The Federal Trade Commission said yesterday that several direct marketers have settled charges with the agency.
One telemarketer, Darryl Smith, the principal of American Consumer Membership Services Inc., Richfield Springs, NY, agreed to permanently refrain from telemarketing and from advertising, promoting, marketing or selling services relating to credit cards, loans or other extensions of credit.
The FTC alleged that Smith and ACMS deceptively telemarketed offers of preapproved, guaranteed Visa or MasterCard credit cards for a $69 fee to consumers with credit problems. Instead of the promised cards, consumers received vouchers, coupons and other offers, and occasionally credit card applications with lists of banks where they could apply, which often required additional bank fees of as much as $150.
The FTC also charged that Smith and ACMS misrepresented their refund policy.
Under the settlement, the defendants have agreed to pay more than $40,000 in consumer redress.
In a similar proceeding, the FTC filed a proposed default judgment against an incorporated Canadian entity, 1263523 Ontario Inc., doing business in New York as Consumer Credit Service Inc.; and the company's principals, Donald M. Davies, Lloyd Prudenza and David Wells.
The FTC alleged that the defendants telemarketed advance-fee credit cards to consumers with poor credit histories for an upfront fee of $159 that also was debited from their checking accounts. Consumers never received the promised credit cards, and most never received a refund. The default judgment was filed against the defendants for failure to plead or otherwise defend.
Under the FTC's Telemarketing Sales Rule, a telemarketer who guarantees consumers a loan or other form of credit or who claims he can arrange such credit for a consumer is prohibited from asking consumers to pay any money before they receive the loan or credit. The rule empowers each state attorney general to file actions in federal court and seek an order that applies nationwide.
Both the ACMS and the CCS defendants were charged with violating the FTC Act and the TSR by misrepresenting that consumers would receive a credit card for an advance fee; by charging a fee before consumers received the promised credit card; and by misrepresenting that consumers would receive a refund if they did not get the promised credit card.
The FTC filed both complaints in federal court in August 1999.
The ACMS settlement permanently bans the defendants from telemarketing or assisting others engaged in telemarketing. It also prohibits the defendants from advertising, marketing, promoting or offering for sale credit-related goods or services; from submitting a consumer check or draft for payment without an original signature; from using an alias in business dealings; and from selling their customer lists. The defendants are also obligated to comply with the requirements of the TSR.
The ACMS settlement further requires the defendants to pay $40,838, which includes $30,838 held by the court-appointed receiver and an additional $10,000 to be paid within five days after the court approves the settlement.
The settlement also contains a right-to-reopen clause that requires the defendants to pay $1.2 million — the approximate amount received from consumers — if it is determined that the defendants made material misrepresentations in their financial statements.
The proposed default judgment against the CCS defendants enjoins the alleged law violations, imposes a $10 million judgment and requires the defendants to post a $10 million bond before marketing any extensions of credit. The FTC expects to collect more than $38,000 in consumer redress from the defendants' frozen funds being held by a Texas electronic debiting company.