I. FTC ACTIONS INVOLVING MAJOR CORPORATIONS
- Appeals Court Affirms FTC Ruling Requiring Corrective Advertising by Doan's Pills
The United States Court of Appeals for the District of Columbia has unanimously upheld a Commission decision ordering the maker of Doan's Pills to run corrective advertising. The Court's opinion denied Novartis Corporation's appeal of the 1999 FTC order requiring it to include in future advertisements and labels a message to correct misbeliefs created by deceptive advertising claims for Doan's Pills. The ads claimed that Doan's was more effective than other pain relievers for the relief of back pain, but the FTC had found that there was no scientific evidence to support such claims. The Commission ordered that Doan's advertising and packaging include the corrective statement for one year and until Novartis had spent $8 million on advertising (the average sum spent annually on the deceptive campaign), subject to an overall limitation of five years.
II. FTC SWEEPS
- FTC Completes Sweep of Travel Industry with .Operation Travel Unravel.
The FTC announced that for the third time in four years it has completed a law enforcement sweep of the United States travel industry. .Operation Travel Unravel. caps investigations by the FTC and 19 state law enforcement agencies, resulting in 85 actions for alleged violations ranging from failure to disclose the actual cost of travel packages to misleading consumers by telling them they have won a free trip and failing to tell travelers that in purchasing a package they will be required to attend one . and possibly more . timeshare presentations.
The FTC has filed three complaints in federal District Court seeking to permanently enjoin the alleged law violations and award consumer redress. The complaints were brought against Leisure Time Marketing, Inc./Discovery Rental, Inc. of Cocoa Beach, Florida; Med Resorts International, Inc. of Clearwater, Florida; and Epic Resorts, Inc. of King of Prussia, Pennsylvania. In each case, the Commission is seeking an temporary restraining order with asset freeze and appointment of a receiver to ensure that no additional consumers are defrauded while the permanent injunctions are being sought.
- FTC Surfs Web for .Credit Repair. Scams
The FTC, the Department of Justice and 47 other federal, state and local law enforcement and consumer protection agencies have surfed the Web looking for illegal scams that promise consumers that they can restore their creditworthiness for a fee. Over 180 Web sites are being put on notice that their credit repair claims may violate state and federal laws for credit repair ads that appeared to be making deceptive advertising claims or promoting illegal schemes.
E-mail warnings and letters are being sent to web site operators that offer to remove negative information from a consumer.s credit report or to issue a false Social Security number and .start fresh. with a new identity. Such schemes are in violation of the Credit Repair Organizations Act (CROA), a new federal law designed to help consumers challenge fraudulent credit repair scams.
- FTC Sweeps Funeral Homes in Indianapolis for Compliance with Consumer Protection Law
The FTC and Indiana Attorney General.s office announced the results of a sweep of 46 funeral homes in the Indianapolis metropolitan area to test for compliance with the FTC.s Funeral Rule. Nine of those homes appeared to be in violation of the Rule. The sweep. part of an ongoing nationwide law enforcement program . was coordinated by the FTC.s Midwest Region and the Indiana AG.s office, with assistance from the American Association of Retired Persons (AARP). Using test shoppers, the FTC, the Attorney General.s office and AARP volunteers visited the funeral homes to determine whether the homes provide consumers with a copy of an itemized general price list and show consumers itemized casket and outer burial container price lists . key requirements of the FTC.s Funeral Rule. (The Funeral Rule is designed to ensure that consumers making funeral arrangements receive price lists and are informed that they can purchase only the goods and services they want or need.)
III. FTC RULE ENFORCEMENT AND CIVIL PENALTY CASES
- California Corporation Settles Charges Of Violating Fair Credit Reporting Laws
The FTC has announced a proposed settlement with a California-based debt collection agency, Performance Capital Management, Inc. (PCM), under which the company would be fined $2 million and enjoined from what the FTC called .serious violations. of Section 623 of the Fair Credit Reporting Act (FCRA). According to the terms of the proposed settlement, payment of the fine would be waived due to the company.s poor financial condition.
The FCRA regulates the collection and dissemination of sensitive information about consumers by credit bureaus and other types of consumer reporting agencies. Section 623 was added by Congress in the 1996 amendments to increase the accuracy of consumer reports by imposing specific duties upon any entity that furnishes information to a consumer reporting agency. This settlement is the Commission.s first enforcement action under Section 623.
PCM, a California corporation, specializes in buying and collecting consumer debt that has been charged-off by the original creditor as uncollectible.
- Kentucky-based Loan Company to Pay $350,000 in Civil Penalties
Action Loan Company, Inc., of Louisville, Kentucky, and its owner and president, Gus Goldsmith, have agreed to pay a $350,000 civil penalty and up to a total of $37,000 in consumer redress as part of a joint settlement with the Commission and the Department of Housing and Urban Development. The agreement resolves allegations that the defendants violated a host of federal lending and consumer protection laws when making loans secured by real or personal property to consumers. The FTC charged the defendants with violating the Truth In Lending Act (TILA) and its implementing Regulation Z; the Equal Credit Opportunity Act (ECOA); the Fair Credit Reporting Act (FCRA); the Credit Practices Rule (CPR); and with violating Section 5 of the FTC Act. HUD charged the defendants with violating the Real Estate Settlement Procedures Act of 1974 (RESPA) by receiving kickbacks for the referral of loans.
- FTC Files Charges Against Adult Web Sites for Illegally Billing Consumer for .Free Tours.
