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Reminding consumers about the potential pitfalls associated with pitches for credit card “protection” services and advance-fee credit cards, the Federal Trade Commission today announced the settlement of a complaint, filed jointly with the State of Illinois, that charged a San Diego, California corporation and its principal with making a variety of misrepresentations in selling such products. Under the terms of the proposed court orders settling the charges, the defendants are barred from engaging or participating in the sale of credit card loss protection or any other credit-related goods or services, from making misrepresentations in connection with charges to consumers' credit card accounts, and from violating the FTC Act or the Telemarketing Sales Rule (TSR). The individual defendant will pay restitution in the amount of $30,000, and the corporate defendant will pay approximately $50,000.

The stipulated final orders announced today settle all Commission and state charges against defendants Membership Services, Inc. (MSI) and James M. Schwindt, individually and as an officer of MSI. The original complaint was filed as part of the FTC’s “Operation Ditch the Pitch,” an interagency law enforcement sweep announced in October 2001 that targeted “cold-call” telemarketers. A preliminary injunction halting the defendants’ allegedly illegal practices was entered on October 31, 2001.

The Complaint

In the complaint in this matter, filed jointly with the State of Illinois Office of the Attorney General, the FTC charged the defendants with making numerous misrepresentations related to the marketing and sale of credit card loss protection and advance-fee credit cards in violation of the FTC Act and the TSR.

Regarding credit card loss protection, the complaint charged the defendants with misrepresenting that consumers would be held fully liable for all unauthorized charges made to their credit card accounts if they did not buy the “protection” services offered. In reality, under federal law, consumers are only liable for up to $50 in unauthorized charges, with that amount often waived by the credit card companies. The defendants also allegedly falsely told consumers that they were affiliated with their credit card issuers.

In pitching their advance-fee credit cards, the defendants allegedly misled consumers by representing that by purchasing their service, they would – or were highly likely to – receive a low-interest Visa or MasterCard credit card. They also allegedly represented to these consumers that they were affiliated with their credit card issuers when this was not the case.

Terms of the Stipulated Orders

The stipulated final orders announced today remedy the illegal conduct alleged by the Commission. The terms of the orders – one against individual defendant Schwindt and a separate order with the receiver on behalf of MSI – are essentially the same. The proposed orders ban the defendants from engaging or participating in the advertising, promoting, offering for sale, or sale of credit card loss protection or any other credit-related goods or services. The orders also prohibit the defendants from engaging in the conduct alleged in the Commission’s complaint – even if not tied to the sale of credit-related services. Specifically, the order prevents the defendants from misrepresenting that any consumer has given authorization for his or her credit card to be charged small monthly payments for any goods or services. The defendants also are prohibited from causing any consumer’s credit card account to be charged without prior authorization.

Next, the proposed orders prohibit the defendants from violating the TSR, including the specific violations alleged in the complaint. The orders also contain parallel injunctive provisions specifically addressing the violations of Illinois law as alleged in the complaint, and have standard provisions regarding the sale of the defendants' customers lists and monitoring of the defendants' compliance with the order. Finally, the order against defendant Schwindt requires him to pay $30,000, subject to an avalanche clause of $1.5 million if he is found to have misrepresented his financial condition. MSI is required to pay all of its remaining assets – after the payment of court-approved expenses – to the Commission.

The Commission vote to authorize staff to file the stipulated final judgments was 5-0. They were filed in the United States District Court for the Southern District of California in San Diego on December 16, 2003, and require the court’s approval.

NOTE: These stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the documents mentioned in this release are available from the FTC’s Web site at and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 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 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. X020006; Civ. No. 01 CV 1868 JM (POR))

Contact Information

Media Contact:
Mitchell J. Katz
Office of Public Affairs
Staff Contact:

John D. Jacobs
FTC Western Region - Los Angeles