$772K Intelius settlement helps close state deficit

The state budget received a little boost this week in the form of a $772,320.33 check thanks to a settlement between the Attorney General’s Office and Intelius last fall.

“As the Governor and state Legislature scrutinize every spending priority in an effort to balance the state budget, I’m proud my Consumer Protection Division was able to contribute more than three-quarters of a million dollars as part of this settlement,” McKenna said. “While $772,000 is only a fraction of the funds needed to balance the budget, it’s enough to make a real difference when it comes to making our communities safer or providing services for our most vulnerable.”

After a two-year investigation, the Washington Attorney General’s Office alleged that Intelius received thousands of consumer complaints regarding unauthorized enrollment in membership programs while using Web sites owned by the company. The state also alleged that company management, including CEO Naveen Jain, knew about the complaints but chose to continue the deceptive and tremendously profitable marketing tactics.

Intelius agreed to settle the case for $1.3 million in August. The settlement didn’t require the company to admit any wrongdoing, but significantly restricted its future advertising practices. Under the terms of the settlement, part of the $1.3 million was to be used to Provide refunds to Washington state residents who were enrolled in the company’s “Identity Protect” program but never used the service; and Reimburse the Attorney General’s Office for litigation costs and reasonable attorney fees in investigating the matter and monitoring compliance with the settlement. The court directed the remainder of the funds, $772,326.33, to be deposited into the state general fund.

“To put this into perspective, these funds would be enough to fund the new criminal sentencing enhancements for street gang leaders my office was seeking — two times over,” McKenna said. “It could also go a long way in funding prevention programs in our communities.”

Legislators and the Attorney General’s Office have removed the prevention funding and the sentencing enhancements in recognition of the state’s budget shortfall. McKenna’s Consumer Protection High-Tech Unit began investigating Intelius in June 2008. The investigation focused on an Internet sales method commonly referred to as post-transaction marketing, in which additional services are offered to consumers after they’ve submitted their credit card data but before they’ve received the product they intended to purchase.

The sales tactic gained notoriety in November 2009 when the U.S. Senate Commerce, Science and Transportation Committee released an investigative report accusing Web companies of duping consumers. McKenna was the only attorney general to submit testimony in connection with the committee’s hearing. As a result of those discussions, Congress passed a bill imposing new restrictions on online retailers. With this law, the federal government will achieve on a macro scale what Washington accomplished with its Intelius case in August 2010 by prohibiting Internet retailers from passing along credit card information to third-party sellers.

The Attorney General’s settlement prohibits Intelius from accepting advertising from Vertrue, Inc., WebLoyalty, Inc., and Affinion.The agreement also addresses Intelius’ ability to sell its own products. Consumers must give their expressed agreement before being enrolled in a membership program and all terms must clearly be communicated.