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Iowa Sues Vertrue For Consumer Fraud

MWI, Essentials, Secret Escapes Use "Free Trial Offers" To Lure Consumers

By Mark Huffman
ConsumerAffairs.com

May 31, 2006

• Webloyalty Named in Federal Lawsuit • Iowa Sues Vertrue For Consumer Fraud • Vertrue's "Negative Option" Sales Attract Scrutiny • Hard to Escape from Negative Option Marketing • There's No Escaping Simple Escapes --- • Consumer Complaints • Victoria's Secret Escapes • Escapes+Classmates • Escapes+AOL • MWI/Vertrue

Another state has sued Connecticut-based Vertrue, the fast-growing marketing company that pushes a proliferation of buying club "memberships" through negative option transactions.

Iowa Attorney General Tom Miller charges the company has engaged in consumer fraud. He said a survey about 400 "members" found not a single one who was satisfied with the service.

"The suit concerns a marketing scheme in which consumers' credit cards and bank accounts are charged for memberships in so-called discount buying programs - even though many consumers don't know they are members, are not aware that they are being charged yearly or monthly membership fees, and make no use whatsoever of the so-called membership benefits," Miller said.

The lawsuit alleges the company failed to conform its membership sales practices to the requirements of Iowa law, in particular the Buying Club Memberships Law.

Miller said that particular law contains several safeguards to ensure that important commitments are set forth in writing, and that consumers are notified of their right to cancel membership purchases.

Vertrue offers a variety of "membership" programs that purport to provide discounts or savings on things such as home improvement items, entertainment activities, dining out, fashion and fitness products, and consumer items such as clothes, jewelry, books and music.

"We allege that many consumers got into unexpected and unnoticed charges when they were offered so-called 'free-trial-offer' sales pitches," Miller said.

The suit alleges that one of Vertrue's primary methods of selling membership programs begins when a consumer makes a telephone call for a totally-unrelated purpose, such as a call to a credit card company's customer service department, or a call to order a product advertised on a TV infomercial.

"Risk-Free" Membership

Before hanging up, the consumer unexpectedly receives a sales pitch for a "risk-free membership" of some kind. If the consumer accepts the membership on a free trial basis -- but then fails to affirmatively cancel the membership at the end of the trial period -- the consumer's credit card is charged.

Miller said that some consumers don't anticipate or look for any charge, in part because they never provided their credit card number to purchase the membership; Vertrue obtained the credit card number from the "partner" business that the consumer called in the first place.

"We have seen cases where consumers paid hundreds of dollars, spread across several credit card bills, for membership programs they didn't use, and didn't even know they had," he said. "By requiring Vertrue to comply with our Buying Club Memberships Law, we hope to put an end to these unwanted and unexpected charges, which busy consumers too often pay without realizing it."

Consumers' credit card or bank accounts most often showed debits to "MWI," or "ap9" and one of the "club" names, including HomeWorks, Simple Escapes, Connections, Essentials, or Leisure Advantage. (So, a typical debit might indicate a charge was to "MWI Essentials.")

The lawsuit described an effort by the Consumer Protection Division to survey about 400 Iowans who were listed as paying members of a Vertrue membership program.

Survey Results

Of 400 mailed questionnaires, 88 were returned. Of those responses, 67% indicated that the consumers were not even aware that they were members of the programs they were paying for. Most of the rest of the consumers who responded indicated that they had never used their memberships, or thought that they had already cancelled.

None of those responding said that they were satisfied members.

The Buying Club Memberships Law requires covered memberships to be sold through written contracts that expressly notify the customer of a three day right to cancel, and that require the customer's signature.

Membership buyers also must be provided "Notice of Cancellation" forms that they can use to cancel the transaction within three business days, and avoid any obligation.

"We believe that application of the existing Buyers Club Memberships Law can help many consumers avoid these pitfalls and such unnoticed and unwanted charges," Miller said.

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