Online background checker Intelius duped hundreds of thousands of consumers through deceptive advertising tactics that earned it more than $50 million in lucrative commissions from third-party vendors, a two-year investigation by the Washington State Attorney General's office has found.
The investigation, launched in June 2008, focused on an Internet sales method known as post-transaction marketing, in which consumers are offered other services after they've submitted their credit card data to make a purchase. Some of the more well-known promise $10 rebates for rating a transaction or signing up for a loyalty program. Intelius deployed the tactic to lure customers into enrolling in subscription membership programs after they agreed to purchase search results, but before they had confirmed payment, according to the complaint.
In exchange, Intelius received commissions from Adaptive Marketing, the principal membership vendor it promoted. Adaptive Marketing is a subsidiary of Vertrue, which in 2009 drew the attention of a U.S. Senate investigation due to the number of complaints about its services. The company also markets credit score monitoring services and has a long history of consumer complaints.
A typical Vertrue enrollment program, with terms and fees in fine print beneath a $10 cashback offer for taking a survey, costs consumers about $20 a month. In Intelius' case, for every consumer who enrolled in such a program, they received between $40-$59 from Adaptive, amounting to more than $35 million during 2007 and 2008 alone, and more than $50 million over the entire course of the investigation.
Intelius and the attorney general's office reached a settlement for $1.3 million. The settlement does not require the company to admit any wrongdoing, but severely restricts its future advertising practices.
"Intelius chose cash over candor," said Attorney General Rob McKenna, who in 2009 testified in front of the Senate committee. "Despite a continuous stream of complaints from consumers about mysterious charges, despite a consultant's belief that Intelius' advertising practices were causing confusion and despite a recommendation from its own staff to make it easier for consumers to opt out of additional purchases, the company wouldn't change course."
"Intelius is pleased to announce our agreement with the Washington State Attorney General," said James Cullinan, a spokesman for the company. "We will comply with the [settlement] and are happy to put this issue behind us so we can focus on providing great products and services to our customers in Washington and around the country."
McKenna described the partnership between Intelius and Adaptive as "an online labyrinth where the only way out is to click and click and click."
"One wrong turn and you're enrolled in a membership program that costs you $20 or more each month," he said.
The fraud involved two main products. One was a set of membership programs for credit monitoring, roadside assistance and retail discounts, engineered by Adaptive and peddled online by Intelius. The scheme worked because it was masked behind a plain-looking $10 cashback offer for taking a two-question survey, which interrupted consumer transactions by appearing right after ordering an Intelius product but before paying for it.
Neither Intelius nor Adaptive were interested in nor tracked the results of the "survey," which the complaint alleges was just an attention-grabber to obscure the membership enrollment. However, consumers could not view the results of their search without taking action on the offer, which gave the appearance that it came with no additional terms.
The attorney general's findings estimate that the large red button saying "YES, and show my report" and miniscule light-grey fine print below the offer resulted in a 80% conversion rate among consumers.
The second program, which Intelius itself devised mimicking Adaptive's tactics, involved discounted prices for background search reports if consumers bundled their purchase with a membership called Identity Protect. At the end of a 7-day free trial, the program automatically started charging $19.95 per month. According to the complaint, more than 800,000 consumers nationwide enrolled in Identity Protect, but because they did so unwittingly, only 54,181 of them used any of the membership benefits.
Intelius is expected to provide refunds to customers who enrolled in the Identity Protect program but never used the service.
Data digger Intelius to pay $1.3m after Vertrue scheme nets them $50m