Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Iowa Sup. Ct.: Membership club sales practices held deceptive under Iowa Consumer Fraud Act, (Jul 9, 2013)

By Jody Coultas, J.D.

The State of Iowa demonstrated Iowa Consumer Fraud Act (CFA) violations by Vertrue, Incorporated for deceptive practices in the sales and marketing of memberships in buying programs, the Iowa Supreme Court has held (State of Iowa v. Vertrue, Incorporated, July 5, 2013, Cady, M.).

Vertrue sold memberships in buying programs that give members the option to purchase various goods and services at discounted rates, and offered free trial memberships. Those that did not cancel the free membership were charged the full rate for membership each month until they cancelled. Of the 88 survey respondents, 67% indicated they were either unaware of their Vertrue membership or did not authorize the membership charges, or both. The State filed the CFA claims and Buying Club Membership Law (BCML) claims against Vertrue for injunctive relief and consumer restitution.

A district court held that some of Vertrue’s marketing and sales practices violated the CFA and BCML, but did not constitute consumer frauds against the elderly. Any violation of the BCL also violates section 714.16(2)(a) of the CFA.

A telemarketing exchange with a consumer was deceptive and constituted an unfair act under the CFA, according to the court. Vertrue argued that a recording of an outbound telemarketing solicitation did not violate the CFA. However, Vertrue failed to present anything more than an assertion that the telemarketer adequately explained the program to the consumer. The assertion could not stand in light of evidence Vertrue consistently utilized telemarketing scripts with misleading features.

The court affirmed the district court’s liability finding and the civil penalty ordered for Vertrue’s practice of requiring dual cancellation requests for memberships bundled into a single Internet transaction. Vertrue operated a website offering consumers a service involving credits scores. However, Vertrue bundled another distinct product with the purchase of the initial service for an additional monthly fee. To purchase the initial service, a consumer must purchase the second service, although this fact was obscured. Vertrue argued that its practice of requiring two separate cancellation phone calls for bundled Internet membership sales was not deceptive because the two programs were shown by separate entries on the consumer’s credit card. The similarity in the names of the two programs suggested they were related and the fact that the consumer was required to call a separate number to cancel appeared only once in fine print. Therefore, the district court did not err.

The State presented sufficient evidence to state a CFA claim based on Vertrue’s practices that targeted the elderly, according to the court. The district court ruled that the State failed to prove that Vertrue targeted older Iowans because the marketing and sales practices attempted to take advantage of all consumers equally. At least half of the Verture members that were charged for memberships they never used were older than 65 years old. Vertrue, at the very least, should have known that their fraudulent strategies disproportionately affected the elderly, according to the court.

The case is No. 11–0449.

Attorneys: Thomas J. Miller, Attorney General for The State of Iowa. Mark McCormick (Belin McCormick, P.C.) for Verture, Incorporated.

Companies: Vertrue, Incorporated

Cases: StateUnfairTradePractices IowaNews