Post-transaction marketing abuses bring calls for stronger oversight.
Three Internet companies -- Affinion, Vertrue, and Webloyalty -- and their hundreds of partners were pilloried by Senate lawmakers and academics on Tuesday for deceptive marketing tactics.
"[T]he companies we are investigating have figured out very clever ways to manipulate consumers' buying habits so they can make a quick buck," said John D. Rockefeller IV, chairman of the U.S. Senate Committee on Commerce, Science, and Transportation, in a statement.
The practice at issue is called post-transaction marketing, which involves the presentation of offers during the online checkout process. When done to deceive, these offers typically appear to be a required part of the checkout process, in order to trick consumers into accepting charges for unwanted products or services.
A particularly pernicious form of post-transaction marketing is known as "preacquired account marketing," a process by which the third-party marketer acquires a customer's credit card information from the online merchant where the customer is making a purchase.
Using this tactic, the third-party marketer only needs an e-mail address or a click as purchase authorization. The retailer, in effect, sells the customers' credit card information because the retailer, as a partner, will get a cut of whatever extra charge the customer can be duped or pushed into accepting.
Often, what the customer receives is a membership in a program of some sort that charges a monthly fee. The programs are often of dubious value. They may, for example, promise "cash back awards" that are never delivered.
In many cases, consumers are unaware they've signed up for these membership programs, at least until they check their credit card bill. The Senate Committee's report cites an internal Webloyalty e-mail that acknowledges, "...at least 90% of our members don't know anything about the membership."
Affinion, Vertrue, and Webloyalty, along with their over 450 e-commerce partners, have taken in $1.4 billion in revenue using "aggressive tactics" of this sort, the report says.
Eighty-eight online retailers made over $1 million by partnering with these Affinion, Vertrue, and Webloyalty, according to the report. Of these, 19 made over $10 million and one, Classmates.com, made over $70 million.
The Senate Committee's report accuses the three companies of "harming large numbers of American consumers." And to underscore that point, the Committee produced the sort of witness who almost guarantees victory in the court of public option.
Testifying about the harm done by post-transaction marketing was Raymond France, a former U.S. paratrooper and a two time combat veteran who served in Afghanistan and Iraq. He became disabled with he received a traumatic brain injury from a roadside bomb.
In his testimony, France describes his victimization at the hands of a company called Value Max, which he claimed started making withdrawals from his bank account after he had made an online purchase from Internet data broker Intelius.
"My country promised to take care of me when I returned home but without laws to govern these unethical practices, instead my country is allowing me to be taken advantage of," France said in his testimony. "This is a problem that must be resolved as it is not just Vets who are victims but all Americans."
In separate testimony, Harvard assistant professor Benjamin Edelman called for an end to the transfer of credit card data in post-transaction offers, for improved disclosure requirements and easier charge reversal, and for greater industry oversight.
Earlier this month, Senator Rockefeller sent letters seeking information to sixteen companies working with Affinion, Vertrue, and Webloyalty: 1-800-Flowers.com; AirTran Holdings; Classmates.com; Continental Airlines; FTD; Fandango; Hotwire; Intelius; MovieTickets.com; Orbitz Worldwide; Pizza Hut; Priceline.com; Redcats USA; Shutterfly; US Airways Group; and VistaPrint USA.
InformationWeek and Dr. Dobb's have published an in-depth report on how Web application development is moving to online platforms. Download the report here (registration required).