Reservation Rewards -- and Rebate Risks

Consumers May Pay the Price for not Reading Fine Print on Rebate Offers

When Randall Wilson, a Consumer Reports WebWatch reader and antiques retailer in New Jersey, clicked on a seemingly harmless rebate coupon last year after completing an online purchase, he was in for a surprise.

Unknowingly, Wilson had allowed the company Webloyalty to obtain his credit card information and charge him for services he did not realize he was purchasing -- a mistake that took Wilson months to clear up.

"If they got me, they can get anyone," says Wilson, an experienced Internet user. "I never get caught in these traps."

Indeed, Internet message boards are filled with complaints about Webloyalty, a Connecticut-based firm whose business tactics have raised the ire of consumer-advocacy groups. Webloyalty makes its money from customers who pay monthly fees for consumer discount clubs it operates. A consumer enrolls in these clubs by simply filling out an online rebate form like the one Wilson saw on a partner site. This enrollment automatically triggers the transfer of personal credit card data from online retailers to Webloyalty, thereby making consumers paid subscribers of Webloyalty's services as well -- often without being aware of it.

The company's methods generate consumer complaints but are legal -- which is all the more reason to understand how such businesses operate, and what Internet shoppers need to do to prevent unwanted credit card charges online.

The Accidental Subscriber

Wilson's experience exemplifies the Webloyalty approach: Upon making a purchase on Allposters.com, an online poster and print store, an ad popped onto Wilson's computer screen for a site called ReservationRewards.com. The ad made a seemingly simple offer: In exchange for filling out an online form requesting basic information, including an e-mail address, Wilson would get a $10 rebate coupon for his purchase.

While he never got the rebate, he did, however, start getting a small monthly charge on his credit card account, which he did not recognize and initially shrugged off. "I noticed a $9 charge," says Wilson. "I thought it was just some little fee."

But by filling out the form for the rebate, he had become a paying member of ReservationRewards.com, which is a Webloyalty discount club offering travel bargains -- an arrangement disclosed in relatively small print on the form. When Wilson discovered who was charging him the $9 per month, he was surprised, since he had not typed his credit card number into the rebate form.

"You make the assumption that if you don't give a credit card number, there must not be a charge," he says. In fact, Webloyalty had obtained his data from Allposters.com when Wilson completed the rebate. Allposters.com is one of about 75 online retailers which has a business relationship with Webloyalty and serves Webloyalty's rebate ads.

After numerous phone calls, Wilson received a refund for the entire period Webloyalty charged his credit card, but remains angered by the episode. "They do exactly what people who don't always shop on the Web are afraid of," Wilson says of Webloyalty. "They're destroying consumer confidence."

Webloyalty, a privately-held firm, claimed $86 million in revenues in 2004, up from $55 million in 2003, and says it has more than one million subscribers to its various clubs.

In addition to ReservationRewards.com, the firm also oversees the sites known as TravelValuesPlus.com, another travel-bargain club; BuyerAssurance.com, a consumer-goods discount club; and WalletShield.com, which offers identity-theft protection and even touts a "daily credit monitoring service." Webloyalty's business partners include some well-known Internet names, such as Priceline.com, Hotels.com, and Classmates.com. Among the other affiliates are Redcats USA, which runs several online retailers, including Lane Bryant and Brylane Homes.

Webloyalty: No Plans to Change

Webloyalty CEO Richard Fernandes says the company has no intention of changing its methods. This includes not altering its online rebate form so customers would be required to enter their own credit card information, and thus be fully aware the rebate program costs money, Fernandes told Consumer Reports WebWatch in an interview. "Our approach is generally to make transactions simple for consumers," he says.

Some of Webloyalty's business partners, such as Hotels.com, use online forms that do require the consumer to enter credit card information. "In some cases we get the data from the merchant, but in other cases from the online form," says Fernandes.

Citing reasons of business competition, Ferndandes declined WebWatch's request to disclose whether Webloyalty partners other than Hotels.com require Web users to enter their own credit card data -- and says the firm will not make public a complete list of its online partners.

Officials representing Allposters.com, the site Wilson used, acknowledge they share credit card information with Webloyalty, but say consumers would know this if they read the Allposters.com privacy policy. "It's fully disclosed, and we provide all the information to get out of the program as well," says LeAnn Onstott, Director of Customer Service at Art.com, a sister company to Allposters.com. But some former affiliates of Webloyalty, like 1-800-FLOWERS.com, have ended their relationships with the firm.

Fernandes and Onstott both say customer complaints have been minimal. The Better Business Bureau of Connecticut, however, has received enough consumer complaints about Webloyalty to investigate the matter and issue a report stating the company has an "unsatisfactory record" because of "a pattern of complaints concerning deceptive marketing/selling practices." The bureau contacted Webloyalty to discuss its business methods and notes the company provided refunds to the customers who had issued complaints.

But, the Better Business Bureau report adds, "the firm has failed to correct the underlying reasons for the complaints,"  namely, not making it entirely clear to Web users that they are agreeing to monthly fees, and not making customers enter their own billing information.

The Deal is in the Details

Consumers may want to take the following steps to avoid finding any unexpected charges from Web sites on their monthly credit card bills.

First, consumers should examine their credit-card statements every month and account for every charge listed. Consumers would also do well to scrutinize their e-mail accounts soon after entering an e-mail address in any online form. Webloyalty sends consumers multiple notification e-mails before its charges take effect, but in Wilson's case, those e-mails went into his spam folder unread.

"We're not trying to hide from the consumer," says Fernandes. "But if somebody has an individual spam folder, there's nothing we can do." In addition, consumers should understand the widespread nature of information-sharing among Internet businesses by reading a company's privacy policy from top to bottom. Businesses tend to put generic, reassuring language atop the privacy policy -- and the more crucial information lower down.

Consider the privacy policy on Allposters.com, which begins: "We know your privacy is important to you and Allposters.com is committed to protecting your information." Near the bottom, however, is a section directly relevant to the company's partnership with Webloyalty: "For a few services, special offers, or partner promotions, we may collect personal information, such as your e-mail address and billing or shipping information, on behalf of other parties and share it with them so they can provide the service or special offer to you, but only with your consent." This is the "full disclosure" Onstott cites.

By "consent," though, Allposters.com just means its consumers have filled out Webloyalty's rebate form and provided an e-mail address. This is the same definition Webloyalty uses in its own privacy policy: "Webloyalty obtains the consent of individuals as required for the collection, use or disclosure of personal information. Consent can be either expressed or implied. Typically, consent is obtained by a double-email-address-entry-click-through arrangement after informing the consumer of all relevant terms."

Language like this covers the bases for online businesses in legal terms. But by becoming more aware of the practices behind it, consumers may think twice about clicking on seemingly free online offers -- or about using the Internet retailers who support them.