Legal Review
Online ‘Mystery Charges’
Under Investigation
Just about every retail business uses upsells to con- vince consumers to spend more money. Fast-food restaurants ask customers if they want to “make it a combo.” Toy stores ask customers if they need
batteries. As a result, consumers spend more money than
they otherwise would have spent if no one ever asked if
they wanted to add fries and a drink.
These days, it is rare to complete an online purchase
without being asked to buy something else. The online
upsell is an easy and lucrative transaction. The customer
has already provided credit card information and can
spend more — often with just one click of the mouse.
Even if the upsell involves the sale of a third-party’s
products or services, the merchant will simply transfer
the customer’s contact and billing information.
Not surprisingly, consumers have logged thousands
of complaints with the Better Business Bureau (BBB)
and other authorities relating to unauthorized credit card
charges and online upsells. In many cases, upsell offers
give consumers a trial period in a membership or club
program that continues with monthly recurring charges
if the consumer does not take certain steps to cancel. If
disclosures about the material terms of the offer are not
made clear, consumers believe they are merely agreeing
to try something for free without further commitment.
Some marketers obscure the distinction between the
upsell offer and the initial transaction, so that consumers believe they cannot complete the initial transaction
without accepting the upsell offer.
Lawmakers are now closely scrutinizing online upsells. On May 28, Sen. John D. (Jay) Rockefeller IV
(D-WV) — chairman of the U.S. Senate Committee on
Commerce, Science and Transportation — announced a
committee investigation into online upselling practices
that generate thousands of “mysterious monthly charges”
to consumer credit cards. The
committee sent investigative
demands to two companies
that offer monthly membership programs as post-transac-tion upsells on well-known
movie ticket and travel Web
sites.
The Commerce Committee letters note that consumers enroll in the programs simply by clicking a “yes”
button and providing an E-mail address. In other words,
consumers are not asked to re-type credit card information provided during the initial transaction, even though
the seller of the membership program is a different party.
The practice of transferring credit card information
from one marketer to another marketer is common in
upsell and other transactions, typically referred to as
card-on-file transactions. In contexts other than online
sales, the FTC has challenged the transfer of credit card
information without the customer’s knowledge or consent as a violation of Section 5 of the FTC Act, which
prohibits unfair or deceptive acts or practices. In the
telemarketing industry, the transfer of credit card information has been uniformly condemned.
A possible result of the Commerce Committee investigation could be new laws aimed at blocking the unauthorized transfer of credit card information between merchants as a means of preventing unwanted charges. The
investigative requests issued by the Commerce Committee ask for information directly related to transferring
consumer credit card or debit card account information
from the merchant who initially collected this information to the membership service provider. The letters also
request lists of every E-commerce retailer with whom the
membership service providers have entered into business
relationships to market the online upsells.
Lawmakers may take the view that the retailer and
the membership service provider are jointly liable for
deceptively luring consumers to enroll in the upsell program. This view corresponds to an FTC theory that an
entity that provides substantial assistance to a company
engaged in marketing programs that violate Section 5
of the FTC Act or the FTC’s trade regulations is, itself,
engaged in unfair, deceptive acts and practices. This
“substantial assistance” doctrine is expressly embodied in
the FTC’s Telemarketing Sales Rule.
While the Senate Commerce Committee is not typically as active in investigations as other committees, the
investigation into “mystery charges” generated by online
upsells could significantly change the DR industry and
marketing relationships among electronic retailers. ;
