Apr. 18, 2003 - State officials are investigating allegations of deceptive trade practices, potentially involving millions of dollars in unauthorized credit-card charges, by a membership-services company with ties to Cendant Corp., the travel, rental-car and hotel giant. 

Responding to scores of complaints, the Florida Attorney General's Office is examining the telemarketing and direct-mailtactics of Trilegiant Corp., a Connecticut firm partly owned by Cendant, the multibillion-dollar holding company for such well-known brands as Avis, Budget and Ramada Inn. 

The complaints allege that Trilegiant marketers, armed with credit-card information supplied by Cendant and other clients, use fine-print and fast-talk sales pitches to enroll cardholders in various shopping, travel and car-buying programs without properly disclosing the actual costs and obligations. 

A typical pitch might involve the offer of a free, trial subscription to a service such as Buyers Advantage or Travelers Advantage -- without making it clear that, once the free trial ends, the customer's credit-card account will be charged an annual fee. 

Members are promised a variety of benefits, such as online discounts, low-priced extended warranties, and entertainment coupon books. 

Although Florida officials said this week they have some doubts about the real value of some of the membership services, they are more concerned about Trilegiant's sales tactics. 

In many cases, customers have complained that they were surprised to find multiple charges on their credit-card statements, ranging from $50 to $100, for membership services they had never agreed to, according to the Attorney General's Office. 

With more than 1 million subscribers in Florida, Trilegiant's revenue from direct-mail and telemarketing sales totals well into the millions of dollars in this state alone. 

The Trilegiant case is the latest and largest undertaken by the state in recent years involving suspect credit-card charges and the use of "pre-acquired" credit-card information, said Lisa Raleigh, the assistant attorney general in charge of the investigation. 

In such cases, a marketing firm may obtain people's credit-card data legitimately, as an affiliate of the company that issued the card or provided services to the cardholder. But if the marketer misuses that data, makes misleading sales pitches or charges customers without their explicit consent, it can run afoul of state and federal consumer-protection laws. 

"We've interviewed hundreds of customers so far in this case, and none really understood they were going to be charged for some kind of service," Raleigh said this week. "We've looked at a whole group of cases like this in the past few years, and it is extremely problematic in Florida because we have such a large population of independent-living elderly, who are vulnerable to these pitches." 

Amy Wongsaw the problem first-hand when her elderly father, who lives in the Orlando area, faxed her his credit-card statements. Wong, a business consultant in Chapel Hill, N.C., was outraged by the bills, which totaled more than $1,000 dating back to 1999 and earlier. 

"I put together an entire spreadsheet of the charges," she said. "One after another -- $69.99, $89.99, $99.99 -- for things like Shopper's Advantage, Home Shopping Advantage, Auto Advantage -- nothing that my father ever used or would ever use. 

"One service would start charging him in June, then another in September, and another in November," she said. "It was like the word got around that you could get over on this guy and it will be OK." 

Wong eventually filed a complaint with the Attorney General's economics-crime unit in Orlando. 

Trilegiant and Cendant have responded to investigative subpoenas, providing requested documents and otherwise cooperating with the investigation, according to the Attorney General's Office. 

Trilegiant, based in Norwalk, Conn., would not comment this week on the specifics of the case. 

"We can certainly say that we comply fully with all federal and state laws relating to our marketing practices," company spokesman Tom C. Jackson said. "In fact, we believe that our marketing standards clearly exceed those legal requirements." 

Cendant spokesman Elliot Bloom refused to comment on the Florida investigation. He said Cendant no longer owns Trilegiant, having spun off the former subsidiary almost two years ago. 

But Trilegiant officials said Cendant still has a significant financial stake in the marketing company. It holds $20 million in preferred stock that's convertible to ownership equity and is entitled to royalty payments that could amount to as much as $100 million -- a payback for Cendant's initial investment in Trilegiant in 2001. 

According to Raleigh, the assistant attorney general, Cendant and its various subsidiaries also provide Trilegiant with customers' credit-card data and other personal information for the marketing company to use in making its sales pitches. 

She said Trilegiant also acquires credit-card numbers as a marketing subcontractor for card companies such as Bank One, formerly known as First USA Bank. Credit-card companies routinely hire outside direct-marketing companies and supply them with cardholders' personal information. 

Consumer-protection laws permit such sharing of customer information, though the regulations restrict who may receive it and how it can be used. But the regulations also require companies to provide consumers with clear disclosure statements that spell out the terms and conditions of any offers. 

The state has investigated a handful of such cases in recent years that led to negotiated settlements with the companies involved: Triad Discount Buying Service Inc., which paid $9 million in restitution; Burdines Department Stores, which had hired an outside firm to make sales pitches to its credit-card customers and wound up paying almost $700,000; and Brand Direct Inc., another marketer, for which a settlement figure wasn't available. 

Raleigh said Trilegiant's sales pitches raise a number of consumer-protection issues. 

"A lot of their direct-mail disclosures are made in 5-point type, obscured to everyone but the most careful readers," she said. "And we've recorded some of the telemarketing pitches at 240 words a minute. I mean, that's auctioneer's speed. 

"These are problems that disproportionately affect older Floridians, and that's why we've started this case, to provide more protection for them." 

The use of previously acquired credit-card information has become a growing concern for state and federal authorities in recent years, said Ed Mierzwinski, program manager for the Florida office of the U.S. Public Interest Research Group, a consumer-advocacy organization. 

Consumer-privacy cases have already been brought against major financial institutions such as Citibank and U.S. Bancorp -- as well as against MemberWorks Inc., another big player in membership services and a Trilegiant competitor. All of those cases led to financial penalties and settlement terms requiring more up-front disclosures when soliciting potential customers. 

"I'm glad to see the Florida Attorney General pursuing these cases," Mierzwinski said. "There is a lot of good precedent now to stop these practices and defend consumers more vigorously against deceptive use of pre-acquired credit-card information." 

Cendant was created in 1997 by the $8.7 billion merger of CUC International Inc. and HFS Inc., which created a marketing juggernaut aimed primarily at travelers and vacationers. 

CUC, best known for its coupon books and membership clubs for shoppers and travelers, acquired HFS, which franchised several hotel brands, such as Ramada Inn and Howard Johnson, and owned Avis Inc. 

A few months after the merger's completion, New York-based Cendant disclosed an accounting and executive-malfeasance scandal -- long before Enron and WorldCom. The company revealed major accounting irregularities in April 1998, triggering a one-day drop of $14 billion in its market value. 

Its former chairman, Walter Forbes, and vice chairman, E. Kirk Shelton, were subsequently indicted on charges of securities fraud. 

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