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July 6, 2013

Iowa high court slams marketing company for fraud

IOWA CITY— A Connecticut-based marketing company must pay more than $40 million in restitution and fines for duping hundreds of thousands of Iowans into signing up for buying club memberships they mostly did not want or use, the Iowa Supreme Court ruled Friday.

In a 6-0 ruling, the court blasted Vertrue Inc. for using misleading telemarketing, Internet and mail solicitations to enroll 864,000 Iowans in programs in which they could buy discount goods and services dating back to 1989. Most Iowans were tricked into enrolling after they had bought unrelated items or thought they had accepted free gift cards or trial memberships, and were unaware that they had to cancel to avoid recurring monthly charges of up to $29.99, the court said.

The company's practices were confusing for all consumers, Chief Justice Mark Cady wrote, but particularly so for elderly Iowans, who were more susceptible to the rapid pitches and even less likely to use the discounts. Vertrue's own data showed that 85 percent of its memberships were never used, and a state survey of 400 Iowa customers showed that two-thirds of them were unaware they had signed up or said they hadn't authorized the charges, Cady noted.

The ruling is a victory for Attorney General Tom Miller, whose office has spent nearly a decade investigating the practices of Norwalk, Conn.-based Vertrue and its subsidiaries. Miller first brought the lawsuit at issue in Friday's ruling in 2006, contending the company violated state laws that regulate buying clubs and protect consumers from fraud.

District Judge Robert Hutchison ruled in the state's favor in 2010, and ordered the company to pay more than $30 million in restitution, fines and legal fees in 2011. Vertrue appealed, contending its sales practices were legal and the state's buying club law was unconstitutional.

The Supreme Court rejected all of Vertrue's arguments Friday, and ruled in favor of Miller's office on separate issues that it had also appealed. For instance, the court said Vertrue's financial, privacy and health programs also violated the buying club law — overturning part of Hutchison's decision — and therefore increased the amount of restitution by $13.6 million.

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