I just stumbled upon this piece on Business Insider "JustFab Raises $76 Million To Create The H&M Fashion Brand Of The Web".
It kept me wonder why a company with very questionable (I will try to avoid using the word "fraudulent") business model was able to raise big money. Didn't the VCs have to do the due diligence?
I didn't have any direct experience with JustFab. The victim was my girlfriend. Back in January or so, one of her friends emailed her a link to JustFab, then she bought a pair of shoes from www.justfab.com and never visit the website again. Only 8 months later, in early September she was appalled to find out that her credit card has been charged a $39.95 fee for the last eight months. Yes, $39.95 for 8 months, without geting anything from JustFab.
I then did a bit research on the internet. It turned out my girlfriend wasn't the only victim. Apparently JustFab works like this: once you buy something from their website, you become their "VIP member". Then you will have to log into their website between the 1st-5th of each month and click “Skip This Month”. If no action is taken (either skip this month, or cancel your account), they just charge you a $39.95 fee every month.
According to the Business insider article, JustFab "will generate about $100 million this year" in sales, I wonder how much of this $100 million are from people like my girlfriend who simply didn't read their entire 2,500 words Terms of Service and were unaware that they were charged $39.95 a month for nothing.
p.s. After JustFab CSR refused to refund, I decide to post this story again, hoping it will get upvoted to the frontpage of HN so that more people get to know what is really going on behind JustFab
pps. Anyone could just simply google "justfab scam" to see how many others have been victimized. It's outrageous such large scale scam got unnoticed.
It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading. It looks like a standard upsell, not a mandatory part of the purchase.
They're relying on people clicking the accept terms and conditions check box without realizing that it's signing them up for the membership, i.e. it's the terms and conditions of the program, not the site in general.
Terms and conditions boxes are common in the checkout process and nobody gives them a second thought. I'm not sure I would have caught this one if I went in naively.
I don't know about the US, but here in Germany you can't put that kind of stuff into your terms and conditions.
Well, you could, but those terms would be ineffective. Of course, this doesn't help if they succeed to intimidate the victim. But if the victim doesn't pay, there's nothing the scammer can do, because this case would never succeed in court.
Having said that, it might help if the victim complains to the police. Depending on how serious customer protection is taken in the US, this business might be more than merely "unethical".
Not only ineffective, but its planned to make this deceipt downright illegal. You have to state all of the costs in clearly readable text on the signup page itself and change the button to indicate that you are signing up with recurring costs.
Maybe I'm being too permissive, but that screen doesn't look fishy at all. I went through the purchasing/sign-up process, and it goes like this:
1. create a profile (answer questions on style)
2. fill in details, click a *JOIN NOW* button
3. get a "*first month* for 50% off" offer
4. get to this payment screen
At no point it implies you are buying a single product, there are no "buy now" buttons or calls to action.
To me it's pretty clear that it's a recurring service, like many others that exist for chocolate, wine, beer, socks, razors, etc. The right hand side on the checkout is clear enough, and the skip the month part is there highlighted, not in small letters.
EDIT: apparently this is just the flow after choosing something on the home page. If you choose one of the "special" products or go to the Featured section, it does go through a standard add to cart + checkout flow (http://minus.com/lA7snPkHUHOZR). That is actually terribly misleading.
The grandparent's link says "Each credit can be redeemed for any JustFab style on the site."
Seems to me that they're saying if you're a member but didn't make your decision for your free (sunk cost) product by the 6th, they charge you and turn it into store credit. It's not like they're charging you and saying "too bad, you don't get anything."
It may be different, yes, and I can relate to the OP's original complaint from his girlfriend. Still, given the language used on the site and the (albeit weird) use of a "credit" that can be used in the future for each month you don't buy something, it doesn't seem unfair at all to me.
I will say that the negative attention this confusion could bring them is more harmful to them than if they revamped the purchase process to just make it crystal clear what you're buying.
From my experience at Poll Everywhere, the "sidebar" on the checkout process does not get read by anyone, anytime. For some reason, the sidebar becomes a blindspot and is ignored (at least in our testing) during a checkout process and so is thus not a great spot to put reminders about how you're joining a membership and will be charged monthly if that is the only place is is put.
