RealTime IT News

Senate Panel Blasts E-Commerce 'Scams'

How do you curb a business practice that, while technically legal, seems on its face patently deceptive and harmful to consumers?

One answer is to change the law. Another is to shame the companies involved into mending their ways through a high-profile public display of righteous indignation.

Both received a healthy show of support at a Senate hearing this afternoon, as members of the commerce committee reacted with shock and outrage to stories about otherwise reputable e-commerce companies that partner with largely unknown marketing firms that enroll unsuspecting customers in fee-based online membership clubs.

"What's happening is that many online merchants have decided to betray their customers' trust," commerce Chairman John Rockefeller said. "It's truly unbelievable."

Rockefeller's committee has been looking into the practice of post-transaction marketing for several months, and today released the findings of the investigation, concluding that three firms and their e-commerce partners have bilked consumers out of $1.4 billion by enrolling them in membership clubs and automatically billing them at a later date.

The process is fairly simple. After a consumer completes a transaction, such as purchasing movie tickets from Fandango or placing an order with PizzaHut.com, a pop-up appears offering a coupon or some other promotion or discount. But that offer doesn't come from the e-commerce company the consumer sought out. Instead, it comes from a marketing firm the company has partnered with to serve up the promotion.

Within a click or two, the user can unwittingly accept the offer without proactively entering any information. That's because the e-commerce company has agreed to provide the vendor with the consumer's payment information, so, within a billing cycle or two, a recurring monthly charge of $10 or $20 might begin showing up on the person's credit card statement.

Customers for sale

The marketing firms pay the e-commerce companies a commission for each consumer they enroll in the programs through their sites.

"They literally put a price on the customer's head," Rockefeller said.

In the face of the committee's investigation, the three companies under fire -- Affinion, Vertrue and Webloyalty -- have updated their policies to require consumers to enter a modest amount of information, such as the last four digits of a credit card number, before enrolling them in the program and initiating the billing process.

Responding to today's hearing, Affinion Senior Vice President James Hart said the company would continue to work with Rockefeller's committee and defended the company's practices.

"We have always offered clear and conspicuous terms of service agreements to our customers in all our programs which have provided tremendous value for millions of consumers worldwide," Hart said in a statement e-mailed to InternetNews.com.

But Rockefeller called the company's changes "totally insufficient," and said he would consider drafting legislation "to make sure this process comes to a complete halt," similar to the 1991 law that gave federal regulators the authority to crack down on telemarketers.

Preying on the good faith of consumers