A leading lawmaker introduced a bill on Wednesday aimed at preventing Web companies from duping consumers into signing up for paid subscriptions they don't want.
The "Restore Online Shoppers' Confidence Act," proposed by Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.), would prohibit companies from enrolling consumers in paid-subscription programs unless the consumers entered their credit card numbers and agreed to the program. The measure would also restrict online companies' ability to use "negative options," which often involves offering people free trials and then charging them unless they cancel their accounts within a short time frame.
Rockefeller's proposal grows out of a year-long investigation into "data pass" marketing, which occurs when online merchants forward consumers' credit card data to post-transaction companies that then enroll consumers in paid programs.
Since the probe began, the three major post-transaction companies -- Webloyalty, Affinion and Vertrue -- revised their practices. They now require consumers to re-enter all 16 digits of their credit cards to enroll in discount clubs after making purchases. Visa also recently said it will require consumers to re-enter their credit card numbers online before processing payments.
Webloyalty, Affinion and Vertrue target consumers immediately after they have made purchases on online retail sites like Fandango by sending pop-up ads that offer discounts. In the past, people who clicked on the pop-ups landed on a site where they could enroll in coupon programs simply by providing their email address and clicking a 'yes' button.
The ecommerce sites then shared financial information with the post-transaction companies, which would charge consumers monthly fees ranging up to $20. Many Web users said they did not realize the companies were going to charge their credit cards.
When these consumers complained, the companies attempted to refund as little money as possible through "refund mitigation" programs, according to a Commerce Committee report issued on Wednesday. For instance, the post-transaction would agree to cancel users' accounts, but would balk at refunding fees already paid, according to the report.
"The three companies all appear to have been following the same basic business plan: improperly charge consumers' credit cards for services the companies knew consumers did not intend to purchase and were not using, and then refund as small a portion of this money as possible after consumers discovered the charges," the report states.
A prior report found that Web companies garnered more than $1.4 billion in the last decade through post-transaction programs.
Rockefeller's proposal would require companies that use negative options online to clearly and conspicuously disclose all terms, obtain users' express consent, and enable easy cancellation, among other provisions.
Vertrue said in a statement on Wednesday that the report does not reflect the current practices of Adaptive, its subsidiary that handles post-transaction marketing. "Adaptive's marketing practices are not only clear, but its programs provide consumers with access to significant and realizable benefits," the company said.
Webloyalty said that its current policies "meet virtually all of the requirements of the proposed legislation."
Affinion added that it believes the issues raised in the report "were resolved when we voluntarily ended the marketing method known as post-transaction online data-pass in January."