Actually it says you'll be billed for a "Member Credit", which "can be redeemed for any JustFab style on the site".
I'm not sure what that means exactly, but if you can actually redeem one of those credits for $39.95 worth of product, then 1. it's still very misleading because you spent a lot more money in their store, on their products than you intended to, but 2. at least your money didn't just evaporate, except 3. is there anything preventing them from at some point deciding "From now on, we will only sell novelty dish-washing sponges, at the great rate of one credit per sponge!", making all out-standing credits worthless in a single TOS change?
I agree it's unethical. This is a commercial site, it tries to offer goods in exchange for money, anything that costs money should be emphasized and explained. How would they feel if someone managed to take some of their merchandise by stealth?
I don't think this is some grey area: if you tricked me into paying a sum I never chose to pay, you're stealing money off my pocket.
That reminds me of certain ads I sometimes see on the french TV for ringtones or silly phone games: if you read the small print you realize they actually offer a membership, not a product, and you actually pay something like 3 euros a week instead of a one-time fee. They call that "clubs" or something.
Those ads usually seem to target teenagers (they're mostly on music channels or channels aimed at kids) who probably aren't in charge of the bill and if they're not careful they might end up with a bad surprise. This is beyond shoddy.
Thanks for the screenshot. This is outrageous IMO. Few people will notice that the TOS checkbox actually reads "JustFAB VIP membership program". Most people will take it as a normal TOAS checkbox that you have to agree every time you order from any website. So, yes, the page is designed to be misleading a.ka scam some subscription fees.
I don't really think so. When I visited the website, the first thing (it took up 50% of the page) that I saw was a call out asking you to rate items, and reveal your fashionable interests so you'd get personalized advice. Then it asked me to join their VIP program.
Honestly, I'd have to click around a little bit to even figure out how to just search something without first joining them and going through the VIP program upsales processs.
Note that regardless of what the screen shot looks like today, it's very possible the site already improved its disclosure in response to complaints/threats. It would be interesting to go back in time and compare the disclosure at launch to what's on the site today.
At least the bullet points on the right clearly describe how the site works. I'm not saying it's not misleading, but I think OP's complaint that customers have to “read their entire 2,500 words Terms of Service” to see what the deal is, is basically wrong.
(Also you don't get “nothing” for $39.95; you get store credit. That sucks if you didn't want any, of course, but given the fact that people actively sign up to be able to purchase from that store, I can't imagine it's entirely worthless.)
So the site doesn't force you to join the VIP program? The way it is structured would definitely see a lot of people check it and click through without checking. In my experience stuff we make a lot more obvious than this is plain ignored during checkout.
I wonder how this company (and these kind of companies) can keep their merchant account open for so long. There has to be some trick here.
For example, maybe they keep enough to funds for last 6 months of chargebacks and have some special kick-back to bank? Or maybe the game plan is to always open a new merchant account after the first one is closed? Or maybe the bar is so low and they never need to worry to lose their merchant account?
You sign up for what is called a "High Risk" merchant account.
Porn sites, bail bonds, check cashing locations, dating sites, weight loss centers, and dozens of other types of businesses use this category of services which has a very high tolerance of chargebacks.
The sad part is if you get enough chargebacks you can actually bake in a higher transaction cost and not have to pay per-chargeback fees like other normal merchants do.
The reason to buy says, "over half a million subscribers save hundreds a year". This statement could burn them in court if proven to not be a factual statement.
I would surmise that it could be shown that the half a million subscribers paying $480 a year each, (240 million total) may not save hundreds a year. The least they would have to show for a forgiving jury would be that subscribers saved a total 100 million in personalized boutique purchases and general shipping. A demanding jury would require 340 million in savings. I would wager that argued by a savvy attorney the statement could be read as a misrepresentation in advertising. It would also be based on how it read at the time of original subscription, so there wouldn't be much value in changing the statement now and only provide more validity toward it being a misleading statement. The defense would argue that people read the the info on the right, understood the terms and checked the box in agreement. The prosecution would argue that the claims in bold of so many saving so much resulted in more making the purchase, which was a false misleading statement.
