Consumer Advocates

Worldcom, Toysmart.com run afoul of Big Government.

Attorneys general in seven states have filed suit against WorldCom (formerly MCI WorldCom) for deceptive marketing and for slamming – the practice of switching customers’ long-distance carrier without permission.

AGs in California, Connecticut, Georgia, Maine, Minnesota, Missouri, and New Jersey in late July charged WorldCom, Clinton, MI, with deceptive advertising. At the same time, Connecticut and Idaho sued AT&T, and Maine and Illinois sued Sprint. All are pursuing injunctions, civil penalties, and restitution. For example, California, which claims 8,000 residents have complained, seeks $20 million in damages.

The WorldCom suits came one week after the company ended merger talks with Sprint, blaming the Department of Justice for demands that “would have eliminated the customer benefits and financial synergies that supported the proposed merger,” says WorldCom.

At issue is WorldCom’s “Five Cents Everyday” long-distance plan. States contend that WorldCom duped consumers by hiding monthly fees, implying that calling-card rates were the same as home calls, soliciting consumers who asked to be on a “do-not-call” list, and misrepresenting that the Federal Communications Commission requires WorldCom to charge a “national access fee” or “carrier access charge.” (By policy, WorldCom does not comment on pending litigation.) AGs criticize WorldCom TV and direct-mail campaigns. Court dates had not been set at press time.

In June, Qwest Communications Corp. settled a similar suit in Minnesota by paying $500,000 in penalties and restitution to consumers for a deceptive 1999 “Fly Free America” program. Qwest promised free airline tickets to new customers, but didn’t disclose costs and conditions until after consumers switched. Qwest agreed to refund switching fees paid by the 22,000 Minnesotans who participated.

The state also charged Qwest with slamming consumers when in-person sales reps forged customer signatures on permission-to-switch slips. Qwest will credit consumers for payments and switching charges. Qwest also agreed to disclose all terms for future promotions, and disclose all costs in telemarketing pitches.

Meanwhile, Online … The Federal Trade Commission in July voted 4-1 to accept Internet advertisers’ self-regulation on gathering consumer data. The Network Advertising Initiative, a consortium of Internet advertisers, drafted the guidelines, but the FTC has no authority to enforce them.

The vote followed a May report from the FTC recommending legislation to protect consumer privacy online by setting standards for notice, choice, access, and security (June PROMO). The FTC also started cracking down on kids’ sites in July, e-mailing warnings to sites not in compliance with the Children’s Online Privacy Protection Act (COPPA), which went into effect in April. FTC staffers surfed sites that collect data from kids under 13, and found nearly half weren’t getting the parental consent required. Nearly 75 percent of FTC-scanned sites collect data.

The FTC filed its first COPPA violation suit in July against Toysmart.com (which filed for bankruptcy in June). The FTC agreed to let Toysmart.com sell its customer list (and detailed personal data) only as part of a total sale, not as a stand-alone asset. Toysmart.com’s privacy policy promised it would never sell or share personal data, and any buyer must abide by that promise, the FTC ruled. If the business isn’t sold within a year, Toysmart.com must destroy the information.

“Customer data collected under a privacy agreement should not be auctioned off to the highest bidder,” says Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. “This settlement protects consumers from a winner-take-all bid in bankruptcy court, ensuring only a family-oriented Web site willing to buy the entire Toysmart [operation] has the ability to do so.”

Separately, research firm Harris Interactive, Rochester, NY, filed suit in August against Internet service providers including America Online and Microsoft Corp. for allegedly blocking access to consumers who want to answer Harris surveys. Harris contends that the e-mail monitoring service of Mail Abuse Prevention System, Redwood City, CA, lists Harris among 3,000 spammers that are automatically blocked. Harris says that blocks its access to 2.7 million of its 6.6 million consumer panel members. Mail Abuse is also named in the suit.

A Pepsi Challenge Two Las Vegas health-food store clerks are fighting over a bottle of Pepsi worth $1 million. Judy Richardson says that, back in 1998, she left an unopened bottle with a winning cap on the counter after her shift. Co-worker Sindy Allen says she found the partially consumed bottle while cleaning up. Pepsi will pay whichever one wins the suit, now unfolding in a county court.