Current Events in May 2009

The Federal Trade Commission is conducting a review of its "negative option" rules, a process that could lead to tougher regulations on the practice that critics say often turns "no" into "yes."

Simply put, negative option turns the sales transaction around. Instead of the merchant having to "sell" you a product or service, it starts with the assumption that you've already bought it. It's up to you, the consumer, to contact the merchant and cancel the order if you don't want to complete the transaction.

The Columbia Record Club and various "book-of-the-month" clubs were pioneers of negative option marketing. The hook was an offer of five or ten books or records for free or at a heavily discounted price.

By accepting the offer, the consumer agreed to "join" the club and receive regular shipments of other books or records at the full price, unless the consumer took the "negative option," telling the company it did not want to receive that month's offering. As you might expect, negative option has been abused as its use has become more prevalent.

The commission's rule currently regulates this rather traditional type of negative option marketing -- so-called prenotification negative option plans for the delivery of merchandise. In this type of negative option marketing, consumers receive periodic announcements that merchandise will be delivered unless they decline the items within a set time.

But negative option marketing is also how consumers end up enrolled in memberships that get charged to their credit cards, often without their knowledge or consent. These transactions don't always fall under existing FTC rules.

Previous crackdowns

In 2001, the Federal Trade Commission cracked down on negative option abuses, suing nine companies for charging customers' credit cards for products or services without gaining their express approval.

The new rule that's currently open for public comment would require sellers to clearly and conspicuously disclose the material terms of a prenotification negative option plan to consumers before they subscribe and to follow certain procedures in operating the plan. The rule enumerates seven material terms that sellers must disclose clearly and conspicuously.

In addition, the rule requires sellers to follow certain procedures, including:

• abiding by particular time periods during which sellers must send introductory merchandise and announcements identifying merchandise the seller plans to send;

• giving consumers a specified time period to respond to announcements;

• providing instructions for rejecting merchandise in announcements; and honoring promptly written requests to cancel from consumers who have met any minimum purchase requirements.

The FTC's notice asks standard rule review questions, including whether there is a continuing need for the rule, its benefits and costs, and what modifications, if any, should be made to account for changes in market-relevant technology or economic conditions.

In addition, the notice solicits comments on whether the Commission should expand the Rule to address additional types of negative option marketing. The notice contains information about how the public can submit comments, which are due by July 27, 2009.

The proposed rule and instructions on how to comment are available online.

Read more: "Negative Option: When No Means Yes"

May 12, 2009
The marketers of a work-at-home scam who led consumers to believe they could earn $500 or more per week processing medical bills and would receive training and access to customers have agreed to settle Federal Trade Commission charges that their deceptive claims violated federal law. The settlements bar future violations and require them to pay more than $15,000 in consumer redress.

The FTC sued the defendants in February 2005 as part of a crackdown on deceptive business opportunity and work-at-home schemes. The defendants agreed to a court order that barred them from further violations and froze their assets. Subsequently, the defendants were found to be in contempt for violating the order.

The settlement with Chris Taylor and Medical Billers Network Inc. (MBN) bars them from misrepresenting material facts in any medical billing employment opportunity, work-at-home opportunity, or business venture, and from making earnings claims without a reasonable basis and supporting materials.

Taylor and MBN are also barred from misrepresenting material facts in the sale of any goods or services, such as the total cost; any restrictions, limitations, or conditions; and the nature or terms of a refund, cancellation, exchange, or repurchase policy. They are also prohibited from violating the Telemarketing Sales Rule, including failing to disclose any refund, no-refund, cancellation, exchange, or repurchase policy before a customer pays.

The settlement with Wilson Jose Caceres and Caceres Quality Distribution Inc. (CQD) permanently bans Caceres from marketing or selling any medical billing employment opportunity, work-at-home opportunity, or business venture. In addition, Caceres and CQD are prohibited from misrepresenting material facts in the sale of any goods or services, violating the Telemarketing Sales Rule, and failing to disclose any refund, no-refund, cancellation, exchange, or repurchase policy before a customer pays.

The settlement with Taylor and MBN imposes a $4 million judgment against them and a $840,000 judgment against relief defendant Knarek Kalantaryan. The settlement with Caceres and CQD also imposes a $4 million judgment. The judgments are suspended based on the defendants inability to pay. The full judgments will be imposed if they are found to have misrepresented their financial condition. Under the settlements, Taylor and Caceres must pay the FTC about $15,000 in ill-gotten gains.

The settlements bar the defendants from selling or otherwise disclosing personal information about anyone who paid them. The settlements also contain record-keeping and reporting provisions to allow the FTC to monitor compliance with the orders.

