In another aggressive sweep targeting corporations and individuals that promise loans and credit cards for an advance fee, but never deliver them, the Federal Trade Commission, state Attorneys General and other state agencies today announced the results of the latest crackdown on telemarketing companies and individuals allegedly engaging in advance fee loan scams. Since September 1999, over 4200 consumer complaints against these scams were entered into Consumer Sentinel, a multi-agency law enforcement investigative cyber tool. During this period, advance fee loan scams ranked fourth based on the total number of Sentinel complaints, and caused over $1 million in consumer injury.
"Operation Advance Fee Loan 2000" -- a multi-agency law enforcement sweep against fraudulent advance fee credit schemes -- is a follow-up to three previous sweeps announced in 1996, 1997 and 1999. "Operation AFL 2000" involves five cases filed by the Commission, thirteen actions taken by state Attorneys General and/or other state officials, and three cases filed by Canadian law enforcement authorities who have taken criminal actions against Canadian advance fee loan scam operators that prey on Canadian and American citizens.
"Advance fee credit scams are especially outrageous because they prey on the most vulnerable consumers who are in need of credit or a loan," said Jodie Bernstein, Director of the Federal Trade Commission's Bureau of Consumer Protection. "Working with the states and our Canadian partners, we are stopping lenders who illegally charge consumers a fee for the promise of a loan or credit card. Our warning to these disreputable lenders is, we will track you down and stop your illegal practices. Our message to consumers is, don't pay for a promise -- it's illegal for lenders to ask you to pay for credit before you get it."
According to the FTC, fraudulent advance fee loan schemes prey on particularly susceptible consumers -- students, the elderly, the unemployed, the working poor, those who have bad credit ratings, or those in immediate need of money for emergencies. Most advance fee loan scam artists snare consumers through cold calls, or in response to advertisements in various local newspapers, on cable television, on the Internet and through direct mail. Ads promising "money to loan ... regardless of credit history" lure consumers into paying fees that range from $45 to $149 or more, in advance of receiving "guaranteed" loans or credit cards. In many instances, consumers never receive the promised credit, and either never hear from the lenders again or are merely sent credit card or loan applications.
Under the FTC's Telemarketing Sales Rule (TSR), a telemarketer who guarantees consumers a loan or other form of credit, or who claims he or she can arrange such credit for a consumer, is prohibited from asking consumers to pay any money before they receive the loan or credit. The Rule empowers each of the state Attorneys General to file actions in federal court and seek an order that applies nationwide against Rule violators. Some of the cases announced today (see list below) allege Rule violations; others allege violations of the FTC Act or state laws that prohibit unfair or deceptive practices. These latest actions show a continuing, coordinated effort among domestic and international law enforcement agencies to combat such fraud.
In all but one of the FTC cases announced today, the defendants were charged with violating the FTC Act and the TSR by misrepresenting that consumers would receive a credit card for an advance fee, and by charging a fee in advance of consumers receiving the promised credit card; one case involving solely direct mail solicitations charged only FTC Act violations. In two of the FTC cases, the defendants also were charged under the FTC Act and the TSR with misrepresenting that consumers would receive a refund of their fee if they did not get the promised credit. In one case, the defendants also were charged with collecting fees without authorization or in excess of authorized amounts and misrepresenting the same, in violation of the FTC Act and the TSR. In addition to the actions filed by the states and Canadian provinces (see attached table), the FTC filed its actions against:
Financial Services of North America, based in Hightstown and Toms River, New Jersey, alleging that the defendants misrepresent that consumers who pay a $69 to $99 fee will receive a guaranteed credit card, and that consumers' bank accounts will not be debited, or only for authorized amounts. In fact, consumers' accounts are debited without their authorization or in excess of authorized amounts, and consumers only receive a discount purchasing club membership and a credit card application, both requiring additional fees.
First Credit Alliance, Inc., based in Avon, Connecticut, alleging that the defendants have operated two deceptive advance fee credit card schemes. Consumers send in a $45 to $60 advance fee, based on claims in direct mail solicitations that they are likely to receive a credit card, and that they will obtain a refund if they do not receive the promised credit card. In fact, consumers receive neither credit cards nor refunds as promised.
Navestar DM, Inc., based in Elmira, New York, alleging that the defendants operate two programs charging advance fees. In the loan program, the defendants misrepresent that consumers purchasing the program for $45 are likely to obtain loans. In fact, all consumers receive is information on how to obtain a certificate of deposit placed in the consumer's bank, which purportedly will convince a bank to extend a loan in an equal amount. In the grant program, the defendants misrepresent that purchasers will receive grants in exchange for payment of a $47 advance fee, and that those who do not will receive refunds. In fact, consumers merely receive information on how to apply for a grant.
Credit Approval Service, based in Galveston, Texas, alleging that the defendants falsely promise that consumers will receive a credit card in exchange for payment of an advance fee of $99 or $129. In fact, all consumers receive is information about managing debt and credit card applications. The applications provided involve either additional fees or credit granting criteria that would preclude the guaranteed advance fee credit card promised in the initial solicitation.
Home Life Credit, based in El Monte, California, alleging that, through cold call telemarketing, the defendants falsely promise that they will provide credit cards to consumers who pay a one time $129.95 charge, debited directly from their bank account. In fact, they do not provide credit cards to any consumers. The proposed defendants are as yet unnamed, because of the telemarketer's deliberate attempts to conceal its identity and whereabouts. However, the court has entered an order preliminarily enjoining proposed defendants' activities and freezing their bank accounts, pending discovery of their identity.
