New York Attorney General Eliot Spitzer this week announced a settlement with telemarketer MemberWorks, Stamford, CT, that will protect consumers from unauthorized credit card charges and require full and clear, upfront disclosures in sales representations.
MemberWorks Inc. settled allegations of telemarketing abuse in connection with its sales of lifestyle club memberships, which offer consumers alleged savings on a variety of products and services involving entertainment, shopping, home improvement and healthcare. It is estimated that the company has more than 600,000 customers in New York state.
The settlement arose from Spitzer's investigation of banks and credit card issuers that violated their cardholders' privacy rights by selling their personal account information to telemarketers in return for a substantial commission.
“This agreement reaffirms the need for aggressive oversight of privacy-related issues and the need for tight control over access to financial information such as credit card numbers,” Spitzer said. “The reforms provided in this settlement will ensure more complete and accurate disclosures in telemarketing campaigns so that consumers can make informed decisions.”
Spitzer said MemberWorks entered into agreements with Citibank, its largest client, and other major financial institutions that provided customer names and account information. This information was then used in telemarketing campaigns to lure consumers with a “free, 30-day trial membership” in one of its many membership clubs. At the end of the trial period, MemberWorks charged many of its customers' credit card accounts an annual fee of $60 to $144 — without their knowledge or authorization — for the membership, using credit card numbers provided by the consumers' financial institutions.
Spitzer said MemberWorks made wide use of negative-option plans with its “risk free” 30-day free trial membership offer. Although these plans offer consumers a free period in which to consider the advantages of the service, many who accepted the initial free trial did not understand that MemberWorks had access to their credit card numbers and would charge them if they failed to cancel during the trial period.
Spitzer's office also raised concerns that the telemarketing script misled consumers into believing that their financial institution was selling the membership and that there was an unrestricted discount or rebate benefit, when, in fact, significant limitations, restrictions and conditions applied.
Under the terms of the settlement, MemberWorks agreed to clearly disclose the negative-option method upfront and again before renewal. In addition, the agreement requires MemberWorks to:
• Tape every consumer's “consent” to ensure it is knowingly given.
• Ensure that accurate, nonmisleading information is provided about the value of the membership.
• Clearly disclose that it is not their financial institution offering the product or service.
• Disclose that the company already has the customer's credit card number for automatic billing.
MemberWorks also agreed to automatically double the refund for consumers who complain about nonauthorization of credit card charges if it cannot produce the taped consent.
MemberWorks cooperated with the attorney general's inquiry and paid $75,000 to cover the costs of the investigation. It entered into the settlement without admitting any violation of law.
“MemberWorks strongly endorses the privacy polices of, and is fully compliant with, the Gramm-Leach-Bliley Act and is committed to maintaining public confidence in the direct marketing industry,” said Gary Johnson, president/CEO of MemberWorks, in a statement.
The Gramm-Leach-Bliley Act, which took effect last November, made it a federal crime to obtain or attempt to obtain customer information from a financial institution by false pretenses.
MemberWorks has 6.9 million members nationally. Among the membership programs offered to New York consumers are: Personal Gains; Countrywide Dental & Health Program; HealthMAX Advantage; HealthTrends; Travel Arrangements; Connections; CardMember Protection Service; 24Protect; SmartSource; Leisure Advantage; and RateSaver.
