Despite retreating from the broader prohibition in its final rule, the FTC Statement on the Final Rule roundly criticized the practice and found almost no benefit 

from allowing it to continue.6 The FTC seems to have found one industry argument 

persuasive—that there are some situations where ‘‘the consumer makes the decision 

to supply the billing information to the seller, and understands and expects that the 

information will be retained and reused for an additional purchase, should the consumer consent to that purchase.’’ 7 The FTC provided examples of this situation like 

the use of previously provided account numbers with a standing order for merchandise at a regular interval, such as quarterly orders for contact lenses. This appears 

to have been the basis for the FTC promulgating the four digit requirement rather 

than retaining the proposed prohibition on selling account access. 

The FTC was the first and remains the only Federal agency that has attempted 

to tackle the problem of preacquired account marketing.8 In revising the Rule from 

the original proposal, however, the FTC made two analytical mistakes or omissions. 

First, and most importantly, it failed to distinguish between a retailer or financial 

institution selling access to consumer accounts to a third party and the retailer or 

financial institution re-using an account number it earlier obtained from the consumer. This latter problem of seller-retained account numbers presents a different, 

if related, concern from the clear abuse of retailers or financial institutions selling 

account numbers to third party membership club sellers. Second, the FTC provided 

105 

no justification or explanation as to why requiring only four digits was a sufficient 

solution to the problem. 

B. Preacquired Marketing Industry Response to the 2003 TSR Amendments 

Preacquired account marketing through telemarketing nonetheless plummeted 

after the adoption of the 2003 TSR amendments. It is difficult to separate the effect 

of the preacquired account marketing restrictions, including the four digit collection 

requirement, from the other major change to the TSR in the 2003 amendments, 

which was the adoption of the national do-not-call list. The do-not-call list proved 

highly popular and resulted in a tremendous contraction of the telemarketing industry. It is clear that the preacquired marketing companies developed at least two 

strategies to cope with the new TSR requirements: (1) it substituted other forms of 

direct marketing; and (2) it developed new methods of solicitation that circumvented 

the TSR requirements. 

The preacquired marketing companies substituted other forms of direct marketing 

for telemarketing. They shifted resources into direct mail solicitations as well as the 

Internet marketing techniques that are the primary focus of this inquiry. 

The nature of this shift can be tracked in the public securities filings of the companies. In its 2001 annual 10–K filing with the SEC just before the TSR amendment 

process began, Memberworks (Vertrue’s predecessor entity) reported that, ‘‘An important factor in the Company’s ability to develop innovative programs is its emphasis on telemarketing.’’ By its late 2003 10–K filing, the company reported that telemarketing new member acquisitions through telemarketing had decreased to 20 percent of new enrollments. In its 2004 10–K filing, Memberworks reported the following: ‘‘The Company has been able to effectively diversify its distribution channels 

since its initial public offering in 1996, at which time the Company’s primary method of solicitation was outbound telemarketing. For the year ended June 30, 2004, 

outbound telemarketing was the source for approximately 10 percent of the Company’s new member enrollments.’’ 

Another of the largest preacquired account marketing companies, Affinion, the 

largest membership club seller, stated the following in its 2009 10–K filing: ‘‘We 

have developed considerable expertise in direct mail marketing, which remains our 

largest marketing medium in terms of new member acquisition, accounting for 45 

percent of new joins globally in 2008. Our direct mail operations incorporate a variety of mailing types, including solo direct mail, detachable inserts, credit card inserts, statement inserts, promotion inserts, and other printed media. Additionally, 

we continually test variations of direct mail solicitations to drive higher customer 

response rates.’’ 

A change in the pattern of public enforcement actions against preacquired marketing suggests it may have worked to reduce preacquired telemarketing. Prior to 

the promulgation of the rule, public actions focused on telemarketing, while later 

cases focused more on direct mail and other forms of preacquired solicitation. 

The second industry response to the TSR was to develop or increase use of techniques that fell outside the scope of the TSR. One clear effort to circumvent the TSR 

was to change the solicitation from a ‘‘free trial offer’’ to charging $1 for the trial 

period. Because of the narrow definition of ‘‘free-to-pay conversions,’’ this change allowed evasion of the new requirements for preacquired account marketing. The companies also relied on ‘‘wholesale’’ programs for telemarketing. Under this arrangement, the retailers or financial institution is responsible for the marketing and billing and the preacquired marketing company obtains fees for establishing the program and operating some or most aspects of the program. Because the biling for the 

membership club service is made by the retailer or financial institution, this process 

evades the TSR preacquired account marketing requirements. 

