Must Post Performance Bonds, Pay Redress and Return Uncashed Checks
Matthew A. Hammack and Robert Hansel, president and vice president, respectively, of Modern Credit Financial Services, Inc., have agreed to post $500,000 performance bonds before engaging in any telemarketing, or in the advertising, promotion, offering for sale, or sale of services relating to credit cards, loans or other extensions of credit as part of a settlement with the Federal Trade Commission. Modern Credit Financial Services, based in Arlington, Texas, Hammack and Hansel were charged by the FTC with violating the FTC Act and the Telemarketing Sales Rule (TSR) by misrepresenting that consumers would receive a credit card for an advance fee. In addition to posting bonds, the defendants must pay $15,000 for redress and return more than $5,800 in uncashed checks to consumers, and relinquish any claim to an additional $12,000.
The FTC filed a complaint in federal court against the defendants in August 1999 as part of the Advance Fee Loan Sweep. The complaint alleged that the defendants, through cable TV ads and telemarketing, promised consumers advance fee credit cards for $89, payable through a bank draft from their checking accounts. According to the FTC, few, if any, consumers received the promised credit card or a refund. The court entered a stipulated preliminary injunction with asset freeze shortly after the complaint was filed.
The proposed stipulated final judgment would prohibit the defendants from engaging in misrepresentations regarding the advertising, promotion, offering for sale, or sale of services relating to credit cards, loans, or other extensions of credit, including obtaining an advance fee for the provision of a credit card. The defendants also would be obligated to comply with the requirements of the TSR.
The proposed settlement would require the defendants to post a $500,000 performance bond before engaging in telemarketing, or in the advertising, promotion, offering for sale, or sale of services relating to credit cards, loans or other extensions of credit. In addition, the defendants have agreed to pay $15,000 in redress and return more than $5,800 in uncashed checks to consumers.
The defendants also have agreed to relinquish any claim to more than $12,000 owed them by TeleCheck Services, Inc. as indemnification for dishonored consumer checks. TeleCheck provides check vertification services. For an additional fee, TeleCheck offers to insure its clients against losses resulting from dishonored checks. Checks may be dishonored because consumers place "stop payment" orders or because consumers have insufficient funds for payment. The settlement requires the defendants to direct TeleCheck to stop all collection efforts against consumers whose checks to the defendants were dishonored.
The settlement also contains a right to reopen provision that requires the defendants to pay the entire $2 million received from consumers if it is determined that they made material misrepresentations in their financial statements. Finally, the settlement contains various recordkeeping provisions to assist the FTC in monitoring the defendants' compliance.
The Commission vote authorizing staff to file the Stipulated Final Judgement was 5-0. The proposed settlement was filed in the U.S. District Court, Northern District of Texas, Dallas Division, on May 4, 2000.
NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Final judgments have the force of law when signed by the judge.
Copies of the news 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. Copies of the proposed settlement will be available shortly. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. X990075; Civil Action No. 3-99 CV 1756-G)
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