In a wholesale crackdown on deceptive marketing in cyberspace, the Federal Trade Commission has charged nine companies that market their products and services on the Internet with making false or unsubstantiated advertising claims. The FTC negotiated settlements to halt the deceptive practices of eight of the companies and is pursuing the ninth case in federal district court.
"Cyberspace is a new frontier for advertising and marketing," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "But the Internet will not achieve its commercial potential if this new frontier becomes the "Wild West" of fraudulent schemes," she said. "These FTC cases target deception in on-line marketing, and our focus on this area makes clear that the laws prohibiting fraud also apply to the information superhighway."
The nine cases announced today involve on-line marketing for a range of phony schemes including credit repair ripoffs, bogus income opportunities, a phony grant assistance offer and a computer equipment supply scam.
The FTC charged five of the companies and their principal officers with making false claims about repairing consumers' credit records. Using ads that made claims such as, "Guaranteed Credit Repair," and "How to remove judgments, including BANKRUPTCY from your credit file," the companies urged consumers to send fees ranging from $19.95 to $750 to get instructions or assistance on how they could remove adverse items, such as reports of bankruptcy, from credit reports, even if the information was accurate and not obsolete. Two of the companies claimed that for a fee, they could provide consumers with instructions to establish new credit identities and files. The statements made by the five companies were false, the FTC alleged, and the instructions for creating new credit files could violate federal criminal law.
The proposed consent agreements to settle the charges would enjoin the defendants from misrepresenting any remedy for credit history problems, including the ability to remove accurate but adverse information from credit reports. Settlements with the defendants who advertised programs to create new credit files also would bar them from misrepresenting the legality of any credit repair product and require them to disclose that consumers who follow their programs may violate federal criminal laws.
Four defendants were charged with making unsubstantiated earnings claims for the work-at-home businesses they advertised online. Touting earnings such as, "Earn up to $4,000 or More Each Month!" and "Our HOME WORKERS FIRST YEAR INCOME averages $38,000...," they sold programs at prices ranging from $9.95 to $147. The FTC charged that by using such statements the defendants represented that the earnings were representative of what consumers could expect to achieve and that they had a reasonable basis to substantiate them. In fact, the challenged earnings representations are false and unsubstantiated, the FTC said.
The proposed agreements to settle the charges would prohibit these defendants from misrepresenting the income, earnings or sales from any business opportunity and would prohibit any claims about past, present or future earnings or income unless at the time of making the representation, they possess and rely on competent and reliable evidence that substantiates the claim.
"We have seen business opportunity scams for everything from vending machines to FCC-licensed telecommunications projects," Bernstein said. "Last week, we announced cases against seven companies that marketed fraudulent schemes for 900-number programs. We intend to be just as vigilant in policing the fraud that pops up on the Internet," she said.
Another FTC complaint targeted an advertiser who claimed to match consumers with private foundations with "billions of dollars" to give away to consumers. Advertising touted "FREE CASH GRANTS BY MAIL..." and offered, for a fee, to match consumers with private foundations likely to give them money for business, travel, education or debt consolidation.
The FTC complaint alleges that through the use of statements like, "Most of our clients are approved for cash grants," the defendant represented that the majority of his clients receive a cash grant. The claim is false and unsubstantiated, the FTC alleged.
The proposed agreement to settle these charges would prohibit the defendant from making similar false and unsubstantiated claims and from misrepresenting the services or assistance he provides for obtaining grants, loans or other financial products or services.
"We want our message to be loud and clear," Bernstein said. "The Internet opens a world of opportunities for consumers. Unfortunately, it also presents opportunities for scam artists.
We intend to monitor the Internet rigorously and act decisively when we see deceptive and misleading marketing," she said.
The final FTC case charged that a marketer of computer memory chips advertised on line and promised that the chips would be shipped or ordered from an overseas supplier as soon as the consumer's check cleared the bank. In some cases, the FTC alleged, the company specified a delivery date of two weeks after the consumer paid for the order.
According to the FTC complaint in this case, the company failed to deliver the chips and failed to comply with the FTC's Mail or Telephone Order Merchandise Rule, which requires companies offering goods that are ordered through the mail, by fax, over the telephone or via an on-line service either to deliver items when promised or to give consumers the option to cancel the order and receive a refund. Under this rule, these companies also must issue refunds automatically when these requirements are not met.
The defendants in the FTC cases announced today are:
The FTC votes to to take these law-enforcement actions were 5-0.
In eight of the cases, proposed consent agreements 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 them final. The remaining case was filed in Federal District Court and is subject to court approval. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: Consent agreements and consent decrees are for settlement purposes only and do not constitute admissions of law violations. 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. A court-entered consent decree also has the force of law when signed by the judge. A complaint is not a finding of guilt. The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.
Copies of the complaints and proposed consents in these matters 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