C. The Lack of Record Supporting The Effectiveness of Four Digit Collection 

The net result of the TSR preacquired account marketing rule, therefore, is unclear. We know that telemarketing declined in general and the companies adapted 

to the TSR by shifting to other forms of direct marketing and solicitation. We do 

not know if the 2003 TSR requirements, when complied with by the preacquired 

marketing companies, actually resulted in consumers becoming of aware of charges 

to their accounts for membership clubs to which they want to belong. 

Some anecdotal evidence on the matter should be available soon. Iowa Attorney 

General Tom Miller’s consumer protection lawsuit against Vertrue included data 

and other allegations that Vertrue members were almost universally unaware that 

they were members or did not authorize the charge, and one of the methods of solicitation for these members was telemarketing. To the extent that the telemarketing 

was subject to and conducted in accord with the Telemarketing Sales Rule, these 

members would have had to supply the last four digits of the account number. AlVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00109 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
106 

though the Iowa case was tried recently, Vertrue argued that certain evidence presented at trial constituted trade secret and should be sealed. The court has yet to 

issue an order which identifies the trial exhibits to be sealed. 

RESPONSE TO WRITTEN QUESTION SUBMITTED BY HON. CLAIRE MCCASKILL TO

PROFESSOR PRENTISS COX

Question. You stated in your testimony that seniors could be especially vulnerable 

to these tactics. Can you elaborate more on your reasoning as to why seniors would 

be adversely affected? I realize that some of this may be anecdotal but do you have 

evidence or data that shows whether and how many seniors are buying into these 

memberships? 

Answer. The elderly are more vulnerable to deception with this type of marketing. 

It is well-established that the elderly generally are more susceptible to unfair or deceptive sales practices. Yet in a typical solicitation, the seller still has to overcome 

the burden of having the elderly consumer take the affirmative act of providing account access information. The preacquired seller skips this step. Getting an elderly 

consumer to pull out and read her financial account number is a very different proposition from getting an Alzheimer’s patient to give you her birth date as purported 

evidence of understanding and consenting to the mechanics of a complicated, attenuated free trial offer with negative option. 

The evidence that is publicly available right now on this point is anecdotal. For 

example, the above-mentioned suit by Iowa Attorney General Tom Miller contains 

surveys of various Iowa citizens victimized by preacquired account marketing. Appendix A to this response is an excerpt fromt hat lawsuit describing a survey conducted of supposedly active members of a Vertrue club whose accounts were being 

charged. Attached to this response is a file with three of those completed surveys 

by elderly consumers. Further release of public data from this lawsuit also may provide data about the impact of preacquired account marketing on the elderly. As 

noted above, Vertrue is resisting the release of such data, and the judge in the lawsuit is considering whether to seal this information from the public. 

Other examples of elderly consumers who have had their accounts drained 

through abusive preacquired account marketing practices are contained in Appendix 

B to this response, which is an excerpt from a Complaint filed against 

Memberworks by Minnesota Attorney General Mike Hatch against Memberworks. 

It describes numerous elderly consumer victimized by this type of marketing. Attached to this response is a file showing the transcripts from the purported 

‘‘verification’’ tapes with each such consumer. One of those a transcripts, for instance, is the taped portion of a telemarketing call to Robert Steele, an 85-year-old 

man with advanced Alzheimer’s disease charged for a membership club. In order to 

‘‘verify’’ the sale, the telemarketer has to ask for his birth date five times. The telemarketer mentions that his age, 85 years, ‘‘is not a very long time.’’ Mr. Steele replies, ‘‘It is if you stand on your head.’’ 

Finally, your question raises the importance of looking at the problem of 

preacquired account marketing beyond the internet. Because the elderly are less 

likely to make purchases through the internet, attacking only the manifestations of 

preacquired account marketing on the web would ignore the channels more likely 

to victimize the elderly. As noted in response to Senator Rockefeller’s question, one 

of the largest preacquired marketing companies reports that direct mail solicitation 

are its most important marketing channel for obtaining new members, accounting 

for nearly half of new members. Direct mail and telemarketing are more likely to 

ensnare elderly consumers and thus should be included in any response of the U.S. 

Senate Commerce Committee to the abuses disclosed with preacquired account marketing. 

