When Sarah Corbett received a form about membership in MedAdvantage Health Care Savings Plan, the retired social worker had no idea she had already been enrolled in its mail-order drug plan. But when a $96 annual fee for it showed up on her American Express card, Corbett realized that she had been duped. After a few phone calls, the Maryland native identified the culprit: Pennsylvania telemarketer Encore Marketing International. Encore insisted in a letter to Corbett that she had signed up over the telephone, but the 80-year-old fired back that she had done no such thing. Says Corbett: "I never take solicitations over the phone."
In the end, Encore agreed to cancel Corbett's membership. But she filed a complaint with Maryland state consumer officials. "I feared they would prey on [other elderly] people." She has a point. Nationwide, consumers are howling about a deluge of unwanted products and services that they're being billed for. According to the Federal Trade Commission's latest calculations, complaints about unordered merchandise and services skyrocketed 169% from 1998 to 2000.
And the gripes aren't just about fly-by-night operations anymore. More and more mainstream companies are turning to dubious age-old marketing methods to boost sales of everything from health-club memberships to insurance policies to panty hose. Businesses under investigation or involved with lawsuits include such consumer giants as FleetBoston Financial Corp. (FBF ) Recently, even Sears, Roebuck & Co. (S ) has gotten complaints. "Companies are pushing the envelope to see what they can get away with," says Les Garringer, an assistant district attorney in Florida. "Most settle immediately once we confront them with their own advertising."
Of course, if done right, these practices aren't illegal. In fact, they have long been favored by book clubs and magazines as a way to pump up subscriptions. All a company must do is clearly explain to consumers that they will be receiving unsolicited merchandise or services which will be billed to them unless declined by letter or phone. Even so, opportunities for abuse are endless, regulators insist. "Four-point type at the bottom of the page doesn't cut it," fumes Elaine Kolish, the FTC's associate director of enforcement.
VICTIMS OF LAZINESS? What's new about the latest round of alleged offenses is the size and reputation of companies resorting to such practices. In one case, the Minnesota State Attorney General sued Fleet Mortgage Inc., a former unit of FleetBoston purchased by Washington Mutual, for enrolling its home borrowers in insurance programs covering everything from dental work to auto repair, then tacking the charges onto monthly mortgage bills. To stop them, borrowers had to call and cancel them. FleetBoston has denied any wrongdoing. The Florida AG is investigating department-store chain Burdines for allegedly failing to notify customers it was enrolling them in a company buying club. And 11 state AGs won a $300,000 settlement against hosiery direct-mailer HCI Direct Inc. for charging consumers for panty hose they received but had never ordered.
Why take such risks? Companies see the preemptive sales tricks as an easy way to boost revenues in a sluggish economy, and they also like it because it "takes advantage of people's inherent laziness," says marketing consultant Bruce Kasanoff. Other sales gurus view the practice as a desperate attempt to cut through the advertising clutter that's blunting marketing messages. "Companies no longer care if you want to buy," says Eric Norlin, a consultant.
Some businesses worry that the practice is getting out of hand. "We're hearing some concern from our members," says Pat Faley, vice-president of ethics and consumer affairs at the Direct Marketing Assn. That's one reason the Consumer Electronics Assn. is writing voluntary guidelines concerning the sales technique. Still, keep those magnifying glasses handy. Chances are, consumers will need them just to decipher the fine print; otherwise, a lot more people may wind up owning panty hose they never wanted.
By Charles Haddad, with Brian Grow in Atlanta