Consumers Conned with Phony Prize Offers,"Free" Subscription Promises
Fraudulent magazine marketers who bilked tens of thousands of consumers out of millions of dollars have been targeted in a law enforcement crackdown by the Federal Trade Commission and Attorneys General from five states. The telemarketers used a variety of scams-- from phony prize promotions to offers of “prepaid” subscriptions -- to fleece consumers. Some of the telemarketers illegally debited consumers’ checking accounts without their authorization. Others specifically targeted senior citizens. In some cases consumers who were told they were receiving special promotional offers paid hundreds of dollars in “shipping and handling” fees. The fees far exceeded the standard subscription rates for the magazines. In other scams, consumers who never agreed to order magazines at all, were threatened and badgered to collect inflated bills, officials said. In at least one case, the telemarketers sent consumers bogus documents stating that the consumers had been sued to intimidate consumers into paying for subscriptions they did not want.
The FTC won temporary restraining orders and asset freezes in its cases. Actions were also brought by Attorneys General in Illinois, New Jersey, New York, Pennsylvania, and West Virginia.
"We should all be skeptical when strangers call telling us we’ve won a prize or qualify for a free gift, and should never give out our bank account or credit card information unless we know who we’re dealing with," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "When asked to pay 'shipping and handling’ fees to receive 'free’ or 'prepaid’ magazine subscriptions we should ask for the information in writing. If we do the math we frequently see that these 'bargains’ just don’t add up," she said.
The FTC filed charges against:
National Scholastic Society, Inc., doing business as University Society Publishers Periodicals, based in Ramsey, New Jersey, and David C. Beasley, Jr., its principal. According to the FTC’s complaint, the defendants sent consumers a postcard urging them to call a toll-free number. When the consumers called, they were told they would be entered into a $25,000 cash sweepstakes just for calling. Defendants then launched into a pitch for magazine subscriptions and promised consumers they would receive expensive-sounding gifts, including $500 worth of grocery coupons, if they agreed to a purchase. Company representatives tricked consumers into revealing their credit card numbers under a variety of guises and then billed their accounts without consumer authorization. Consumers who were pressured to sign up for subscriptions were told that if they changed their minds, they could cancel. But when consumers tried to cancel orders, they were given the run-around. Even consumers who never agreed to subscribe were billed for hundreds of dollars. In addition, consumers did not receive the promised coupons, but only forms they could use to obtain coupons at an additional cost.
The FTC alleged that the defendants made deceptive and misleading representations to get consumers’ credit card information and billed unauthorized charges to the consumers’ credit card accounts, in violation of the FTC Act. The FTC also alleged that defendants violated the Telemarketing Sales Rule by failing to disclose the odds of winning a prize, the conditions associated with defendants’ coupon offer, and that defendants do not allow cancellation. The Attorney General of New Jersey joined in the complaint, filed in the U.S. District Court for the District of New Jersey.
Mag-Topia, Inc., of Santa Ana, California, and its principal, Robert Flarida, targeted senior citizens and told them they had won one of four prizes -- a “big screen” television, a “diamond” watch, claimed to be worth over $1,000, an automobile or a cash award of thousands of dollars. The company required consumers to send between $250 and $900 in “processing fees” by overnight mail in order to receive their valuable award. Many consumers received no prize. Those who did received a watch worth less than $100 and magazine order forms. Consumers -- many of them elderly -- who tried to cancel or stop payment on their checks, were harassed and threatened by the Mag-Topia agents. The FTC alleged that the company misrepresented to consumers that they had won valuable prizes worth more than the amount consumers pay to "participate" in the promotion, failed to disclose the odds of receiving a particular prize and failed to disclose that no purchase is necessary to win a prize, in violation of the FTC Act and the Telemarketing Sales Rule. The complaint was filed in the U. S. District Court for the Central District of California.
S. J. A. Society, Inc., doing business as Apex Marketing Group, Atlantic Service Corp., ASC and Publishers Service, of Virginia Beach, Virginia, and its officers, Thomas P. Johnson and Thomas Alan Blair engage in telemarketing and make "cold calls" that mislead consumers. Consumers are told that they are being called because they are such good customers that SJA is going to send them "bonus" or "prepaid" magazines. During the sales pitch, the telemarketers may also promise consumers prizes, coupons, airline tickets or cash. Consumers are told they will be expected to pay only nominal "shipping and handling" charges of $2.65 a week. In fact, SJA bills credit cards or bank accounts vastly inflated amounts for magazines -- more than the full cost of the magazine subscriptions offered directly by the publishers. Consumers who declined the "bonus" or "prepaid" magazines may have their credit cards or bank balances debited without their authorization. Consumers who tried to cancel orders are harassed and threatened with law suits. The FTC alleges that SJA violated federal law by falsely representing that:
- consumers have won a prize;
- consumers will pay only shipping and handling charges;
- consumers can cancel their subscriptions;
- a binding contract exists between themselves and consumers; and that
- legal action will be taken to enforce that contract if the consumer doesn’t pay.
In addition, the agency alleges unauthorized debiting of consumers’ checking accounts, in violation of the Telemarketing Sales Rule and threats, intimidation and misrepresentations used to collect funds, in violation of the Fair Debt Collection Practices Act. The offices of the Virginia Attorney General and the Virginia Commonwealth’s Attorney assisted the FTC with this action. The complaint was filed in the U.S. District Court for the Eastern District of Virginia, Norfolk Division.
The FTC has two publications, "Facts for Consumers: Magazine Subscription Scams," and "Do the Math: Magazine Subscription Scams Don’t Add Up," to help consumers avoid being taken in magazine scams. They warn consumers:
- Listen carefully to sales pitches for magazine subscription deals. They could be from unscrupulous con artists who want to trick you into paying hundreds of dollars for multi-year subscriptions.
- Ask questions to make sure you understand the deal.
- If you’re not interested tell the caller to put you down on a "do not call" list. If they continue to call, hang up. They’re breaking the law.
- Ask for -- and read -- a written copy of the contract before you agree to buy.
- Do the math. You could end up paying hundreds of dollars for subscriptions that sell elsewhere for less.
- Keep information about your bank accounts and credit cards to yourself unless you know who you’re dealing with. If you give an account number to a stranger over the phone, it could be used to debit your account without your permission.
- Be skeptical if someone tries to sell you a "bargain," offers you something for "free" or pressures you into a decision because the offer is good for a "limited time" only.
The Commission votes to file the complaints in these magazine subscription cases were 5-0.
NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. These complaints are not findings or rulings that the defendants actually have violated the law. The cases will be decided by the courts.
Copies of the complaints and consumer education material, "Do The Math: Magazine Subscription Scams Don’t Add Up" and "Facts for Consumers: Magazine Subscription Scams" are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov and also from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File Nos: 972 3114, 972 3138, 972 3090)
(Civil Action Nos: SJA Society, Inc., 2:97CV472; Mag-Topia, Inc., SACV97-447AHS(ANx); National Scholastic Society, 97-2423)
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