Appendix A 

Iowa Attorney General Survey Description (excerpt from Complaint in Iowa ex rel. 

Miller v. Vertrue, Inc., No. EQ53486 (IA Dist. Ct. for Polk Co. May 15, 2006)) 

‘‘26. In order to determine how rare or common it was for consumers to find themselves making payments for memberships they were not aware they were paying 

for, the Consumer Protection Division contacted a sampling of Iowa customers of 

Defendant who had not complained, and who might therefore be expected to be satisfied members, contentedly taking advantage of the membership services for which 

they were being charged. 

107 

27. In December of 2004 the Consumer Protection Division sent written surveys 

to Iowans who were listed in company records as having become members of one 

of four Vertrue programs after April 1, 2003. The programs in question were HomeWorks Plus, Simple Escapes, Connections, and Essentials. For each program, the 

survey was sent to each of about 100 randomly-selected consumers who had become 

members after April 1, 2003. A copy of the cover letter that accompanied the survey 

appears as Attachment 9, and Attachments 10 through 12 are the survey responses 

of a 71 year old Dubuque resident, a 76 year old Coggon resident, and a 69 year 

old Panora resident, respectively, each of whom repeatedly paid membership fees 

that appeared on their credit card bills before discovering the irregularity and obtaining at least a partial refund. 


1117COXQ1.eps
108 


1117COXQ2.eps 1117COXQ3.eps
109 


1117COXQ4.eps
110 


1117COXQ5.eps
111 


1117COXQ6.eps
112 


1117COXQ7.eps
113 

Appendix B 

Description of Charges to Elderly Consumer through Preacquried Account Telemarketing (excerpt from Complaint in Minnesota ex rel. Hatch v. Fleet Mortgage 

Corp., No. 01–48 (D.Minn. 2001). 

SIGURD ANDERSON TRANSCRIPT

T. With your permission, I would like to tape record the confirmation of your trial 

1membership and your mailing address so there is no chance of any clerical mistakes on my part, OK? Now, I show the spelling of your last name as A–N–D–E– 

R–S–O–N. 

C. That’s right. 

T. Your first name is S–I–G–U–R–D? 

C. Yes. 

T. And middle initial’s A. I have your address as Rural Route 1, Box 171A. That’s 

Lake City, Minnesota? 

C. Yes. 

T. 55041. Is that correct, sir? 

C. That’s correct. 

T. OK. Now, again, and again, Mr. Anderson, your membership materials will arrive shortly. After 30 days, unless we hear from you, the low introductory annual 


1117COXQ8.eps
114 

fee of $59.95, which works out to less than $5.00 per month, would be automatically 

billed to your [credit card name redacted] card account. For annual renewals we’ll 

bill your account at the then annual fee. However, if you decide not to continue you 

just give our toll-free number a call. And finally, Mr. Anderson, just a quick survey 

question. Which one of these benefits sounds the best to you? Discounts on your 

music CDs and cassettes, discounts on videos, discounts on movie tickets, discounts 

on name brand items for your home? If you have no preference, I’ll just put down 

that you . . . 

C. It doesn’t appeal too much anyway. 

T. Yes. What I’ll do is just say that you had no preference and when you get your 

materials, just look over all of it and see which one you can use and best benefit 

from and, again, my name is Patricia Hunley and I’d like to thank you for uh—for 

trying Connections and if you have any questions, call one of our Connections service representatives and that number is 1–800, let me see what that number is. Hold 

on, I’ve got that number right here. OK, it’s 1–800–568–2386. And this number is 

also included in your membership kit. And you have a very nice day. Thank you. 

Goodbye. 

JOSEPH R. GWIN TRANSCRIPT

T. . . . your trial membership and your mailing address so there is no chance of 

any clerical mistakes on my part, OK? OK? 

C. What? 

T. OK, sir, now with your permis—permission I would like to tape record the confirmation of your trial membership and your mailing address so there is no chance 

of any clerical mistakes on my part, OK? 

C. Yup. 

T. OK. Sir, I show the spelling of your last name as Gwin, that’s G–W–I–N, first 

name is Joseph. That’s J–O–S–E–P–H. Is that correct? 

C. (inaudible) 

T. OK, sir. And I have your address as 3455 173rd Lane Northwest. And that’s 

in Andover, Minnesota 55304. Is that correct? 

