By way of a resuscitated campaign to have Ben Stein sacked from his various writing and promotion jobs, Felix Salmon at Reuters discusses a story about US consumers being deceived by dodgy online sign-up pitches and leads us to this: the relevant full blown staff report for Senate commerce committee chairman Jay Rockefeller.
The scandal involves a small cabal of firms using quite outrageous — though seemingly legal — tactics to trick people into joining “membership clubs,” which then extract monthly payments from the victim’s credit card.
We’d always assumed that such shabby online antics — much like penis extension spam or those promises of prize draw winnings if you call a special number for ten minutes — were the domain of shady off-shore operators and/or the offspring of jailed mobsters.
But no! Turns out some of the best biggest names in private equity stand accused here, along with a large number of rather reputable well-known online retailers.
Let’s try a little exercise. Let’s reprint the findings of the committee staff’s investigation, while inserting the various parent company names (in bold):
Using aggressive sales tactics to enroll consumers in unwanted membership clubs is a billion-dollar business. Affinion (Apollo Management) , Vertrue (a group of private equity investors led by One Equity Partners, the private equity arm of JP Morgan), Webloyalty (General Atlantic LLC) and their e-commerce partners (US Airways, Travelocity, Priceline, Expedia, Classmates.com, , 1-800-Flowers.com, etc) have earned over $1.4 billion in revenue by using aggressive tactics to charge Internet shoppers for club membership programs. Since 1999, Internet consumers have been enrolled more than 35 million times Apollo’s, One Equity/JPM’s, and General Atlantic’s membership clubs. In June 2009, there were 4 million Internet consumers currently enrolled in these three companies’ membership programs.
Hundreds of well-known websites and online retailers have earned hundreds of millions of dollars employing aggressive online sales tactics. More than 450 e-commerce websites and retailers have partnered with Apollo Management, One Equity/JP Morgan and General Atlantic to employ aggressive sales tactics against their online customers. Of the $1.4 billion in total revenue earned through using these tactics, $792 million of this total was earned by Apollo Management, One Equity/JP Morgan and General Atlantic’s e-commerce partners. Eighty-eight e-commerce companies have earned more than $1 million through using these tactics, including 19 that have made more than $10 million. Classmates.com has made more than $70 million using these controversial practices.
Apollo Management, One Equity/JP Morgan, and General Atlantic have knowingly charged millions of consumers for services the consumers do not use and are unaware they have purchased. Internal documents reviewed by Committee staff show that Apollo Management, One Equity/JP Morgan and General Atlantic know that most of the ?members? they acquire through their aggressive online sales tactics do not understand they have been enrolled in a program that charges their credit or debit card on a recurring basis. Most consumers enrolled in the clubs cancel their memberships when they discover the monthly charge and never receive any benefit from their club membership. One Webloyalty employee candidly commented in an e-mail that, “at least 90% of our members don‘t know anything about the membership.”
Apollo Management, One Equity/JP Morgan and General Atlantic’s customer service centers are almost entirely dedicated to handling the large volume of calls from angry and confused consumers requesting cancellations. Apollo Management, One Equity/JP Morgan and General Atlantic receive millions of calls every year from angry, frustrated consumers cancelling their membership or asking questions about the charge on their credit or debit card. One General Atlantic employee acknowledged in an e-mail that most of its calls were ?from members who are questioning charges or want to cancel their membership,? while a One Equity/JP Morgan employee had estimated that “cancellation calls represent approximately 98% of call volume.” The companies‘ internal manuals train their call center representatives to answer questions such as, “what is this charge?” or “who are you?”
E-Commerce companies like US Airways, Travelocity, Priceline, Expedia, Classmates.com, and 1-800-Flowers.com know that their customers are being harmed by the aggressive sales tactics of Apollo Management, One Equity/JP Morgan and General Atlantic. The e-commerce companies partnered with Apollo Management, One Equity/JP Morgan and General Atlantic understand that more aggressive sales tactics lead to higher revenue. In the words of one company official, “to generate more revenue through General Atlantic, it seems we must be more aggressive (and deceptive) in our marketing techniques.” Thousands of customers have contacted the companies using words like “fraud,” “tricked,” “deceptive,” “misleading,” “scam,” “deceitful,” “dishonest,” “betrayed,” and “robbed” to describe their experiences. This “customer noise” has led a number of e-commerce partners to request a more “conservative” approach or to end their relationships with Apollo Management, One Equity/JP Morgan or General Atlantic.
We can probably re-do this each month. If they complain we can just stop. But the private equity firms and retailers involved are probably to busy to notice…
Related links:
Office of Oversight and Investigations – staff report – Senate document
Accompanying exhibits, including list of top retailers – Senate document