ICFE eNEWS #11-25 - June 14th 2011

News from the Federal Trade Commission - June 2011

Penn Corner June 2011

Free Trial Offers Were Anything But Free

Free Trial Offers: A Message from the FTC

According to the FTC, an internet marketing scheme has raked in more than $450 million from people in the U.S., Canada, the United Kingdom, Australia, and New Zealand by promoting "free" or "risk-free" offers and then charging people recurring fees for products and services they didn't order. The FTC worked with Canadian law enforcers to bring charges against Jesse Willms and 10 companies he controls for marketing everything from acai berry weight-loss pills, teeth whiteners, and colon cleansers to work-at-home schemes, government grants, free credit reports, and penny auctions. People provided their credit and debit card numbers to cover small shipping and handling fees, but many were then charged for the "free" trial plus a monthly fee – typically $79.95 – and for additional products and "bonus offers." Although the defendants offered a money-back guarantee, most people weren't able to cancel the charges or get refunds.

How Not to Succeed in Business?

How Not to Succeed in Business?

Ask Russell Dalbey: The FTC has charged him with making phony claims that people could earn big bucks quickly by using his system of finding and brokering seller-financed promissory notes – privately held loans often backed by real estate. Dalbey's late night infomercial, "Winning in the Cash Flow Business," attracted thousands of people who paid from $40 to $160 each for the program. But the FTC alleged that most of them didn't earn a dime. Dalbey and company also pushed enrollment in other services – like his Protégé Program – that cost consumers hundreds or thousands of dollars more. At the same time, the FTC and the Colorado Attorney General announced a settlement with Marsha Kellogg, a consumer who offered a glowing testimonial – but one the enforcers said was deceptive – in one of Dalbey's infomercials. This is the FTC's first order against a consumer charged with making misrepresentations in a testimonial.

Every Minute Counts

Every Minute Counts

At the request of the FTC, a court has ordered Millennium Telecard Inc. to stop its allegedly deceptive marketing practices pending trial. The FTC has charged the company with misrepresenting the number of minutes its calling cards provide and failing to adequately disclose fees. The FTC conducted extensive testing of the phone cards between August 2010 and March 2011, and found that the cards delivered an average of only 45 percent of the minutes advertised. Of the 141 cards tested, 139 failed to deliver the number of minutes advertised on point-of-sale posters. In addition, the FTC has alleged that other charges – like "hang-up fees" and "weekly fees" – were disclosed in a tiny font and in terms too vague to understand.

Precious Little Value

Precious Little Value

A federal judge temporarily shut down American Precious Metals at the request of the FTC. The Commission alleged that the company called older people and conned them into buying precious metals on credit – without adequately disclosing significant costs and risks, including the likelihood that the investors would have to pay more money or lose their investment. According to the FTC, the telemarketers led the consumers to believe that their investments in metals like silver, gold, platinum, and palladium were low-risk, and that they would double or triple in value in a short time. What the company didn't disclose was that the investments were leveraged – that the investors were agreeing to take out loans and pay interest for up to 80 percent of the purchase price of the metal investment – and that the investments were subject to equity calls. According to the FTC, the scheme took in more than $37 million. Pending trial, the court froze the company's assets and appointed a receiver to oversee the business.

Paying to Play – with COPPA

Paying to Play  with COPPA

Playdom, Inc., a leading developer of online multiplayer games, has agreed to pay $3 million to settle FTC charges that its virtual worlds violated the Children's Online Privacy Protection Rule. That's the biggest civil penalty imposed to date for a COPPA violation. The FTC alleged that Playdom failed to meet two key COPPA requirements: that website operators notify parents and obtain their consent before they collect, use, or disclose children's personal information, and that websites post a privacy policy that's clear, understandable, and complete. Specifically, the FTC charged that Playdom illegally collected and disclosed personal information from hundreds of thousands of kids under age 13 without getting verifiable consent from their parents. Playdom operates 20 virtual worlds, including 2 Moons, 9 Dragons, My Diva Doll and Pony Stars.

Free Means Free

Free Means Free

The FTC has filed actions against VGC Corporation of America, Holiday Vacations Marketing Corp., and their owners for allegedly tricking consumers into paying fees for vacation packages they "won" in contests, and then failing to provide the promised trips. According to the FTC, the defendants in both cases used Spanish-language radio and TV ads nationwide that promised vacation packages to callers who answered simple trivia questions. Callers paid fees of $200 to $400 each to get their vacation packages. But when they tried to schedule their vacations, they were denied – either because they failed to meet previously undisclosed conditions or because they couldn't reach a live operator. Some callers managed to schedule a shorter vacation than the one advertised. Still, the court stopped the allegedly deceptive practices at the FTC's request, and froze the defendants' assets pending further legal action.

Maine-taining Gas and Oil Competition

Maine-taining Gas and Oil Competition

Under an agreement with the FTC, Irving Oil must relinquish rights to terminal and pipeline assets in the South Portland and Bangor/Penobscot Bay areas to preserve competition and prevent higher gasoline and diesel prices in Maine. Terminals, which include storage tanks and loading racks that pump fuel into tanker trucks for delivery, are critical to the sale and distribution of fuels, including gasoline. Irving Oil acquired these assets from ExxonMobil. Under the agreement, Irving also must notify the FTC before it acquires additional ownership interests in any petroleum products transportation or storage facilities in Maine.

"Let's be clear: Whether you are a virtual world, a social network, or any other interactive site that appeals to kids, you owe it to parents and their children to provide proper notice and get proper consent."

— Chairman Jon Leibowitz, on the FTC's settlement with Playdom Inc.

Stolen Futures: A Forum on Child Identity Theft

Due to growing concerns about child identity theft, the FTC and the Department of Justice are co-sponsoring a one-day event on July 12. Stolen Futures: A Forum on Child Identity Theft will be hosted at 601 New Jersey Avenue, N.W., in Washington, D.C. The Forum is free and open to the public.

Dot Com Disclosures

The FTC issued guidance on dot com disclosures 11 years ago, before Facebook and mobile apps, before iTunes and Twitter. It's time to see whether revisions are called for. FTC staff has asked 11 specific questions about dot com disclosures and is seeking your thoughts. File your comments online by August 10.


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Paul Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

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