If You Believe That

Planning to use a live check as a promotional hook?

Think again.

Chase Bank and Trilegiant Corp. got into hot water with 17 states over the use of this device. The firms settled last month for $14.5 million, resolving charges that they duped consumers into paying for membership programs or buying clubs.

The live checks, worth from $2 to $10, were tied to a “free” 30-day trial offer. Consumers were never told that by signing it, they had agreed to pay for a membership, the states alleged. The victims were mostly seniors and people with limited use of the English language.

And now the states are toughening up their guidelines on live checks.

For example, some now require specific language on the backs of checks, and disclosures in the solicitation.

Moreover, a couple of states are mulling bills to prohibit the checks, says Albert Shelden, the acting senior assistant attorney general, Department of Justice for California.

Equally troubling for the states was the co-marketing aspect of the promotion. Trilegiant, a provider of loyalty and affinity programs to financial service and retail companies, was given access to Chase’s database, and the solicitation arrived in a Chase-branded envelope. This led consumers to believe it had come from their bank, credit card issuer or mortgage lender, according to the states.

“The solicitation didn’t adequately disclose that it was really a third party’s product,” Shelden says. “So there are additional requirements regarding disclosures that are going to have to be looked into.”

Co-marketing with charities can create even greater problems, Shelden says. Requirements vary by state, with some requiring marketers to register as a charitable solicitor.

“Likewise, whatever you say is going to go to that charity, even if your sales are zero, better go to that charity or there are going to be problems,” Shelden adds.

Iowa, which was also involved in the Trilegiant case, looked at specific words in the solicitation that it thought were misleading or created a false premise. It also examined what consumers were obligated to do.

One word that stuck out was “enroll,” as in enroll in a class. But the consumer who fell for this was, in fact, agreeing to a free trial in a buying club membership, says William Brauch, special assistant attorney general, consumer protection division, for Iowa.

“We chose several words, including enroll, and said those words cannot be used in solicitations,” he says.

The settlement included more than $8 million from Trilegiant for restitution to consumers.

Here are some other cases marketers should be aware of.

1. Deceptive Advertising — Iowa is going after advertising agencies that run misleading ads for mortgage and auto lending offers.

   For example, the state recently settled a multi-state lawsuit against an Ohio advertising shop, Gunning & Associates Marketing, that allegedly promoted false-premise packages.

   “The bottom line is that they are in reality selling used cars and are engaging in deception by advertising that it’s a bank or reposition sale,” says Brauch. “In one really egregious case the ad said that a rental car company had gone bankrupt. We are going to be pursuing, on an ongoing basis, looking at advertising agencies.”

   The result? G&A agreed to not make or imply false claims about the sources of vehicles. It paid $300,000 to the 10 states involved in the settlement.

2. Vacation Giveaways — Texas was awarded a $64 million jury verdict last year against Sun Country, a travel agency that falsely claimed the attorney general and the Better Business Bureau had endorsed its sales and marketing practices.

   “If you want to know a surefire way to get the attention of my office, just say that we’ve approved what you’re doing and you’ll be hearing from us,” says Esther Chavez, assistant attorney general, office of the attorney general in Austin, TX.

   The jury also found that the company had used deceptive sales and advertising practices, specifically a “free” vacation giveaway, and that telemarketers did not disclose all fees and costs linked to the vacations.

   During deliberations, the jury asked seven questions about the specifics of the contest and gift giveaway. It ultimately found 72,000 combined violations of the state’s Contest and Gift Giveaway Act and Deceptive Trade Practices Act, and 52 violations of the state’s Do-Not-Call rules.

   “We thought this was a good lesson for consumers and the Texas business community to see that when you take this to a jury they are going to respond to the consumer protection perspective,” Chavez says.

   Texas has litigated dozens of no-call cases over the last several years, but the Sun Country one marked the first court verdict rendered against a violator. The state’s no-call complaints have fallen dramatically, between 50% and 64%, Chavez says.

   “I think that means that the word is out and companies are getting the message about the importance of complying with our no-call laws,” she says.

3. Lead generation — Texas has sued three companies that sent direct-mail surveys to seniors, using language that created a false sense of urgency. Consumers were asked to check off information of interest and to provide personal data, including a telephone number. The objective: To generate leads that would then be used to market insurance and financial products.

“The format and the language is designed to alarm consumers to get them to respond right away,” Chavez says.

The state charged that these firms are violating its fair trade practices by not telling consumers what this information is really going to be used for. A similar case involving two other Texas-based companies resulted in a judgment requiring that the company clearly inform the consumer that personal information is being collected — and for what purpose.

Don’t Blow Them Off

Lawyers probably know all this. But state regulators from California, Iowa and Texas offer the following advice on what to do if a client receives a marketing-related inquiry from a state. Marketers should read it, too.

• Don’t ignore the inquiry.
• Don’t challenge the state’s legal jurisdiction.
• Supply the requested information in a timely manner.
• Communicate in an open and timely manner.
• Verify the facts with the client. If you are the client, refer to an attorney.
• Avoid the culture of “Let’s see what we can get away with.”
• Make friends with state regulators.

This report is based on comments by state regulators to more than 500 attendees at the Promotion Marketing Association law conference, held last month in Chicago.