December 17, 2010, 10:31 AM

Online discount programs face restrictions under proposed federal law

The bill would require more disclosures for post-purchase discount programs.

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Online shoppers would get more protection from web membership clubs that allegedly mislead consumers under a bill before President Obama.

The Restore Online Shoppers’ Confidence Act this week won approval in the U.S. House of Representatives after gaining passage in the Senate in May. The bill would require companies that offer discounts to shoppers after they make purchases to provide more information about the discount programs and gain a higher level of consent from shoppers.

The bill addresses concerns that companies such as Affinion, Vertrue and Webloyalty had mislead consumers about the deals. A spokesman for Affinion says the company stopped operating such programs about a year ago. The other two companies offered no immediate comment.

The post-purchase discount process typically works like this: A shopper makes an online purchase at a retailer’s site, and then sees a pop-up offer for a discount related to that purchase. Shoppers who hit a “continue” button can accept the discount, at which point the credit card used for the original purchase is charged a monthly fee to join a membership club. The U.S. Senate Committee on Commerce, Science and Transportation has estimated that the companies behind the clubs have generated more than $1.4 billion by misleading consumers.

“It’s not the way business should be done in American,” says Sen. John Rockfeller, a West Virginia Democrat who backed the bill. “We’re slamming the door on this billion-dollar scam.”

The bill requires membership clubs, also known as third-party loyalty programs, to gain express, informed consent from consumers before they can enroll in the programs, and also to offer clear descriptions of the program and disclose that it is not the online merchant offering the program. The clubs also would have to obtain consumers’ payment information separately instead of getting card numbers from e-commerce sites, and provide information to consumers about how to cancel memberships.

The Senate committee estimated that at least 450 e-commerce sites took part in the post-purchase discount programs. Over the last year, several online retailers, including Buy.com, have severed ties with the programs.

 

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