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Advance Fee Card Scheme Fined $1 Million

FTC says company charged people to use fake credit cards for its own Web site

September 23, 2008

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A company had pitched its advance-fee credit cards to consumers will pay nearly $1 million in restitution. The terms against Financial Advisors & Associates Inc. and its principal James Sweet, doing business as Freedom Financial, are spelled out in a court order obtained by the U.S. Federal Trade Commission.

The agency says Freedom Financial violated the FTC Act and the agency's Telemarketing Sales Rule. For good measure, it's also accused of calling consumers who were on the national Do No Call list.

In settling the FTC's charges, the defendants will turn over virtually all of their liquid assets, as well as the proceeds from the sale of Sweet's 2000 convertible SL 500 Mercedes, to be used for consumer redress.

According to the FTC, Freedom Financial called consumers pitching an advance-fee "credit card" that could be used just like a traditional Visa or MasterCard, but which in reality only could be used to buy goods from Freedom Financial's own catalog or Web site. Before receiving the cards, consumers had to pay 10 percent of the "credit line" as a down payment--typically between $200 and $300--that was debited from the consumers' bank accounts.

The defendants also told consumers that they would repair consumers' credit scores by reporting payment histories to the major credit bureaus, but never did so.

The Commission's complaint charges the defendants with violating Section 5 of the FTC Act through their deceptive practices and violating the TSR in three ways – by failing to disclose material information concerning their credit card, calling consumers whose phone numbers are on the DNC Registry, and failing to pay the required Registry fee.

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