TV MARKETER TO PAY $ 8 MILLION FOR DECEPTIVE FEES & SENDING EXTRA PRODUCT

FROM:  U.S. FEDERAL TRADE COMMISSION
Direct Marketer Agrees to Pay $8 Million for Deceiving Consumers
Company Pitched Snuggies and Other Products on TV, Often Billing Consumers without Their Consent

A direct marketing company selling “as-seen-on-TV” type products such as Snuggies and the Magic Mesh door cover has agreed to pay $7.5 million to the Federal Trade Commission for consumer restitution to settle FTC charges in connection with its deceptive “buy-one-get-one-free” promotions.

The FTC’s settlement with Allstar Marketing Group, LLC, was reached alongside actions by the New York State Office of the Attorney General, which is announcing a separate state case today. In addition to the $7.5 million paid to the FTC, Allstar will pay $500,000 to the Attorney General’s Office for penalties, costs, and fees to settle that action.

“Marketers must clearly disclose all costs. That includes processing fees, handling fees, and any other fees they think up,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Working with the New York Attorney General, we’ll return millions of dollars to consumers that Allstar collected in undisclosed fees.”

“This agreement returns money to thousands of consumers in New York and across the nation who believed they were buying items at the price advertised on television, but ended up with extra merchandise and hidden fees they didn’t bargain for,” Attorney General Eric T. Schneiderman said. “The settlement also brings much needed reforms to a major firm in the direct marketing industry. Those who use small print and hidden fees to inflate charges to unwitting consumers must be held accountable.”

According to the FTC’s complaint, since at least 1999, Allstar, based in Hawthorne, New York, has been in the direct marketing business, using television commercials to sell its products, many of which are familiar to consumers such as Magic Mesh, Cat’s Meow, Roto Punch, Perfect Tortilla, Forever Comfy, and Snuggies. While the products have varied, Allstar’s pitch is often the same -- a “buy-one-get-one-free” offer without additional costs disclosed.

In a recent commercial for Magic Mesh, for example, the company promised that it would “double the offer” for consumers, if they just paid “processing and handling fees.” While consumers were led to believe that they would then be getting two $19.95 products for “less than $10 each,” in fact, the total cost with the undisclosed $7.95“processing and handling” fees jumped from the advertised price of $19.95 to $35.85, according to the complaint.

As alleged in the FTC’s complaint, consumers who called Allstar were often immediately instructed to enter their personal and billing information, and were charged for at least one “set” of products, based on the “buy-one-get-one-free” offer, before they had a chance to indicate how many products they wanted to buy. Because the sales pitch was often confusing, some consumers purchased more “sets” than they actually wanted.

Allstar then attempted to upsell consumers additional products via automated voice prompts that requested the consumer accept the offer. Many times, the only way a consumer could decline the offer was to say nothing. At the end of the calls, Allstar sometimes routed consumers to other third-party sellers who made additional sales pitches. Once all of the offers ended, consumers were not told the total number of items they’d “agreed” to buy, or the total amount they would be billed, according to the complaint. The Commission has alleged that Allstar even charged those consumers who hung up mid-call, not intending to complete a sale.

According to the FTC’s complaint, consumers who opted to buy Allstars’ products online faced similar problems, including separate “processing and handling” fees which were only disclosed in very fine print at the bottom of the page, and a barrage of upsell offers. Consumers were not provided with the total price of their purchases, and despite a “30 day money-back guarantee” (less processing and handling fees) full refunds were difficult for consumers to obtain.

Based on this alleged conduct, the FTC’s complaint charges Allstar with two violations of the FTC Act and three violations of the agency’s Telemarketing Sales Rule (TSR), including the following:

Billing consumers without their express informed consent;
Failing to make adequate disclosures about the total number and cost of products before billing consumers;
In connection with the up-selling of goods and services, violating the TSR by failing to disclose material information about the total cost of the products and that the purpose of the call is to sell goods or services; and
During telemarketing, illegally billing consumers without first getting their consent.
nt order prohibits Allstar from failing to obtain consumers’ written consent before billing them for any product or service. It also requires the company to clearly and conspicuously disclose – before billing consumers – the total number of products they have ordered, all related fees and costs, and material conditions related to the products purchased.

It also prohibits Allstar from violating the TSR by: 1) failing to disclose the true costs of any goods or products it sells; 2) failing to promptly disclose the identity of the seller to consumers and that the purpose of the call is to sell a product or service; and 3) causing billing information to be submitted for payment without consumers’ express authorization.

Finally, the order imposes a monetary judgment of $7.5 million, which, in consultation with the New York Attorney General’s Office, may be used to provide refunds to defrauded consumers.

