Wednesday, October 4, 2023
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Class Accuses Major Retailers of RICO Fraud

HARTFORD (CN) - Led by Trilegiant Corp., major banks and retailers "conspired to defraud hundreds of thousands of consumers" by cramming their credit cards for unauthorized "subscription services," a RICO class action claims in Federal Court.

Lead defendants in the 90-page racketeering complaint are Trilegiant, its parent company the Affinion Group, and their "controlling owner," Apollo Global Management.

Banking-credit card defendants include Bank of America, Capital One, Chase Bank, Citibank and Wells Fargo.

Retail-online defendants include Orbitz, PeopleFindersPro, Days Inn, Hotwire, United Online, IAC/Interactive, and Priceline.

Lead plaintiff David Frank says: "This action is brought to redress the shocking behavior of some of this country's largest companies, which have combined and conspired to defraud hundreds of thousands of consumers into paying for 'club' memberships and subscription services that the consumer never authorized. Each participant in this scheme profited handsomely from its participation, and each participant knew that the particulars of the scheme would result in consumers being defrauded.

"The 'cramming' of charges for unwanted memberships and services that is the subject of this lawsuit has already been determined by the United States Senate Committee on Commerce, Science and Transportation (the 'Senate Commerce Committee') and New York Attorney General, after extensive investigation, to be a fraud."

Citing a Nov. 16, 2009 report, the class claims: "'Hundreds of e-commerce merchants-including many of the best known, respected websites and retailers on the Internet-allow these companies to use aggressive sales tactics against their customers, and share in the revenues generated by these misleading tactics.' What occurred, and continues to occur, is white-collar racketeering, plain and simple." (Citation to Senate report omitted.)

The class claims that "the scheme was initiated by defendant Trilegiant Corporation," with its corporate parents, Affinion and Apollo, "but the scheme also required Internet e-commerce merchant partners and the willing participation of credit card companies," who "colluded" with Trilegiant.

"Trilegiant started the scheme by creating so-called 'membership' and discount 'clubs,'" the complaint states. "Trilegiant sold these products, which have no real value, to consumers through an insidious set of business practices. Trilegiant carefully crated its scheme to exploit known consumer tendencies in order to create consumer confusion and ultimately defraud consumers into paying 'membership' fees to such 'clubs' for which the consumers never even realize they signed up.

"Trilegiant's business practices are well-known to the e-merchant defendants (as well as the broader e-merchant community) and defendant credit card companies, each of which is an essential part of Trilegiant's fraudulent scheme. Trilegiant requires the complicity of the e-merchant defendants for its scheme to succeed, and Trilegiant pays them handsomely to participate in the scheme to defraud. Trilegiant secures the participating of the e-merchant defendants by contracting with them to approve Trilegiant's practice of interpolating itself into the checkout practice when consumers, such as plaintiff, are completing an online purchase. As explained by the Senate report, '(i)n exchange for bounties or other payments, reputable online retailers agree to let Affinion [] sell club memberships to consumers are they are in the process of buying movie tickets, plane tickets or other online goods and services. The sales tactics used ... exploit consumers' expectation about the online 'checkout' process.'" (Parentheses, empty brackets and ellipsis in complaint; citation to Senate report omitted.)


"Trilegiant pays substantial 'bounties' and other amounts to the e-merchant defendants," the complaint continues. "For example, Priceline received an upfront lump sum payment of over $1 million just to let Trilegiant in the door, and then collected a sizeable percentage of each dollar Trilegiant collected from Priceline customers. The aggregate of the fees 'earned' by the e-merchant defendants is staggering: Congressional records indicate the Trilegiant paid Memory Lane (operating its business as in excess of $70 million. Trilegiant paid other defendants, including 1-800-Flowers and FTD, at least $10 million as their share of the fraudulent racketeering scheme."

The class claims that the e-merchants "are not merely passive participants in the fraudulent scheme," but "retain final approval over what Trilegiant shows the customer in the midst of the e-merchant defendants' checkout process, and contracts allow the most facially deceptive aspects of the scheme: the post-transaction offer, the passive datapass, and negative option billing."

These are the three primary ways the racketeering scheme is carried out, according to the complaint.