C. Yes. 

T. OK, sir. And again, Mr. Gwin, your membership materials will arrive shortly 

and after 30 days, unless we hear from you, the low introductory annual fee of 

$59.95 which works out to less than $5.00 per month would be automatically billed 

to your [credit card name redacted] card account. For annual renewals we’ll bill your 

account at the then current annual fee. However, sir, if you decide not to continue 

just give our toll-free number a call. Now finally, Mr. Gwin, just a quick survey 

question. Which one of these benefits sounds the best to you? A discount on music 

CDs and cassettes, a discount on videos, a discount on movie tickets, or a discount 

on name brand items for the home? Or if you just like all the benefits. Do you have 

a preference, sir? 

C. Not really. 

T. OK. Well, we’ll note that. Sir, I really think you’ll get a lot of use from your 

Connections membership. And sir, to help you get started when you receive your 

membership kit just go ahead and look through all of it to see how you can use all 

these great benefits. And again, sir, my name is Chris Sharborough. I’d like to 

thank you for trying Connections. And if you have any questions, sir, please give 

one of our Connections service reps a call at 1–800–568–2386. And sir, this number 

is also included in your membership kit. I thank you so much again, Mr. Gwin, and 

you have a great day. Thank you, sir, goodbye. 

ROBERT E. STEELE TRANSCRIPT

T. . . . tape scrambled . . . I need to verify a little bit of information to make 

sure we’re sending it to the right place. With your permission, sir, I would like to 

tape record the confirmation of your trial membership and your mailing address so 

there is no chance of any clerical mistakes on my part. Is that OK Mr. Steele? 

C. That sounds alright. 

T. OK. I show the spelling of your last name as S–T–E–E–L–E and first name 

as Robert. R–O–B–E–R–T. Middle initial E. Is that correct? 

C. Yes. 

T. OK. You live at 1309 River Wood Drive, Little Falls, Minnesota 56345. Is that 

correct? 

C. Yea. 

T. OK. Now, just so we are clear Mr. Steele, your membership materials will arrive shortly in a white envelope. After 30 days, unless we hear from you, the low 

introductory annual fee of $59.95, which works out to less than $5.00 per month, 

115 

will be billed automatically to your [bank name redacted] Bank account. Now, for 

annual renewals we’ll bill your account at the then current annual fee. However, 

as I said Mr. Steele, if you decide not to continue with the program, then just give 

our toll-free number a call. And just to verify that I have your approval to process 

your trial membership and that you understand how it will be charged, I need the 

month, day and year of your birth. And what would that be Mr. Steele? 

C. What? 

T. The month, day and year of your birth? 

C. That’s (inaudible) 

T. Unh? Mr. Steele? 

C. Yea. 

T. Could I have the month, day and year of your birth sir? 

C. The month and day of my birth? 

T. Yea. Your birthday? 

C. Well, my birthday is July 21. 7–21. 

T. OK. And the year? 

C. 13. 

T. OK. 1913. Alright. Mr. Smith . . . 

C. Long time ago. 

T. That’s not so long ago, Mr. Steele. (Laughing). 

C. I’m 85. 

T. Yea but (inaudible). That’s not very long ago. 

C. No. No. I’m still running. 

T. That’s good. That’s good. 

T. Well, I study Biology and to me 85 years Mr. Steele is not a very long time. 

C. It is if you stand on your head. 

T. (Laughing) Well, I am sure Mr. Steele when I’m 85 I’ll probably think it’s a 

long time, but you still have time. 

C. If you go the right road. 

T. That’s—That’s right. That’s exactly right. Mr. Steele, I’d first of all I just want 

to ask you which one of the benefits of our package sounds best to you? I’m going 

to read you a list of four. And this is just a survey question. First of all, 20 percent 

cash rebates for all your purchases at any of your favorite retailers. Or 20 percent 

cash rebates for the best selling video game system and video games. Or 20 percent 

cash rebates on photographic and communications equipment. Or 40 percent savings 

off local (inaudible) prices on items for your home. Which one of those appeals to 

you the most Mr. Steele? 

C. Probably the first one. 

T. The first one. OK. I’ll make a note of . . . 

C. ah . . . no . . . and the 

[Tape Ends] 

GUSTAV RAKOWSKY TRANSCRIPT

T. OK. With your permission, Mr. Rakowsky, I would just like to tape record the 

confirmation of your trial membership and your mailing address so there is no 

chance of any clerical mistakes on my part, OK? 

