Magazine Telemarketer to Settle Charges Sales Pitches and Collection Practices were Deceptive, FTC Says

A national telemarketer of magazine subscriptions, Budget Marketing, Inc.(BMI), and 11 of its dealers have agreed to settle Federal Trade Commission charges that their sales and collection practices were deceptive and violated federal laws. The FTC charged that the defendants misrepresented the costs and conditions of subscription agreements and illegally deducted charges electronically from consumers' bank accounts without consumer authorization. If the proposed administrative settlement is accepted as final following a public comment period, the defendants will be barred from the illegal practices in the future.

BMI is a Des Moines, Iowa-based telemarketer with a network of dealerships selling magazine subscriptions across the nation.

According to the administrative complaint detailing the FTC charges, BMI and its dealers misrepresented themselves in calls to consumers, used false claims to sell magazine subscriptions by phone and used threats and misrepresentations to collect subscription fees. Specifically, the agency charged that BMI dealers would claim that consumers were participating in a sweepstakes or contest or that the publications would be free, or sent for the cost of mailing or handling at a reduced price. In fact, the agency alleged, the "sweepstake" or "contest" claims were not bona fide and the subscriptions were not free, or provided at a discounted rate, but were billed at prevailing rates.

In many instances, BMI dealers misled consumers about the length and total cost of subscriptions. For example, dealers would tell consumers subscriptions would cost "...a few dollars a week" for a 60 month subscription. In fact, the subscription contracts required installment payments of substantially higher amounts over a substantially shorter period of time than stated in the sales pitches, the Agency alleged. When consumers failed to pay the higher monthly bills or paid them late, BMI dealers would threaten and harass them, suggesting that their credit rating would be adversely affected or that legal action would be taken against them. In fact, BMI seldom, if ever, took legal action or adversely affected subscribers' credit ratings.

Finally, the FTC alleges that BMI and its dealers electronically debited consumers bank accounts without written authorization from them, in violation of the Electronic Fund Transfer Act.

To settle the FTC charges, BMI and its dealers will be barred from misrepresenting that they are selling magazines and the cost and conditions of the subscriptions they are selling. They also would be barred from threatening and harassing consumers to collect bills and failing to honor offers to allow cancellation. Finally, they would be barred from violating the Electronic Funds Transfer Act. This proposed administrative consent order, if accepted as final by the Commission, will be made part of a settlement of an FTC civil penalty action currently pending in Federal District Court in Des Moines, Iowa, against BMI and some of its dealers. The proposed consent decree settling this federal court proceeding provides for the payment of a $395,000 civil penalty plus $25,000 in court costs and an injunction to obey the proposed consent order.

In addition to BMI, the following were parties to the consent settlement: Charles A. Eagle; Dennis H. Gougion; Dale T. Lenard, who has done business as Mega-Magazine Service, Colorado Dawn, and Key Concept; Charles P. Donly, individually, and doing business as Budget Renewal Service; Roy Golden, individually, and doing business as American Marketing Service; Dave Keown, individually, and who has done business as Publishers Marketing; Richard Prochnow, individually, and doing business as Direct Sales International; John Harrison; Dale Branson, individually, and doing business as Leisure Day Marketing; Steven Johnson; William J. Stemple, Sr., individually, and doing business as Budget Marketing of Virginia.

The Commission vote to accept the proposed administrative consent agreement and proposed civil penalty settlement for a public comment period was 5-0.

A summary of the proposed consent agreement will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $10,000.

Copies of the complaint, consent agreement and analysis to aid the public in commenting are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web site at: http://www.ftc.gov

(FTC File No.962-3247)