The owners and operators of www.playgirl.com, www.highsociety.com and several other adult Web sites have been charged by the Federal Trade Commission with illegally billing thousands of consumers for services that were advertised as .free,. and for billing other consumers who never visited the Web sites at all. The FTC and the New York Attorney General have filed suit in U.S. District Court seeking to halt the illegal billing practices and have asked the Court to freeze the defendants. assets, pending trial, to provide for consumer redress. According to the complaint, the .Free Tour Web Sites. generated income of $188 million between 1997 and October 1999 . $141 million of which was generated in the first 10 months of 1999 alone.
The .Free Tour Web Sites. claim that consumers. credit card numbers are required solely to prove that the consumers are of legal age to view the adult material, and that the credit cards will not be billed. However, according to the complaint, thousands of consumers were charged recurring monthly membership fees ranging from $20 to $90. Consumers faced difficulty in trying to dispute the charges because the defendants used billing names that differed from the names of the web sites.
- Consumer Finance Company Agrees to Settle FTC Charges Relating to False and Misleading Ads
FirstPlus Financial Group, Inc. (.FirstPlus.), a Nevada corporation, has agreed to settle FTC charges resulting from the advertising and marketing practices of FirstPlus.s now bankrupt subsidiary, FirstPlus Financial, Inc. According to the FTC.s complaint, ads for FirstPlus.s .debt consolidation. loans, including .high-loan-to-value. (HLTV) loans, were false and misleading because the ads misrepresented, among other things, the amount of money that consumers would save, and failed to adequately disclose key information about the loans. The proposed settlement would prohibit FirstPlus from misrepresenting its loan products, and would require the company to use reasonable assumptions when creating savings comparisons, and to fully disclose all information necessary to evaluate those comparisons.
- Marketer of Dietary Supplement Charged with Making Unsubstantiated ADHD Treatment Claims
Natural Organics, Inc., of Melville New York, and its owner, Gerald A. Kessler, have been charged by the FTC in an administrative complaint with making unsubstantiated claims that its dietary supplement tablets, .Pedi-Active A.D.D.,. treat or mitigate Attention Deficit Hyperactivity Disorder (ADHD). In its advertisements, the company also claims that Pedi-Active A.D.D. improves the attention span and scholastic performance of children who have difficulty focusing on their schoolwork.
This is the FTC.s fifth action involving products marketed to treat ADHD, a behavioral disorder which affects up to 2.5 million school-aged children in the United States. ADHD.s symptoms include inattention, impulsiveness and hyperactivity. The most common treatment for ADHD is a combination of physician-prescribed stimulants and behavior therapy. The ads at issue target parents seeking alternative treatments for their children.
- Maker of Skin Cream Product Agrees to Settle FTC Charges of Making Unsubstantiated Health Claims
Claims that .JointFlex,. a widely advertised topical skin cream, will eliminate significant pain due to disabling joint conditions, crushed vertebrae, herniated disks and other conditions are unsubstantiated, the FTC said in accepting a settlement with a Florida company and its owner. The FTC charged that SmartScience Laboratories, Inc. and its president, Gene Weitz, made numerous false and deceptive claims about the effectiveness of JointFlex. The respondents have agreed to cease all future claims about the absolute or comparative efficacy of JointFlex or any drug or supplement in reducing, relieving or eliminating pain from any source unless they have competent and reliable scientific evidence to support the claims.
- Telemarketer Agrees to Settle FTC Charges of False Representation Implying that Employees are Handicapped
Handicapped Industries Midwest, Inc., seven other corporations, and six individuals charged by the FTC with selling household goods at inflated prices by misrepresenting that their employees are handicapped or disabled have agreed to an order that would prohibit the defendants from falsely representing that all or most of the persons employed by the various enterprises are handicapped, or that such purchases would benefit the handicapped or disabled.
According to the FTC.s complaint, the defendants used business names that imply a connection with the handicapped community, such as Handicapped Industries; Jobs for the Disadvantaged; and Reliable Handicapped Workers, and their telemarketers told consumers that their purchase of household goods such as light bulbs, garbage bags, and room fresheners . at prices that were two to ten times higher than competitors. prices . would benefit the firms. workers, who were falsely depicted as being handicapped or disabled.
- FTC Charges California Car Wash Franchiser with Violations of Franchise Disclosure Law
A federal district court has issued a temporary restraining order against The Car Wash Guys International, Inc., based in Agoura Hills, California, at the request of the FTC. The Car Wash Guys and its principals have been charged by the FTC with making false earnings claims to market and sell mobile car washing franchises throughout the United States. In addition, the FTC alleges that the defendants violated the Commission.s Franchise Rule when they failed to provide prospective franchisees with written substantiation for their earnings representations. The court.s order prohibits the defendants from engaging in these practices and freezes the defendants. assets.
- Telemarketer Agrees to Pay $100,000 in Consumer Redress to Settle FTC Fraud Charges
Star Publishing Group, Inc., doing business as National Consumer Services, and its president, Kent Hopkins, have agreed to pay $100,000 in redress to settle FTC charges that they used deceptive and illegal practices in marketing a work-at-home employment guide on how to start a business as an HUD/FHA mortgage insurance refund tracer. The case was filed in February 2000 as part of .Project Biz-illion$,. a multi-prong attack by the FTC, the Justice Department and law enforcement officials from 29 states on business opportunity scams. The FTC alleged that the defendants. advertisements led consumers to believe that their guide on starting a home-based business as a refund tracer was an employment opportunity for processing mortgage insurance refunds for the U.S. government.