NY Attorney General Cuomo Investigates Online Retail Fraud

New York Attorney General Andrew M. Cuomo said Wednesday his office is investigating 22 online businesses for allegedly linking consumers with discount promotions that end up charging them unauthorized fees.

Visitors to online sites of retailers including Staples Inc. (SPLS), Barnes & Noble Inc. (BKS), Avon Products Inc. (AVP) and Orbitz Worldwide Inc. (OWW) "deceptively link" consumers to fee-based membership programs run by third party companies that charge unauthorized fees under the guise of discount offers and also receive consumers' credit card numbers, Cuomo said in a statement.

All told, Cuomo said his office has sent subpoenas to 22 well-known merchants that have deals with the three major companies that offer these discount programs: Webloyalty, Affinion/Trilegiant and Vertrue.

"Well-known companies are tricking customers into accepting offers from third party vendors, which then siphon money from consumers' accounts," Cuomo said.

When consumers shop online from familiar retailers, they are often presented with a discount or cash-back incentive offer as they complete their purchase. By clicking on the discount or incentive banner, they are unknowingly directed to a membership program seller's Web page that is separate from the online retailer's site and recurring charges begin to appear on consumers' credit or debit card bills from unfamiliar companies, Cuomo said. Because the charges are often small they can go unnoticed for some time.

The subpoenas sent by Cuomo's office seek information about retailers' practices of sharing consumers' account information with membership program companies, their knowledge of any deceptive solicitations and what kind of compensation they may be receiving from the membership companies.

The three membership program sellers being investigated bring in revenues of more than $1 billion per year, much of which is amassed through fraud, Cuomo said.

Many consumers have reported that the companies offering membership programs make it difficult for consumers to cancel memberships and obtain full refunds of the unauthorized charges.

Cuomo said his office reached an agreement with online movie ticket retailer Fandango to permanently end the practice of sharing customers' credit and debit card information to discount program sellers.

The allegations come as retailers have been using the Web to boost sales, which have been struggling during the recession.

-By Karen Talley, Dow Jones Newswires; 212-416-2196; [e-mail]