Seller of Buying-Club Memberships Ordered to Repay Iowans $29.8 Million

By Lee Rood

A Polk County judge this week ordered a Connecticut company with a long history of consumer fraud complaints to pay Iowans $29.8 million in restitution and stop soliciting new buying-club members in the state.

Judge Robert Hutchison awarded the amount Monday after Iowa’s attorney general won a civil lawsuit last year against Vertrue Inc. and two subsidiaries.

The lawsuit alleged the company used illegal sales tactics to enroll 497,683 Iowans in “discount buying programs” without their knowledge, then charged them monthly fees that grew over time. The company sold 863,970 club memberships over two decades, lawyers in the case said.

Vertrue and Adaptive and Idaptive Marketing, co-defendants in the suit, have generated complaints to attorneys general across the country as well as to the U.S. Senate. But Iowa is the only state to sue for consumer fraud violations.

George W.M. Thomas, the company’s general counsel, said in a statement that Vertrue planned to appeal the ruling.

“It is important to note that this ruling from an Iowa state court is based almost entirely upon the unique – and never before interpreted – pre-Internet, Iowa buying club law,” he wrote. “Significantly, five federal courts, including two Courts of Appeals, have uniformly and forcefully declared that Adaptive’s Internet and telephone marketing materials are indisputably clear, unambiguous, and are not deceptive under federal and state law.”

Hutchison ruled that Vertrue charged Iowans yearly or monthly membership fees for savings programs without their knowledge. The memberships offered purported savings for home improvement items, entertainment, dining out, fitness products, clothing, jewelry and other items.

State attorneys said the company also used telemarketing calls to lure customers into memberships without their knowledge. The calls usually began with pitches for products advertised on television, or other solicitations.

Hutchison found the company’s sales pitch violated a state law that requires written agreements to join a buying club, and notification about the right to cancel. Vertrue “memberships” typically cost $9.95 to $19.95 per month and are usually charged to consumers’ credit card or bank accounts.

Thomas said Adaptive’s membership programs “provided consumers with access to significant and realizable benefits, including savings and services across a wide range of consumer interests.”

Jeffrey Thompson, the state’s deputy attorney general for litigation, said the state has a database of past Vertrue customers and will begin figuring out how to distribute refunds. Customers would likely receive different amounts, since some were duped only briefly and others lost thousands of dollars, he said.

The appeal could take a couple of years. But the company is required by law to post a bond worth 110 percent of the award while it is pending.

If the state wins the appeal, it will also recoup at least $725,000 in attorneys’ fees and $2.8 million in penalties to use for consumer fraud programs and education.