C. OK. 

T. Great. With your per, now with your permission, I have begun taping, all right? 

C. OK. 

T. OK. I have, today’s date is August the 17th, 1998, and I show the spelling of 

your last name as Rakowsky, R–A–K–O–W–S–K–Y? 

C. Right. 

T. And your first name is Gustav. 

C. Right. 

T. G–U–S–T–A–V. 

C. Right. 

T. Middle initial A. 

C. Right. 

T. And I have your address as 222 East Second Street, Apartment 406? 

C. Right. 

T. That’s in Duluth, 55805. 

C. Right. 

T. OK, Mr. Rakowsky, just so that we’re clear, your membership materials will 

arrive shortly in a green and white envelope. Now, there’s three very important 

points that I just need to get your verbal acknowledgment on, OK? 

C. OK. 

116 

T. Well, first you will have a full 30 days to try Health Trends without a charge. 

After that, $8.25 a month will be drafted from your [bank name redacted] Bank 

checking account, OK? 

Well, I can pay my own bills. I don’t need nobody to pay my check for me. 

T I understand that, Mr. Rakowsky. That’s just how they charge for this. If you 

would decide to continue with it, that’s how they would do the billing, OK? 

C. OK. 

T. Now, second, with your tape recorded verbal authorization, you give [bank 

name redacted] Bank the permission to process the monthly membership fees 

through your checking account. There’s no signature is required, OK? 

C. Right. 

T. And third . . . 

C. And the banks’ll soon own us anyhow, I guess. 

T. I sometimes I get the feeling of that, yes. 

C. We get our numbers on the back of our hands. 

T. That’s, or across our forehead. 

C. Yes. 

T. Sir, it’s important to note that if you have any questions about the program 

or would like to cancel your membership, you should contact the customer service 

number provided in your membership kit, OK? 

C. OK. 

T. And just to verify that I have your approval to process your trial membership 

and you know how it would be billed, I need the month, day and year of your birth. 

What would that be, please? 

C. Well, well, I’m not giving out all my history! (emphatically) 

T. Just your birth date? 

C. Yes, my birthday. 

T. OK. Well, I can understand, Mr. Rakowsky. You know, we only ask for your 

date of birth for your protection and to verify that we have your permission. 

C. Well, I don’t . . . 

T. That’s fine, Mr. Rakowsky. I can take your mother’s maiden name, OK. This 

is just for our purposes to know that you are aware of everything that I said to you. 

That’s all. This just proves to us that I did speak with you and you, and not, like 

a neighbor or if a neighbor answered the phone or whatever. That’s all. 

C. Oh, I ain’t worrying about that because, they’re sticking their nose in everything we got. 

T. Pardon me? 

C. I say that the business houses and the government is sticking their hands right 

in the, into your pocket. 

T. I understand that, Mr. Rakowsky. 

C. Yes, and I’m too old to fall for these little catchy tricks that they got. ‘Cause 

I’ve seen them work and I’ve seen them go right down the drain. 

T. What little catchy tricks? 

C. Well, next there’ll become a credit card with my number on it. 

T. Oh, no, no, no, no, no, no. 

C. and all kinds of stuff like that. 

T. Oh, no. No, no. Nothing that drastic. Nothing like that. No. This is just, you 

know, it proves that I did talk to you. It verifies that I have your approval to process 

your trial membership and, you know, you do understand how it would be billed 

if you decided to continue with it after the 30 days, that’s all. Could I have your 

mother’s maiden name? 

C. Anna. 

T. A–N–N–A? 

C. Right. 

T. OK. Very good. Mr.—Gustav, one real quick survey question. Which of these 

benefits sounds the best to you? The savings on the medication, the savings on 

eyewear, the savings on chiropractic services or on the doctor hotline? 

C. The one be on the medicines a little bit. 

T. The medicines. OK, great. I’ll note down . . . 

C. ‘Cause the drugstores are robbing us blind anyhow because they make about 

300 percent on everything you buy. 

T. I know. Just like the hospitals. 

C. Yes. 

T. OK. Well, I really think you’ll get a lot of use from your Health Trends membership. And to help you get started, be sure to turn to page 5 when you receive 

your membership kit to see exactly how you can use and benefit from the prescription medication. And again, my name is Fran Megly. I’d like to thank you for agreeVerDate Nov 24 2008 09:36 Jul 02, 2010 Jkt 054917 PO 00000 Frm 00120 Fmt 6601 Sfmt 6621 S:\WPSHR\GPO\DOCS\54917.TXT SCOM1 PsN: JACKIE
117 

ing to try Health Trends. If you have any questions, Mr. Rakowsky, please give one 

of our Health Trends service representatives a call . . . 

