UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA, Plaintiff,
v.
NATIONAL FINANCIAL SYSTEMS, INC., a New York corporation, Defendant.

Civil Action No.

CONSENT ORDER

WHEREAS: Plaintiff, the United States of America, has commenced this action by filing the Complaint herein; defendant has waived service of the Summons and Complaint; the parties have been represented by the attorneys whose names appear hereafter; and the parties have agreed to settlement of this action upon the following terms and conditions, without adjudication of any issue of fact or law and without defendant admitting liability for any of the matters alleged in the Complaint;

THEREFORE, on the joint motion of plaintiff and defendant, it is hereby ORDERED, ADJUDGED, and DECREED as follows:

1. This Court has jurisdiction of the subject matter and of the parties.

2. The Complaint states a claim upon which relief may be granted against defendant under Sections 5(a)(1), 5(m)(1)(A), 9, 13(b), and 16(a) of the Federal Trade Commission Act, 15 U.S.C. §§ 45(a)(1), 45(m)(1)(A), 49, 53(b), and 56(a), and Section 814 of the Fair Debt Collection Practices Act ("FDCP Act"), 15 U.S.C. § 16921.

3. For purposes of this Consent Order, the definitions set forth in the FDCP Act, 15 U.S.C. § 1692, shall apply.

CIVIL PENALTY

4. Defendant and its successors and assigns shall pay to plaintiff a civil penalty, pursuant to Section 5(m)(1)(A) of the Federal Trade Commission Act, 15 U.S.C. § 45(m)(1)(A), in the amount of $20,000, to be held in an escrow account administered by Ronald D. Jacobs, Esq., attorney for defendant.

5. Defendant shall make the $20,000 payment required by Paragraph 4 within ten (10) days of the date of entry of this Consent Order by certified or cashier's check made payable to the Treasurer of the United States and delivered to the Office of Consumer Litigation, Civil Division, U.S. Department of Justice, Washington, D.C. 20530.

6. In the event of any default in payment, which default continues for ten (10) days beyond the due date of payment, the entire unpaid penalty, together with interest, as computed pursuant to 28 U.S.C. § 1961 from the date of default to the date of payment, shall immediately become due and payable.

7. Plaintiff's agreement to this Consent Order is expressly premised upon the truthfulness, accuracy, and completeness of defendant's corporate disclosure form, sworn to on April 14, 1999; defendant's corporate financial statements for 1996, 1997, and 1998, sworn to on April 8, 1999; the 1998 personal financial statements of defendant's President, Robert H. Hernandez, and Secretary, George W. Kennedy, III, sworn to on April 8, 1999; and the affidavit of George W. Kennedy, sworn to on May 19, 1999, as well as the financial verification statements required by Paragraph 19 of this Consent Order. If, upon motion by plaintiff, this Court should find that defendant or either of its officers made a material misrepresentation or omission concerning its or his financial condition, then the Court shall enter a modified judgment holding that: (1) defendant is liable for a civil penalty of one hundred thousand dollars ($100,000) less all prior civil penalty payments made by defendant; and (2) defendant is required to provide to plaintiff a completed financial disclosure statement attached hereto as Exhibit 1 and copies of defendant's federal and state tax returns for the two (2) years preceding the date of entry of the modified judgment. In the event that, upon motion by the plaintiff, the Court modifies this judgment as described in the preceding sentence, then by the stipulation of plaintiff and defendant, the Court finds that one hundred thousand dollars ($100,000) less all prior civil penalty payments made by defendant will represent the civil penalty amount which shall become immediately due and payable, and interest computed at the rate prescribed in 28 U.S.C. § 1961, as amended, shall immediately begin to accrue on the unpaid balance. Plaintiff, or any of its designees, may collect said modified judgment.

Provided, however, that in all other respects, this Consent Order shall remain in full force and effect. Proceedings under this Paragraph are in addition to, and not in lieu of, any other proceedings the plaintiff may institute to enforce this Consent Order. Solely for the purpose of reopening or enforcing this Paragraph, defendant waives any right to contest any of the allegations in the Complaint filed in this matter.

INJUNCTION

8. Defendant, its successors and assigns, and its officers, agents, servants, employees and representatives, and all persons in active concert or participation with any one or more of them who receive actual notice of this Consent Order by personal service or otherwise, are hereby permanently enjoined, directly or through any corporation, subsidiary, division or other device, in connection with the collection of a "debt" from a "consumer" as those terms are defined in Sections 803(3) and (5) of the FDCP Act, 15 U.S.C. § 1692a(3) and (5), from

a. Making any telephone call to a consumer at any time or place known or which should be known to be inconvenient to the consumer, including between the hours of 9:00 o'clock PM and 8:00 o'clock AM local time zone at the consumer's location, without the prior consent of the consumer given directly to defendant or the express permission of a court of competent jurisdiction, in violation of Section 805(a)(1) of the FDCP Act, 15 U.S.C. § 1692c(a)(1);

