Nine Actions Taken Against Sellers of Advance Fee Loans, Credit Card "Protection" Insurance, and "Low-Cost" Office Supplies
The Federal Trade Commission, in cooperation with the attorneys general of North Carolina, Virginia, Wisconsin, Oklahoma, Oregon, and Illinois, today announced nine FTC, state, or joint FTC/state law enforcement actions and six Assurances of Voluntary Compliance (AVC) designed to protect consumers nationwide from unscrupulous cold callers and telemarketing fraud. In addition to bringing these cases through the federal-state "Operation Ditch the Pitch," the Commission is launching a consumer education campaign, including a redesigned Web site on telemarketing fraud to help consumers tell the difference between con artists who use cold calls to defraud them and legitimate telemarketers.
"Using masterful misrepresentations, fraudulent telemarketers are making cold calls to offer worthless credit card protection services, 'guaranteed loans,' and so-called 'protection' from identity theft," said Howard Beales, Director of the FTC's Bureau of Consumer Protection. "In doing so, they are stealing billions of dollars from unwary consumers. The fact is that consumers should feel as comfortable telling a cold caller not to phone them again as they do refusing entry to a stranger at their front door."
The most recent figures available, he said, put estimates of consumer loss due to such fraud at more than $40 billion a year. Approximately one-third of all complaints received by the FTC in the first quarter of 2001 began with a phone call to a consumer.
Director Beales specifically thanked the attorneys general of North Carolina, Virginia, Wisconsin, Oklahoma, Oregon, and Illinois for their assistance in investigating the matters announced today and filing the respective complaints or other actions.
Today the FTC and its state partners took action against the following companies and individuals: 1) Membership Services, Inc. (MSI), and its president James M. Schwindt, of Delaware and San Diego, California; 2) Farpoint Services International, Ltd.; Garrison Corporation, Inc.; American Card Services, S.A. (ACS); Hyperion LLC; Consolidated Group of Companies LLC; Roberta Galway, a.k.a Robin Galway and Robin Arcand; and Phillip Arcand, of British Columbia, Canada, and Las Vegas, Nevada; 3) Icon America, Inc. (Icon), and its principals Mete Suatac and Jonathan Parks, of Swanton, Vermont and Hollywood, Florida; 4) R&R Consultants, Inc. (R&R), d/b/a Consumer Alert, Peace and Quiet, Coast to Coast Cost Benefits, Inc., and Consumer Information Services; and its corporate officer, Reuben Ross, of Montreal, Canada; 5) Millennium Industries, d/b/a Premier Consumer Services (PCS); and Anthony V. DeAngelis, of Mesa, Arizona; 6) Tungsten Group, Inc.; and Tungsten Group II (both d/b/a American Savings Discount Club); and Robert J. Demellweek and David Vincent Jensen, of Portsmouth, Virginia, and Largo, Florida; and 7) The Pendleton Group, Inc. (Pendleton), d/b/a Product Distribution Center and Lakeshore Industries, and its principal, James C. Caouette, of Carson City, Nevada, and Huntington Beach, California. The complaints address cases of credit card loss protection fraud, advance-fee credit fraud, and the fraudulent sale of toner and office supplies to small businesses.
The FTC filed independent actions against R&R, Icon, ACS, PCS, and Pendleton. Filing jointly with the FTC, the states of Virginia, North Carolina, and Wisconsin are co-plaintiffs in the complaint against ASDC. The state of Illinois is co-plaintiff with the FTC in the complaint against MSI. In addition to the FTC and FTC/state complaints, the states of Oklahoma and North Carolina took separate actions against R&R, and the states of Virginia and Oregon filed Assurances of Voluntary Compliance against six additional defendants as part of the federal/state operation targeting cold call telemarketing fraud.
In the Commission's complaints against the companies targeted in "Operation Ditch the Pitch," each defendant is accused of violating Section 5 of the Federal Trade Commission Act (FTC Act) and the Telemarketing Sales Rule (TSR) through its fraudulent and deceptive cold calling and telemarketing operations. In the joint FTC/state complaints, each defendant is alleged to have violated the FTC Act, the TSR, and various state consumer protection laws. More information about each FTC and joint FTC/state complaint follows:
Membership Services, Inc. According to the FTC and Illinois complaint, MSI uses telemarketers to sell credit card loss protection services, charging $299 and more for these services (sometimes billed without authorization), and telling consumers that their cards were currently open to unlimited abuse. In reality, under the federal Truth in Lending Act (TILA), consumers are not responsible for any unauthorized credit card charges over $50, and the major credit card companies will typically waive this fee as well. MSI allegedly made other misrepresentations, including that consumers would receive a low-interest credit card for an advance fee. Those consumers received only a booklet of general information or coupons, according to the complaint.