Sales people make these types of claims all the time over the phone or in person to get a sale, putting it in writing is a huge mistake, and online retailers shouldn't be so brash.
Regarding your comment: "It says you'll be billed month per month on the right hand side under the VIP membership program, but I think it's pretty clear that the page is engineered to be misleading."
I'm sorry: you're talking about the section that explains "How the JustFab VIP Program Works"? Whose 4 bullet points say:
1. Get a boutique the first of the month
2. Browse and Buy
3. Don't like anything, skip
4. If you don't buy or skip by the 5th you'll be charged anyway?
And a default unchecked box that you read and agree?
I think the concept of "engineered to be misleading" might just put the points in say, a small font, or in the terms and conditions behind a link. If someone describes it clearly in bold font in a section explaining how the site works, well, that's a pretty strange way of misleading people.
The misleading part is that (in at least one common usage path), the site sets itself up to look like every other online shopping site. The kind that people expect to use by putting stuff in their "shopping cart" and proceed to "checkout" and pay once.
Think of the people in your life not quite as tech-savvy as yourself, like maybe your next-door neighbour or your mother. Would you expect them not to be misled by this? Sure, I'd hope my mother would be critical enough to notice, but I can easily see it happen otherwise.
Another indication is, I assume that a lot of people who do notice will instead decide to bail out entirely and not buy anything, rather than (like I would do, if I really wanted the item) pay, log in, and cancel the account immediately. Because that's not really an obvious thing to do, given the set expectation of being a regular online shopping store.
To answer the question at hand: "Why was [this] company able to raise $76 Million Series B?" They make money.
What's more concerning to me is that the coverage in TechCrunch and Business Insider wasn't able to raise a modicum of doubt. If googling "JustFab" returns "Class Action Lawsuit" in the first 5 results, it would seem that the reporters either didn't do the absolute minimum required for effective journalism, ignored it, or were instructed to ignore it.
We've all heard the "online journalism is broken" refrain, so I won't repeat it here.* I'll just note that if it's so far gone that googling the topic of interest is out of the question, this form of journalism is worse than I thought.
I respect you man. Not gonna argue with you. Just before the re-branding of Hotmail to Outlook, there was an article on TC, claiming it takes '14 seconds' for Gmail to load. And posts like that one are not rare on TC.
Don't ask for a refund, go to your bank or CC company and charge back the 6 months. That'll hit them where it hurts. Little known fact about chargebacks: the merchant pays an administration fee, typically $20 to $50. Per charge!
That is why the smarter scammers refund to everybody who complains, not refunding is plain dumb. This scam has been around for a long time, usually it's adult companies that sell you a 'free' membership with an age verification which comes with a pack of subscriptions tacked on for other stuff that you will never use.
This practice of selling unsuspecting consumers a subscription with auto-renew when they think they're doing a one time transaction needs to be stamped out.
The credit card processing chain is quite complicated, with banks, card companies, ISPSs, processors and merchants all having fairly clearly delineated roles. A merchant - no matter how big - implementing the whole chain is unheard of.
Visa, MC and other cc companies care a lot more about their reputation than they'll even care about a company like this.
Much larger fish have been put on the bbq over less substantiated claims of fraud.
I've got an Amazon credit card (in the UK) and it's a Mastercard run by MBNA.
I would guess Amazon have looked at replacing as much of the payment chain as they can and done the parts that are profitable to replace. But they have a long way to go before the enormous hassle of becoming a bank is going to be attractive and possible.
It's not nearly enough. Some major conglomerates (If I recall correctly then GE, GM, Samsung and others) do stuff like that in-house by creating bank-subsidiaries in their largest markets, but I'd guess that it would be reasonable at 78 billion revenue, not 78 million.
That's just to become an acquiring bank, to save on exchange fees.
Ultimately VISA determines who gets to participate in the VISA credit exchange network and will fine acquiring banks who participate in things like this. No one can force their way in and avoid responsibility -- period.
Even worse are scams that look like a free service (doing stuff like horoscopes) but require you to enter an address and then send you a bill for a 12 month subscription, and threatening legal action if you don't - quite common here in Germany. There's actually new legislation since July that requires all online transactions to explicitly say there's a fee right on the confirmation button, otherwise they're not legally binding.
