Consumer Protection Mission
Civil Penalty Actions
Type of Matter
|Budget Marketing, Inc.||X890010||3/17/97||Electronic Funds Transfer Act||Magazine Subscriptions|
|Cabot Hosiery Mills, Inc.||X970035||3/31/97||Textile Fiber Products Identification Act||Socks|
|Hawthorne Communications, Inc.||X970024||1/28/97||Order Violation||Home-Based Business Opportunity|
|Health Wave, Inc.||X950097||12/20/96||Franchise Rule||Vending Machine Business Opportunity|
|International Masters Publishers Inc.||X970055||6/10/97||Order Violation||Mail Order Informational Cards|
|J.C. Penney Company, Inc.||X960110||10/08/96||Equal Credit Opportunity Act||Retail Consumer Credit|
|Lifestyle Fascination, Inc.||X970025||3/27/97||Order Violation||Catalog Products|
|Marketing Masters, Inc.||X970020||11/07/96||Funeral Rule||Funeral Goods and Services|
|Mattel, Inc.||X970016||1/21/97||Mail or Telephone Order Merchandise Rule||Toys|
|(Megatrend Telecommunications, Inc.)||X940016||9/04/97||Franchise Rule||Cordless Telephones|
|Money Tree, Inc., The||X970026||2/14/97||Equal Credit Opportunity Act||Consumer Loans|
|National Marketing, Inc.||X950089||10/01/96||Franchise Rule||Display Rack Business Opportunity|
|Nu Skin International, Inc.||X970073||8/11/97||Order Violation||Skin Care Products and Nutritional Supplements|
|O'Neill, Incorporated||X960100||10/10/96||Order Violation||Wetsuits|
|T.C.A., Inc.||X950082||4/17/97||Fair Debt Collection Practices Act||Debt Collection|
|Tower Loan of Mississippi, Inc.||X970022||2/20/97||Order Violation||Consumer Loan and Finance Services|
|United Compucred Collections, Inc.||X970053||4/16/97||Order Violation||Debt Collection|
|Venus Enterprises, Inc.||X970080||8/25/97||Care Labeling Rule||Women's Clothing|
|WestPoint-Stevens, Inc.||X970086||6/04/97||Textile Fiber Products Identification Act||Sheets and Towels|
1A company name shown in parentheses is for identification of the case only. The company is not a defendant in the item shown in the table.
Budget Marketing, Inc (BMI).; Dale Branson (d/b/a Leisure Day Marketing); Charles P.
Donly (d/b/a Budget Renewal Service); Charles A. Eagle; Roy Golden (d/b/a American
Marketing Service); Dennis H. Gougion; John Harrison; Steven Johnson; Dave Keown
(d/b/a Publishers Marketing); Dale T. Lenard (d/b/a Mega-Magazine Service, Colorado
Dawn, and Key Concept); Richard Prochnow (d/b/a Direct Sales International); William J.
Stemple, Sr. (d/b/a Budget Marketing of Virginia)
Budget Marketing, a national telemarketer of magazine subscriptions, and 11 of its dealers agreed to pay a $395,000 civil penalty in connection with a consent order settling allegations that they debited consumers' bank accounts electronically without written authorization, in violation of the Electronic Funds Transfer Act. The consent order bars the respondents from violating the Act and from other illegal practices in the future. (Also see Budget Marketing, Inc., page 72.)
Cabot Hosiery Mills, Inc.
Cabot agreed to settle allegations that the company violated the Textile Fiber Products Identification Act when it sold a mislabeled line of socks to a national retailer, The Gap. According to the Commission, labels on the Granite Ragg socks indicated that the socks contained more cotton and Lycra spandex fiber and less polyester, acrylic, and nylon fibers than they actually did. In addition, the company allegedly furnished false guaranties that its socks were not misbranded under the Act. The consent order prohibits the company from violating the Act in the future and requires it to pay a $10,000 civil penalty.
Hawthorne Communications, Inc.
Hawthorne, an advertising agency, is required to pay a $25,000 civil penalty for violating a 1994 Commission order requiring it to have substantiation for advertising claims, including those made by endorsers. Hawthorne allegedly violated the 1994 order in an infomercial it produced that contained unsubstantiated high earnings claims in connection with the Mellinger Plan, a course in starting and operating a work-at-home import/mail order business. In addition to paying the civil penalty, Hawthorne is barred from producing or distributing infomercials that contain deceptive earnings claims or testimonials. The Mellinger Plan's promoter agreed to settle allegations stemming from the same infomercial (see 1554 Corporation, page 68).
