The Federal Trade Commission shut down a California-based consumer credit counseling firm and its affiliates as part of its first enforcement action involving the national no-call registry, the agency said yesterday.
A federal court approved an FTC request to place National Consumer Council Inc., Santa Ana, CA, into receivership this week. NCC violated the no-call list and misled consumers with an offer of a credit card debt-relief program that left many consumers worse off financially than when they started, the FTC said.
In addition, the California Department of Corporations ordered NCC to cease business until it obtains a proper license. In a statement, the department said it issued a desist-and-refrain order May 3 to president Harvey Warren and others affiliated with NCC after a months-long investigation into its activities.
An NCC spokeswoman did not return telephone calls yesterday. NCC was expected to release a statement last night.
Though it is within its power to do so, the FTC will not seek monetary penalties for the no-call violations, Howard Beales, director of the FTC's bureau of consumer protection, said at a news conference yesterday. Instead, it will seek compensation under anti-fraud regulations, which allow for money collected to be used to repay victims, he said.
The FTC became aware of NCC's activities through no-call complaints it received, Beales said. He estimated that consumers lost tens of millions of dollars.
“Compliance by legitimate companies has been very good,” he said. “What we're seeing in the top violators is a combination of fraud and do-not-call violations.”
To date, no federal agency, including the Federal Communications Commission, has sought to assess monetary penalties under the national no-call list, though some states have. The FTC is pursuing some cases primarily involving no-call violations, Beales said.
NCC is a member of the Direct Marketing Association. The DMA said it received numerous consumer complaints about no-call violations committed by NCC in October, during the two weeks when the no-call list was in legal limbo.
A federal judge in Denver had declared the no-call list unconstitutional, but an appeals court later stayed his ruling and allowed implementation of the list to proceed. During the period when the no-call list was in question, the DMA encouraged members to comply with the list and set up a toll-free hotline for consumers to register complaints, DMA spokesman Louis Mastria said.
The DMA forwarded the complaints it received about NCC to the FTC, Mastria said. In addition, the DMA said it received assurances from NCC that it would cease calls to consumers on the no-call list.
However, the FTC received no-call complaints about NCC well after the appeals court reinstated the list, Beales said. NCC is one of the agency's top no-call violators with about 1,000 complaints, he said.
According to the FTC, NCC promised to reduce consumer debts through negotiations with creditors. It told consumers to stop payments to their creditors and instead pay NCC a monthly amount that would go into a fund to be used to repay the debts.
NCC failed to tell consumers that it would not begin negotiations with their creditors for six months or longer and that it took hundreds of dollars of the payments as a fee, according to the FTC. Also, it said, money paid by consumers did not begin applying toward their debts until after NCC received its fee in full.
As a result, consumers who enrolled in NCC's programs found their debts increasing after they started making payments. Because they ceased payments to creditors, they faced late fees, garnished wages and ruined credit ratings, the FTC said.
NCC claimed it was a nonprofit and hid behind that status to claim an exemption from the no-call list, the FTC said. NCC filtered profits to its affiliates, according to the FTC, including London Financial Group, Solidium and J.P. Landis LLC.
