January 27, 2010, 12:00 AM

The New York AG investigates top web retailers’ ties to membership programs

Attorney General Andrew Cuomo has issued subpoenas to 22 e-commerce companies as part of a probe of membership clubs that offer discounts, and that Cuomo says often charge hidden fees. The merchants include Barnes & Noble and Buy.com.

Mark Brohan

Research Director

New York Attorney General Andrew Cuomo is investigating 22 e-commerce companies, including several well-known web retailers, for allegedly directing online shoppers to fee-based membership programs of discount clubs that Cuomo says often charge hidden fees.

Cuomo says his office has issued subpoenas to nearly two dozen e-commerce and online retailing companies, including Barnes & Noble, No. 41 in the Internet Retailer Top 500 Guide, (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name); Staples Inc. (No. 2); Buy.com Inc. (No. 33); 1-800-Flowers.com Inc. (No. 31); FTD, a unit of United Online Inc. (No. 60); Shutterfly Inc. (No. 69); Avon Products Inc. (No. 30); and GameStop Corp. (No. 113). Other e-commerce companies also included in the investigation are Orbitz.com, Priceline.com, Hotwire.com, Ticketmaster.com and Classmates.com.

In a press release, the New York attorney general alleges that when consumers shop online they are often presented with a discount or cash-back incentive offer as they complete their purchases. Consumers who click on a discount or incentive banner are unknowingly directed to a membership program’s web page that is separate from the online retailer’s site, Cuomo says. The consumer is then instructed through large print and voice prompts to accept the discount or incentive. But the membership requirements and details, including the fact that the consumer is agreeing to transfer credit or debit card account information, is buried in fine print and cluttered text, Cuomo says.

“This online scheme has impacted the finances and tried the patience of tens of millions of consumers nationwide,” Cuomo says. “Well-known companies are tricking customers into accepting offers from vendors, which then siphon money from consumers’ accounts.”

The subpoenas issued by the New York attorney general ask the retailers and other e-commerce companies to supply detailed information about how they share consumers’ account information with membership program companies; their knowledge of any deceptive solicitations; and compensation from the membership companies. The New York attorney general also wants information on how each company interacts with discount programs offered by Webloyalty Inc., Trilegiant Corp. and Vertrue Inc.

Cuomo says his office has already reached a settlement with online movie ticket seller Fandango.com, which has agreed to pay $400,000 into a consumer redress fund and also:

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

“I expect the other businesses to follow Fandango’s lead and adopt these reforms to protect consumers who shop online,” says Cuomo.

 

Among the retailers and discount membership companies acknowledging the subpoena are Barnes and Noble, 1-800-Flowers and Webloyalty, all of which say they are cooperating with the investigation. “We look forward to working with the attorney general’s office on its investigation into online discount programs,” says a Barnes & Noble spokesperson. “Barnes & Noble does not and has not shared customer debit or credit card information with these outside companies. We seek to protect our customers from these types of practices.”

Webloyalty also acknowledged the subpoena. “Webloyalty did receive a subpoena from the office of the NYAG and we have been cooperating,” says a Webloyalty spokeswoman. “Our practices comply with the law. We have listened to consumers, lawmakers and regulators and have led the industry in evolving our practices. For example: we have enhanced the language about joining and being billed for a membership club on our offer page and, more recently, our current enrollment process requires consumers to enter their full credit or debit card number to confirm they want to charge that same card for their membership.”

1-800-Flowers says it is cooperating and already adjusted its customer loyalty program by ending its relationship with an unidentified outside provider. “Late last year, after reviewing our marketing and services program, we decided to end our contract with the third-party administrator and have subsequently ended the program,” says a 1-800-Flowers spokeswoman. “We will continue to look for ways to offer our customers value-added products and services as we help them connect and express themselves to the important people in their lives.” Vertrue acknowledges the investigation and is working with the attorney general’s office. "Vertrue and its indirect subsidiary Adaptive Marketing LLC are cooperating fully with the request for information from New York Attorney General Andrew M. Cuomo’s office, and share his goal of protecting consumers and clarifying online marketing practices,” the company says.

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