C. Yes, OK. 

T. . . . at 1–800–544–3291. Now, that number will be included in your membership kit, but would you like to write that down? 

C. No. 

T. OK. 

C. No, I’m not in that much of a hurry. 

T. Oh, OK. Well, Mr. Rakowsky, again, my name is Fran Megly and I thank you 

so very much. You have a great day. 

C. Yes, you too. 

T. Thank you. 

C. All right. 

T. Bye-bye. 

C. Yes, bye. 

DOROTHY CHRISTENSEN TRANSCRIPT

T. And now with your permission I would just like to tape record the, confirmation of your trial membership and your mailing address so there is no chance of any 

clerical mistakes on my part, OK? 

C. OK. 

T. OK. I show the spelling of your last name C–H–R–I–S–T–E–N–S–E–N? 

C. Right. 

T. And your first name is Dorothy? 

C. Right. 

T. And I have your address as 4400 36th Avenue North, Apartment 201 . . . 

C. Right. 

T. Minneapolis, Minnesota 55422? 

C. Yes. Are you calling from [bank name redacted] you said? 

T. We’re calling [bank name redacted] cardholders on behalf of Smart Source. 

C. OK. 

T. Anyhow, just so we’re clear, Mrs. Christensen, your annual membership materials will arrive shortly in a white envelope after 30 days unless we hear from you, 

for the introductory annual fee of $59.95 which works out to less than $5.00 per 

month will be billed automatically to your [bank name redacted] Bank VISA 

MasterCard account. For annual renewals we will bill your account at the then current annual fee. However, if you decide not to continue then just give our toll-free 

number a call. And remember, Mrs. Christensen, you can receive this gift of two 

free roundtrip tickets by simply completing and returning the business reply card 

in your membership kit. And just to verify that I have your approval to process your 

trial membership, and that you understand how you will be charged, can I get your 

birthday, what would that be, please? 

C. And what else? 

T. I need your birthdate. 

C. 10–9–8 

T. Pardon me? 

C. 10–9–8. 

T. 10–9–8. OK, that’s just to verify that I have your approval to process your trial 

membership. And you understand how you will be charged. And Mrs. Christensen, 

just a quick survey question. Which one of these benefits sounds the best to you 

at this time? A 20 percent cash rebates for all your purchases at any of your favorite 

retailers, a 20 percent cash rebates for the best selling video games and video game 

systems, a 20 percent cash rebates on photographic and communic—communications 

equipment, or up to 40 percent savings on local prices on items for the home. 

C. I, I can’t remember all that, you’d have to show it to me, or I can’t—I think 

we just better quit this. 

T. Well ma’am, if after reviewing the membership materials if you found our program to be cost-effective and beneficial for you, would you decide to keep it? 

C. Keep what? 

T. If after reviewing this program, if you found our program to be cost-effective 

and beneficial for you, would you decide to keep it? 

C. Well, I’ll see, I don’t know yet. 

T. Alright, I’ll note that. I really think you’ll get a lot out of your membership. 

Also remember to return the business reply card in your membership kit to receive 

your two free airline tickets. Please note travelers are required to spend a minimum 

number of nights in one of the hotels in the program at the hotel’s regular published 

rate. 

118 

C. This sounds like a scam to me. 

T. Pardon me? 

C. This sounds like some kind of a scam. 

T. (incomprehensible) trial membership for the SmartSource program, ma’am? 

C. (incomprehensible) You want to send me this and then I don’t have to pay anything until I read it over. 

T. If you should find that this is (incomprehensible) there’s absolutely no cost during the 30-day trial membership . . . 

C. OK. 

T. . . . you receive a month to review and use it and if you should find that it’s 

not for you during the month, all we ask is that you give us a call at our toll-free 

number during the month and let us know and you’re not even billed. 

C. OK. 

T. Again, my name is Sherry, and I’d like to thank you for agreeing to try the 

program. If you have any questions, please give one of our service representatives 

a call at 1–800–211–9746. And this number is also included in your membership kit. 

C. OK. 

T. Thank you and have a good day. 

C. You too. 

T. Bye bye. 

C. Bye. 

Æ