Health Wave, Inc.; Mark Livingston
Health Wave and its president agreed to pay a $10,000 civil penalty to settle allegations stemming from their sale of business opportunities involving snack food vending machines. The Commission alleged that the defendants failed to give potential investors complete and accurate information about the business opportunity they sold and failed to substantiate earnings claims, in violation of the Franchise Rule. The consent order prohibits the defendants from misrepresenting material aspects of any franchise or business venture they offer and requires them to comply with all aspects of the Rule.
International Masters Publishers Inc.
International Masters Publishers, a mail order company that sells informational cards on a variety of topics (recipes, home repairs, gardening, etc.), agreed to pay a $60,000 civil penalty to settle allegations that it violated the debt collection provisions of a previous Commission order. The 1987 order settled allegations that the company did not honor membership cancellation requests or promptly credit the accounts of consumers who returned the cards but, instead, sent dunning letters. The current order prohibits the company from violating any provision of the 1987 order, including misrepresenting the terms of its sales plan and engaging in debt collection practices using threats of adverse consequences that are unlikely to occur.
J.C. Penney Company, Inc.
J.C. Penney, one of the largest retail stores in the country, agreed to pay a $225,000 civil penalty to settle allegations that it violated consumers' rights to receive written notice of the reasons for a denial of credit, as required by the Equal Credit Opportunity Act. The Commission alleged that when the store denied credit applications, it either failed to explain the reasons or gave the wrong reasons. Under the consent order, J.C. Penney is required to give consumers who were denied credit in the past a written statement of the correct reasons for denial and to comply with federal laws requiring such explanation in the future.
Lifestyle Fascination, Inc.
Lifestyle, a company that markets a number of products through its catalog, agreed to pay a $60,000 civil penalty for allegedly violating a 1994 Commission order by making unsubstantiated claims about the performance or efficacy of certain products: a pest control device, a pain reliever, and an antenna substitute. The consent decree to settle these allegations prohibits Lifestyle from future violations of the 1994 order and requires the company to give copies of the 1994 order and consent decree to its officers, agents, representatives, employees, and distributors. Marketing
Masters, Inc. (a/k/a Pre-Need Family Services of Lancaster County); Pre-Need Family Services of Berks County, Inc.; Pre-
Need Family Services of Delaware Valley, Inc.; Pre-Need Funeral Associates of Lehigh
Valley, Inc.; David A. Heisterkamp;
Donald E. Morris
Marketing Masters, its subsidiaries, and two officers agreed to pay a $12,000 civil penalty to settle allegations that they violated the Funeral Rule. These companies are nontraditional funeral providers: they sell funeral goods and services but do not operate funeral homes. The Commission alleged that the defendants did not provide a general price list to consumers during sales presentations and failed to make the required disclosure on their price list for outer burial containers. In addition to paying the civil penalty, the defendants agreed to comply with the Rule in the future.
Mattel, a toy manufacturer and marketer, agreed to pay more than $146,000 in civil penalties to settle allegations that it violated the Mail or Telephone Order Merchandise Rule. The Commission alleged that the company failed to make timely deliveries or issue prompt refunds in the sale of its Barbie collectible dolls, which it advertises by direct mail and in magazines and other publications. The consent order prohibits Mattel from violating the Rule in the future.
(Megatrend Telecommunications, Inc.)
Alan D. Wittstein
The former president of Megatrend agreed to settle allegations stemming from his role in marketing TableMate System franchises for cordless telephones designed to be used in restaurants and similar locations. The Commission alleged that the defendants misrepresented the ease with which the buyers could place the product and the amount of assistance the defendants would provide to the buyers. In addition, the defendants allegedly violated the Franchise Rule by failing to provide prospective buyers with the required basic disclosure and earnings claims documents and making unsubstantiated earnings claims. Under the settlement, Alan Wittstein agreed not to violate any provisions of the Rule in the future and to pay a civil penalty of $10,000.
The Money Tree, Inc.; Vance R. Martin
The Commission announced a settlement agreement with Money Tree and its president in connection with their business of making short-term installment loans, most of them to low-income consumers. Under the consent order, Money Tree and Vance Martin will pay $75,000 in civil penalties to settle allegations that they discriminated against elderly consumers and consumers who receive public assistance, in violation of the Equal Credit Opportunity Act. The order bars them from the alleged practices and requires them to comply with the provisions of the Act in the future. In a separate agreement, Money Tree and Martin are required to offer consumer refunds (see The Money Tree, Inc., page 79).
