Buying Club Companies Agree To $9 Million Settlement
Attorney General Spitzer today announced a joint federal and multi-state settlement that will require a group of membership buying clubs and its operator to pay millions of dollars in restitution to consumers.
Ira Smolev, the principal operator of various membership clubs including Triad Discount Buying Service, Inc. of Boca Raton, Florida, entered into a court-approved settlement with more than 40 states and the Federal Trade Commission to resolve allegations of deceptive business tactics and telemarketing fraud.
"My office has taken an aggressive stand against negative option offers that fail to provide important information about a consumer's obligation to cancel to avoid being held responsible for fees," Spitzer said. "Telemarketing abuses that use a company's access to consumers' credit card information to dupe them into paying for unwanted and unordered membership clubs will face vigorous legal action."
Smolev and his Triad group of discount clubs have agreed to pay over $9 million to settle charges that they misled consumers into accepting trial club memberships and obtained consumers' billing information from telemarketers without their knowledge or authorization. Consumers were enrolled in membership clubs and charged up to $96 in yearly fees.
Through the use of third-party companies, Triad would advertise products such as kitchen gadgets and diet pills to consumers via telemarketing calls and through media advertising, direct mail or catalogs that result in consumer orders.
It wasn't until after consumers gave billing information, including their credit card numbers, to pay for products they were ordering that Triad's hired associates would pitch a 30-day "free" trial membership into buying clubs with "no obligation." Once consumers agreed to the free trial, and
in many instances even when they did not agree, their names and credit card numbers were transferred to Triad. Within 45 days, Triad charged the credit card accounts unless the consumers took the initiative to contact Triad to cancel the membership.
Negative option offers obligate the consumer to affirmatively cancel the trial offer, generally within a limited time or be billed for the product or service. In these situations, consumers did not have enough information to understand their obligation, and in some instances those who declined the offer didn't recognize that the membership club was mailed to them anyway because it appeared to be junk mail. Within a few weeks, these consumers' credit cards were billed for the buying clubs.
Under the settlement, more than 17,000 New York State consumers will receive approximately $450,000 in restitution. Nationally, approximately 275,000 consumers who filed complaints against Triad companies may be eligible for partial membership refunds.
In addition, the court-approved settlement requires Smolev and his Triad group to drastically reform many of their business practices. Included in those changes are prohibitions against misrepresenting "free" offers of goods and services and failing to disclose the obligations of consumers in accepting trial offers. The companies also are prohibited from signing up new members or renewing existing memberships without express, verifiable authorization from the consumer, and from obtaining or disseminating consumers' personal billing information, including credit and unique identifying information, without authorization.
Other business entities included in this court-approved settlement and managed by Smolev include: Member Service of America, LLC; Orchid Associates, LLC; Premier Membership Services, LLC; Inter-Act Travel, Inc.; Inter-Act Communications, Inc.; Consumer Data Depot, LLC; Erevenue Partners, LLC; Far Services, LLC; Linden Investments, LLC; Lynstrom Information Service, LLC; Premier Club Services, LLC; Premier Marketing Services of America, LLC; Residents Resource Network, LLC; Revenue Solutions, LLC; Spanish River Investors, LLC; The Backend Company of America, Inc.; the Shoppers Edge, LLC; Triad Marketing Group, Inc.; and Tritell of Nevada, LLC.
This case was handled for New York State by Assistant Attorneys General Stephen Mindell and Herbert Israel of the Consumer Frauds and Protection Bureau.
Individuals with questions or concerns about negative option plans are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.