New Law Good News for Online Shoppers Bilked by Mystery Charges

a pile of cahs = mystery chargesOnline marketing firms that bilked millions of consumers out of more than $1 billion will find it far harder to pick the pockets of online shoppers thanks to a new law passed by Congress.

For years, millions of consumers have been opening their credit card statements and discovering small, recurring charges for services they were tricked into signing up for while shopping online. These third-party "post-transaction" marketers typically offered consumers rebates or discounts when completing a purchase on popular shopping sites.

But due to disclosures buried in fine print, consumers didn't realize that by checking the "yes" box, they were actually enrolling in money-drainers with names like "Reservation Rewards," granting firms permission to bill their credit cards with mystery charges.Since negative-option plans keep billing until canceled and the monthly charges usually run small, many consumers were charged for months or even years until they realized what was going on.

But legislation passed by last year's unusually active "lame duck" Congress will make it more difficult for post-transaction marketers. On Dec. 29, President Obama signed into law the Restore Online Shoppers' Confidence Act, which requires these marketers to obey a number of rules before they can start billing consumers' credit cards.

"Too many companies are trying to use phony monthly billing to rip off Americans and this bill will help strengthen our hand," Federal Trade Commission Chairman Jon Leibowitz said in a statement. "Consumers should be able to make informed decisions, so the terms and conditions of any offer must be disclosed clearly and conspicuously."

The Restore Online Shoppers' Confidence Act makes it illegal for a post-transaction third-party marketer to charge, or attempt to charge, a consumer for any good or service sold in an online transaction, unless:
  • The marketer clearly discloses to the consumer all the material terms of the transaction.
  • The marketer has obtained the consumer's consent before charging their credit card, bank account, or other financial account. They must also obtain the full account number to be charged directly from the consumer.
The new law also makes it unlawful for any online shopping site to transfer a consumer's financial account information to a third-party marketer -- the key practice that facilitated the entire scam.

Finally, the law makes it illegal for a marketer to charge, or attempt to charge, a consumer for any good or service with a negative-option feature in an online transaction, unless:
  • The marketer clearly discloses to the consumer all the material terms of the transaction.
  • The marketer has obtained the consumer's consent before charging their credit card, bank account, or other financial account.
  • The marketer provides a simple way for the consumer to cancel.
This new consumer protection law was introduced by Sen. Jay Rockefeller, D-W.Va., who, as chairman of the Senate Commerce Committee, launched an investigation in 2009 into the practices of the three major post-transaction, negative-option marketing firms, Webloyalty, Vertrue and Affinion. The investigation also focused on the many shopping sites that partnered with them, such as Orbitz, Fandango and Priceline.

"If online consumers are being charged without their knowledge for services they don't want, that is extremely troubling to me and has to be stopped at any time – but especially in the midst of this difficult economic climate," Rockfeller said in a statement.

The year-long investigation resulted in a report that formed the basis of the new law. It found "these companies bilked millions of Americans out of more than one billion dollars by partnering with hundreds of legitimate websites that were willing to share their customers' billing information, including credit and debit card numbers, for financial gain."

Thanks to subpoenas issued by the committee, the report also found that Affinion, Vertrue, Webloyalty and their 450 e-commerce partners earned over $1.4 billion via "misleading tactics" from more than 30 million consumers. Some 88 companies made more than $1 million though kickbacks from these firms, while Classmates.com earned more than $70 million.

Adding insult to injury, almost no consumers received the promised rebates or "rewards," the report said.

Last September, former New York State Attorney General Andrew Cuomo ordered Webloyalty to refund $5.2 million to state residents who'd been duped by its marketing tactics.

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