As part of its ongoing "Project ScholarScam," a law enforcement and consumer education effort to combat fraudulent scholarship promotion schemes, the Federal Trade Commission announced that College Resource Management, Inc. (CRM), and its principals, Scott Traynor and Steven Daughenbaugh, have agreed to settle FTC charges of misrepresenting their ability to obtain college financial aid for students. The settlement prohibits the defendants, based in Grand Prairie, Texas, from making any false claims in connection with the marketing and sale of college financial services and from violating the Commission's Rule Concerning Cooling-Off Period for Sales Made at Home or at Certain Other Locations ("Cooling-Off Rule"). The order also requires the defendants to pay $40,000 in disgorgement.
The FTC's scholarship scams website, www.ftc.gov/scholarshipscams, gives students and parents information about spotting and avoiding scholarship scams. A fact sheet, bookmark and poster can be downloaded from the site, or are available free from the FTC, 1-877-FTC-HELP. In addition, the website links to the Department of Education's financial aid information for students.
According to the FTC's complaint, the defendants marketed their financial aid services through a direct mail campaign targeted to high school students and their parents. The defendants' letter stated that they had identified the student as "eligible" to enroll in their "nationally recognized college financial aid and placement assistance service," and invited the student to call a toll-free number to arrange an interview. According to the FTC, the interviews, typically held at local hotels, were really high-pressure sales seminars at which the defendants promoted their college planning and financial aid services. These services, ranging in price from $995 to $1,068 depending upon whether parents paid up-front or over time, purportedly helped consumers obtain more financial aid than they could on their own. The defendants told consumers they would prepare a personalized career profile for their students and find colleges that offered majors in those particular fields with the best financial aid packages, professionally analyze consumers' financial situations, prepare a personalized financial aid report, and design customized strategies to maximize the amount of financial aid consumers would likely receive.
In reality, according to the FTC, the defendants provided consumers only generalized information. The personalized career profiles typically contained only a broad, general discusssion of students' interests. The personalized financial aid reports usually presented the same financial information consumers originally submitted, and the customized strategies were typically broad, general strategies not tailored to consumers' specific financial situations. Many of the recommended strategies, such as pre-paying a mortgage or having the parent enroll in college, are not feasible or practical for most consumers.
The FTC's complaint alleges that the defendants (1) falsely represented that students were selected based upon their qualifications to participate in the defendants' financial aid program; (2) falsely represented that consumers who purchased their services were likely to receive substantially more financial aid than consumers could obtain without those services; and (3) failed to disclose, or disclose adequately, that their service agreement would be automatically renewed each year at a cost of $300 per year unless consumers wrote to cancel at least 30 days prior to the renewal date. The FTC's complaint also alleges that between December 1996 and January 1999, the defendants falsely represented that they would refund their fee to consumers who did not obtain $2,500 in financial aid. Finally, the complaint charges the defendants with violating the Cooling-Off Rule by (1) failing to furnish consumers with "Notice of Right to Cancel" documentation that informs consumers of their right to cancel the transaction within three business days, and (2) failing to inform consumers orally of their right to cancel.
The stipulated order prohibit the defendants, in connection with the advertising, promotion, offer for sale, or sale of any academic good or service, from falsely representing, expressly or by implication, that:
- students have been identified by the defendants based on any specific criteria;
- consumers are likely to receive substantially more financial aid than they could otherwise obtain without the defendants' services;
- consumers will receive a refund if they do not obtain any financial aid as a result of buying any academic good or service;
- consumers are likely to receive, or that the defendants' customers have received, a specified amount of financial aid; and
- consumers will receive customized advice tailored to their specific academic planning or financial needs.
The order also prohibits the defendants from failing to disclose to consumers (a) any policy of automatic renewal, and (b) any material term, condition, or limitation on any refund policy. Further, the settlement requires the defendants to make certain affirmative disclosures in their sales presentations and advertising, including that:
- purchasing CRM's services does not guarantee that a consumer will get financial aid or get more financial aid than the consumer could have otherwise obtained without purchasing CRM's services; and
- purchasing CRM's services does not guarantee that a consumer's child will get accepted by any college or university.
In the context of "door to door sales" of any consumer good or service, the order prohibits the defendants from (a) failing to furnish consumers with "Notice of Right to Cancel" documentation, (b) failing to inform consumers orally of their right to cancel a contract within three business days, and (c) otherwise violating the Cooling Off Rule.
Finally, the order requires the defendants to pay $40,000 as disgorgement.
The Consumer Education Campaign
Unscrupulous companies guarantee or promise scholarships, grants or fantastic financial aid packages. Many use high pressure sales pitches at seminars where consumers are required to pay immediately or risk losing out on the "opportunity."
The FTC cautions students and parents to look and listen for these tell-tale lines:
- "The scholarship is guaranteed or your money back."
- "You can't get this information anywhere else."
- "I just need your credit card or bank account number to hold this scholarship."
- "We'll do all the work."
- "The scholarship will cost some money."
- "You've been selected" by a "national foundation" to receive a scholarship - or
- "You're a finalist" in a contest you never entered.
For those students and parents who attend a seminar selling financial aid or scholarship services, the FTC says:
- Take your time. Don't allow yourself to be rushed into paying at the seminar.
- Investigate the organization you're considering paying. Talk to a guidance counselor or financial aid advisor before spending your money. You may be able to get the same help for free.
- Be wary of "success stories" or testimonials of extraordinary success. The seminar service may have paid "shills" to give glowing stories. Ask for a list of at least three local families who've used the service in the last year. Ask each if they're satisfied with the products and services received.
- Be cautious about purchasing from seminar representatives who are reluctant to answer your questions. Legitimate business people are more than willing to give you information about their service.
- Ask what the total fee will be, what services the organization will provide, and what the company's refund policy is. Get this information in writing.
The Commission vote authorizing staff to file the complaint and settlement was 5-0. The case was filed in the U.S. District Court for the Northern District of Texas, Dallas Division, on May 1, 2001, and the court entered the final order on May 2, 2001.
NOTE: This stipulated order and judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated judgments are subject to approval by the court and have the force of law when signed by the judge.
Copies of the complaint and judgement 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. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
(Civil Action No.: 3-01CV0828-G)
(FTC File No.: 002 3004)
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