E-tailers Collude in Online 'Rewards' Trap

When does a business model cross the line into scam? UPDATED 8/27/09 1:40 PM

That’s the question many consumers have asked themselves when it comes to sites that use a revenue-generating systems to connect sellers to motivated buyers through questionable coupon and rewards programs.

Nonetheless, it appears that many consumers who dealt with Webloyalty from September 11, 2000, through September 30, 2008, could be eligible for refunds on money paid for a range of the firm’s online offers. A New York Times article quotes David J. George, a lead attorney for the plaintiffs, as saying that around 20 million consumers are entitled to full restitution.

A handful of other firms appeared in documents for the membership program class action, including Fandango, Priceline, and Valueclick Inc. All were accused of enrolling “consumers in [a range of membership programs] in the course of online retail transactions without obtaining sufficient authorization or consent, and thereafter wrongly charged fees for membership benefits.”

Complaints about these programs center on whether consumers really know what they are getting into when they sign on for a rewards program -- whether they really scrutinize the fine print.

Webloyalty says they do. According to Beth Kitchener, a spokeswoman for the company, here’s what the signup process is like:

After completing a transaction with one of our e-commerce partners, consumers are shown a banner advertisement which states language similar to the following: ‘Your purchase is complete. By clicking above you can claim your incentive from our preferred partner when you join their service. Terms and conditions apply.’ If the consumer clicks on the banner, he or she is then shown a full page solicitation offering a 30-day free trial membership in one of our services and a $10 Cash Back Incentive for trying our service. If the consumer accepts this offer, he or she then enters an email address twice, and today, enters the last 4 digits of his or her credit card number and then clicks the ‘YES!’ button on the page... Immediately to the left of the ‘YES!’ button are the ‘Offer and Billing Details’ which explain that consumers will be billed on the credit card they use for their client transaction.

Firms that pursue these dubious marketing practices continue to flourish almost unabated, despite complaints. It is these program participants, including companies like Buy.com and Orbitz, that continually bring in the fresh meat. The rewards program companies pay them for their customer access.

In a CNET interview, Buy.com’s VP of marketing, Jeff Wisot, stated, “We have a longstanding relationship with Webloyalty because we think they provide value to our customers.”

Buy.Com has no remorse about its terms and conditions contract. According to Wisot, “It’s very clear that [customer] credit card information is going to be transferred over to Webloyalty.”

Kitchener states: “With more than 2 million current memberships, Webloyalty.com believes it provides excellent customer service. We make every effort to be straightforward with our offers, allowing consumers to make educated choices regarding the products and services they purchase.”

Despite assertions that nothing’s amiss, the U.S. Senate Commerce Committee is investigating the entire “cash back” and online coupon industry.

Besides Webloyalty, Vertrue and Affinion Group are under investigation for questionable practices.

Yes, it is obvious to state the obligatory "buyer beware." But the popularity of these online programs will continue to attract consumers; and unless law enforcement succeeds in stifling these activities or retailers get wise, they will continue to grow exponentially.

— Chris Poley has been a professional trader for more than 20 years.