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Klobuchar: Don't Let Internet Grinch Ruin Holiday Shopping

Wants to Stop Website Tricks That Cheat Consumers

November 24, 2009

MINNEAPOLIS (Tuesday, November 24, 2009) - With the holiday shopping season about to go into full swing, U.S. Senator Amy Klobuchar is urging Minnesotans who shop on the Internet to be alert for online scams that can result in unauthorized charges to their credit or debit cards.
 
At a news conference at the University of Minnesota law school, Klobuchar was joined by consumer protection legal expert Prentiss Cox and by a recent victim of online fraud.

"The growth of online shopping has attracted wrongdoers who exploit confusion in the Internet marketplace to rip off consumers," said Klobuchar, who served for eight years as the Hennepin County Attorney. "As a prosecutor and now as a Senator, I've always believed that our laws must keep up with our technology. Just as shoppers are migrating to the Internet, so are the con artists. Our laws also need to go there to protect consumers from the crooks."

Klobuchar serves on the Senate Commerce Committee, which held a hearing this month about aggressive online sales tactics, often referred to as "post-transaction marketing." An investigation by the Commerce Committee staff found that these tactics are used to trick consumers into buying unwanted club memberships or other services while they're in the process of purchasing familiar products offered by trusted websites.

The investigation focused on three direct marketing companies - Affinion, Vertrue, and Webloyalty - which also do business under a number of other names.

These companies have made deals with hundreds of websites and online retailers. They include Classmates.com, 1-800-Flowers.com, Fandango, Pizza Hut, Priceline, Hotels.com, Orbitz and Continental Airlines.

These sites get a "bounty," or finder's fee, for every shopper they pass along to the direct marketing firm. Klobuchar described how the scam typically works: As shoppers complete their online transaction, they are offered something innocuous like cash back rewards, a discount coupon or a "free" trial.

The offer is designed to look like it is related to the legitimate transaction, but the real terms of the offer are hidden in small print. The consumer may be asked to type in an e-mail address or just click a button. Once that happens, the credit card information that was just entered for the legitimate purchase gets passed along to the direct marketing company, which starts charging the account for a club membership or service.

Klobuchar said the direct marketing firms know exactly what they are doing. For example, the Senate investigation uncovered an internal e-mail from Webloyalty which acknowledged that "at least 90 percent of our members don't know anything about the membership."

Nonetheless, it is big business, according to the Senate investigation.

Affinion, Vertrue, Webloyalty and their online partners have gained over $1.4 billion in revenue from these tactics. In the past decade, Internet consumers have been enrolled more than 35 million times in Affinion, Vertrue and Webloyalty's membership clubs.

As of June 2009, there were four million Internet consumers currently enrolled in the membership programs of these three programs. Klobuchar said she wants the Federal Trade Commission (FTC) to look at banning these deceptive online practices, which the FTC has already done with similar telemarketing schemes In the meantime, Klobuchar said, online shoppers should follow the time-honored advice: "Buyer beware." She offered several specific tips:

•  Don't rush through the online checkout process. After finishing their online shopping, people often want to get through the checkout process as quickly as possible, which makes them vulnerable to deceptive offers.

•  Review the charges on your credit card bill as soon as you get it. People should be alert for any mystery charges and immediately contact their credit card company to cancel unauthorized charges.

•  Keep in mind the difference between credit cards and debit cards in terms of liability for unauthorized charges. Typically, your liability on a credit card is capped at $50. But the liability on a debit card can be much greater.

•  Consider buying locally. The Internet may be convenient and offer a wide range of choices. But when you shop and buy locally, you are also supporting local businesses that provide local jobs and contribute to the local economy.

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