The parents of a Minnesota teenager who died on a 2007 People to People trip to Japan are outraged by the organizations latest marketing tactics: Sheryl and Allen Hill learned People to People recently used their deceased sons name, without their permission, in a letter designed to recruit more students to participate in the organizations Student Ambassador Programs.

It hurts, Sheryl said, fighting back tears. We feel tormented by themthey never stop. They continue to torment my family and my community.

Tyler Hill, 16, died in a Tokyo hospital on June 29, 2007, after People to People's delegation leaders allegedly failed to get him the medical attention he requested.

Tyler had Type 1 diabetes and complex migraine headaches — conditions his parents disclosed before their son left on his overseas journey. People to People, an organization that touts its ties to former President Dwight D. Eisenhower, assured the Hills it had a solid safety record and a 24-hour response team that could handle any medical emergency.

That failed promise is at the heart of a wrongful death lawsuit that is currently pending in Minnesota's Hennepin County District Court. The lawsuit alleges the organization and its delegation leaders refused to get Tyler the medical attention he requested after he and his group hiked Mount Fuji — and charges that his death was the result of their negligence.

Now the Hills have learned that People to People failed to honor another promise — to remove Tylers names from the organizations database. Last month, People to People sent a letter, using Tylers name, to Judd Griffith of Mound, Minnesota. Hes the Hills' friend who recommended Tyler for the 2007 trip to Japan.

Thank you for your prior support of People to People Student Ambassador Programs by providing a recommendation for Tyler Hill, states the letter, which is signed by Mary Jean Eisenhower, President and CEO of People to People International and President Eisenhowers granddaughter. The information you supplied was invaluable during our delegate interview and selection process.

The letter invites Griffith to nominate other students to participate in a 2010 People to People Ambassador Program.

Having served as a reference for a Student Ambassador candidate, you are already familiar with our program and likely know other outstanding young people who would contribute to and gain from an educational journey, Eisenhower writes.

Incensed

The letter incensed Griffith.

Whats disturbing to me is that I know in my initial letter I attested to Tylers character, and in that, I related a story about the health issues hes had and how hes overcome them, Griffith says. What bothers me about this letter is that it states my initial letter was used to evaluate, interview, and determine if he (Tyler) was a candidate. And yet look at how they failed miserably to care for him.

This (diabetes) was a known issue that Tyler had and they absolutely failed (to care for him). Why cant they come out publicly and say we really messed up? he asked. Griffith is also appalled that People to People would use Tylers name to lure more students.

To have this letter come and ask me for more names was a real slap in the face and a wake up call as to how they do or dont do business, he says, adding hes had pangs of sorrow that Tyler became involved with the organization. And then to read Mary Eisenhowers name of itthat totally incensed me that they could be so brain dead and not have a conscience."

The Hills understand their friends anger and appreciate his concern.

I know Judd was so hurt by this, Sheryl told us. He was also furious. I am so angrywe dont deserve this. We were guaranteed that they took our sons name out of their database shortly after he died.

Not what it seems?

Although the letter is signed by Mary Jean Eisenhower — and refers to her famous grandfather — it did not come from the non-profit People to People International based in Kansas City, Missouri.

The postmark and address on the letter go to the for-profit Ambassadors Group, Inc., a publicly traded company (EPAX) based in Spokane, Washington. That company markets the educational trips for students using People to Peoples letterhead and handles all the travel arrangements.

Some of the programs the company promotes include:

• People To People Student Ambassador Programs;
• People To People Sports Ambassador Programs;
• People To People Leadership Programs; and
• People to People Citizen Ambassador Programs.

During a previous interview with ConsumerAffairs.com, Eisenhower told us her organization has partnered with the Ambassador Group since 1963: Weve had a long, legitimate relationship with them, she said. Theyre more than a travel agency. They do all our logistics.

The Ambassador Group also puts money in People To People Internationals coffers. Revenue generated from the trips it markets goes into People To People Internationals operating budget.

Jeffery D. Thomas is president and CEO of Ambassadors Group, Inc. We contacted him about the People to People letter that uses Tyler Hills name. He did not return our call. ConsumerAffairs.com also contacted Mary Jean Eisenhower about the letter that uses Tylers names. A spokeswoman for People to People International referred us to attorney, Don Lolli. He did not return our call, either.

Not the first time

This isnt the first time consumers have complained about the marketing tactics used by People to People. In recent years, ConsumerAffairs.com has repeatedly exposed how People to People used misleading marketing tactics to recruit students for its expensive, overseas trips.