American Card Services. The Commission's complaint contends that since at least 1998 ACS has operated a range of companies that fraudulently telemarketed credit card loss protection and debt consolidation services through several independent sales organizations. Charging consumers a fee of between $239 and $300 for their "services," ACS allegedly targeted consumers who were elderly and concerned that they would be liable for unauthorized charges made using their cards. The defendants allegedly used scare tactics during their telemarketing calls, misrepresented what protection their services provided, and misled consumers into thinking that they would be liable for any unauthorized charges, despite the protection offered by TILA. Regarding debt consolidation, ACS allegedly told consumers that for an advance fee they would obtain a low-interest loan to consolidate their credit card debts. The complaint also alleges that defendants engaged in credit card laundering in connection with their operations.
Icon America, Inc. Icon also allegedly telemarketed credit card loss protection to consumers for prices ranging from $299 to $369. Using scare tactics, the defendants allegedly claimed that consumers' credit card numbers were available on the Internet and accessible to criminals, and that the consumers would be held liable for any unauthorized charges if anyone gained access to this information. Icon allegedly told consumers that the company's loss protection services would cover any unauthorized charges due to such theft. In addition, Icon falsely led some consumers to believe that defendants were calling from, or on behalf of, the consumer's credit card company, thereby gaining their trust under false pretenses. The complaint also alleges that defendants promised, but did not provide, a 30-day unconditional refund.
R&R Consultants, Inc. In this matter, the defendants allegedly employed a twist on more traditional credit card loss protection schemes by falsely promising to remove all of the consumer's personal information from the Internet, thus protecting them from identity theft. According to the complaint, the defendants told consumers that their personal information, including credit card numbers, was available on the Internet and that they faced unlimited liability if it was obtained by crooks. The defendants allegedly promised to remove all consumers' personal information from the Internet and to remove consumers' names from all telemarketing lists. In addition, for an advance fee of several hundred dollars, consumers were allegedly told that they would receive a low-interest credit card, but only received a list of banks and a booklet of tips on how to obtain a credit card.
Premier Consumer Services. The Commission's complaint states that PCS telemarketed credit card loss protection to consumers throughout the United States, allegedly falsely representing: 1) that they were affiliated with the consumer's credit card company; and 2) that without their services consumers could be held fully liable for any unauthorized charges made using their card. The defendants charged $369 for their "services," never telling consumers about the federal protection for consumers against unauthorized charges under TILA.
American Savings Discount Club. ASDC is accused of violating FTC, Virginia, North Carolina and Wisconsin consumer protection laws. Using telemarketing boiler rooms, the defendants operated a vast advance fee loan scam, whereby they illegally debited consumers' bank accounts $100 in advance of loans they promised, but rarely delivered, according to the complaint. The complaint alleges that some consumers who paid the advance fees for the loans received instead a packet of written materials describing consumers' membership in a buying club, and some consumers received nothing at all. Many consumers who tried to cancel were told that $40 of the fee was non-refundable, according to the complaint.
The Pendleton Group, Inc. The Commission's complaint charges this company with operating a classic "toner-phoner" scam. Through telemarketing, Pendleton allegedly tricked small businesses into ordering printer toner by pretending to be their regular toner supplier and offering them the opportunity to make a toner purchase before a fictitious price increase went into effect. According to the complaint, consumers agreed to purchase toner from the defendants because they believed they were dealing with their regular toner supplier, or a company affiliated with their regular toner supplier, and believed that they were getting a discount from their regular toner supplier. The complaint alleges that the defendants charged consumers substantially more than they had been paying.
In each matter, the FTC or FTC/state complaints are seeking or have been granted preliminary relief, including an injunction and, in most cases, an asset freeze. In the ASDC and Membership Services cases, the FTC and state plaintiffs have also requested that a receiver be appointed to oversee the defendants' assets and business operations. In addition, in each matter the federal/state plaintiffs are seeking to permanently enjoin the defendants from future violations of the FTC Act, the Telemarketing Sales Rule, and other applicable laws and regulations, as well as to obtain consumer redress.
The Commission vote to file each complaint seeking the relief specified was 5-0.
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 defendant has actually violated the law.
Copies of the complaints 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 United States and abroad.
(FTC File Nos: 012-3048, Membership Services; 012-3141, American Card Services; 012-3207, Icon America; 012-3181, R&R Consultants; 012-3183, Premier Consumer Services; 012-3184, American Savings Discount Club; and 002-3285, Product Distribution Center)
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