The New York state government, which we put under the microscope last year regarding their proposed internet tax policies, is now back in the e-commerce news. This time, however, they’re in the news for something positive—putting an end to fraudulent practices involving loyalty discount shopping programs on the web.
At issue is how certain retailers are sharing consumer information with third parties, without the knowledge of those consumers.
New York’s attorney general office has handed out subpoenas to 22 retailers requesting information on their relationships with Webloyalty, Vertrue and Affinion/Trilegiant, all of which provide post-transaction sales services used by e-commerce outlets for certain marketing programs. Barnes & Noble, Staples, Budget Car Rental, Orbitz, Expedia and Ticketmaster are just some of the outlets being questioned in the matter.
The investigation, according to the attorney general’s office, centers on practices “that deceptively link unsuspecting consumers to fee-based membership programs that charge unauthorized fees under the guise of discount offers”. It comes on the heels of growing scrutiny of these kinds of post-transaction moves, which invite customers to join discount clubs without disclosing the monthly fee that gets charged to the user’s credit card.
It is believed that some online retailers have received portions of the revenue from those fees in the past, while still others have shared consumers’ credit card information with the discount club during the enrollment process, also without the knowledge of the shopper. Consumers are later left confused when they find charges they didn’t explicitly authorize showing up on their credit card statements.
How bad is the problem? Some reports estimate that between the three companies, $1.4 billion was collected from loyalty and membership program participants, with $792 million being channeled back to the sites that hosted the offers in the first place.
Webloyalty already had to settle a class action lawsuit over the issue last summer, the result of which was a $10 million payout to consumers who had been enrolled in its online clubs. As part of the agreement, the company also was required to clarify the marketing language on its site and change the enrollment process. Affinion settled similar suits in 2005 and 2006 to the tune of almost $25 million refunds but obviously the leadership in Albany thinks more could be done to protect consumers and is now pushing to pressure retailers to adopt even stricter policies regarding their relationships with third party marketers.
These kinds of shady practices are exactly the kind of thing that scares a lot of people off from shopping online. But they also serve as a reminder that you need to be diligent in your online shopping practices on the whole, and especially careful when it comes to where you’re entering credit card information. Pay strict attention to which retailers you shop with and make sure to read all of the terms and conditions pertaining to customer loyalty programs so you know exactly what you’re signing up for.
We’ll keep tabs on this issue and update you as new information becomes available. But as always, we welcome your feedback in the comment section below.
