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FTC, States and
Canadian Provinces Launch Crackdown on Outfits Falsely Promising
Credit Cards and Loans for an Advance Fee
In
another aggressive sweep targeting corporations and individuals
that promise loans and credit cards for an advance fee, but
never deliver them, the Federal Trade Commission, state
Attorneys General and other state agencies today
announced the results of the latest crackdown on telemarketing
companies and individuals allegedly engaging in advance fee loan
scams. Since September 1999, over 4200 consumer complaints
against these scams were entered into Consumer Sentinel, a
multi-agency law enforcement investigative cyber tool. During
this period, advance fee loan scams ranked fourth based on the
total number of Sentinel complaints, and caused over $1 million
in consumer injury.
"Operation
Advance Fee Loan 2000"
-- a multi-agency law enforcement sweep against fraudulent
advance fee credit schemes -- is a follow-up to three previous
sweeps announced in 1996, 1997 and 1999. "Operation AFL
2000" involves five cases filed by the Commission, thirteen
actions taken by state Attorneys General and/or other state
officials, and three cases filed by Canadian law enforcement
authorities who have taken criminal actions against Canadian
advance fee loan scam operators that prey on Canadian and
American citizens.
"Advance
fee credit scams are especially outrageous because they prey on
the most vulnerable consumers who are in need of credit or a
loan," said Jodie Bernstein, Director of the Federal Trade
Commission's Bureau of Consumer Protection. "Working with
the states and our Canadian partners, we are stopping lenders
who illegally charge consumers a fee for the promise of a loan
or credit card. Our warning to these disreputable lenders is, we
will track you down and stop your illegal practices. Our message
to consumers is, don't pay for a promise -- it's illegal for
lenders to ask you to pay for credit before you get it."
According
to the FTC, fraudulent advance fee loan schemes prey on
particularly susceptible consumers -- students, the elderly, the
unemployed, the working poor, those who have bad credit ratings,
or those in immediate need of money for emergencies. Most
advance fee loan scam artists snare consumers through cold
calls, or in response to advertisements in various local
newspapers, on cable television, on the Internet and through
direct mail. Ads promising "money to loan ... regardless of
credit history" lure consumers into paying fees that range
from $45 to $149 or more, in advance of receiving
"guaranteed" loans or credit cards. In many instances,
consumers never receive the promised credit, and either never
hear from the lenders again or are merely sent credit card or
loan applications.
Under
the FTC's Telemarketing Sales Rule (TSR), a telemarketer who
guarantees consumers a loan or other form of credit, or who
claims he or she can arrange such credit for a consumer, is
prohibited from asking consumers to pay any money before they
receive the loan or credit. The Rule empowers each of the state
Attorneys General to file actions in federal court and seek an
order that applies nationwide against Rule violators. Some of
the cases announced today (see
list below)
allege Rule violations; others allege violations of the FTC Act
or state laws that prohibit unfair or deceptive practices. These
latest actions show a continuing, coordinated effort among
domestic and international law enforcement agencies to combat
such fraud.
Operation
AFL 2000 Law Enforcement Actions
In all but one of the FTC cases announced today, the defendants
were charged with violating the FTC Act and the TSR by
misrepresenting that consumers would receive a credit card for
an advance fee, and by charging a fee in advance of consumers
receiving the promised credit card; one case involving solely
direct mail solicitations charged only FTC Act violations. In
two of the FTC cases, the defendants also were charged under the
FTC Act and the TSR with misrepresenting that consumers would
receive a refund of their fee if they did not get the promised
credit. In one case, the defendants also were charged with
collecting fees without authorization or in excess of authorized
amounts and misrepresenting the same, in violation of the FTC
Act and the TSR. In addition to the actions filed by the states
and Canadian provinces (see
attached table), the FTC filed its actions
against:
Financial
Services of North America, based in Hightstown and Toms River,
New Jersey, alleging that the defendants misrepresent that
consumers who pay a $69 to $99 fee will receive a guaranteed
credit card, and that consumers' bank accounts will not be
debited, or only for authorized amounts. In fact, consumers'
accounts are debited without their authorization or in excess of
authorized amounts, and consumers only receive a discount
purchasing club membership and a credit card application, both
requiring additional fees.
First
Credit Alliance, Inc., based in Avon, Connecticut, alleging that
the defendants have operated two deceptive advance fee credit
card schemes. Consumers send in a $45 to $60 advance fee, based
on claims in direct mail solicitations that they are likely to
receive a credit card, and that they will obtain a refund if
they do not receive the promised credit card. In fact, consumers
receive neither credit cards nor refunds as promised.
Navestar
DM, Inc., based in Elmira, New York, alleging that the
defendants operate two programs charging advance fees. In the
loan program, the defendants misrepresent that consumers
purchasing the program for $45 are likely to obtain loans. In
fact, all consumers receive is information on how to obtain a
certificate of deposit placed in the consumer's bank, which
purportedly will convince a bank to extend a loan in an equal
amount. In the grant program, the defendants misrepresent that
purchasers will receive grants in exchange for payment of a $47
advance fee, and that those who do not will receive refunds. In
fact, consumers merely receive information on how to apply for a
grant.
