BROOKE GLADSTONE: On the Media has learned that the Time Inc. Magazine Group is now the focus of a multi-state investigation into the company's subscription sales and marketing practices. The Florida attorney general's office has just alerted Time officials that 13 other states including New York, Texas, Pennsylvania and Illinois have joined in its ongoing inquiry into the way that firm sells its publications including Money, Sports Illustrated, Fortune and Time. Investigators are focusing on Time's use of a billing technique called automatic renewal. Among the possible infractions are a lack of clear and conspicuous disclosure on bills, a pattern of threatening collection letters for unfounded subscription charges and the use of sales pitches disguised as invoices. This is not good news for Time. Three years ago after a similar type of multi-state investigation, Time was forced to stop using its "You May Be A Winner" direct mail promotion under threat of severe legal penalties. Last March, only Florida was looking into Time's use of automatic renewal, but OTM's John Solomon was on the case.
JOHN SOLOMON: After a year of subscribing to Money Magazine, 76 year old Jack Eldridge of Plano, Texas decided not to renew. But soon after the expiration date, Eldridge began receiving increasing urgent overdue notices. Chalking it up to computer error, he ignored the correspondence. That is, until he received a letter threatening, quote, "further serious collection activities against you by Time, Inc. including being placed in the Time, Inc. Bad Debt File." That scared Eldridge enough that he sent in a check along with his own letter demanding that they stop sending the magazine.
JACK ELDRIDGE: I have a good credit rating, and I didn't want it sullied by such a cheap shot.
JOHN SOLOMON: Computer error was not responsible for filling Eldridge's mail box. Instead, it turns out that he had unwittingly agreed to join Time's preferred subscriber's automatic renewal program which obligated him to a continuous subscription until he canceled it. Though it is a major change from the traditional magazine billing method, Eldridge would only have figured out he'd been signed up by seeing the small-type, obliquely-worded explanation hidden far down in the original bill. Florida Assistant Attorney General Victoria Butler says this level of disclosure may violate state law.
VICTORIA BUTLER: It's reasonable to hold a consumer to the terms of an offer that they accepted if those terms are made clearly and conspicuously and responsibly to the consumer. It's not reasonable to hold them to an obligation that the company is tricking them into.
JOHN SOLOMON: Butler, who is based in Tampa where Time's circulation operations are headquartered has received hundreds of similar complaints from across the U.S. Based on previous experience in consumer cases, she believes that may just be the tip of the iceberg. Many are from long time subscriber's who say Time changed their renewal terms without their knowledge and then hounded them for payment when they let their subscriptions expire.
VICTORIA BUTLER: We're talking about 6, 7, 8 months of pointed collection notices that get increasingly threatening. This Time Warner Bad Debt Data Base, this black cloud in their name. Nobody quite understands the full implications of that. I mean that threat is very real and very serious as far as what the company's doing under the law.
JOHN SOLOMON: Automatic renewal is an attempt by the Time Magazine Group to change its billing to the continuous service model used by sister AOL/Time Warner businesses such as cable and internet service. From a business point of view it is understandable why Time would want to change the renewal process. The trouble, from a legal standpoint, is that the company is not telling their subscribers about the change except in fine print, and they are never explicitly asked whether they prefer to be "preferred subscribers." Time spokesperson Peter Castiglio did not want to be interviewed on air but told On the Media that there's nothing illegal or wrong with the company's sales practices. Castiglio says that automatic renewal is clearly explained on bills and points out that the complaints make up just a fraction of the magazine group's total subscribers. Further, he says, it is easy for customers to cancel their subscriptions, no questions asked. Butler agrees that Time is responsive to customers when they call to complain. The problem is that the company will not modify the policy that is generating the confusion.
CHRIS DURHAM: It's not right what they're doing, cause they're taking advantage of people who don't read the fine print, who are easily confused -- whether not it was illegal, it was-- it felt unethical, definitely.
JOHN SOLOMON: To former customer service representative Chris Durham, Time is making a calculation that there are enough people like Jack Eldridge who will respond to pressure tactics by just paying up. Durham says that most of the calls he took during the 7 months he worked at Time's Tampa Call Center in 2000 were from consumers bewildered as to why they were getting collection letters.
CHRIS DURHAM: We got a lot of people calling up saying hey, my grandma has subscriptions to Sports Illustrated. Why is that?
JOHN SOLOMON: Victoria Butler says the answer may lie in another Time marketing technique: direct mail sales pieces made to look like invoices. She's looking into whether they are being sent out by Time without the requisite 30-point bold face no obligation disclaimer mandated by Florida law. John S. Reid, a retired police officer, says he was almost fooled by one such look-alike pitch from Sports Illustrated.
JOHN S. REID: Yeah, I'm 64 years old myself, and-- I'm fairly sharp I think yet, and I can-- but I can see where some people that have physical and mental problems when they get into our age group and some of 'em would ordinarily [...?...] and Time Life is a big enough corporation that they don't have to stoop to this type practice in order to get money from people.
JOHN SOLOMON: If Time is found to be in violation of Florida law, it could incur significant fines and be forced to provide refunds. The company also faces a private lawsuit filed by a subscriber in Tampa which will likely become a class action. Assistant Attorney General Butler is currently awaiting Time's response to her request for billing materials and records before deciding whether to pursue charges. For On the Media, this is John Solomon.