Flâneur points me to the 35-page staff report for Jay Rockefeller on "Aggressive Sales Tactics on the Internet". It concentrates on three extremely sleazy companies, all based in Norwalk, Connecticut: Affinion, Webloyalty, and our old friends Vertrue , the employers of Ben Stein. Here's a typical datapoint: " data-share-img="http://blogs.reuters.com/felix-salmon/files/2009/11/1829-2.jpg" data-share="twitter,facebook,linkedin,reddit,google,mail" data-share-count="false">

Flâneur points me to the 35-page staff report for Jay Rockefeller on “Aggressive Sales Tactics on the Internet”. It concentrates on three extremely sleazy companies, all based in Norwalk, Connecticut: Affinion, Webloyalty, and our old friends Vertrue, the employers of Ben Stein. Here’s a typical datapoint:

In discussing methods for reducing the cost associated with the call centers, Vertrue employees estimated that it received “7 million customer calls per year” and that “cancellation calls represent approximately 98% of call volume”.

In general, the customers of these companies have no idea that they’re customers until they discover mysterious charges on their credit-card bills. When they investigate further, they find that during the checkout process at reputable websites like priceline.com or 1800flowers.com, they inadvertently clicked on a link which automatically gave their credit card details to these rip-off merchants.

Why would otherwise-admirable websites get into bed with these creatures? Here’s a hint:

No, those aren’t misprints: we’re genuinely talking here about CPMs in the thousands of dollars. (A typical internet banner ad pays CPMs in the single digits; at a high-prestige website appealing to rich individuals, it might get into the $30-$40 range. But never anything remotely like this.)

The money being made in these scams is enormous:

Financial information provided to the Committee by the companies shows that Affinion, Vertrue, and Webloyalty and their e-commerce partners have generated over $1.4 billion in revenue from Internet consumers who have been charged for membership programs. Of the $1.4 billion in total revenue, $792 million went to the e-commerce companies that partnered with Affinion, Vertrue, and Webloyalty. The websites and e-retailers that have partnered with Affinion, Vertrue, and Webloyalty include some of the most well-known and high-traffic e-commerce websites on the Internet. They include travel sites, airline sites, electronics sites, movie ticket sites, and the websites for popular “brick and mortar” companies. Eighty-eight e-retailers have made more than $1 million through partnering with Affinion, Vertrue, and Webloyalty and, of the 88, 19 companies have made more than $10 million. Classmates.com, which has been partnered with each company at different times and has earned more than any other partner, generated approximately $70 million in revenue.

And where’s the money going? Primarily, it turns out, to private equity:

In 2001, Cendant rebranded its membership club unit as “Trilegiant” and, in 2005, sold it to Apollo Management, a New York-based private-equity group, which in turn renamed the company Affinion… Webloyalty is owned by the Greenwich, Connecticut private-equity group, General Atlantic, LLC… In 2004, MemberWorks changed its name to Vertrue. Three years later, in 2007, Vertrue was de-listed and sold for approximately $800 million to a group of private equity investors led by One Equity Partners, the private equity arm of J.P. Morgan.

These are big, reputable private-equity shops: what are they doing in this ultra-sleazy world of making money off unsuspecting dupes by exploiting loopholes online? In the real world, vendors can’t take your credit-card information and “data pass” it to someone else with minimal disclosure, but that’s still legal on the internet. As the report notes,

Affinion, Vertrue and Webloyalty use aggressive sales tactics intentionally designed to mislead online shoppers… While Congress and the Federal Trade Commission have taken steps to curb similar abusive practices in telemarketing, there has not yet been any action to protect consumers while they are shopping online.

I wonder whether anybody at JP Morgan knows or cares that its private equity arm is paying large sums of money to predatory bait-and-switch merchant Ben Stein in an attempt to boost the amount of money misleadingly extracted from individuals who can least afford it. And I wonder too how and why all these companies have ended up in private-equity hands. Is it because private companies don’t need to answer to the public in the same way that public companies do?