Current Events in July 2002

July 31, 2002
A federal court has ordered Medicor LLC to pay more than $16.5 million in redress for consumers who were victims of the company's medical billing scam.

In March 2001, the Federal Trade Commission charged the Van Nuys, California-based company and its principals, Andrew Rubin and Matthew Rubin, with engaging in a variety of fraudulent practices.

The FTC alleged that the defendants engaged in a telemarketing scheme from mid-1999 to 2001 in which they deceptively sold work-at-home medical billing opportunities to more 40,000 people. Typically, consumers responded to advertisements in local newspapers touting large salaries and the need for at-home workers to perform medical billing work for doctors in their community.

When consumers called the defendants' toll-free number, telemarketers made additional claims. Specifically, the FTC's complaint alleged that the defendants misrepresented: 1) how much consumers who purchased the medical billing opportunity would earn; 2) that the defendants would arrange for consumers to receive medical billing work from physicians; and 3) that consumers would readily obtain refunds upon request. The defendants charged consumers $375 for the supposed opportunity.

On July 18, 2002, the U.S. District Court for the Central District of California granted the FTC's motion for summary judgment against the defendants, entered a judgment for the full amount of consumer redress, and issued a permanent injunction against all defendants.

In addition to ordering the defendants to pay restitution to consumers and disgorge ill-gotten gains, the Court permanently barred the defendants from the promotion, advertising, marketing, sale, or offering for sale of any medical billing work-at-home opportunity.

The Court's order also prohibits the defendants from engaging in, or assisting others in engaging in, deceptive acts or practices in the business of telemarketing. The order further enjoins the defendants from making, or assisting others in making, any false or misleading oral or written statement or representation in connection with the promotion, advertising, marketing, sale, or offering for sale of any work-at-home opportunity, product, service, or investment.

July 18, 2002
A federal district court has ordered a temporary halt to an Arizona-based telemarketing operation which, according to the Federal Trade Commission, has used deceptive and unfair practices to bilk consumers across the country out of millions of dollars.

The FTC charges that Harvey Sloniker and Tye Sloniker telemarketed non-existent products and services through a maze of interrelated companies, which include the corporate defendants Corporate Marketing Solutions, Inc., Corporate Industries, Inc., ATM Machine Wrap, Inc., Bankcard Recovery Services, Inc., Direct Wireless+, Inc., National Consolidation Foundation, Inc., and Sierra Management Properties, Inc.

At the Commission's request, the court froze the defendants' assets, and appointed a temporary receiver pending a hearing on the FTC's motion for a preliminary injunction. The FTC sought this relief to bring an immediate halt to the defendants' fraud and to prevent the destruction of evidence and dissipation of assets pending the preliminary injunction hearing.

The complaint, filed in the U.S. District Court for the District of Arizona, alleges that since at least 1998, the Slonikers and their various companies have been engaged in deceptive telemarketing on behalf of a string of third-party client companies. According to the FTC, the defendants operated numerous telemarketing boiler rooms known as "contract rooms" that employed large numbers of telemarketers trained to deceive consumers. From these contract rooms, the defendants sold non-existent credit cards and bogus identity theft and telemarketing fraud protection services to consumers for hefty advance fees, the FTC alleged.

The complaint alleges that the defendants violated the FTC Act and the Telemarketing Sales Rule by engaging in numerous misrepresentations in the sale of advance-fee credit cards and various consumer fraud protection services. The defendants often began their sales pitches by representing to consumers that they are affiliated with, or calling on behalf of, a bank or financial institution or, depending on the product or service, a consumer protection agency. They then represented that the consumer had been pre-approved for a major credit card, such as a VISA or Mastercard credit card, and was guaranteed or highly likely to receive such a card in exchange for an advance fee. In some instances, the defendants also represented that the consumer will receive additional bonus products or services in conjunction with obtaining a credit card. In fact, according to the complaint, the defendants are not affiliated with any banks, financial institutions or consumer protection agencies, and no consumers ever received the promised credit cards or the promised bonus products or services.

The complaint further alleges that the defendants represented to consumers that criminals are stealing from the Internet consumers' personal information, such as their social security numbers and credit card numbers. The defendants then allegedly told consumers that without the defendants' protection service, the consumers would be liable for any unauthorized charges on their credit card accounts. The defendants promised the consumers that, in exchange for a fee, they would remove the consumers' identity information from the Internet and remove the consumers' names from lists used by telemarketers and merchants. According to the FTC, neither of these alleged services was ever performed by the defendants, nor are they even possible to perform.

The complaint also alleges that the defendants routinely obtained consumers' personal financial information through false pretenses, and that this practice constitutes illegal "pretexting," which is a violation of Section 521 of the Gramm-Leach-Bliley Act. In addition, the complaint alleges that the defendants engaged in the unauthorized charging or debiting of consumers' credit card or bank accounts, in violation of the FTC Act.

