Plaintiff alleges a scheme to snatch card numbers for renewable charges

Another Tricky Day

In the third iteration of his class action lawsuit against Webloyalty, originally filed in the Southern District of California in 2012, Kevin Park outlined a scheme that he and millions of other consumers allegedly fell prey to.

In Park's case, it all started in 2009 when he visited a popular video game retailer website to buy his son a gift certificate. During the purchasing process, he claims, he was presented with a coupon offer that stated it would save him money on his next purchase. He clicked on the coupon link and entered his email address, assuming he was communicating with the retailer website for the purpose of receiving the discount. He then finished the transaction and went about his business.

Cloaking Device

However, Park alleges that the coupon offer wasn't what it seemed. By clicking on the link and providing his email address, he was unknowingly entering into an undisclosed financial arrangement with Webloyalty, which began charging him a recurring $12 monthly fee. Park claims that he did not discover the charges for two years.

According to the complaint, Webloyalty gathers consumer payment information from its legitimate online retail partners, sets up the recurring fees and shares the charges harvested from the unknowing participants with the partner. Because disclosures on the coupon are hidden down-page and in fine print, Park claims, consumers are not aware that they are entering a separate agreement with a third party. The fact that the coupon used language like "Congratulations ... here's your Special Reward to thank you for being a valued … customer!" further concealed the arrangement, Park believes.

A Role to Play

Park also claims that Webloyalty played a role in the enactment of the Restore Online Shoppers' Confidence Act (ROSCA) in 2010. As a target of Senate investigations in 2009, the company came under withering scrutiny regarding its practices. One report maintained that Webloyalty and similar companies used "highly aggressive sales tactics to charge millions of American consumers for services the consumers do not want and do not understand they have purchased."

Park draws a straight line from these conclusions to ROSCA's enactment, noting that the legislation "requires full disclosure of the goods and services offered and their costs," and forbids online merchants from charging consumers unless the merchants obtain the consumer's full account number, name, address and contact information "directly from the customer."

The complaint charges Webloyalty with violations of the Electronic Funds Transfer Act, civil theft, unjust enrichment and other infractions, including ongoing violations of ROSCA.

The case has turned into quite a saga; the precipitating events are almost a decade past, and the case was dismissed and sent up to the U.S. Court of Appeals for the Ninth Circuit for appeal, where it was resurrected. The latest chapter in the story is Park's motion for certification of three classes: state residents of California, California residents who were allegedly wronged after the passage of ROSCA and nationwide debit card users.

The Takeaway

Webloyalty's efforts to dismiss the ROSCA claims in 2017 were denied, although the court maintained that this decision would not impact future rulings on which classes would be allowed to move forward with the suit. The outcome of this case will surely be an important one for retailers as well as online membership subscription companies, as the relationships between these businesses continue to grow in tandem and can substantially benefit from collaboration. As consumers become more aware and pursue vigilance against companies for these types of violations, we can expect more litigation to come to light for potentially unfair and misleading campaigns.