National Marketing, Inc.; Paul Woodward
National Marketing and officer Paul Woodward agreed to pay a $15,000 civil penalty to settle allegations that they failed to give potential investors pre-sale disclosures about the business opportunity they sold and documentation to support claimed earnings, as required by the Franchise Rule. The defendants sold bulk candy using display racks placed in retail stores. The consent order prohibits the defendants from misrepresenting material aspects of any business venture they offer and requires them to comply with the Rule in the future.
Nu Skin International, Inc.
Nu Skin, the firm behind an international multilevel marketing system with thousands of distributors selling skin care products and nutritional supplements, agreed to pay a $1.5 million civil penalty to settle allegations over claims for fat loss, muscle maintenance, and other benefits that it made for supplements containing chromium picolinate and L-carnitine. The Commission alleged that Nu Skin could not produce adequate substantiation for the claims and therefore violated a 1994 order requiring the firm to have competent and reliable scientific evidence to support benefits claims for any product it sells.
O'Neill, the largest seller of wetsuits in the United States, agreed to pay a $10,000 civil penalty to settle allegations that it failed to accurately list the fiber content of its garments in violation of federal law and a 1992 Commission order. The previous order had settled allegations that O'Neill violated the Textile Fiber Products Identification Act by mislabeling certain wetsuits. Since that time, the company has allegedly sold thousands of mislabeled wetsuits. In addition to paying the civil penalty, O'Neill is permanently barred from future violations of the 1992 order, which requires compliance with the Textile Act.
T.C.A., Inc.; Stephen Lawrence; Effie Pappas
Two principal officials of a collection agency, T.C.A., paid $25,000 in civil penalties to settle allegations that they violated the Fair Debt Collection Practices Act when they or their collectors used abusive and deceptive practices in attempting to collect debts from consumers. The settlement originally imposed a $100,000 judgment, but $75,000 was suspended if the remaining $25,000 was paid by a certain date. In addition to requiring the civil penalties, the consent order permanently enjoins the defendants from engaging in further violations of the Act.
Tower Loan of Mississippi, Inc.
Tower Loan, a consumer loan and finance company, agreed to pay close to $380,000 to settle allegations that it violated a 1992 Commission order, which had settled earlier allegations that the company did not include the costs of credit-related insurance when making loan disclosures to consumers. The Commission alleged that Tower Loan failed to make full redress payments to its customers as required by the earlier order and that it incorrectly described how it calculated redress in a report to the Commission. The current consent decree requires Tower Loan to pay almost $280,000 to make full consumer redress and to pay a civil penalty of $100,000.
United Compucred Collections, Inc.; Arthur B. Stineman
United Compucred and its president are permanently banned from sending out "attorney" letters under a consent order settling allegations that they violated the terms of two previous Commission orders. The previous orders were issued against the debt collection agency in 1976 and 1980 for allegedly making deceptive threats of legal action and misleading references to attorneys in debt collection letters sent to consumers. The current order prohibits the defendants from violating any provisions of the two previous orders and from violating the Fair Debt Collection Practices Act. It requires the company and Arthur Stineman to pay civil penalties of $55,000 and $5,000, respectively.
Venus Enterprises, Inc.; Balram Hingorani
Venus Enterprises, an importer of women's clothes, and company president Balram Hingorani agreed to pay a $4,000 civil penalty to settle allegations that the company mislabeled the care instructions on various garments made of rayon. The clothes shrank significantly when consumers hand-washed them as instructed, the Commission said. The consent order prohibits the defendants from violating the Care Labeling Rule in the future.
WestPoint-Stevens, one of the biggest textile manufacturers in the United States, agreed to settle allegations that it violated the Textile Fiber Products Identification Act by misbranding the sheets and towels it manufactures and sells. The company allegedly indicated that its sheets and towels were made entirely of Pima cotton (a premium cotton) when, in fact, the products contained only 6% to 50% Pima cotton. In addition, according to the Commission, the company furnished a false guarantee that its textile products were not misbranded under the Textile Act. The company is required to pay a $360,000 civil penalty, the largest civil penalty even obtained in a Textile Act case, and is prohibited from future violations of the Act.