Earlier this year I wrote about VistaPrint’s sneaky “rewards” program, and wanted to provide an update as of the end of August. On August 21st, VistaPrint announced they’re party to a class action lawsuit related to these practices.

Here’s additional information provided by wikipedia that I found interesting, specifically how much these referral program (‘majority’ being the reward program) revenues add up to each year ($27.6M for FY2008) as compared to their net income for the same period (39.8M):

VistaPrint’s partnerships in the United Kingdom have attracted criticism. Critics have stated that VistaPrint’s customers are enrolled without their knowledge in a reward voucher scheme operated by an associated company, VPrewards.com, at a cost of £9.95 a month, that no information on the reward scheme is provided to customers subsequently and that it is up to the customers to detect the fact that they have been enrolled as members and to cancel unwanted membership. A similar scheme operates in the USA. The number of complaints is significant enough to generate awareness on the web and to be a cause for concern. For complainants, the company claims publicly to cancel the membership, and refunds the monthly membership : however there have been examples of complaints where the company has not done this or responded as quickly as customers would have liked.

In August 2008, the company announced that class action lawsuits relating to the membership discount programs offered by third party merchants on VistaPrint’s USA website have been filed against VistaPrint USA, Inc., VistaPrint Corp., and two third party merchants (Vertrue Inc. and its subsidiary Adaptive Marketing LLC) in Texas and New Jersey. Two additional class-action suits were subsequently filed in both Massachusetts and Alabama. The four complaints, all filed in federal courts, allege that the defendants are in violation of the Electronic Funds Transfer Act (which protects from unauthorized charges) and the federal Electronic Communications and Privacy Act (which prohibits the unlawful access of financial information). “As we allege in the complaint, we believe that VistaPrint and Vertrue are acting in concert to access consumers’ credit card information and then begin charging them relatively small amounts,” says Jerome Noll, counsel for the plaintiff that filed the Massachusetts suit. “You’re talking about $14.95 a month or $12.95 a month, hoping that consumers just won’t notice.”

It should be noted that in its latest 10K for FY 2008, the company states “we expect that referral fee revenue from membership discount programs will decline in absolute dollar terms over that period of time ["by the end of calendar year 2010"], including possibly to as low as zero.”

From a financial perspective, some observers and analysts contend that this type of highly profitable third-party revenue distorts the company’s finances. A relatively small referral revenue can have a relatively large impact on the net income. While VistaPrint, as a public company, properly includes this revenue in its quarterly figures, it is argued that excluding this revenue gives a better picture of the company’s true profitability and the value of its stock. For example, in FY 2008, VistaPrint’s revenue was $400.7m with 6.9% of this ($27.6m) coming from referral fees, the “majority” of which comes from the rewards program. This can be contrasted with the net income for the same period of $39.8m.