Credit
Approval Service, based in Galveston, Texas, alleging that the
defendants falsely promise that consumers will
receive a credit card in exchange for payment of an advance fee
of $99 or $129. In fact, all consumers receive is information
about managing debt and credit card applications. The
applications provided involve either additional fees or credit
granting criteria that would preclude the guaranteed advance fee
credit card promised in the initial solicitation.
Home
Life Credit, based in El Monte, California, alleging that,
through cold call telemarketing, the defendants falsely promise
that they will provide credit cards to consumers who pay a one
time $129.95 charge, debited directly from their bank account.
In fact, they do not provide credit cards to any consumers. The
proposed defendants are as yet unnamed, because of the
telemarketer's deliberate attempts to conceal its identity and
whereabouts. However, the court has entered an order
preliminarily enjoining proposed defendants' activities and
freezing their bank accounts, pending discovery of their
identity.
At
the request of the FTC, the federal district courts in four of
the five cases have issued temporary restraining orders to halt
the deceptive practices and to freeze the defendants' assets
pending trial. In First Credit Alliance, the FTC has filed a
motion for a preliminary injunction.
The
Commission also announced today that staff had obtained a
default judgment against an advance fee telemarketer in Georgia.
In an earlier proceeding, the FTC's Southeast Regional Office
(located in Atlanta) brought an action against Gerard Wallace,
a/k/a Arshad Wallace, d/b/a Comtel Marketing & Management
Systems, alleging that Wallace was engaged in a deceptive scheme
to defraud consumers through the telemarketing of advance fee
credit cards.
On
May 25, 2000, the Court struck defendant's answer, entered a
default judgment for $28,308.24 and a permanent injunction, and
awarded the Commission $918.83 in attorney's fees as sanctions
for the defendant's failure to comply with discovery orders.
Operation
AFL 2000 Consumer Tips
The FTC and the state Attorneys General, along with our
education campaign partners, The American Financial Services
Association Education Foundation, The National Association of
Consumer Agency Administrators, and The National Foundation for
Credit Counseling, offer the following tips
for consumers to keep in mind before responding to ads that
promise easy credit, regardless of credit history:
- Legitimate
lenders never "guarantee" or say that you are
likely to get a loan or a credit card before you apply,
especially if you have bad credit, no credit, or a
bankruptcy;
- If
you apply for a real estate loan, it is accepted and common
practice for lenders to request payment for a credit report
or appraisal;
- Never
give your credit card account number, bank account
information, or Social Security Number over the telephone or
Internet unless you are familiar with the company and know
why the information is needed; and
- If
you don't have the credit offer in hand - or confirmed in
writing - and you are asked to pay, don't do it. It's fraud
and it's against the law.
The
Commission is also alerting commercial mail receiving agents
(e.g., Mail Boxes, Etc.), often used as "mail drops"
by advance fee loan scam operators, that they may be involved in
a fraudulent scheme when they are asked by a mailbox holder to
forward large volumes of mail to other addresses within the
United States or to other countries. Additionally, the FTC is
writing to more than 7500 publishers of classified ads
throughout the country to encourage them to warn their readers
that ads promising loans or extensions of credit are likely to
be scams.
The
FTC's Northeast Regional Office (located in New
York) coordinated this project for the Commission, and would
like to acknowledge the assistance provided by the following
agencies: the Elmira and Rochester N.Y. Resident Agencies of the
Federal Bureau of Investigation, New York, and the U.S. Postal
Inspection Service; the New Jersey Departments of Law and
Banking & Insurance; the Connecticut Department of Banking;
the New York Attorney General; the Texas Department of Public
Safety; the California Attorney General; and various Better
Business Bureaus.
The Commission's votes to file
the five complaints in the appropriate federal district courts
were 5-0. Financial Services of North America was filed in the
U.S. District Court, District of New Jersey, in Trenton, NJ, on
June 9, 2000. First Credit Alliance was filed in the U.S.
District Court, District of Connecticut, in Bridgeport, CT, on
June 8, 2000. Navestar DM was filed in the U.S. District Court,
Western District of New York, Rochester Division, on June 12,
2000; Credit Approval Service was filed in the U.S. District
Court, Southern District of Texas, Galveston Division, on June
7, 2000; and Home Life Credit was filed in the U.S. District
Court, Central District of California, in Los Angeles, CA, on
June 8, 2000.
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. The complaint is not a finding or ruling that
the defendant has actually violated the law. The case will be
decided by the court.
Copies of the news release and
other documents pertaining to previous advance fee loan sweeps
are available from the FTC's web site at http://www.ftc.gov
and also from the FTC's Consumer Response Center. Copies of
Advance-Fee Loan consumer education materials are available online.
Copies of the five complaints filed as part of Operation AFL
2000 are available from the FTC's Consumer Response Center, Room
130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580;
877-FTC-HELP (877-382-4357); TDD for the hearing impaired
202-326-2502. To find out the latest news as it is announced,
call the FTC NewsPhone recording at 202-326-2710.
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