State wins legal battle over 'buying club' memberships

DES MOINES – Retired Des Moines teacher Mary Grefe thought she was signing up for a free online credit report. What she got instead was a billing hassle that demanded she pay escalating charges and almost ruined her credit rating.

Grefe was among more than 497,000 Iowans who were the targets of an allegedly illegal “buying club” membership scam that Iowa Attorney General Tom Miller successfully argued used deceptive and unfair practices to generate more than $36 million over 20 years.

Miller said Tuesday he now is going after $36 million in restitution for those victimized Iowans as part of the biggest consumer protection case ever won by his office after a Polk County judge ruled that Connecticut-based Vertrue Inc. and its subsidiary companies, Adaptive Marketing LLC and Idaptive Marketing LLC, were liable for consumer fraud.

The Iowa attorney general said Vertrue typically charged $9.95 to $19.95 per month for memberships, which were charged to consumers' credit cards or bank accounts.

That's what happened to Grefe, who cancelled three credit cards and had some “nasty” encounters with Vertrue before eventually getting her disputes resolved.

“I've now become a missionary and telling people if you see anything that is free on your computer, believe me it is not free,” Grefe told a news conference. “Beware of free trial offers because there's no such thing as a free trial offer.”

Later Tuesday, officials with Vertrue and its subsidiaries issued a statement expressing disappointment with the district court ruling and announcing plans to appeal the decision.

“It is noteworthy that this ruling from an Iowa state court is inconsistent with the findings of three federal courts, all of which have found the marketing practices at issue in the Iowa case to be appropriate, lawful and clear,” according to the company statement. “We continue to believe that our operating company's marketing programs provide consumers with access to significant and realizable benefits, and we have worked hard to develop pro-consumer marketing practices that exceed industry standards.”

Miller said the buying club memberships often were sold to Iowans through telemarketing, direct mail or the Internet in which consumers got into unexpected or unnoticed charges when they were offered so-called “free-trial-offer” sales that continued if consumers failed to affirmatively cancel the membership at the end of the free trial period, he said.

“Many consumers don't anticipate or look for any charge, in part because they never provided their credit card number to purchase the trial membership,” Miller said. “But Vertrue companies already have the credit card number from the “partner' business that the consumer called in the first place.”

Those partner companies often were well-known banks, major retailers, catalogue companies or Internet-based businesses offering travel deals that consumers knew and trusted.

Miller said his office will seek full restitution of the $36 million that he contends were fraudulently obtained via Vertrue's alleged illegal sales practices, but he also will seek recovery from the partner companies if all $36 million is not recovered from Vertrue. The attorney general also is seeking civil penalties against Vertrue and its subsidiary companies.

 “We filed the lawsuit because consumers consistently told us they didn't even know they were members. We alleged Vertrue's illegal sales practices resulted in a vast number of Iowans' credit cards being charged, sometimes repeatedly, for memberships most of the Iowans didn't even know they had and never used,” Miller said.

“Our jaws dropped when we discovered the numbers,” the attorney general added, noting that as of mid-2009 that 497,683 Iowans had enrolled in 863,970 buying club memberships offered by Vertrue over two decades.

About 84 percent of the memberships were never used, he said. They purported to provide discounts or savings on books, music, clothing, home improvement items, entertainment activities, dining out, and fashion and fitness products.

Miller said more information about the recovery phase would be released later once the judge rules on the state's requested action. Miller strongly advised Iowans to examine their credit card and checking account statements every month for unauthorized or unknown charges by any company and to dispute unauthorized charges immediately.

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rod.boshart@gazcomm.com