"(a) Post-Transaction Offers: As is common in internet sales transactions, when a customer is ready to complete his or her purchases from an e-merchant defendant, he/she is prompted to input his or her confidential billing information, including his or her credit or debit card number. After this, but before confirming the sales transaction with an e-merchant defendant, Trilegiant inserts its membership program offer with the promise of an upfront gift such as cash-back rewards. Because of the positioning of this 'post transaction offer' in the purchase process, the consumer is led to believe that he or she is completing the original transaction with an e-merchant defendant."

"(b) Datapass: At the heart of the defendants' fraudulent marketing scheme lies a 'datapass' arrangement, where a consumer is enrolled, unwittingly, in a Trilegiant membership program without ever directly providing his/her credit card information. Instead, an e-merchant defendant, pursuant to its partnership agreement with Trilegiant, passes on the consumer's credit card information to Trilegiant, without the consumer's knowledge or consent, and without any form of communication between an e-merchant defendant and the consumer authorizing this 'datapass'."

"(c) Negative Option Billing: Once the consumer is unwittingly enrolled in one or more of Trilegiant's membership programs, Trilegiant begins to automatically charge the consumer's credit or debit card, again without the consumer's authorization. The defendant credit card companies then process these unauthorized charges and debits the consumer's account, despite the evidence that Trilegiant is in violation of numerous credit card rules."

The class claims the defendant e-merchants are complicit in "Trilegiant's insidious use of a practice known as 'refund mitigation', which seeks to keep as much of the money the consumer unwittingly paid after a consumer discovers the fraud on his or her credit card statements."

"Trilegiant, knowing that a consumer will attempt to seek immediate cancellation, as well as a full refund, upon discovering that he or she was unwillingly enrolled in these membership programs and charged unauthorized monthly fees, employs various tactics to minimize the amount of refund to be issued to the consumer. These tactics include training call center employees to quickly cancel without a refund as soon as a customer complains, and demanding that the request for cancellation be in writing. The scripts used are shared with the e-merchant defendants, who select how many 'rebuttals' the call center employee may pitch during the cancellation process. E-merchant defendants are even flown out to the main Trilegiant call center to listen to call center employees as they follow the fraudulent scripts. Trilegiant treats the customer calling in to cancel after they detect the fraud on their credit card bill as a marketing opportunity. Trilegiant instructs its trainee call service representatives that '(a)t Affinion Group, a consultant working an 8-hour shift will take between 75-100 calls. On high call volume days, this number may be even higher. Approximately 80% of these calls will be from members wishing to cancel their memberships. Your job will be to convince them, based on the merits of the program and the benefits, to retain their membership.' To translate this into the context of the scheme, the sales representatives are trained to do what Trilegiant fails to do when the customer allegedly 'signs up' for the Trilegiant membership club-get the customer's assent to have their card charged and become a member of the 'club.' [Citation to unexplained "Tri_Schnabel" omitted.]

"The e-merchant defendants are not innocent recipients of the funds. They are involved in or have knowledge of each step of the process, they clearly know about the use of the datapass and the confusing nature of the Trilegiant 'pop up' window in the checkout process; and they were, and are, aware of and complicit in the refund mitigation component of the scheme."

The class seeks restitution, disgorgement, an injunctions, treble damages and punitive damages for RICO fraud, aiding and abetting, mail fraud, wire fraud, bank fraud, credit card fraud, violations of the Electronic Communications Privacy Act, unfair trade, business law violations, and unjust enrichment.

Lead counsel is Karen Leser-Grenon, with Shepherd, Finkelman, Miller, and Shah of Chester, Conn. Twelve law offices from 10 states signed on as co-counsel.

Here are the defendants: Trilegiant Corporation, Inc.; Affinion Group, LLC; Apollo Global Management, LLC;, Inc.; Beckett Media LLC;, Inc.; Classmates International, Inc.; Days Inns Worldwide, Inc.; FTD Group, Inc.; Hotwire, Inc.; IAC/InterActiveCorp; Memory Lane, Inc.; Orbitz Worldwide, LLC; PeopleFindersPro, Inc.;, Inc.;, Inc.; TigerDirect, Inc.; United Online, Inc.; Wyndham Worldwide Corp; Bank of America, N.A.; Capital One Financial Corporation; Chase Bank USA, N.A.; Chase Paymentech Solutions, LLC; Citibank, N.A; Citigroup, Inc.; and Wells Fargo Bank, NA.

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