Marotta-Wurgler '01 testifies before Senate committee about misleading Internet marketing practices

On November 17, Professor Florencia Marotta-Wurgler '01 testified before the U.S. Senate Committee on Commerce, Science, and Transportation at a hearing titled "Aggressive Sales Tactics on the Internet and Their Impact on American Consumers."

The subject of the hearing, which coincided with the release of a committee report of the same name, was "post-transaction marketing," in which online consumers often unwittingly purchase memberships to discount subscription services. The report focuses on three direct marketing companies based in Connecticut who form partnerships with established Web sites. Typically, the consumer is completing an online purchase on a site they trust, and is presented with what seems at first glance to be a free "reward" or "bonus" but is actually a paying membership. Failing to scrutinize all of the fine print, the consumer often does not notice the subsequent monthly membership charge on his or her credit card statement until months later; the e-commerce company from which the consumer made the original purchase has simply passed on the customer's account information to the third-party vendor.

Marotta-Wurgler pointed out that, while these online marketers argue that the fine print tells the consumer exactly what is happening, the sales method in question does not match up with online buyers' expectations about the usual way in which an Internet transaction occurs, a process that involves typing in payment information and reviewing terms before purchasing. Further, she said, online consumers tend not to read the fine print, and many post-transaction marketers seem to structure and display those terms in a manner that exploits that lack of attention.

Recommending that automatic payment-information transfers from original vendors to post-transaction marketers not be allowed, that those marketers be required to differentiate themselves more clearly from the original vendors, that disclosures to consumers be presented more straightforwardly, and that marketers offer an easy way for consumers to cancel unwanted memberships and obtain refunds, Marotta-Wurgler came down on the side of optimal clarity: "Consumers should be asked to enter their credit card information at each transaction. This will preserve the well-established norm that financial liability in these contexts arise only after the consumers takes certain well-established steps.... Because post-transaction marketers present themselves to consumers in an unexpected fashion at an unexpected juncture of the transaction, they violate the norms of online commerce and should be held to a higher standard of disclosure and transparency."

Posted on November 19, 2009

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