At the request of the FTC, the federal district courts in four of the five cases have issued temporary restraining orders to halt the deceptive practices and to freeze the defendants' assets pending trial. In First Credit Alliance, the FTC has filed a motion for a preliminary injunction.
The Commission also announced today that staff had obtained a default judgment against an advance fee telemarketer in Georgia. In an earlier proceeding, the FTC's Southeast Regional Office (located in Atlanta) brought an action against Gerard Wallace, a/k/a Arshad Wallace, d/b/a Comtel Marketing & Management Systems, alleging that Wallace was engaged in a deceptive scheme to defraud consumers through the telemarketing of advance fee credit cards.
On May 25, 2000, the Court struck defendant's answer, entered a default judgment for $28,308.24 and a permanent injunction, and awarded the Commission $918.83 in attorney's fees as sanctions for the defendant's failure to comply with discovery orders.
The FTC and the state Attorneys General, along with our education campaign partners, The American Financial Services Association Education Foundation, The National Association of Consumer Agency Administrators, and The National Foundation for Credit Counseling, offer the following tips for consumers to keep in mind before responding to ads that promise easy credit, regardless of credit history:
The Commission is also alerting commercial mail receiving agents (e.g., Mail Boxes, Etc.), often used as "mail drops" by advance fee loan scam operators, that they may be involved in a fraudulent scheme when they are asked by a mailbox holder to forward large volumes of mail to other addresses within the United States or to other countries. Additionally, the FTC is writing to more than 7500 publishers of classified ads throughout the country to encourage them to warn their readers that ads promising loans or extensions of credit are likely to be scams.
The FTC's Northeast Regional Office (located in New York) coordinated this project for the Commission, and would like to acknowledge the assistance provided by the following agencies: the Elmira and Rochester N.Y. Resident Agencies of the Federal Bureau of Investigation, New York, and the U.S. Postal Inspection Service; the New Jersey Departments of Law and Banking & Insurance; the Connecticut Department of Banking; the New York Attorney General; the Texas Department of Public Safety; the California Attorney General; and various Better Business Bureaus.
The Commission's votes to file the five complaints in the appropriate federal district courts were 5-0. Financial Services of North America was filed in the U.S. District Court, District of New Jersey, in Trenton, NJ, on June 9, 2000. First Credit Alliance was filed in the U.S. District Court, District of Connecticut, in Bridgeport, CT, on June 8, 2000. Navestar DM was filed in the U.S. District Court, Western District of New York, Rochester Division, on June 12, 2000; Credit Approval Service was filed in the U.S. District Court, Southern District of Texas, Galveston Division, on June 7, 2000; and Home Life Credit was filed in the U.S. District Court, Central District of California, in Los Angeles, CA, on June 8, 2000.
NOTE: 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 news release and other documents pertaining to previous advance fee loan sweeps are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center. Copies of Advance-Fee Loan consumer education materials are available online. Copies of the five complaints filed as part of Operation AFL 2000 are available 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. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 0023178 -- Financial Services of North America; Civil Action No. 00-792(GEB))
(FTC File No. 0023162-- First Credit Alliance; Civil Action No. 300 CV 1049)
(FTC File No. 0023179 -- Navestar DM; Civil Action No. 20-CV-6269T (F))
(FTC File No. 0023155 -- Credit Approval Service; Civil Action No. G-00-324)
(FTC File No. 0023152 -- Home Life Credit; Civil Action No. CV00-06154 CM (Ex))
(FTC File No. 980060 -- Gerard Wallace d/b/a Comtel Marketing; Civil Action No. 1:98-CV- 1404-JTC)
OPERATION AFL 2000 STATE/PROVINCIAL LAW ENFORCEMENT ACTIONS
|Alberta Government Services||Alberta Government Services v. Mohamed Dauda Sankoh, d/b/a AABAC Financial Services and AABAC Group||
|Arkansas Attorney General||State of Arkansas, ex rel. Mark Pryor v. Meridian Credit Corp. and Matthew D. Fronzaglia||
|Idaho Department of Finance||Cease and Desist Order, against A.I.M.||
|Illinois Secretary of State, Securities Department||Permanent Order of Prohibition prohibiting loan brokering activity, against First National Credit Service
Permanent Order of Prohibition against Global Limited
Settlement Agreement with Financial Specialty Services, Inc.
Temporary Order of Prohibition against Chicago Trust Marketing
Temporary Order of Prohibition against Statewide Agency
Temporary Order of Prohibition against Tremont Credit
Temporary Order of Prohibition against Creative Ventures Worldwide, Inc., Venture One, and Venture Capital Consulting
|Kansas Attorney General||State of Kansas, ex rel. Carla J. Stovall v. Jeffrey D. Lyon and Quest Capital Management, Inc., d/b/a National Homebuyers Alliance||
|New Jersey Department of Law / Department of Banking & Insurance||State of New Jersey v. Financial Services of North America, Inc., Bernard Rann, and Anthony Camporeale||
|New York Attorney General||State of New York v. Financial Services Network, USA and Paul Navestad||
|Ohio Attorney General||State of Ohio, ex rel. Betty D. Montgomery v. James C. Holecek, IV, d/b/a The Holecek Company||
|Ontario Ministry of Consumer and Commercial Relations||OMCCR v. Donovan McIntosh, dba Comfort Financial Services Inc. and All Star Financial
OMCCR v. Leslie Card, dba Apex Services and Suncorp Financial et al.