Loan, Grant Operator Settles FTC, NY Charges

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Two financial companies that used direct mail and print, radio and television direct response advertising to sell advanced-fee loans have settled Federal Trade Commission charges that they failed to deliver on marketing promises, the FTC said yesterday.

The companies, Navestar D.M. Inc. and Financial Service Network-USA Inc., both of Elmira, NY, agreed to pay $350,000 collectively to settle the charges. According to the FTC, the companies operated two programs -- one that offered free cash grants for a fee of $47 and another that offered bank loans in exchange for money upfront -- that deceived consumers.

Both companies were operated by Paul Navestad, the FTC said. Neither is currently in operation.

In the case of the cash-grant program, called "Free Cash Grants" and operated by Navestar, consumers received an offer of cash grants for loan consolidation or business start-ups if they called a toll-free number and paid a fee in advance, according to the charges. Navestar promised consumers their money back if they failed to obtain grants, the FTC said.

In the bank loan program, called "Borrowing Made Easy" and operated by Financial, consumers paid a fee for a loan but instead received an offer for a certificate of deposit in the bank of their choice. Financial claimed the certificate would enable them to get a loan.

Consumers had to pay 3 percent to 6 percent of the certificate plus a $100 to $1000 contract fee in addition to the initial fee to enter the program. Most consumers refused to pay more than the initial $45 to $60 fee, but those who did later discovered that the certificates of deposit could not be used as collateral for loans.

In both cases, consumers failed to receive loans or grants, the FTC said. Money-back guarantees were misrepresented, according to the charges.

In addition to the payment, Navestar and Financial agreed to refrain from marketing credit and grant products, and to a prohibition against selling their customer lists. Under the settlement, approximately $100,000 of the money paid by the two companies will go to New York, which previously pursued the firms for violations of the Telemarketing Sales Rule and state law.

New York will use the money to pay for investigation and prosecution costs. The remaining $250,000 will go to repay consumers who were victims of the scheme, the FTC said.

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