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MemberWorks, Sears Settle Automatic-Billing Case

Courts: Orange, Ventura counties get $750,000 each; the state, $500,000; customers, undetermined.


Telemarketing firm MemberWorks Inc. and Sears, Roebuck & Co. agreed Friday to pay a $2-million fine to settle a lawsuit accusing them of deceiving customers about automatic-billing practices for discount programs.

Neither MemberWorks nor Sears admitted wrongdoing, but they agreed to stop any deceptive marketing practices, according to the settlement filed Friday in Orange County Superior Court.

Under the agreement with Orange and Ventura counties and the state attorney general's office, the two companies also must pay restitution to customers. The total amount of restitution has yet to be determined.

The counties and the state sued MemberWorks and Sears for offering consumers a discount program for a range of products, from health care to travel, without making it clear the customers' credit cards would automatically be charged annual fees of $49 to $89 after a 30-day trial period.

The memberships were automatically renewed every year unless consumers called MemberWorks to cancel--information buried in material sent to them, said Wendy Brough, an Orange County deputy district attorney.

"I consider these serious consumer-protection violations," she said.

MemberWorks previously was identified in a telemarketing scheme that led to two settlements among U.S. Bancorp and 39 states, including California. MemberWorks had paid the bank at least $4 million to acquire financial and personal information on the bank's customers without the customers' knowledge, according to claims by attorneys general in the states.

U.S. Bancorp settled the cases by paying at least $2 million for allegedly violating consumer-protection laws.

Sears was named in Friday's lawsuit settlement because it co-marketed nine of the 31 discount plans, Brough said. It is paying $500,000 of the fine and costs; MemberWorks the rest.

MemberWorks and Sears will make refunds to California customers who did not know their credit cards were being charged or did not authorize the memberships, Brough said. MemberWorks also must contact its California members within the next 12 months to inform them about their right to potential refunds.

MemberWorks and Sears paid $1 million of the penalty Friday. The second installment is due May 15. Orange and Ventura counties each will receive $750,000, and the state will get $500,000.

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