A group of buying clubs including Triad Discount Buying Service Inc., a Boca Raton-based business, its related companies and their operator, Ira Smolev will pay more than $9 million to settle charges brought by the Federal Trade Commission and state Attorneys General that they misled consumers into accepting trial club memberships and obtained consumers' billing information from telemarketers without the consumers' knowledge or authorization. Consumers then were enrolled in the clubs and charged up to $96 in yearly membership fees. Of the amount to be paid, $8.3 million is earmarked for consumer restitution and $750,000 will cover state investigative costs. The multi-state investigation, which was led by Florida and Missouri, resulted in more than 40 states entering into the agreement.
"This case signals to companies offering trial offers that they must disclose the important terms and conditions of their offers and obtain consumers' agreement before transferring their billing information to third parties or charging their credit cards," stated FTC Chairman Timothy J. Muris.
"Companies that do not take these steps will face coordinated federal and state attention," he added.
"Working together, the state Attorneys General and the FTC have provided for fair restitution to victims of Triad's past marketing abuses while safeguarding against future misconduct," stated Florida Attorney General Bob Butterworth. "In the process, we have served notice that state and federal officials are ready to unite against any marketing practices designed to pick consumers' pockets."
The FTC charged the Triad companies with deceptively signing up buying club members through more than 100 contract telemarketers. These telemarketers generally advertised products such as kitchen gadgets and diet pills to consumers via outbound calls and through media advertising, direct mail, or catalogs that result in inbound calls. After consumers provided their credit card number to pay for the telemarketer's product, the telemarketer pitched a 30 day "no obligation" free trial in Triad's buying club. Once consumers agreed to the free trial, and in many instances even when they did not agree, their names and credit card numbers were transferred by the contract telemarketer to the Triad companies. Within 45 days, the Triad companies charged membership fees to the consumers' credit cards without their knowledge or authorization unless they had called to cancel their trial membership.
According to the Commission's complaint, the scripts did not disclose or adequately disclose that the consumers' credit card numbers would be turned over to a third party, Triad, or that Triad would charge consumers if they did not cancel their trial membership within the 30 day period. The scripts also failed, according to the complaint, to disclose or to disclose adequately that in following years, consumers' credit cards would be charged annual renewal fees, unless consumers cancelled.
Under the court agreement, approximately 275,000 consumers who filed complaints against Triad companies nationwide may be eligible for partial membership refunds from the companies pending court approval.
"This should send a strong message that large-scale consumer fraud will not be tolerated," Missouri Attorney General Jay Nixon said. "This settlement ensures that thousands of consumers will receive timely restitution and that safeguards are in place to prevent this deception from reoccurring."
Smolev, as well as the Triad companies, some of which are currently in bankruptcy court, are required to drastically revise their marketing practices to avoid future deceptions. Included in the Order are prohibitions against misrepresenting "free" offers of goods or services and failing to disclose any consumer obligations by accepting trial offers. The companies are also prohibited from obtaining from third parties consumers' personal billing information, including credit and unique identifying information, without authorization, or disseminating the information, and from signing up new members or renewing existing memberships without express, verifiable authorization from the consumer. The Order also enjoins violations of the FTC's Telemarketing Sales Rule and requires the Triad companies to retain a third party monitor to oversee their future business operations and report to the FTC. In addition, the Order requires Ira Smolev to maintain a $1.5 million escrow account before he markets goods or services to the general public or assists others engaging in telemarketing.
The parties named in the court order include: Ira Smolev, Triad Discount Buying Service, Inc., Member Service of America, L.L.C., Orchid Associates, L.L.C., Premier Membership Services, L.L.C., Inter*Act Travel, Inc., Inter*Act Communications, Inc., Consumer Data Depot, L.L.C., ERevenue Partners, L.L.C., Far Services, L.L.C., Linden Investments, L.L.C., Lynstrom Information Service, L.L.C., Premier Club Services, L.L.C., Premier Marketing Services of America, L.L.C., Residents Resource Network, L.L.C., Revenue Solutions, L.L.C., Spanish River Investors, L.L.C., The Backend Company of America, Inc., The Shoppers Edge, L.L.C., Triad Marketing Group, Inc., and Tritell of Nevada, L.L.C., and the corporations' successors and assigns.
The complaint was filed in the U.S. District Court for the Southern District of Florida in West Palm Beach on October 23, 2001.
The Commission vote to file the complaint was 5-0.
Today's actions are part of an ongoing FTC/state effort to monitor and investigate abuses in the marketing of buying clubs and other services using negative option techniques and pre-acquired account information. The FTC's monitoring efforts are in response to the dramatic increase in complaints about buying clubs, rising from 26th in 1998, to the 11th most frequently complained about subject in 2000.
The FTC has a consumer education brochure and a Consumer Alert on free trial offers. The FTC urges consumers to protect themselves through the following tips:
Before you give the okay to a free trial offer, ask the seller:
If you have a complaint:
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.
NOTE: Stipulated final judgments are for settlement purposes only and do not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the complaint, stipulated final judgements, and the consumer education materials on free trial offers 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 U.S. and abroad.
(FTC File No. 992-3255)