The Commission’s vote approving the complaint and the stipulated final order was 5-0. The complaint was filed in the U.S. District Court for the Northern District of Illinois and the stipulated final order submitted to the court for approval.

The FTC appreciates the assistance of the New York State Attorney General’s Office in bringing this action.

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. Stipulated orders have the force of law when approved and signed by the district court judge.

FTC CRACKS DOWN ON PAYMENT PROCESSING SCAMMERS CHARGING HIDDEN FEES

FROM:  U.S. FEDERAL TRADE COMMISSION 

FTC Settlements Crack Down on Payment Processing Operation that Enabled 'Google Money Tree' Scammers to Charge Consumers $15 Million in Hidden Fees
The Federal Trade Commission is continuing its crackdown on payment processing operations that enable scam artists to charge consumer accounts despite signs of ongoing fraud and unauthorized transactions.  Today, the Commission announced a proposed settlement resolving allegations that a payment processor, Process America Inc., and its owners, Kim Ricketts, Keith Phillips and Craig Rickard, used unfair tactics to open and maintain scores of merchant accounts for Infusion Media Inc., which perpetrated the “Google Money Tree” work-at-home scheme.  Using these merchant accounts, Infusion Media charged more than $15 million in unauthorized charges on consumers’ debit and credit card accounts.

Payment processors and Independent Sales Organizations (ISOs) enable merchants to charge consumers’ credit cards for products and services.  In exchange, payment processors and ISOs get paid for each payment transaction the merchant processes.

In June 2009, the FTC charged the Infusion Media defendants  with falsely claiming that consumers could earn $100,000 in six months, misrepresenting an affiliation with Google, and tricking consumers into signing up for automatic monthly charges that would continue until the consumer took affirmative steps to cancel.

The complaint against Process America alleges that the defendants knew or should have known that they were processing charges that consumers had not authorized.  Evidence that consumers were being charged without their permission included plainly deceptive statements on merchant websites, notices that the merchant should be placed in Visa and MasterCard chargeback monitoring programs, and chronically excessive chargeback rates – the percentage of charges that are challenged by consumers and result in the charges being reversed.   From 2008 through 2009, the defendants opened and maintained 131 merchant accounts through which the perpetrators processed more than $15 million in unauthorized charges on consumer debit and credit card accounts.

To keep Infusion Media’s merchant accounts open, the defendants allegedly engaged in tactics that were designed to evade fraud monitoring programs implemented by Visa and MasterCard.  These tactics included submitting merchant applications containing false information and “load balancing” – distributing transaction volume among numerous merchant accounts.  As a result, Infusion Media’s scam operated for nearly a year, and Process America continued to earn fees from its payment processing activity.
 
To resolve the allegations in the complaint, the individual defendants have agreed to separate permanent injunctions containing prohibitions and restrictions on their future payment processing activities:

Rickard is banned from payment processing and acting as an ISO.  He is prohibited from acting as a sales agent for any client engaged in (a) unfair or deceptive business practices; (b) certain categories of high-risk activities, including negative-option marketing (where the seller interprets consumers’ silence or inaction as permission to charge them), money-making opportunities, credit card or identity theft protection, timeshare resale services, buying clubs, medical discount plans; or (c) conduct that has qualified a client for a chargeback monitoring program.
Rickard is also prohibited from acting as a sales agent for any client without first screening them for unfair or deceptive business practices.  The order imposes a judgment of more than $184,000 that will be suspended based on his inability to pay.  The full judgment will become due immediately if Rickard is found to have misrepresented his financial condition.
Ricketts and Phillips are prohibited from acting as payment processors, ISOs, or sales agents for any client engaged in (a) unfair or deceptive business practices; or (b) certain categories of high-risk activities certain categories of high-risk clients.  They also are barred from acting as a sales agent for any client without screening and monitoring them for unfair or deceptive business practices.
In addition, Process America’s Chief Restructuring Officer has agreed to recommend and seek authority from the United States Bankruptcy Court for the Central District of California to enter into the proposed settlement with the FTC.  Under the proposed settlement:

Process America is prohibited from payment processing or acting as an ISO or sales agent for any client engaged in negative-option marketing or unfair or deceptive business practices, and from failing to screen, monitor, and promptly investigate clients for such practices.
The orders prohibit all of the defendants from selling or otherwise benefitting from consumers’ personal information, and failing to properly dispose of customer information.

The Commission vote authorizing the staff to file the complaint and approving the proposed consent judgment was 4-0.  The proposed settlement with Process America is subject to the United States Bankruptcy Court for the Central District of California’s approval of a Federal Rule of Bankruptcy Procedure 9019 Motion for Compromise.  The proposed consent judgments with Process America and the individual defendants are also subject to court approval.

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.  Consent judgments have the force of law when approved and signed by the District Court judge.