Lynchburg Living

Currently in Currency

By Susan S. Davidson, CPA

Imagine this scenario: You open your monthly credit card statement to discover the unthinkable–a charge on your card from a company that you have never heard of for a service that you never asked for. Picking up the phone, you call the retailer’s contact number listed on your statement and are informed that you did, in fact, “agree” to the charge when you made a purchase from another retailer. You argue that you do not recall “agreeing” to the charge and ask for a refund. The contact then tells you the exact time and date of your “agreed-upon” transaction, explaining that you are not entitled to a refund. In frustration, you hang up the phone with the realization that you have been scammed. You immediately call your credit card company to file a complaint and dispute the charge. Much to your consternation, however, you are told that there is nothing that can be done. How could this have happened? How could a company have received your credit card information without your permission?

For the past decade, scenarios like this one were becoming all too common. Countless consumers around the world were reporting questionable charges on their credit card statements from companies they had never heard of. Credit card companies were spending billions of dollars every year disputing charges like these on behalf of their customers, usually to no avail. These phantom charges were known as “hidden subscriptions” or “third-party billing scams” and, as a representative from my own credit card company conveyed to me, were becoming the “bane of [their] existence.” He went on to explain that unless the government passed laws prohibiting this type of marketing, the company’s hands were tied.

So, how was it feasible that these third-party vendors were able to charge credit cards without consumer knowledge? More importantly, how was it possible that this activity was legal? As I researched for answers to these questions, I gained insight into a deceptive industry whose cornerstone was based on the carelessness of consumers and was meticulous about operating just inside the parameters of the law.

How the Third-Party Billing Scam Worked

Knowing that they would be unable to stand on their own merit, third-party vendors would “sell” their products or services by “piggy-backing” legitimate retailers who were well-known and trusted by consumers. They knew that they could not survive by advertising their products and services by traditional means because, if given the option, the majority of consumers would have never been interested in buying what they were selling. Since we would not come to them, they would come to us by stealthily entering through our financial back doors.

A few examples of the types of transactions that were used by third-party vendors include rebate checks, extended warranties, free trial offers, free cell phone ring tones, online discounts, coupons and promotion codes. Third-party vendors cleverly disguised their company name and made it seem as if the rebates, warranties or discounts were being offered by the retailer you were shopping with when in fact, they were not. As soon as you cashed the rebate check, downloaded the ring tone, entered the promotion code, or accepted the discount, you were automatically agreeing to be charged a fee by the third-party vendor. This is where the “fine print” comes in.

While it is certainly not a new revelation, the age-old advice cautioning you to always read the “fine print” has now become more important than ever. The average consumer has become so accustomed to being prompted to “click the checkbox” confirming that they agree with an organization’s terms and conditions, that they complacently do so without reading a single word. Third-party vendors recognized this complacency and cashed in. Being careful to ensure that all the legal disclaimers were clearly stated (though not always easy to read), these vendors found a financial open door from which to legally part you from your money.

The Good News

Recognizing the vulnerability of American consumers, Senator Jay Rockefeller of West Virginia introduced Senate Bill 3386 in May 2010.

“Scams–including those involving online shopping–are the vilest way to hurt hard-working … Americans. … Some people will do anything to make money, and the temptation to take advantage of others is widespread,” Senator Rockefeller stated.

Seven months later, on December 29, 2010, the “Restore Online Shoppers’ Confidence Act” was signed into law. This law will protect consumers from certain “aggressive sales tactics” on the Internet and will make it illegal for an organization who sells their products online to share a customer’s credit card or bank account number with a third party “for sales purposes” (a practice known as “data passing”). The Act also prohibits a third-party seller from charging a consumer for any good or service unless the seller “clearly and conspicuously disclose(s) to the consumer all material terms of the transaction, including … the fact that the post-transaction third party seller is not affiliated with the initial merchant.” In addition, the Act requires third-party sellers to receive “the express informed consent” of the consumer before making any charges to their credit card, debit card or any other financial account.

What Next?

Has this type of “legal scamming” come to an end? Hopefully, it has, but that remains to be seen. Vendors who employ these kinds of tactics seem to be able to come up with other “legal” schemes. The best thing to do if you notice questionable charges on your credit card, bank statement or cell phone bill, is contact the vendor that charged your account. Even if the vendor refuses to issue a refund, you have the right to tell them to cease charging your account. If you are unable to reach a resolution by contacting the vendor directly, you should next call your credit card company, bank or cell phone provider. Finally, file a report with the Federal Trade Commission, your local Better Business Bureau, your attorney general or local congressman.

Senator Rockefeller’s hope is that consumers will have “a sense of comfort that there is a group in the government which is trying desperately and aggressively to protect them from people who will do anything to make money.” This is definitely a step in the right direction.