Olympia - Aug. 4, 2000 - A settlement reached today with a Connecticut-based merchandiser of discount buying clubs is a victory for consumers, and highlights the need for strong legislative action to protect consumers’ private financial information, Attorney General Christine Gregoire said.
The settlement with BrandDirect will require the company to pay $1.9 million in penalties, fees, and consumer education funds, and about $11 million in restitution to settle a lawsuit accusing the company of charging consumers for buying-club memberships without permission and engaging in other deceptive and unfair practices.
The Washington and Connecticut Attorneys General filed the lawsuit today in Federal District Court in Connecticut. It alleged that the company, which is partly owned by Reader’s Digest and Federated Department Stores, violated federal telemarketing law and the two states’ consumer protection laws.
BrandDirect uses information provided by some of the nation’s largest financial institutions, including First USA Bank, CitiBank, Chase Manhattan Bank and others, to develop lists of consumers who are then called by telemarketers. Consumers are offered an opportunity to join discount-buying clubs that cater to consumers’ particular interests.
For example, the Simplicity Sewing and Crafts Club is a discount buying club that caters to people who like to sew, and the Best Friends Pet Club caters to pet owners.
BrandDirect obtains consumers’ charge card information from the banks, allowing BrandDirect to conveniently bill consumers who agree to join. In some instances, however, the information is used to make unauthorized charges against consumers’ accounts, Gregoire said.
"In this case, banks, without the consent of their customers, shared credit card information with an over-zealous marketing firm, which misled, overcharged and underdelivered to Washington consumers," Gregoire said.
"This is a classic case illustrating why consumers have a right to worry about what is happening to their private information. Without their consent, personal information for more than 60,000 Washington consumers was sold to a firm which we contend regularly violated federal and state consumer protection laws," she added.
Though Congress already has taken a step toward protecting the sensitive financial information banks hold, it needs to create even stronger laws to prevent financial institutions from providing that financial information to third parties, Gregoire said.
In their complaint, the states also alleged that BrandDirect:
- Offered a 30-day "free" trial membership, but charged many consumers during that period.
- Failed to cancel memberships on demand or provide refunds as their literature promised.
- Didn’t disclose limitations on the use of "free" gift premiums.
"The kind of behavior BrandDirect engaged in not only takes advantage of consumers’ financial information, but also makes it extremely difficult for consumers to sever their relationship with them," Gregoire said.
Under the settlement, the two states will share the $1.9 million in penalties, fees, and consumer education funds and current buying-club members nationwide will each receive three weeks free membership. The estimated value of the additional weeks of membership is $4 per member. There are 2.7 million current members of BrandDirect-marketed clubs nationwide, and about 30,000 in Washington.
The settlement agreement prohibits the company from engaging in future deceptive practices. Additionally, it requires the company make specific disclosures about its ability to directly charge consumers’ credit cards and to improve cancellation, automatic renewal and refund procedures.
Credit card issuers that do business with BrandDirect are First USA Bank, BP Oil Company, Capital One Bank, Chase Manhattan Bank, Chevy Chase Bank, CitiBank, Household Credit Services, Marine Midland, MBNA America Bank, Mellon Bank, Traveler’s Bank, US Bank, Texaco and GE Capital Consumer Card Company.