The latest online shopping scam

Zoomer | November 27th, 2009

Bah humbug! Before you tackle your gift list or book your holiday flight online, be sure to read the fine print to avoid the latest web scheme targeting online consumers.

This massive web scam has already cost online shoppers more than $1.4 billion, according to the US Senate Committee on Commerce, Science and Transportation. And, disturbingly, it was carried out with the support of hundreds of sites and online retailers. This list includes such well-known sites as Orbitz, Travelocity, 1-800-Flowers.com and Classmates.com. (Click here to view the entire list.)

Misleading offers

How does the scheme work? When going through the checkout process, online shoppers are presented with an offer to sign up for a ‘Membership Club’. The clubs — with names like Reservation Rewards or ValueMax Shopping service — offer promising cash-back rewards that appear to be related to the transaction the user is trying to complete.

For example, consumers may be offered up-front gifts such as ‘$10 Cash Back on Your Next Purchase!’ Because of its positioning, many users mistakenly believe it relates to the website where they are making a purchase.

Instead the consumer is unwittingly signing onto a new ongoing financial arrangement with a membership club (operated by a separate company) — which means the club can automatically charge a member’s credit card anywhere from $10 to $20 per month.

To make matters worse, many users don’t realize that once they enter personal information (such as an email address) to take advantage of the offer, the retailer at whose site they had just been shopping automatically transfers their credit card information to the membership club — even if the user does not provide this financial information directly. Therefore, consumers often do not know these companies have their credit card numbers until they start seeing charges on their bank statements.

And what about the cash-back reward promised at the time of enrollment? Almost no one receives it, the Senate investigation found.

“What I find most outrageous about these scams,” Senator John D. Rockefeller IV was quoted by Consumer Reports, “are the reputable online businesses that have been willing to take part in these scams.”

According to the committee’s investigators, “Eighty-eight e-commerce companies have earned more than $1 million through using these tactics, including 19 that have made more than $10 million. Classmates.com has made more than $70 million using these controversial practices.”

Other key findings of the investigation:

–The three Internet companies that operate the clubs — Affinion, Vertrue, and Webloyalty — and their e-commerce partners have earned to date over $1.4 billion in revenue with this arrangement. More than 450 e-commerce websites and retailers have partnered with these companies, and they generally split the revenue 50-50.

–There have been more than 30 million consumer enrollments in these clubs and several million people are unknowingly enrolled in these clubs at any one time.

The bottom line? As always, be wary of any tempting offers when shopping online. Take the time to find out all the details, and make sure you’re getting exactly what you think you are. And last but not least, if you’re not certain, do not enter any personal information on the web form — not even your email address.

The safest bet: If you’re uncertain about an offer, just click on the “No Thanks” link.

ON THE WEB

View an offer from a membership service after joining Classmates.com

See the Senate Committee’s Report (pdf)

Sources: US Senate Committee on Commerce, Science and Transportation press release; ConsumerReports.org

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