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Attorney General Bill Lockyer Files Consumer Protection Lawsuit against Telemarketer
Company Allegedly Charged Consumers' Credit Cards Without Their Consent
June 19, 2002
02-071
FOR IMMEDIATE RELEASE
(916) 324-5500
(LOS ANGELES) – Attorney General Bill Lockyer today filed a civil lawsuit against telemarketing firm NEI Direct, Inc., and its principals for false and misleading advertising and engaging in unfair and unlawful business practices that include charging consumers credit cards without their consent for services they did not realize they were purchasing.
"This company persuaded consumers to look over a service at no cost, and then secretly billed them after the so-called 30-day ‘free' trial period ended," Lockyer said. "It's bad enough that Californians are under siege by an endless barrage of telemarketing calls. But it's unlawful to charge consumers for something they didn't want and didn't agree to buy."
Filed in Los Angeles County Superior Court by the Attorney General's Consumer Law Section, the lawsuit alleges that consumers were offered 30-day "free" trial memberships in two programs: Infinity Privileges, which provided a card that supposedly entitled members to discounts at designated hotels, travel and car rental agencies and restaurants; and U.S. Medical Benefits, which purportedly provided discounts from certain chiropractors, dentists, vitamin companies, optometrists and hearing specialists.
NEI Direct entered into a partnership agreement with First USA Bank and obtained a list of its credit card holders and encryptions of their individual card numbers. NEI Direct used this information to automatically charge consumers' credit cards when the "free" trial membership expired, even though many consumers were not aware that the company had access to their credit card information, or that if they failed to cancel the "free" trial membership, they would be charged for a year's membership.
Others were told they could cancel the service after the trial period by simply dialing an 800 phone number. The company mailed out membership cards and instructions on how to cancel in envelopes that many consumers threw away as "junk" mail. Those who did open the letters found that instead of simply calling an 800 number, they were required to mail the entire package of material back to the company or they would be billed for the months in which the package was in their possession and for any contents that were not returned.
The lawsuit also alleges that consumers were:
- Charged for both the entertainment and medical discount memberships, but were only told about one membership;
- Put on hold for long periods of time when they attempted to cancel the service via an 800 line;
- Required to return the package at their own cost; and
- Charged long before the 30-day "free" trial membership had expired.
In addition, the lawsuit alleges that the company billed consumers' credit cards even when the consumer followed the company's cancellation instructions, and that the company reneged on promotions it used to entice consumers to enroll in the "free" trial membership. For example, the company offered $500 worth of free grocery coupons as one incentive. But when consumers received their membership packages, they discovered that they actually had to pay $2 for every $10 worth of coupons they wished to redeem. The Attorney General's action further alleges that the providers of services offered through NEI memberships would not honor the discounts as NEI said they would, or they would make them difficult to obtain.
"In this case, the company not only misrepresented their product, it also went out of its way to prevent consumers from getting their money back when the services were not provided," Lockyer said.
NEI Direct, Inc. also contracted with other companies who marketed their own products to also pitch NEI's trial memberships at the conclusion of their own sales presentations. The same problems developed with these "upscale" transactions, resulting in complaints from consumers about unauthorized charges on credit cards issued by financial institutions other than First USA Bank.
Named as defendants were the Century City-based company and its principals, Alon Nachom, Abe Nachom, Liza Jackson, Jacob Shemesh and Arnold G. Regardie. The lawsuit seeks a permanent injunction prohibiting the company and the principals from engaging in deceptive business practices, restitution to all affected victims and civil penalties of at least $2 million.
The Attorney General's Office is co-sponsoring legislation with Consumers Union that would require companies that sell products and services over the phone and by mail to obtain a consumer's affirmative authorization to bill a specific credit card account and verify the expiration date and last four digits of the credit card before charging the consumer. The bills, AB 2578 by Assemblywoman Ellen M. Corbett, D-San Leandro, and AB 2775 by Assemblyman Darrell Steinberg, D-Sacramento, both were unanimously approved by the Assembly in May, and are scheduled to be heard later this month in the Senate Judiciary Committee.
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