 

b. Communicating with a consumer at the consumer's place of employment when defendant knows or has reason to know either that (i) the consumer's employer prohibits the consumer from receiving such communication, or (ii) it is inconvenient for the consumer to receive such communication, in violation of Section 805(a)(1) or (3) of the FDCP Act, 15 U.S.C. § 1692c(a)(1) or (3);

 

c. Except as provided in Section 804 of the FDCP Act, communicating or threatening to communicate with any person other than the consumer, the consumer's attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the creditor's attorney, or the debt collector's attorney, in connection with the collection of a debt, for any purpose other than to obtain location information about a consumer not previously known to defendant, unless defendant obtained directly the prior consent of the consumer, or the express permission of a court of competent jurisdiction, or defendant can show that such communication is reasonably necessary to effectuate a post judgment judicial remedy, in violation of Section 805(b) of the FDCP Act, 15 U.S.C. 1692c(b);

 

d. Engaging in any conduct the natural consequence of which is to harass, oppress, or abuse a person, including but not limited to, using obscene or profane language, or language the natural consequence of which is to abuse the hearer, in violation of Section 806(2) of the FDCP Act, 15 U.S.C. § 1692d(2);

 

e. Causing a telephone to ring continuously or engaging a person in telephone conversations repeatedly, in violation of Section 806(5) of the FDCP Act, 15 U.S.C. § 1692d(5);

 

f. Using any false, deceptive, or misleading representation or means in connection with the collection of any debt, in violation of Section 807 of the FDCP Act, 15 U.S.C. § 1692e, including but not limited to,

 

i. Representing or implying that nonpayment of a debt will result in the arrest or imprisonment of any person or the seizure, garnishment, attachment, or sale of any wages or property of any person, unless such action is lawful and defendant or the creditor intends to take such action, in violation of Section 807(4) of the FDCP Act, 15 U.S.C. § 1692e(4);

 

ii. Representing or implying that any action will be taken, unless, at the time of the representation, such action is lawful and is intended to be taken, or that any action may be taken, when defendant cannot show that, at the time of the representation, there is a reasonable likelihood that such action will be taken, in violation of Section 807(5) of the FDCP Act, 15 U.S.C. § 1692e(5); and

 

g. Engaging in any other act or practice that would violate the FDCP Act, as amended, 15 U.S.C. § 1692.

NOTICE REQUIREMENTS

9. With respect to every consumer debt received for collection, beginning sixty (60) days after the date of entry of this Consent Order, defendant and its successors and assigns shall, for a period of five (5) years, make the following disclosure clearly and conspicuously on each written collection communication that is sent to a consumer:

Collection agencies must comply with a federal law that provides you with certain rights, including the right to have us stop communicating with you, if you make the request in writing. This law is administered by the Federal Trade Commission, One Bowling Green, Third Floor, New York, NY 10004.

10. Defendant and its successors and assigns shall provide a copy of the following Notice to all present officers, servants, agents, account representatives, and employees, having responsibility with respect to the collection of debts, within thirty (30) days of the date of entry of this Consent Order; and to each such employee hired for a period of five (5) years after that date, no later than the time the employee assumes responsibility with respect to the collection of debts; and shall secure from each such person a signed statement acknowledging receipt of a copy of the Notice:

Debt collectors must comply with the federal Fair Debt Collection Practices Act, which limits our activities in trying to collect money from consumers. Most importantly, Section 806 of the Act prohibits you from harassing, oppressing, or abusing a person, including, but not limited to, using obscene or profane language. In addition, Section 807 of the Act prohibits you from using false, deceptive, or misleading representations. Individual debt collectors may be financially liable for their violations of the Act.

DISTRIBUTION OF CONSENT ORDER AND FDCP ACT BY DEFENDANT

11. Defendant and its successors and assigns shall:

a. Provide a copy of this Consent Order and the FDCP Act to all present officers, servants, agents, account representatives, and employees, having responsibility with respect to the collection of debts, within thirty (30) days of the date of entry of this Consent Order; and to each such employee hired for a period of five (5) years after that date, no later than the time the employee assumes responsibility with respect to the collection of debts; and shall secure from each such person a signed statement acknowledging receipt of a copy of this Consent Order and the FDCP Act; and

 

b. Maintain for a period of three (3) years after creation, and upon reasonable notice, make available to representatives of the Commission, the original signed and dated acknowledgments of receipt of copies of this Consent Order and the FDCP Act, as required in Subparagraph a. above.

MONITORING COMPLIANCE OF PERSONNEL

12. For a period of five (5) years from the date of the entry of this Consent Order, for the purpose of monitoring compliance with this Consent Order, defendant and its successors and assigns, in connection with any consumer debt collection business, shall:

a. Take reasonable steps sufficient to monitor and ensure that all employees having responsibility with respect to the collection of debts or consumer complaint handling comply with Paragraph 8 of this Consent Order. Such steps shall include, at a minimum, the following:

(1) periodic, random listening to communications with consumers made by persons engaged in debt collection or consumer complaint handling functions; (2) establishing a procedure for receiving and responding to consumer complaints; and (3) ascertaining the number and nature of such consumer complaints regarding transactions in which each employee having responsibility for the collection of consumer debts is involved; provided that this Paragraph does not authorize or require defendant to take any steps that violate any federal, state, or local laws;

b. Promptly investigate fully any consumer complaint received by any business to which this Paragraph applies; and

 

c. Take corrective action with respect to any debt collector whom defendant determines is not complying with this Consent Order, which may include training, disciplining, and/or terminating such debt collector.

