The Senate Committee on Commerce, Science and Transportation last week released a staff report on “aggressive sales tactics on the Internet.” The focus is on companies that essentially sign you up for paid services you didn’t realize you had purchased until the credit card bill comes due (often by pre-selecting an extras box during checkout of legit online retailers). As the Committee explained it:
To say the least, the report is not terribly kind to the three companies it focuses on: Affinion, Vertrue and Webloyalty. What do all three have in common, beyond corporate headquarters in Norwalk, Connecticut and sleazy business practices? They’re all owned (or partially owned) by private equity firms:
- Affinion: Apollo Management bought the company in October 2005 from Cendant Corp. for approximately $1.83 billion. Affinion filed for an IPO, but pulled it in November 2007.
- Vertrue: The company was taken private in August 2007 for $855 million, by One Equity Partners, Rho Ventures and Brencourt Advisors. Oak Investment Partners was originally part of the consortium, but bailed when the purchase price rose from from $48.50 per share to $50 per share.
- WebLoyalty: General Atlantic purchased a majority stake in 2005, from VC backers like Canaan Partners and BCI Partners. No financial terms were disclosed.
The investigation is not yet finalized, but initial findings include the following:
Affinion, Vertrue, and Webloyalty have knowingly charged millions of consumers for services the consumers do not use and are unaware they have purchased. Internal documents reviewed by Committee staff show that Affinion, Vertrue, and Webloyalty know that most of the ―members they acquire through their aggressive online sales tactics do not understand they have been enrolled in a program that charges their credit or debit card on a recurring basis. Most consumers enrolled in the clubs cancel their memberships when they discover the monthly charge and never receive any benefit from their club membership. One Webloyalty employee candidly commented in an e-mail that, ―at least 90% of our members don‘t know anything about the membership.
Ouch! The Committee also criticizes the more reputable retailers that allow these companies to prey on their customers: “E-Commerce companies know that their customers are being harmed by the aggressive sales tactics of Affinion, Vertrue, and Webloyalty.”