Defendants to Pay $145,000 in Consumer Redress for Telemarketing Sales Rule Violations
The Federal Trade Commission today announced a settlement with two Pennsylvania-based travel companies and their owner and managers, under which the defendants will pay $145,000 in consumer redress, $18,500 in receiver's fees and expenses and will be enjoined from any future violations of Section 5 of the Federal Trade Commission Act and the Commission's Telemarketing Sales Rule (TSR) which, among other things, prohibits deceptive phone solicitations.
Under the terms of the agreements, individual defendant Frederick F. Zeigler III and corporate defendants Commonwealth Marketing Group, Inc. (CMG); Great Escape Vacations & Tours, Inc. (GEV); and individual defendant Robert E. Kane will be required to post performance bonds of up to $150,000 before either selling travel-related services or conducting telemarketing activities, including helping other companies or individuals engage in telemarketing in the future.
The agreements settle charges that the defendants targeted consumers through the use of direct mail vacation "certificates" and outbound telemarketing calls representing that they had won a "fantasy cruise holiday" to Florida and the Bahamas, when, in fact, they had won nothing. The consumers instead had to pay a "promotional fee" of $598 per couple, and up to $300 or more in additional charges when they were ready to travel. In addition, the vacation packages received did not provide the "luxury" accommodations promised unless consumers paid yet more money in "upgrade" fees.
"There's no question that these telemarketers were selling fantasy travel packages," said the FTC's Director of the Bureau of Consumer Protection Jodie Bernstein. "But in these cases, fantasy was just another word for fraudulent. Unfortunately, consumers spent real money buying in to the misrepresentations, and that's something the FTC doesn't tolerate. Nobody wants to get tripped up when it comes to vacation plans."
According to the Commission's complaint, CMG used outside telemarketers to target consumers throughout the United States by offering vacation "certificates" that invited them to call and "receive a vacation," and through the use of direct marketing calls to consumers who had previously submitted "registration forms" handed out at events such as county fairs. Many of these consumers believed they were entering a drawing for a free vacation, and, according to the Commission, CMG played on this belief in its telemarketing pitches. Up to 1997, GEV was involved in the sales and fulfillment of CMG's vacation packages in conjunction with a credit card offer.
Upon calling the consumers, CMG's telemarketer described an exciting vacation to Florida and "luxury cruise" to the Bahamas, concluding the pitch by offering the complete package for a small "promotional fee" of $598. Consumers were instructed to secure their vacation using a major credit card. Only after consumers gave their credit card numbers were they told that the package was nonrefundable and that in some, but not all, cases they would have to pay additional fees - often mischaracterized as "port fees" - when making their reservations.
When consumers received their packages, according to the Commission's complaint, they found that they had to pay more money for a vacation they believed was already paid for in full, and that they had, in fact, won nothing at all. Many consumers then complained to the company, attempting to get a refund, but were told their purchase was nonrefundable. In fact, while CMG did have a written return policy for the vacation packages, the company allegedly did not honor it, and consumers who returned their packages often had them mailed back several times.
Consumers who eventually did take the "fantasy vacation," the complaint states, quickly discovered that the cruise was nothing more than a ferry ride to the Bahamas and back. Those wishing to stay in the better-known resorts advertised in CMG's brochures had to pay yet another "upgrade" fee.
Under the terms of the settlement, each individual and corporate defendant will be permanently enjoined from violating the Telemarketing Sales Rule and Section 5 of the FTC Act - which prohibits deceptive or misleading practices in or affecting commerce - in the future. They will, accordingly, be prohibited from misrepresenting any material fact in connection with the marketing, offering for sale, or sale of any travel-related product or service.
Each defendant also will be barred from misrepresenting the price of any product or service, the policy or practice of making refunds or returns, and the nature of a particular product or service.
Further, both orders go beyond the actions alleged in the complaint. This "fencing-in" relief in the Zeigler agreement, for example, prohibits the defendant from misrepresenting any material facts related to the sale of time share properties or credit card solicitations, based on his involvement in this practice in the past. The orders also prohibit the defendants from violating, or helping others to violate, the TSR in the future, regardless of the product or service they are selling - whether it involves travel and vacation packages or not.
Also under the orders, the defendants will pay a total of $145,000 in consumer redress, with Zeigler and his corporations paying $55,000 upon entry of the order and $80,000 no later than six months after. Kane will pay $10,000 upon entry of the order. CMG also will reimburse the Commission for more than $18,000 in receiver's fees and expenses which had been previously paid by the government. Both Zeigler and Kane also will be required to post performance bonds prior to selling any travel-related services in the future, with the Zeigler order calling for a $150,000 bond and the Kane order requiring a $50,000 bond for five years from the date it is entered. Finally, both orders contain provisions by which the Commission can monitor the defendants' compliance with their terms, a five-year record-keeping and reporting requirement and a "distribution of order" requirement. They also provide that a counterclaim filed by the defendants in the Commission's action will automatically be dismissed.
The Commission vote to authorize the staff to file the consent orders for permanent injunction and monetary relief was 5-0. Each order is subject to final approval by the court. They were entered by the U.S. District Court for the Western District of Pennsylvania on March 6, 2000.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
Copies of the documents mentioned in this release are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. Consumers with concerns about travel-related fraud or any other potentially fraudulent business practices may also report those complaints to the FTC. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. X980068)
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