In an action that could result in as much as $5 million being returned to defrauded consumers, the Federal Trade Commission today announced a settlement with Med Resorts International, Inc. of Clearwater, Florida, five related companies, and their principals. The settlement resolves charges that the defendants had engaged in a series of deceptive practices in selling vacation travel club memberships. In addition to the approximately $5 million in consumer redress, members of defendants' travel club also were able to cancel an additional $22 million in contractual payment obligations pursuant to a court order in the litigation.
The Commission's complaint against the companies, filed jointly with the Commonwealth of Virginia, stemmed from 2000's "Operation Travel Unravel," which included investigations by the FTC and 19 state law enforcement agencies of deceptive practices in the travel industry. The sweep produced 85 law enforcement actions under federal and state law, challenging such practices as the failure to disclose the actual cost of travel packages, misleading consumers by telling them they had won a free trip, and failing to tell travelers that by purchasing a package, they would be required to attend multiple timeshare presentations.
"In settling this final 'Travel Unravel' case, the Commission has received strong monetary and injunctive relief against the defendants for their alleged misrepresentations," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "American consumers work hard and look forward to well-deserved vacations. In this case and the others in this sweep, the FTC is making plain that it is committed to ensuring that consumers are protected from companies that promise April in Paris but deliver significantly less." Beales also thanked the staff of the Virginia Attorney General's Office for its assistance in bringing the case and resolving the allegations.
According to the joint complaint, defendants Med Resorts International, Inc.; World Connections, Inc.; Mediterranean Resorts, Inc.; Destinations Unlimited of Delaware, Inc.; Bay Financial Services, Inc.; V-Pac, Inc.; J. George Claveau; and Marianne Borden-Myers (collectively, Med Resorts) violated the FTC Act and Virginia law by misrepresenting the benefits they could provide to consumers who purchased their multi-year travel club memberships. The defendants sold these memberships to consumers at sales centers in metropolitan Atlanta, Chicago, Philadelphia, and Washington, D.C. The joint complaint specifically charged the defendants with misrepresenting: 1) that consumers purchasing their long-term vacation travel club memberships could travel worldwide whenever and wherever the consumers chose; 2) the total cost of the vacation travel memberships; and 3) that members could obtain discount airfares. In addition, the complaint charged that Med Resorts also had violated the Commission's Holder in Due Course Rule by not including required disclosure language in consumers' membership contracts, and then reselling those contracts to third-party finance companies.
In the course of the litigation and pursuant to a court order, substantially all of Med Resorts' assets were sold to an unrelated company, American Vacation Resorts, Inc. (AVR), which then assumed the obligation to provide former Med Resorts members with vacations under their membership contracts. In connection with the asset sale, the members of Med Resorts' vacation club were given the opportunity to cancel their membership contracts and any contractual payment obligations they may have owed, or to continue their memberships with the new company. Many consumers opted to cancel their contracts, resulting in over $22 million of canceled payment obligations.
Under the terms of the stipulated final order settling the charges in the joint complaint, each of the defendants will be enjoined from violating the FTC Act and the Holder in Due Course Rule. In addition, above and beyond the financial redress detailed below, Med Resorts' owner J. George Claveau will be required to post a $1 million performance bond before engaging in the marketing or sale of travel-related products or services in the future. Other injunctive terms will prevent the defendants from selling or otherwise disclosing their customer list and will require the defendants to comply with certain reporting requirements to assist the FTC in monitoring the defendants' compliance.
In addition to the $22 million in canceled payment obligations, the settlement also will result in redress to consumers of between $3.5 million and $5 million. Med Resorts will contribute $3 million to the redress fund within seven days after the order is entered by the court, and potentially more after its remaining assets are liquidated and various creditor claims are resolved. Claveau also will contribute approximately $500,000 from his personal assets to the redress fund. Finally, AVR will contribute to the redress fund an agreed-upon percentage of revenues from former Med Resorts members who decided to continue their memberships with the new company. The formula for distributing the redress funds to consumers will be determined by the FTC in conjunction with the Virginia Attorney General's Office. Consumers need not take any action at this time to be eligible to receive a distribution from the redress fund. The FTC and the Virginia Attorney General's Office will contact consumers directly regarding redress.
The stipulated final order also requires the court-appointed receiver for Med Resorts to correct consumers' credit reports by notifying credit reporting agencies that any reported payment delinquency to Med Resorts was not accurate given the circumstances of this case and that any negative information relating to consumers' non-payment of any membership obligations should be permanently removed from the consumers' files. The receiver also is required to monitor AVR's ongoing activities for a period of 18 months to ensure that former Med Resorts members receive the benefits they are due.
The Commission vote to file the proposed stipulated final judgment was 5-0. The stipulated final judgment was filed in the U.S. District Court for the Northern District of Illinois on November 1, 2001. The judgment requires the court's final approval and is not binding until signed by the judge.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law. Stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation.
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, 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 www.ftc.gov. 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.
(FTC File No. 992-3196)