Visa pulls plug on aggressive Web scheme
Visa said that it will stop allowing "data pass" transactions in which consumers buying movie or plane tickets or other goods on a website are offered a "reward" of a temporary membership in a discount club. Priceline, Staples and Classmates.com at one point all made the offers as did a number of other online retailers.
Only later do consumers find that though they provided no new credit card information, accepting the reward and failing to quickly cancel the membership meant their credit information was being transferred and they would be charged $10 to $20 a month by an unrelated company.
While Visa was first in announcing the change, American Express will be making a similar change when it updates its merchants' regulations, said Lisa Anselmo, director of public affairs for American Express. She said under the updated regulations, consumer will have to reenter their credit card numbers for any purchases from unrelated sites.
A Senate Commerce Committee report and a hearing in November focused on the activities of Affinion, Vertue and Webloyalty in selling $1.4 billion in club memberships to 35 million consumers and the $792 million "bounty" the three companies paid to 88 Web marketers.
The report said that 98% of the calls the companies received at their customer service centers were angry calls from consumers saying their credit cards hadn't been asked for and questioning the charges.
After the hearing, several big marketers stopped offering the products. The services also took steps to improve their disclosure of the additional charges. Still, committee chairman Jay Rockefeller, D-W.Va., pushed for more action and today Visa responded.
Visa said Web marketers can still offer the rewards, but they won't be able to automatically transfer credit card data. Instead consumers will have to re-enter their numbers for the transaction to go through.
"Visa's priority is protecting our cardholders and the integrity of the electronic payments system. Consumers who shop online using their Visa cards should be confident that they will only be charged for the products and services they legitimately intend to purchase -- not those that are foisted on them through deceptive data pass schemes," said Martin Elliott, Visa's senior business leader, U.S. Payment System Risk, in a statement.
Rockefeller today praised the action but said he still expects to introduce legislation to ban the practice.
"Tricking consumers into buying goods and services they do not want is completely unacceptable. It's not ethical, it's not right, and it is not the way business should be done in America," he said in a statement published by Visa. "While I am pleased that Visa is changing its rules so that more consumers are protected, I still believe that legislation is needed to ban this deceptive practice once and for all."
Mastercard did not immediately return request for comment on whether they would take similar steps.
Prentiss Cox, a University of Minnesota Law School professor who testified at the hearing, said the change will help consumers.
"The relationship of the retail and marketing partner allows people to be sold products they would never buy. If people had to pay upfront, almost no one would buy these buy these membership clubs," he said.
"The effect of consumers having to reenter the card numbers will alert many to what is being sold," he said. "It won't solve the whole problem, but it's a huge step forward."