MemberWorks Inc. and its client, Sears, Roebuck & Co., have agreed to settle a civil lawsuit filed by State of California and two counties over inadequate disclosure of its billing practices when marketing MemberWorks membership programs.
Stamford, CT-based MemberWorks will pay costs of investigation and civil penalties of $1.5 million. Sears will pay costs of investigation and civil penalties of $500,000, for which it will be reimbursed by MemberWorks. All the penalty monies will be split between the state and Ventura and Orange Counties.
As a result of the agreement, the firm has taken a one-time charge of $3 million in its third quarter, which ended March 31. This charge contributed to a $6.4 million loss during the quarter, compared with the same period last year.
Without admitting wrongdoing, MemberWorks also said it will implement nationwide its best practices code, which it formed last year after an agreement with the Nebraska Attorney General.
These call for full disclosure of membership benefit terms, and the amount and timing of the initial membership charge. MemberWorks will also disclose benefit limitations, who is making the offer, and how the consumer may cancel.
The firm has also established a no-questions-asked refund policy for unauthorized charge complaints. And it will notify consumers by mail prior to placing a renewal charge on their account. It will also record consumers' acceptance of telephone offers.
"We believe that the enhanced billing disclosures of our national best marketing practices coupled with our 'no questions asked' refund policy for unauthorized charge complaints will effectively eliminate any possible consumer confusion and maximize our already-high customers satisfaction levels," said MemberWorks CEO Gary Johnson, in a statement.
MemberWorks reported revenue of $144.9 million in its third quarter, a 57% increase over the same period last year.
MemberWorks has settled several state actions, including one last year with New York State Attorney General Spitzer. That suit alleged that MemberWorks used customer name and account information provided by financial institutions, including Citibank, to solicit customers, and then charged some of their credit cards without authorization.
