Announced Action for August 13, 2004

For Your Information

Commission approval of complaint and consent decree: The Commission has authorized the staff to file a complaint and consent decree against nine corporate defendants, collectively known as Promenade. According to the FTC’s complaint, filed in U.S. District Court in California, the defendants, based in Los Angeles, violated the FTC Act, the Telemarketing Sales Rule (TSR), and the Electronic Fund Transfer Action (EFTA) through their sale of discount buying services, health services, and other membership services under names including “Promenade Discount Buying and Travel Club,” “HealthSound,” and “TravelDeals.”

The FTC alleges that the defendants, who charged between $96 and $249 for membership in the clubs, have used third-party telemarketers to market their memberships using both outbound calls and up-sells in inbound calls since 1999. According to the complaint, the telemarketers frequently failed to identify themselves and implied that they were calling on behalf of the consumers’ credit card company. The defendants, through the telemarketer, allegedly misled consumers into believing that they would receive a “free trial” in the defendants’ services, “just for you to take a look at,” while not disclosing, or not disclosing clearly, that: 1) at the end of the trial period, Promenade would automatically begin charging consumers, unless the consumer called to cancel the membership; and 2) Promenade also would automatically charge a consumer’s account for membership “renewal” in each subsequent year, unless the consumer called to cancel.

Further, the complaint stated that the defendants did not obtain from consumers their account information, having already had it or obtained it from a third party, but did not disclose this clearly to consumers. Also, at times, the defendants allegedly charged consumers’ accounts even though the telemarketers had not called the consumers. As a result, the complaint alleges that defendants frequently made unauthorized charges to consumers’ accounts. The complaint also alleges that defendants violated EFTA by debiting consumers’ bank accounts on a recurring basis without obtaining consumers’ written authorization. Finally, the complaint asserts that the defendants made it very difficult for consumers to cancel their memberships or obtain prompt refunds despite representations that consumers could easily cancel or obtain prompt refunds.

The defendants, as well as their two principals, Michael Reinstein and Brian Kelly, are bound by the stipulated order, which bars them from engaging in the illegal conduct alleged in the complaint and prohibits them from violating the TSR and provisions of EFTA. It also requires express informed consent (including, under some circumstances, taping calls and obtaining the last four digits of the consumer’s account number) from all new consumers obtained through telemarketing and prohibits renewing past and current memberships without obtaining their express informed consent. In addition, it requires the defendants and the two individuals to honor their refund promises in a timely manner, ensure that their telephone personnel are accessible to respond to consumers, and monitor the conduct of their employees to ensure they comply with the terms of the order. Finally, the order requires the defendants to pay $2.4 million. If the defendants pay $113,000 within five days of the judgment’s entry, the balance will be suspended, based on their ability to pay. The order also contains standard monitoring and reporting requirements.

The stipulated final order announced today settles the Commission’s charges against the following defendants, none of which are still in business: 1) Promenade Communications, LLC, a California Corporation; 2) Promenade Membership Services, LLC; 3) Promenade Communications, LLC, a Florida Corporation; 4) Archtype Communications Corporation; 5) Privco, LLC; 6) International Health Group, LLC; 7) Travelquest International, LLC; 8) Global Media Holdings LTD; and 9) Grail Holdings.

The Commission vote authorizing the staff to file the complaint and consent decree was 4-0-1, with Chairman Timothy J. Muris not participating. It was filed on August 11, 2004, in the U.S. District Court for the Central District of California, Western Division, and requires the signature of the judge. (FTC File No. 012-3161, Civ. No. CV 04-6657 SVW (FMOx); staff contact is J. Reilly Dolan, Bureau of Consumer Protection, 202-326-3292.)

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, DC 20580. Call toll-free: 1-877-FTC-HELP.

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