Webloyalty tricked consumers, reaches $5.2 million settlement in NY

New York State Attorney General Andrew CuomoWebloyalty, a leading discount club marketer that partners with popular retail sites to offer memberships to consumers -- including Ticketmaster, Orbitz and Shutterfly -- agreed to refund $5.2 million to New Yorkers who the state's attorney general says were duped by its hidden fees.

An investigation by Andrew Cuomo's office says the company tricked online shoppers by presenting them with a cash-back or discount offer at the end of a transaction. That they were agreeing to transfer credit card information in exchange for redeeming the offer was buried in fine print and cluttered text. Since they were not asked to enter those details upon enrollment, many consumers often accepted the offer, unaware they were doing so, or unaware they would be charged.

The settlement, which also includes $3.3 million to be paid by five retailers that got kickbacks from their Webloyalty agreements, is the latest victory in AG Andrew Cuomo's wide-ranging investigation into the discount club industry, which has already netted more than $18 million in consumer refunds, penalties and fees.

It's also not the first public slap for Norwalk, Conn.-based Webloyalty, which became the subject of a U.S. Senate Commerce Committee investigation a year ago, along with loyalty marketers Affinion and Vertrue, after consumers filed an unusually large number of complaints with federal agencies.

Ticketmaster, Pizza Hut, Orbitz, Shutterfly and Movietickets.com marketed Webloyalty on their sites and provided the discount club with consumers' billing information without the consumers' permission, or at least knowledge that they were giving it. In exchange for passing the info, retailers received a share of the fees.

"In this all-too-common Internet scheme, consumers were tricked into paying for monthly services for a discount club while shopping online at trusted retailers," Cuomo said in a statement. "I urge New Yorkers who make purchases online to be wary of [getting] more than they bargained for."

Revenue generation came from recurring charges by unfamiliar companies that appeared on consumers' monthly statements. But because of their low dollar amount or generic club names, they often went unnoticed, according to the complaint. One such generic name the company still uses is "Reservation Rewards."

As in previous circumstances, Webloyalty admitted no wrongdoing. In business circles, the company has earned a glowing reputation for rapid growth -- more than 15,000% between 2001 and 2005, according to one assessment. Revenue for that period reportedly totaled $109 million, more than 20 times the New York state settlement.

"We are making it easier for consumers to know what they are buying and how they are paying for it, and we encourage members to take advantage of the valuable discounts Webloyalty provides for everyday purchases," a spokesman told Consumer Ally in an e-mail. He contradicted the attorney general's statement by claiming enrollment in the program occurs only if the consumer provides their credit or debit card directly to Webloyalty.

Discount clubs amass billions of dollars each year, much of it through deceptive schemes that enlist otherwise legitimate retailers as accomplices.

Last month, Cuomo's office settled with another group of retailers engaged in a discount club scheme run by Affinion, which prompted Visa to pull the plug on its involvement with "reward" or discount membership programs earlier this year. Affinion, known previously as Trilegiant, was also a target of the Senate investigation after it tried to elude scrutiny by changing its name.
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