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November 13, 2001

Miller: Buying Clubs Ordered to Pay to Settle Deception Charges

More than 2,200 Iowans may be eligible for refunds.

Miller gives tips to avoid unwanted charges.

Cedar Rapids. Attorney General Tom Miller announced today that an estimated 2,200 Iowans will be eligible to receive refunds from a group of "buying clubs" that allegedly misled consumers into accepting trial memberships and then billed consumers without their knowledge or authorization. Miller also listed tips to help consumers counter such questionable solicitation tactics.

Miller said Iowa and other states and the Federal Trade Commission joined in legal action against Triad Discount Buying Service Inc. of Boca Raton, Florida, Triad's owner, Ira Smolev, and numerous related companies operated by Smolev. The defendants will pay more than $9 million nationwide to settle charges brought by the FTC and about forty states.

"We allege that the Triad companies used deception to sign up buying club members through telemarketers selling other products from kitchen gadgets to diet pills," Miller said. "After consumers gave their credit card number to pay for a product, the telemarketer then moved on to another pitch for a 30-day so-called 'no-obligation free trial' in Triad's buying club. The problem was that many consumers had no idea that Triad then would start billing their credit card after the so-called free trial period ended. They assumed they would have a chance to make a choice."

Consumers were charged up to $96 in yearly membership fees for the Triad company clubs, and fees were renewed automatically without consumer authorization.

"Consumers were not told that the telemarketer provided their name and credit card numbers to the Triad companies," Miller said. "We also alleged that even some consumers who declined the so-called free trial membership were billed by the Triad companies. All this violated Iowa's Consumer Fraud Act and basic consumer protection principles."

Miller called the Triad tactics a "modified negative option," a questionable solicitation tactic he said appears to be on the rise. Miller suggested several tips consumers should follow to avoid unwanted and unauthorized charges.

"Be on alert if you hear you are being offered a free trial period," Miller said. "There is a very good chance the company already has your credit card number and will start billing you after the free period. Be skeptical and ask questions such as if there is a membership fee, if they will start billing you, and if you will have a specific chance to approve or cancel the membership. If you do not want the membership, make that very clear to the telemarketer," Miller said.

"Second, always check your credit card bill. Be sure every charge is something you authorize and approve, and dispute the charge if it isn't something you ordered," Miller said. "There are many schemes that try to 'cram' unwanted charges on credit card bills. Dispute unauthorized charges and file a complaint both with the company and the Attorney General's Consumer Protection Division."

Miller said his office is seeing more abuse of this type. "Consumers often tell us they don't recall ever having spoken to the companies, and they don't understand how they can be charged when they have not given the company their credit card number. This kind of conduct is both unfair and anti-competitive - it denies consumers true choice about what they want to buy."

Miller said unwanted and unauthorized billings typically might be for memberships in buying clubs or travel clubs, or for magazine subscriptions. He said consumers can challenge unauthorized charges under federal fair credit billing laws that protect consumers in credit card billing disputes.

Iowa's settlement agreement with the Triad companies was filed today in Polk County District Court. Under the overall agreement with the States and FTC, it is estimated that approximately 275,000 persons nationwide who filed complaints against Triad companies may be eligible for partial membership refunds, including an estimated more than 2,200 Iowans. Refund amounts have not been determined. Eligible consumers will be contacted by mail by the FTC, and they do not need to file additional claims to be eligible.

Nationwide, the Triad companies and Smolev are paying $8.3 million for consumer restitution, and $750,000 for investigative costs (including $10,000 to Iowa.) In addition, Smolev and the Triad companies, which are currently in bankruptcy, are required under the Iowa court order to drastically revise their marketing practices to avoid future deceptions. The companies are prohibited from misrepresenting offers of "free" goods or services and failing to disclose a consumer's obligations in accepting trial offers. The companies also are prohibited from signing up new members or renewing memberships without express and verifiable authorization from the consumer. The companies may not obtain or disseminate consumer billing information without authorization.


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