Darryl Smith, the principal of American Consumer Membership Services, Inc. (ACMS), has agreed to a permanent ban from engaging in any telemarketing, or in the advertising, promotion, marketing, or sale of services relating to credit cards, loans or other extensions of credit as part of a settlement with the Federal Trade Commission. The FTC had alleged that Smith and ACMS, based in Richfield Springs, New York, deceptively telemarketed offers of pre-approved, guaranteed VISA or MasterCard credit cards for a $69 fee to consumers with credit problems. Instead of the promised cards, consumers received vouchers, coupons and other offers, and occasionally credit card applications with lists of banks to apply to for a credit card, often requiring additional bank fees of as much as $150. The FTC also charged that Smith and ACMS misrepresented their refund policy. Under the settlement, the defendants have agreed to pay over $40,000 in consumer redress.
In a similar proceeding, the FTC has filed a proposed default judgment against an incorporated Canadian entity, 1263523 Ontario, Inc., doing business in New York City as Consumer Credit Services, Inc. (CCS), and the company's principals, Donald M. Davies, Lloyd Prudenza and David Wells. The FTC had alleged that the defendants telemarketed advance fee credit cards to consumers with poor credit histories, for an up-front fee of $159 that also was debited from their checking accounts. Consumers never received the promised credit cards. If they received anything from the company at all, it was information on how to improve their credit rating, lists of banks that market secured credit cards, and/or bundles of worthless coupons. Most of the consumers never received a refund. The default judgment was filed against the defendants for failure to plead or otherwise defend.
The FTC filed both complaints in federal court in August 1999 as part of "OPERATION ADVANCE FEE LOAN (AFL)", a multi-agency law enforcement sweep against telemarketers of fraudulent advance fee credit schemes. Under the FTC's Telemarketing Sales Rule, which went into effect December 31, 1995, 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 District Court and seek an order that applies nationwide against violators of the rule.
Both the ACMS and the CCS defendants were charged with violating the FTC Act and the TSR by misrepresenting that consumers would receive a credit card for an advance fee; by charging a fee in advance of consumers receiving the promised credit card; and misrepresenting that consumers would receive a refund of their fee if they did not get the promised credit card.
The ACMS settlement permanently bans the defendants from telemarketing, or assisting others engaged in telemarketing, in the future. In addition, the settlement prohibits the defendants from engaging in the advertising, marketing, promoting, offering for sale, or sale of credit-related goods or services; submitting a consumer check or draft for payment without an original signature; using an alias in business dealings; and from selling their customer lists. The defendants are obligated to comply with the requirements of the TSR.
The ACMS settlement further requires the defendants to pay $40,838, which includes $30,838 held by the court-appointed receiver, and an additional $10,000 to be paid within five days after the court approves the settlement. The settlement also contains a right to reopen clause that requires the defendants to pay $1.2 million - the approximate amount received from consumers - if it is determined that they made material misrepresentations in their financial statements.
The proposed default judgment against the CCS defendants enjoins the alleged law violations, imposes a $10 million judgment, and requires defendants to post a $10 million bond before marketing any extensions of credit. The FTC expects to collect over $38,000 in consumer redress from defendants' frozen funds being held by a Texas electronic debiting company.
The Commission vote authorizing staff to file the ACMS Stipulated Final Judgment was 5-0. The settlement was filed in the U.S. District Court, Northern District of New York, in Binghamton, New York, and was signed by the judge on January 17, 2001. The proposed CCS Default Judgment was filed in the U.S. District Court, Southern District of New York, in New York City.
NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated final judgments and default judgments have the force of law when signed by the judge.
Copies of the documents referenced in this release, and related documents about other advance fee loan actions 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 at https://www.ftc.gov/ftc/complaint.htm. The FTC enters Internet, telemarketing and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies worldwide.
Office of Public Affairs
Robin E. Eichen or Carole Paynter
Northeast Regional Office
One Bowling Green, Suite 318
New York, New York 10004
(FTC File No. X990087; Civil Action No. 99 CV 1206 -- American Consumer Membership Services)
(FTC File No. X990092; Civil Action No. 99 CV 8679 -- Consumer Credit Services)