In settling a legal action filed by the Minnesota State attorney general, Damark International Inc. agreed last month to end some controversial direct marketing practices.
For example, the company will no longer obtain credit card numbers on consumers before it calls them to offer club memberships. And it will obtain taped verification of a consumer’s consent before it processes club membership charges.
In addition, Minneapolis-based Damark will pay $75,000 to cover fines and the costs of the probe.
The firm settled “in the interest of avoiding expensive and protracted litigation, even though we are confident the company would have ultimately vindicated its position in court,” said Steve Letak, executive vice president for Damark, in a statement. “The civil penalty of $37,500 – with an additional $37,500 to reimburse the attorney general’s office for its investigation costs – is substantially less than our estimate for potential legal expenses. We have consistently maintained that our conduct was fully in compliance with the law and we have affirmed this position as part of our agreement with the attorney general.”
According to the agreement, Damark must send new club members postcards confirming their membership. If the firm is unable to provide the consumer an audio transmission showing consent to the credit card charge, it must give the consumer a refund of two times the amount of the unauthorized charge.
Damark used credit card numbers given by consumers when purchasing catalog merchandise to solicit them to join its membership clubs, according to an announcement from the attorney general’s office. The firm also obtained information from banks, allowing it to automatically charge the customers’ credit cards for membership fees, the announcement continued. The firm used outside telemarketers to sell membership clubs both to its own customers and the banks’ credit card holders, the state alleged.
Damark charged the consumer’s credit cards each year for membership renewal fees unless the consumer called to cancel prior to the renewal date. However, Damark never effectively disclosed this negative option method, according to the AG’s office.
It must now prominently disclose this feature, and send a postcard warning of the impending charge at least 30 days in advance of the charge.
Damark, like many other companies selling membership clubs by telemarketing, used an deceptive “free trial offer” pitch, according to the AG’s office. The consumer agreed to accept mailed materials for the “risk-free” offer before Damark obliquely informed the consumer that his or her credit card would be charged unless the consumer calls to cancel in 30 days. Damark never directly asked the consumer for authority to charge his or her credit card, according to documents.
In addition to clearer disclosures, the settlement requires that Damark read a script verbatim that ends with: “Is it all right for me to put a charge of the total dollar amount on your credit card after your 30-day trial period?”
This action stemmed from the hundreds of letters and calls the attorney general received complaining that Damark charged their credit cards without authorization, an action allegedly made easier once the company had possession of individual credit card numbers prior to soliciting the consumer to join the club.
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