July 11, 2002
Faxing can get expensive but Newbold Toyota-BMW of O'Fallon, IL, had no idea it would run up a potential tab of $6.5 million.

That's the amount the suburban St. Louis car dealer has agreed to pay to settle a class-lawsuit over the unsolicited "junk fax" advertisements it sent to more than 33,000 businesses and homes in the 314 and 636 area codes in early 2001.

Unsolicited fax advertisements are barred by federal law, the Telephone Consumer Protection Act, which provides heavy fines for each unsolicited fax. The dealership's owners claimed they didn't know that when they hired a company to conduct the fax blitz.

Under the settlement reached by Newbold and the attorneys representing the plaintiffs, anyone who received a junk fax from the car dealer can claim up to $500 for each fax received. A judge must still approve the proposed settlement.

A notice of the settlement has been sent -- by fax, no less -- to each of the 33,000 numbers turned over by the company that conducted the fax blast. That company, American Blast Fax of Dallas, has since used its last roll of fax paper and gone out of business.

July 8, 2002
Home Depot has agreed to stop treating gift cards like cash if they are lost or stolen. Instead, in a settlement with the New York attorney general, Home Depot agreed to replace a lost or stolen card, assuming the customer has proof of purchase and valid identification.

The new policy will be applied nationally, Home Depot said.

Attorney General Eliot Spitzer said he hopes the Home Depot settlement will influence other merchants. He had argued that Home Depot violated state law by misrepresenting its ability to deactivate lost or stolen cards and replace them with a new card good for the remaining balance. Home Depot denied any deception but agreed to pay $45,000 to reimburse the state for its investigative costs.

However, gift cards still offer less protection than traditional credit cards, which limit a consumer's loss due to fraud to $50. While Home Depot says it will replace lost or stolen cards, the consumer could still be stuck losing any amounts charged to the card before it is deactivated.

In addition, consumers cannot contest disputed purchases as easily as they can with a credit card. And, of course, the cards are good only at the store or chain which issues them, meaning the recipient can't shop around for the best value.

As consumers buy higher-value cards, the losses can rise sharply. For example, Home Depot offers gift cards up to $2,500. Consumers are increasingly buying higher-value cards -- to surprise a spouse with the funds for a kitchen remodeling, for example.

Stephen Brobeck, executive director of the Consumer Federation of America, said the agreement seems to balance a retailer's desire to guard against fraud and a customer's claim to the remaining balance. "That seems to be a very fair resolution," Brobeck said, considering the technology used to track purchases.

July 3, 2002
Canoga Park, California-based D.C. Credit Services, Inc. and company co-owner, David Cohen, have agreed to pay a $300,000 civil penalty as part of a settlement of Federal Trade Commission charges that they violated the Fair Credit Reporting Act (FCRA) and the Fair Debt Collection Practices Act (FDCPA).

The settlement also would require the defendants to notify consumer bureaus to delete all adverse information the defendants furnished them over the past seven years. The consent decree would permit the defendants to re-report such adverse information only if, upon proper examination, they determine that the adverse information is accurate and reportable.

The 1997 amendments to the FCRA for the first time imposed legal duties on debt collectors, and others that furnish information to credit bureaus, regarding the accuracy of that information. According to the FTC's complaint, D.C. Credit Services and Cohen violated the FCRA by:

• furnishing information to a consumer reporting agency when they knew or consciously avoided knowing that the information was inaccurate;
• failing to notify promptly a consumer reporting agency that previously-furnished information is incomplete or inaccurate, after defendants had so determined;
• furnishing adverse information to consumer reporting agencies without disclosing that the consumer previously had disputed the information being reported; and
• falsely reporting the date of delinquency of a debt.

Further, according to the FTC's complaint, in connection with the collection of debts, the defendants violated the FDCPA by:

• using language whose purpose is to harass, oppress, or abuse consumers;
• communicating, and threatening to communicate, adverse credit information that the defendants knew or should have known was false; and
• furnishing adverse information to consumer reporting agencies without disclosing that the consumer had previously disputed the information being reported.

Both D.C. Credit Services and David Cohen had previously executed consent decrees in 1992, relating to violations of the FDCPA.

In addition to requiring payment of the $300,000 civil penalty, the consent decree prohibits the conduct alleged in the complaint, prohibits other violations of the FCRA or FDCPA, bans defendant David Cohen from future debt collection activity, and includes provisions designed to correct inaccurate information previously reported to consumer reporting agencies by D.C. Credit Services.

The decree provides for a complete and permanent occupational ban on David Cohen's involvement in debt collection, to become effective on October 1, 2002. Until that time, the decree provides that Cohen must cease having personal contact with consumers in connection with debt collection by D.C. Credit Services.