FTC Obtains Consent Order Against Marketer of Triad Buying Club

Under the terms of a consent order announced today, Special Data Processing Corporation (SDP) of Clearwater, Florida, agreed to pay the Federal Trade Commission $535,000 for redress to consumers to resolve charges that it misled consumers about the Triad Discount Buying Service (Triad) it sold to consumers. The proposed settlement, which requires court approval, also requires SDP to comply with the Telemarketing Sales Rule (TSR), prohibits the practices challenged in the FTC complaint, and requires SDP to make certain affirmative disclosures and to obtain consumers’ express informed consent before charging their credit cards.

According to the Commission, during 1998 and 1999, SDP pitched the Triad service to consumers, typically through up-selling to their own customers or to customers transferred to them by third-party sellers, by using telemarketing scripts that were based on ones they received from Triad. The Commission’s complaint contends that SDP failed to disclose adequately that consumers had to cancel the service within 30 days to avoid having their credit cards charged an annual fee, and that their cards would be charged a renewal fee each subsequent year unless they canceled the membership. As a result, SDP’s customers were allegedly charged for fees that they had not authorized.

The Commission’s Complaint

According to the Commission, in up-selling the Triad buying service to consumers, SDP violated Section 5 of the FTC Act and the TSR. Specifically, the complaint charges that SDP:

1) misrepresented that consumers who agreed to the 30-day membership trial offer would incur no obligation to take any action to avoid having their credit cards charged for the membership; 2) failed to disclose that consumers who failed to cancel within 30 days would have their credit cards charged an annual fee and that renewal fees would be charged automatically in each subsequent year; and 3) unfairly caused charges to be submitted for payment for buying club services without consumers’ express informed consent. The complaint also alleges that, in outbound telemarketing calls, SDP failed to disclose promptly in a clear and conspicuous manner the identity of the seller and that the purpose of the call was to sell magazines, in violation of the TSR.

Terms of the Consent Order

Under the terms of the consent order, SDP will pay $535,000 for consumer redress. The funds may be combined with the redress fund in the Commission’s action against Triad, FTC v. Ira Smolev, 01-8922 CIV-ZLOCH (S.D. Fla. Nov. 27, 2001) (announced April 10, 2002, http://www.ftc.gov/opa/2002/04/kaylorsmolev.htm). The order also addresses SDP’s telemarketing of membership services with a negative option feature and the use of up-selling. It prohibits SDP from violating the TSR and from falsely representing the amount, timing, or manner of any charge or bill; that a consumer will not be charged or billed without his authorization; or that a consumer bought a good or service or authorized a transaction. Other order provisions require SDP, in connection with telemarketing, to make certain disclosures related to billing, shipment, and other material conditions of any offer. The order also contains terms to ensure SDP gets customers’ express informed consent before billing them for any good or service.

The Commission vote authorizing the staff to file the complaint and consent in settlement of the court action was 5-0. The complaint and consent were filed in the U.S. District Court for the Middle District of Florida, Tampa Division, on August 26, 2004.

NOTE: The consent decree is for settlement purposes only and does not constitute an admission of a law violation. Consent decrees 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 http://www.ftc.gov 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 http://www.ftc.gov.

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.

(FTC File No. 002-3213; Civ. No. 8:04-CV-1955-T-23EAJ)