However, be careful and only do a chargeback when you are sure you never want to deal with that merchant again. Many will blacklist you if you do a chargeback, because of that high chargeback fee (which they have to pay even if they have sufficient documentation to successfully fight the chargeback).
I'm kind of surprised no one has started a service for merchants to warn them of chargeback prone customers (there are people who go straight for the chargeback without even trying for a refund first).
> I'm kind of surprised no one has started a service for merchants to warn them of chargeback prone customers (there are people who go straight for the chargeback without even trying for a refund first).
There are plenty of such services. You don't see them because they don't normally operate on the merchant level, they operate on the IPSP / processor / card company level.
The reason why they don't usually operate on the merchant level is because that would allow a merchant to pollute the pool with their 'known good' cards to stop people from buying a product with competitors. You have to wonder when you buy this information as a merchant whether it is clean or not. But when an IPSP / processor or card company uses their aggregate knowledge then it starts to be really useful.
You can do AVR checks and so on all by yourself as a merchant but most if not all reputable IPSPs will have an anti-fraud system in place that does all kinds of checks.
Look into MaxMind MinFraud. In addition to providing a 'risk score' for your online orders, it's also a kind of collective blacklist like you described. Any MaxMind customer can report an IP or e-mail address as associated with a fraudulent order, and any other MaxMind customer who recently scored an order with the same IP or e-mail gets a warning about the increased risk.
Don't forget that doing a chargeback doesn't absolve you from having to pay for services you've legitimately signed up for, it just denies the parties the convenience of settling through the credit card companies.
They can take you to court for breach of contract, and if (IANAL) the subscription contract is found to be legit, you have to pay + fees.
Well, it's sad in a way but there are consumers that use it exactly like that. They order stuff and then charge back the money in the hope that the merchant won't care enough to fight the chargeback, which can cost a multiple of the original transaction.
Most large merchants have risk mitigation strategies that attempt to detect this before a charge gets processed and goods are shipped but that's a less-than-perfect mechanism.
First: You're in court. That's a whole lot more than you bargained for.
Second: Are you a lawyer? Is that the guaranteed outcome of such cases? Will it really carry no weight that they can (probably) substantiate their claim that you checked the box with a technically sound argument that their website actually works? A manual release test plan, unit tests, cucumber scripts?
That one, single checkbox, and the fact that you have to manually check it, is the legality upon which the entire business hinges. Especially if they're a little shady, they'd be sure to have their stuff in order around this.
The first is certainly true, but won't happen if they are bound to lose.
I'm not a lawyer, but I am a programmer. I would never swear that my software works so correctly that I will use the actions of the application as proof that a user did check a box. If he claims he didn't, well, he just may be right. I've seen enough weird things happen not to trust any software to behave correctly all the time.
Now my technical reasons may not be relevant for a judge, but I doubt judges are very trustworthy of technology (they should have heard plenty of cases where technology failed and they will be users of all kinds of awful consumer technology, that sometimes, suddenly fails for no clear reason) and won't think favorably about a company with these kinds of practices. Perhaps I'm naive, but those things combined will lead a judge to believe you over the company.
That one, single checkbox, and the fact that you have to
manually check it, is the legality upon which the entire
It can be entirely legal, while at the same time anyone that claims otherwise should immediately be refunded and let go. In fact, it would be smart to do that, as it prevents bad publicity. Any user that is dissatisfied should be compensated and should be free to leave, always. That saves money.
You mean processor/bank/merchant account, not merchant. In the parlance of the payment industry justfab is the merchant in this story.
And yes, there are scammers that have processors / banks lined up but they burn through them at a rate of about 1 every 8 weeks or so, and each time that happens they forfeit a large amount of cash. There are not that many merchants willing to play the game that way.
50 chargebacks or 0.5%, whatever gets hit first and you're in trouble. Reputation damage to the CC companies and you're out for good. Merchant account hopping is not a long term viable strategy.
First, while credit card companies and banks can chose to honor disputes of any age, your rights under the FCBA protect you for only 60 days -- and the FCBA doesn't apply to debit cards at all.
