Judge orders buying club company to pay $32.6 million to Iowans

DES MOINES – A Polk County judge has ordered Connecticut-based Vertrue, Inc. to pay more than $30 million dollars in restitution, penalties and costs after ruling the corporation violated Iowa's buying club law and used deceptive and unfair practices to market so-called buying club memberships to nearly a half-million Iowans over the last 20 years.

The $32.6 million ruling issued by Judge Robert Hutchison included $29.8 million in consumer restitution, $2.8 million in civil penalties, and $725,000 in costs and fees, according to information released by Iowa Attorney General Tom Miller on Tuesday.

“This is an outstanding outcome for the hundreds of thousands of Iowans who were duped by this company and its deceptive practices,” Miller said. “I am elated at this decision that will grant Iowans the restitution they deserve.”

The court decision is the largest consumer protection verdict ever awarded in Iowa in a case filed by the the Iowa Attorney General's Office, and one of the largest of its kind in the nation, Miller said. He noted that Vertrue has the option to appeal the judgment, so it is premature to determine how restitution will be distributed to Iowans who suffered losses.

In his decision filed Tuesday, Hutchison ruled that Vertrue unlawfully marketed 639,721 “memberships” in discount programs to Iowans since 1993. The buying club “memberships” typically cost $9.95 to $19.95 per month, with charges usually made to consumers' credit card or bank accounts, according to Miller's office. The memberships purported to provide discounts or savings on books, music, clothing, home improvement items, entertainment activities, dining out, and fashion and fitness products.

“It is certain that Iowans relied on the concealment and omission by Vertrue, and were damaged by the concealment and omission,” Hutchison wrote in his 45-page ruling. “The court finds that 90 percent of the consumers who purchased Vertrue membership discount programs would have cancelled those programs within the statutory three-day period had they been properly and conspicuously advised of their right to cancel.”

Hutchison had ruled nearly one year ago that Vertrue (formerly known as MemberWorks, Inc.) and its subsidiaries, Adaptive Marketing, LLC and Idaptive Marketing, LLC, violated Iowa's Consumer Fraud Act and Iowa's Buying Club Law. The March 2010 liability ruling followed a consumer fraud lawsuit that Miller filed against the company in May 2006.

The court found numerous violations of Iowa law. Among them, the court ruled that it was unfair and deceptive to lure consumers into trial memberships by holding out $25 gift cards or other premiums, and then set up obstacles designed to frustrate and delay efforts to redeem the premiums – a practice the company referred to as “breakage.” The court ruled that one form of this practice, called “double breakage” because it involved two separate hurdles, was especially “egregious.”