May 11, 2001
The Federal Trade Commission announced that College Resource Management, Inc. (CRM) has agreed to settle FTC charges of misrepresenting their ability to obtain college financial aid for students.
The settlement prohibits the defendants, based in Grand Prairie, Texas, from making any false claims in connection with the marketing and sale of college financial services and from violating the Commission's Rule Concerning Cooling-Off Period for Sales Made at Home or at Certain Other Locations ("Cooling-Off Rule"). The order also requires the defendants to pay $40,000.
According to the FTC's complaint, the defendants marketed their financial aid services through a direct mail campaign targeted to high school students and their parents. The defendants' letter stated that they had identified the student as "eligible" to enroll in their "nationally recognized college financial aid and placement assistance service," and invited the student to call a toll-free number to arrange an interview.
According to the FTC, the interviews, typically held at local hotels, were really high-pressure sales seminars at which the defendants promoted their college planning and financial aid services. These services, ranging in price from $995 to $1,068 depending upon whether parents paid up-front or over time, purportedly helped consumers obtain more financial aid than they could on their own.
The defendants told consumers they would prepare a personalized career profile for their students and find colleges that offered majors in those particular fields with the best financial aid packages, professionally analyze consumers' financial situations, prepare a personalized financial aid report, and design customized strategies to maximize the amount of financial aid consumers would likely receive.
In reality, according to the FTC, the defendants provided consumers only generalized information. The personalized career profiles typically contained only a broad, general discusssion of students' interests. The personalized financial aid reports usually presented the same financial information consumers originally submitted, and the customized strategies were typically broad, general strategies not tailored to consumers' specific financial situations. Many of the recommended strategies, such as pre-paying a mortgage or having the parent enroll in college, are not feasible or practical for most consumers.
The FTC's complaint alleges that the defendants (1) falsely represented that students were selected based upon their qualifications to participate in the defendants' financial aid program; (2) falsely represented that consumers who purchased their services were likely to receive substantially more financial aid than consumers could obtain without those services; and (3) failed to disclose, or disclose adequately, that their service agreement would be automatically renewed each year at a cost of $300 per year unless consumers wrote to cancel at least 30 days prior to the renewal date.
The FTC's complaint also alleges that between December 1996 and January 1999, the defendants falsely represented that they would refund their fee to consumers who did not obtain $2,500 in financial aid. Finally, the complaint charges the defendants with violating the Cooling-Off Rule by (1) failing to furnish consumers with "Notice of Right to Cancel" documentation that informs consumers of their right to cancel the transaction within three business days, and (2) failing to inform consumers orally of their right to cancel.
The stipulated order prohibits the defendants, in connection with the advertising, promotion, offer for sale, or sale of any academic good or service, from falsely representing, expressly or by implication, that:
- students have been identified by the defendants based on any specific criteria; consumers are likely to receive substantially more financial aid than they could otherwise obtain without the defendants' services;
- consumers will receive a refund if they do not obtain any financial aid as a result of buying any academic good or service;
- consumers are likely to receive, or that the defendants' customers have received, a specified amount of financial aid; and
- consumers will receive customized advice tailored to their specific academic planning or financial needs.
The order also prohibits the defendants from failing to disclose to consumers (a) any policy of automatic renewal, and (b) any material term, condition, or limitation on any refund policy. Further, the settlement requires the defendants to make certain affirmative disclosures in their sales presentations and advertising, including that:
- purchasing CRM's services does not guarantee that a consumer will get financial aid or get more financial aid than the consumer could have otherwise obtained without purchasing CRM's services; and
- purchasing CRM's services does not guarantee that a consumer's child will get accepted by any college or university.
In the context of "door to door sales" of any consumer good or service, the order prohibits the defendants from (a) failing to furnish consumers with "Notice of Right to Cancel" documentation, (b) failing to inform consumers orally of their right to cancel a contract within three business days, and (c) otherwise violating the Cooling Off Rule.
The FTC's scholarship scams website, gives students and parents information about spotting and avoiding scholarship scams. A fact sheet, bookmark and poster can be downloaded from the site, or are available free from the FTC, 1-877-FTC-HELP. In addition, the website links to the Department of Education's financial aid information for students.