My tip -- that you should never use a debit card and with credit cards you should dispute charges before paying the bill -- is correct in spirit but not in the letter of the way I worded it, so mea culpa on technicalities but the point is correct. The FCBA only grants you 60 days to dispute a transaction (after the statement cut, not the transaction itself).
Also, CC disputes have some consequences. Companies aggregate & share lists of customers that have charge-backed. Finding yourself on the list can see you turned-away from legitimate, good businesses that have to protect themselves against dispute-prone customers.
What the parent meant was "after you paid the bill". It's hard to go back later and say the charge was fraudulent after you received the bill and opted to pay it. In theory, payment = acceptance of charges.
Theory doesn't matter much here. Especially not with automated debiting of checking accounts to pay the balance or some amount of interest or a combination of those.
As a customer of the card company you have the right to dispute charges as far back as you want, whether they'll honor that or not is a different question but typically up to 6 months in a card-not-present situation should give you no problem at all. And once the complaints about this company start rolling in it will get even easier.
Mass chargebacks are a very powerful weapon in the hands of organized consumers.
I see 6 month chargebacks on a regular basis (dealing with consumer fraud is fun), so these definitely happen, they're possible and if consumers can do it when they are the ones defrauding the merchants there will be a lot less trouble when it is the merchant doing the defrauding.
In many cases the cc company debiting your checking account is automated and there is no step for you to verify other than to periodically go through your statements to see if you have taken on any ghost charges.
I definitely second this. I used to work a children's website, where kids would often take their parents' credit card and make purchases, and we'd inevitably end up with many chargebacks (even though we offered refunds, many people went straight for the chargeback option instead of contacting us). The chargebacks not only cost the company extra - even if the company wins the dispute - and if chargebacks happen too frequently, banks may shut down the account.
I have also won 3 chargebacks against companies who never delivered their product or used deceptive practices. The process was not too difficult, and I believe the CC companies tend to side with the consumer. Verdicts on the disputes can take several months to process though.
This is the best suggestion, but unfortunately may not be possible for them to recover everything depending on how they paid/their credit card company. Most banks only allow you to do a chargeback for charges within the last 1-2 months on debit purchases and 6 months on credit card purchases.
Banks and, at least VISA, are not as quick to do chargebacks they used to be. Now, they'll only do them if the customer says their card was stolen. Found this out when my mother was scammed by a moving company for the 50% deposit (company never showed). She called the number on the back of the card to dispute the charges (I believe its the bank's customer service number, not VISA's). But the bank told her they couldn't reverse the charges since she was the one who authorized them. To get her money back, she'll have to take the moving company to small claims court.
I have used AMEX since the last 9 years, precisely for things like these. They are REALLY good at processing disputes and chargebacks, and in the last 9 years, there has never been a time when I 'lost' a claim against such fraudulent charges (I've had around 5 such claims).
On the other hand, both Visa and Mastercard are pretty much useless to 'protect' you against charges like these.
Debit cards (which from the way you're talking about a bank it sounds like this was) are like that. It's why your best practice is to always use a credit card when buying things (it's not like it costs you anything, as long as you have the discipline to not run up a bill you can't pay).
This business model reminds me of those fly-by-night mobile subscription services from the early 2000s. The ones who'd make you think you were buying a single ringtone, and the next thing you knew, you'd been surreptitiously signed up for a $29.99/month subscription.
I remember evaluating the books for one of those companies back in the day. It was wildly successful at the surface level. But if you dipped below the surface, you noticed that its biggest strategic weakness was "Breakage," i.e., the rate at which people eventually discovered they'd been duped and then cancelled their subscriptions. It turned out that the average subscription lasted 2 to 3 months, and nobody kept a subscription longer than 5 months. This basically meant that the company's entire business model was predicated on scamming new users at a rate quicker than its existing users could break away. While not a Ponzi scheme in the true sense, the model operates on a similar assumption. But the assumption is not sustainable in the long run.
I look at a lot of companies these days -- especially all the companies in the pop-up sale business, the subscription-box business, etc., and wonder how many are following this playbook. And I wonder why VCs keep backing them. Obviously it's a fantastic way to earn tremendous growth up front. And, while the getting lasts, the getting is pretty darned good. But it's sad to think that legitimate startups may get turned down, or underfunded, for the quick buck and easy exit that can be made on this crap.
