against Webloyalty over the past 36 months and gives the company an “unsatisfactory record” due to what it calls “a pattern of complaints concerning deceptive marketing/selling practices and unauthorized charges to consumers’ credit cards.” Even those figures only hint at the level of customer dissatisfaction. A cottage industry of on-line sites like Ripoff Report warn about the alleged scam. In fact, a Google search on “Webloyalty fraud” garners an eye-opening 10,500 hits.
For their part, Webloyalty principals argue strenuously that the company has done nothing wrong and that it adheres to all federal and state laws governing online transactions. “We intend to fight this case,” Rick Fernandes, Webloyalty CEO and co-founder, said in a phone interview last week. “As this goes forward we will show that the allegations in this case are not true.” Fernandes and Webloyalty spokesperson Beth Kitchener stress that Webloyalty offers customers clear and sufficient information online detailing the rewards service they sign on to. As Fernandes puts it: “We have the screen pages to prove that customers were notified about the price points and services we offer.” Fernandes also brushes away questions of complaints by stressing that his firm offers cancellations “without questions” to any subscriber who calls to complain. He maintains that, on many websites, his company doesn’t ask potential subscribers to enter their credit card information because the service “comes off the back end of an online transaction” they have just made. “We want to make it easier for customers,” he says.
Legal or not, Webloyalty’s business plan is proving undeniably effective. Fernandes says that his company’s seven separate rewards programs—including “Reservation Rewards,” “Shopper Discounts and Rewards,” “TravelValues Plus,” and “Wallet Shield” (a so-called credit monitoring and identity theft protection program)—are subscribed to by “millions of people each year.” And just last week he was named by Silicon Alley Insider as one of the year’s 100 most influential people in New York’s digital business community.
Webloyalty’s swelling subscriber list has made it one of the fastest-growing firms in the country. Although privately held, the company disclosed revenues of $143 million in 2006, and it ranked 202nd on Deloitte and Touche’s 2007 Technology Fast 500 list of the fastest-growing technology, media, telecommunications, and life sciences companies in North America. The rankings, based on fiscal year revenue growth from 2002–2006, reveal that Webloyalty grew 860 percent during this period. While most of the company’s arrangements with its clients remain undisclosed, its business strategy seems to be based on convincing major Web retailers to work with it by offering them a percentage of the consumer revenues Webloyalty receives.
Massachusetts law prohibits lawyers in an ongoing case from commenting publicly in ways that might influence a jury. But several lawyers involved in the case, who asked not to be identified, said that they believe the action could potentially set an important precedent about exactly what constitutes “sufficient notice and consent” in an e-commerce transaction. Along these lines, company documents filed in the case claim that Webloyalty sends e-mail notification to consumers who enroll in its programs, but the lawsuit alleges that the e-mails are specifically designed to get caught in spam filters so many subscribers never see them. That way, the suit alleges, the credit card charges can often accrue for many months before consumers even spot them.
The case schedule indicates that the suit will likely drag out all through next year and beyond. The deadline for the submission of documents in the legal discovery process has been set for May 26, 2008. We’ll be sure to follow along. In the meantime, the case stands as a reminder of what an untamed jungle online commerce can be—and how unsettled the pertinent case law is about it. With the height of the holiday season at hand, online shoppers would do well to exercise caution, and to scrutinize their credit card bills each month for any suspicious or unauthorized charges.
“The Internet is a relatively new medium, and people need to learn and adapt to how it operates,” says Webloyatly’s Fernandes. In the end, Fernandes himself offers online shoppers perhaps the most useful advice when he warns: “People should pay attention and not just click through offers on their screens.”
[Update August 27, 2009, 9:00 a.m.: See our new story on the settlement of the Webloyalty class-action suit.]
