MEMBERWORKS AND
SEARS AGREE TO JUDGMENT IN
DISTRICT ATTORNEY LAWSUIT
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After the filing of a lawsuit by the California Attorney General and various deputy attorneys general and County district attorneys (including those of Los Angeles and Orange), defendants MemberWorks Incorporated and Sears, Roebuck and Co., while denying the allegations of the complaint and not admitting to any violation of law on their part, have stipulated to entry of judgment and an injunction against them.
The complaint arose because of some of MemberWorks’ practices in marketing consumer membership programs for goods and services such as, for example, discount dental services, voice mail services, travel discounts, and a number of programs offered by Sears. The complaint alleged that in its marketing of certain programs by means of telemarketing, the company’s website, Sears’ website and toll-free telephone number, and by direct mail solicitation, it misled and confused consumers.
Essentially, MemberWorks would offer a trial membership of some kind at little or no cost, at the end of which the members’ credit cards would be automatically charged for a one-year membership. A consumer could avoid this charge only by taking action to contact the company to cancel their membership after the trial period. Memberships were automatically renewed each year unless the consumer took similar action.
Because the defendants allegedly did not adequately disclose these requirements, as required by law, many consumers did not realize that this was a "negative option" program, where their membership would become effective or would be renewed unless they took affirmative steps to cancel. Additionally, consumers were unaware that charges would or could be made to their Sears credit card because they had not signed anything or provided the card number and were unaware that Sears had enabled MemberWorks to make such charges without obtaining a signature or number from the consumer. Nor were consumers informed that if their credit source became unavailable, their membership would be charged to their telephone bill.
In their program solicitations, the promoters also offered "free" airline tickets without disclosing that the "tickets" were actually certificates that required the consumer to pay for and stay a certain number of nights at a certain hotel.
The complaint also charged the defendants with violations of law by failing to register as telephone sellers in California and to post the required bond, failing to orally advise buyers of their right to cancel, and failing to register as a seller of travel or display their seller of travel registration number as required.
Among the provisions of the stipulated judgment is that MemberWorks record verification of consumer acceptance of the program, with required disclosures as part of the recorded information. Also required is that MemberWorks provide written confirmation of a member’s enrollment, with conspicuous disclosure of the need to cancel in order not to be charged.
Sears was required to direct any Membership Program Services Providers it may use to market its membership programs so as to comply with similar terms.
MemberWorks has agreed to pay a total of $1,500,000, and Sears $500,000, for penalties and reimbursement of costs incurred in this lawsuit. MemberWorks is also required to make restitution to eligible consumers and to mail them a notice and restitution reply card, with Sears sharing in the restitution to be made to consumers who purchased its program.