That business model is alive and well in Hungary. A single SMS was sent from my phone in August (nobody in the family knew anything about it, so we can only assume it was sent by somebody else who may have gained access to the phone while the kids took it to day camp). This SMS "authorized" three different companies to send me "premium SMSs", each of which cost $2.50 (roughly, converted to USD).
My phone's a prepaid, so this ran the balance down to the minimum $1.50 in short order, but I didn't know whether perhaps somebody in the family had simply used those minutes - so I recharged it with $50. In three days, it was back at $1.50 and it had done nothing but vibrate in my desk drawer occasionally.
The "premium SMSs" were sent as system SMSs so they wouldn't appear in my Inbox; if I hadn't noticed one or two I wouldn't have seen them at all. I thought they were simply SMS spam, not even knowing that a "service" like premium SMSs even existed. They seemed to include a URL and nothing else - on a phone that only supports Internet on GPRS, which is no longer even available in Budapest.
T-Mobile said that for privacy reasons, they can't divulge the identity of those companies. Of course, T-Mobile gets about half of the cost of each premium SMS, so it's not terribly surprising that they're not highly motivated to stamp out scams. I told them to remove my ability to enjoy the premium SMS service, and they obliged, but that's as far as they would go.
(Nothing against Hungary. Same thing happened to me once in America with 900 numbers; the only thing the phone company would say is that somebody must have plugged a phone into our outside service jack - we turned off 900 numbers then and made sure they were off for every subsequent landline we obtained, but a scam's a scam.)
I have no recourse under Hungarian law, incidentally. Since a subscription was entered from my phone, there's nothing I can do to recover that money. It's no great problem for me, but that's a lot of money to the average Hungarian, who is absolutely powerless against a big foreign company like T-Mobile.
Sometimes they are enabled without your permission. My mom's phone number auto-magically gets subscribed for 'premium SMSs'. She doesn't understand how to send SMS's and cant use the phone interface apart from dialing a few numbers. Yet she often complains of money getting deducted from her pre paid account.
Called the customer care numerous times and every time all we get is - 'We are sorry sir, may there was an error in our system'.
Needless to say these mobile company thieves make millions from these 'errors in the system'.
It reminds me more of the book catalogues. 5 books for a pound or something as a joining perk, but you then had to buy a book a month for 6 months or they would automatically sell you the default book etc.
I never thought that was a shady business model, per se, and whilst it wasn't entirely intuitive how they worked to a 14 year old, I blamed myself for screwing up by joining- not the company.
As a child my father had pointed out to me that those book offers (in the UK at least) were only for adults (18 and over). So I used to fill in the form without ticking the 'I'm and adult' box, and see if they sent me the books. Most did, though as I was a minor they had no recourse to ask for payment. If only you'd contacted them and told them you were too young to sign a contract!
When books you didn't order start showing up in the mailbox, you pretty quickly catch on to what's happening. Charges that just show up on your credit card statement are a lot less obvious to most people.
Those ringtone companies were just promoting ads and whatnot to get people to 'buy' something that made them, on average - what? - $70? If the cost of customer acquisition was, say, $20, they're making $50/head. For many people, having an automated business making $50/customer profit is pretty good.
Not every business is 'sustainable' through repeat customers - funeral homes come to mind. However, if the only way to be sustainable is to break laws, that's where the problem lies.
"Not every business is 'sustainable' through repeat customers"
Sure, but at the scale the ringtone business grew (and burned through users), they eventually ran out of suckers to scam. A lot of them would fold shortly thereafter, or move on to a different market (usually a completely different country), or consolidate with another company overseas and tap the suckerbase there.
This model is basically a modern, bigger-scale version of the old snake oil sales model. Set up a shop in town, sell a bunch of bad merch, get run out of town, find a new town. Rinse and repeat.
Eventually, though, your model catches up to you. Either you're closing up shop in old markets and opening new ones that aren't as big or lucrative, or you're keeping a toehold in the old markets -- but the costs of doing so grow faster than your revenues. Or you flee Market A for Market B, only to have a competitor or two leap into Market B the next month.