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March 8, 2011

Judge Orders Vertrue to Pay Nearly $33 Million

Hundreds of thousands of Iowans could receive restitution

(DES MOINES, Iowa)  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 twenty years.

The $32.6 million ruling includes $29.8 million in consumer restitution, $2.8 million in civil penalties, and $725,000 in costs and fees.

In a ruling filed Tuesday in Polk County District Court, District Judge Robert A. Hutchison ruled that, since 1993, Vertrue unlawfully marketed 639,721 “memberships” in discount programs to Iowans.  These buying club “memberships” typically cost $9.95 to $19.95 per month, with charges usually made to consumers’ credit card or bank accounts.  The memberships purport 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% 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…”

“This is an outstanding outcome for the hundreds of thousands of Iowans who were duped by this company and its deceptive practices,” said Attorney General Tom Miller.  “I am elated at this decision that will grant Iowans the restitution they deserve.”  Miller noted that the decision is the largest consumer protection verdict ever awarded in Iowa in a case filed by the Attorney General, and one of the largest of its kind in the nation.

Miller also 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.

On March 18, 2010, Hutchison ruled 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 liability ruling followed Miller’s consumer fraud lawsuit filed against the company in May of 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.”

After Iowa’s lawsuit against Vertrue the U.S. Senate Commerce Committee condemned many of the tactics identified in the Iowa litigation.  In a November 2009 report that focused on sharp practices in Internet marketing, the Committee charged that Vertrue used “aggressive sales tactics intentionally designed to mislead online shoppers.”  In a follow-up report in May 2010, the Committee concluded that after charging for services that consumers “did not use and did not understand they had purchased,” Vertrue “made it as difficult as possible for consumers to get their money back.”

Here are tips to avoid unwanted charges:

  • Examine your credit card bill, checking account and phone bills. Unwanted membership charges have even appeared on mortgage statements and invoices from mail order retailers. Watch for unauthorized charges -- and dispute them at once. (Statements often include a toll-free number to call in order to cancel.)
  • Remember that even “risk free” trial offers may lead to unwanted charges.   Get the details: How do you cancel, and how soon must you cancel to avoid being billed?  And remember that they may already have your bank or credit card number to charge you.
  • Beware of checks that appear to be refunds or rebates.  Fine print on the back of the check or elsewhere in the mailing may try to authorize future charges if you cash or deposit the check.
  • Actively monitor your mail. Some mailings warning you that you will be billed unless you cancel may look like the sort of “junk mail” consumers toss without reading.

For more information or to file a complaint, contact the Attorney General's Consumer Protection Division, Des Moines, Iowa 50319. Call 515-281-5926, or outside the Des Moines area, call 1-888-777-4590, toll-free. The Attorney General’s web site is:

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