RECORD KEEPING PROVISIONS

13. For a period of five (5) years from the date of the entry of this Consent Order, defendant and its successors and assigns, in connection with any consumer debt collection business, shall take reasonable steps to create and maintain for a period of three (3) years following the date of such creation, unless otherwise specified:

a. Records that reflect, for every written or oral consumer complaint, whether received directly, indirectly, or through any third party, to the extent that such information is provided to or known by defendant:

 

i. The consumer's name, address, telephone number, the creditor's name, and the names of the debt collector and supervisor having responsibility for the consumer's account;

 

ii. The written complaint, if any, the date of the complaint, and each letter or other form of written communication received from the consumer, and any notes, logs, memoranda, or other documents referring to oral consumer complaints;

 

iii. The basis of the complaint, including the names of any debt collectors or supervisors complained about; the nature of any investigation conducted concerning the validity of any complaint; all documents relating to the disposition of the complaint, including records of all contacts with the consumer, defendant's response to the complaint and the date of the response, whether the complaint was resolved, the date of any resolution; and any action taken to punish or correct alleged conduct that violates the FDCP Act.

 

b. Records accurately reflecting: the name, address, and telephone number of each person engaged in debt collection or consumer complaint handling functions, that person's job title or position, any aliases used, the date upon which the person commenced work, records of performance reviews and disciplinary actions, and the date and reason for the employee's termination, if applicable.

COMPLIANCE REPORTING BY DEFENDANT

14. Defendant and its successors and assigns shall, within sixty (60) days of the date of entry of this Consent Order, and once each year thereafter for three (3) years within thirty (30) days of the anniversary of that date, file with the Director of the Northeast Region of the Federal Trade Commission, a written report setting forth in detail the manner and form in which defendant has complied and is complying with this Consent Order.

15. Upon written request by a representative of the Commission, defendant shall submit additional written reports (under oath, if requested) and produce documents, as set forth in Paragraph 13, on fifteen (15) days notice with respect to any conduct subject to this Consent Order.

16. For purposes of this Consent Order, the defendant shall, unless otherwise directed by the Commission's authorized representatives, mail all written reports, notifications, and other correspondence to the Commission to:

Director
Northeast Region
Federal Trade Commission
One Bowling Green, Third Floor
New York, New York 10004

Re: United States of America v. National Financial Systems, Inc.

17. For purposes of the compliance reporting required by this Section, if current counsel no longer represents defendant, plaintiff is authorized to communicate directly with defendant through its officers or directors.

18. For a period of five (5) years from the date of entry of this Consent Order, defendant and its successors and assigns shall notify the Director of the Northeast Region of the Federal Trade Commission of any proposed change in the structure of defendant, such as creation, incorporation, dissolution, assignment, sale, merger, creation or dissolution of subsidiaries, proposed filing of a bankruptcy petition, or change in the corporate name or address or any other change that may affect compliance obligations arising out of this Consent Order, thirty (30) days prior to the effective date of any proposed change; provided, however, that with respect to any proposed change in the corporation about which defendant learns less than thirty (30) days prior to the date such action is to take place, defendant shall notify the Commission as soon as is practicable after learning of such proposed change; and provided further that this Paragraph does not authorize or require defendant to take any steps that violate any federal, state, or local laws.

19. Defendant, by its officers, shall, within ten (10) days of the date of entry of this Consent Order, submit a truthful sworn statement, in the form of Exhibit 2 to this Consent Order, that shall reaffirm and attest to the truthfulness, accuracy, and completeness of the information concerning its and its officers' financial condition referenced in Paragraph 7 herein.

FURNISHING OF TAXPAYER IDENTIFICATION NUMBER

20. Defendant is hereby required, in accordance with 31 U.S.C. § 7701, to furnish to the Federal Trade Commission its taxpayer identifying number (employer identification number), which shall be used for purposes of collecting and reporting on any delinquent amount arising out of such person's relationship with the government.

CONTINUING JURISDICTION

21. This Court shall retain jurisdiction of this matter for the purposes of enabling either of the parties to this Consent Order to apply to the Court at any time for such further orders or directives as may be necessary or appropriate for the interpretation or modification of this Consent Order, for the enforcement of compliance therewith, or for the punishment of violations thereof.

The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent Order as set forth above and consent to the entry thereof. Defendant waives any rights that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub. L. 104-121, 110 Stat. 847, 863-64 (1996).

STIPULATED AND AGREED TO:

SO ORDERED, this _____ day of __________________, 1999

__________________________________
UNITED STATES DISTRICT JUDGE