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Iowa Court: Marketing Company Owes $40M in Restitution

10 Jul, 2013 By: Doug McPherson

IOWA CITY, Iowa – The Iowa Supreme Court ruled last week that a Connecticut-based marketing company must pay $40 million in restitution and fines for duping hundreds of thousands of Iowans into signing up for buying club memberships they didn’t want or use, the Associated Press reports.

It is the largest judgment in a contested lawsuit brought by the state’s Consumer Protection Division, aides said.

The court said Vertrue Inc. used misleading telemarketing and Internet solicitations to enroll 864,000 Iowans in programs in which they could buy discounted goods and services dating back to 1989. Most Iowans enrolled after they thought they had accepted free gift cards or trial memberships, and didn’t know they had to cancel to avoid recurring monthly charges of up to $29.99, the court said.

Chief Justice Mark Cady wrote that the company's practices were confusing for all consumers, especially the elderly who were more susceptible to the pitches and less likely to use the discounts. Vertrue's own data showed that 85 percent of its memberships were never used, and a state survey of 400 Iowa customers showed that two-thirds of them were unaware they had signed up or said they hadn't authorized the charges, Cady noted.

Cady described specifics of Vertrue’s tactics: One involved an offer of a $25 gift card and a "30-day risk-free trial membership" to customers who had purchased unrelated items over the phone. The script was deceptive because it falsely implied the gift card was a reward for the earlier purchase and didn't inform consumers they were purchasing a membership, Cady wrote.

Another involved an Internet solicitation promising customers access to credit reports and scores if they signed up for a "FREE 7-day trial." The fine print noted that it actually cost $29.95 monthly, and Cady said the deception didn't stop there: Customers had call two separate numbers to cancel.

Assistant Attorney General Steven St. Clair said the ruling shows the court will not tolerate practices that frustrate consumers, including the misuse of fine print and pitches that disguise key information.

"This ruling is very important in this case as a final resolution," he said. "But it's also helpful in our efforts ... to protect consumers from all the various forms of trickery and over-reaching that occur."

Attorney General Tom Miller, whose office spent a decade investigating Vertrue and its subsidiaries, said the ruling was a "decisive victory for consumers, particularly older Iowans." Miller's office sued Vertrue in 2006, contending the company violated state laws that regulate buying clubs and protect consumers from fraud.

District Judge Robert Hutchison ruled in the state's favor in 2010, ordering the company to pay roughly $30 million in restitution, fines and legal fees. Vertrue appealed, contending its sales practices were legal and the state's buying club law was unconstitutional.

The high court rejected Vertrue's arguments Friday, and ruled in favor of Miller's office on separate issues that it had appealed. For instance, the court said Vertrue's financial, privacy and health programs also violated the buying club law – overturning part of Hutchison's decision – and increased the amount of restitution by more than $10 million.

The court also added $180,000 in penalties after concluding Vertrue's frauds were committed against the elderly, again overturning Hutchison.

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