N.Y. Attorney General Alleges Online Retail Fraud

Jan. 29, 2010— -- New York Attorney General Andrew Cuomo is taking aim at online retailers, including big names such as Staples, Barnes & Noble and Orbitz.

Cuomo's office is launching a fraud investigation against 22 online businesses for allegedly linking consumers with discount promotions that end up charging them illegal fees.

Online sites of retailers including Barnes & Noble, Avon Products and 1-800-Flowers.com "deceptively link" customers to fee-based membership programs, the attorney General said.

The programs are run by third-party companies that charge unauthorized fees under the guise of discount offers and also receive consumers' credit card numbers, he said.

"Companies are tricking customers into accepting offers from third-party vendors, which then siphon money from consumers' accounts," Cuomo said. "This is consumer fraud."

The charges are believed to be the first by a U.S. state.

A list of all 22 companies being investigated can be found here, as well as the full reading of the complaint.

When consumers shop online at some of the retailers, they are often presented with a discount or cash-back, incentive offer as they complete their purchases, Cuomo said.

By clicking on the discount or incentive banner, they are unknowingly directed to a membership program seller's Web site that is separate from the online retailer's site and recurring charges begin to appear on consumers' credit or debit card bills from unfamiliar companies, Cuomo said Wednesday in announcing the investigation.

Because the charges are often small, they can go unnoticed for some time.

The firms have been the subject of thousands of complaints in recent years from irate customers who say they were unwittingly enrolled in clubs while making purchases on the Internet.

"Retailers that sell their customers' account information so that the customer can be charged for a membership club by stealth should know that they are participating in a marketplace scam," University of Minnesota law professor Prentiss Cox said. "The number of consumers who know they are club members and know they are paying for this purported privilege range between about 0 percent and 5 percent."

Cuomo's office is sending subpoenas to merchants that have deals with the three major companies that offer these discount programs: Webloyalty, Affinion/Trilegiant and Vertrue.

The three companies have not returned calls seeking comments.

The membership program sellers bring in revenue of more than $1 billion per year, much of which is amassed through fraud, Cuomo said.

Deceptive Solicitations?

The subpoenas, which started going out several months ago, seek information about retailers' practices of sharing consumers' account information with membership program companies and their knowledge of any deceptive solicitations. Cuomo also wants to know what kind of compensation the companies may be receiving from the membership companies.

Barnes & Noble released a statement that reads, in part, that the company "does not and has not shared customer debit or credit card information" with the outside companies. "We seek to protect our customers from these types of practices," the statement read.

The investigation comes as online retailers have been ramping up the number of services and promotions to their Web sites in an effort to attract business.

Cuomo said his office reached an agreement with online movie ticket retailer Fandango to permanently end the practice of sharing customers' credit and debit card information with discount program sellers.

"We share the desire of Attorney General Cuomo to ensure that all consumers, and in particular Fandango customers, are fully informed and supported in their evaluation of and enrollment in online membership programs," said Stacey Olliff, senior vice president for legal and business affairs for Fandango.