Our stories revealed:

• The organization came under fire in 2005 by the Iowa Attorney General's office for sending a letter to a mother, which stated her son was named for a Student Ambassador trip overseas. Her son, however, had died in 1993. He was seven weeks old. Iowa officials did not take legal action against People to People. The organization later donated $5,000 to Iowa's SIDS Foundation and $20,000 to Blank Children's Hospital in Des Moines;

• The organization has twice in recent years sent recruitment letters for its overseas programs to the parents of a deceased baby girl in Florida. The couple's daughter died from multiple birth defects in 1992. She was 18 days old. People to People said it was "absolutely devastated" this happened and blamed the company that compiled its mailing lists for the errors;

• In 2006, the organization sent a recruitment letter to the parents of an Earl Gray in Arkansas. Earl Gray, however, was the couple's white, one-eyed, cat. He died ten years earlier and is buried in the family's back yard. He was 14-years- old;

ConsumerAffairs.com has also heard from scores of parents nationwide who say the organizations letters — which arrive in official looking envelopes that hype People to Peoples ties to eight former presidents — duped their children into believing they were specially chosen for these trips, which cost an average of $5,000.

My bright, artistic, 4th grade daughter (9 1/2 years old) came home from school very proud one day, says Dena L. of Verona, Pennsylvania. Her teacher told her that she was choosing my daughter out of the whole school and that we would get information about it in the mail.

Well, today, the teacher sent home the letter she received from People to People, asking her to nominate her best students. At first read, my heart swelled. I thought, my little girl has been picked for something very special.

On closer examination, though, Dena discovered this wasnt the honor it appeared.

Some text of the letter, supposedly from Eisenhower's granddaughter states: I am pleased to invite you to nominate your most outstanding students to attend the People to People World Leadership Forum in the 2009-2010 academic year, Dena told us. After reading a second time, I thought, students? If it were truly selective, multiple nominations wouldn't be offered to the teacher.

Dena researched People to People and learned its letters have deceived many parents — and their children.

At the end of the day, I am totally honored that my daughter's teacher thought so much of her to nominate her for what she thought was an adventure, Dena says. (But) the application will go in the trash and I will let my daughter's teacher know that P2P isn't what they claim to be.

She added: The whole thing breaks my heart. It is a crying shame that Presidents' names are on this letter disgusting! After reading that P2P doesn't even run the trips, (it) makes me sick. This isn't a harmless nomination scam like Whos Who in high school. This has a real potential for misleading parents and children.

People to People acknowledges that all students its contacts arent specially chosen for the trips. The organization admits its uses list service companies that compile and sell the names of students nationwide.

Eisenhower has also told us the organization gets names from parents and teachers who nominate students. Other nominations, she said, come from those whove traveled with the organization. Private individuals can also nominate students on the organizations Web site.

But ConsumerAffairs.com discovered People To Peoples Web site doesnt ask for any supporting information about the studentor their qualifications for the program.

Not even human

It also doesnt do background checks on the nominees to verify theyre even human.

Consider the 13-year-old, who recently told us she nominated her brothers pet iguana for one of People to Peoples trips. The lizard later received a letter from People to People stating he had achieved academic excellence and been nominated by a teacher.

This goes to show that there is not even a basic check on names submitted to this organization, the student told us. It is a complete scam.

Some parents also say People to People refused to refund their money — even when they had to cancel their childs trips for medical reasons. Thats what happened to Donna T. of Lawrenceville, Georgia. Her son, Nick, couldnt go on his People to People trip because of serious health issues.

I called the 800-number (for People to People) today to find out about receiving my down-payment refund and I was told that he would only receive $155 of the $400 back, she told us. When I asked about the other $245, I was told by Annette that the $245 was for insurance. Insurance for whom? My son isn't attending.

Donna is furious that People to People wont issue refunds when students cant take the trips for medical reasons.

I was trying to get my son to Europe, an opportunity that he may never get, and because of his health issues, he cannot attend, she says. Now, this really sounds like a racket. I am mad. I am a single mother whose child has taken a drastic turn for the worse (unexpectedly) in his health. I wanted to give him this and now he can't go, through no fault of our own."

She adds: I will be very curious to find out how many people have been taken in by this scam. I will not stop until this is stopped — and I get my entire $400 back. Furthermore, when I called this morning and talked to Annette and explained to her that my son might be dying, she basically laughed and said too bad, I signed a document and I'm only going to get the $155 back.

But medical issues apparently arent worrisome to People to People, which continues to brag about its health and safety record, even in the wake of Tyler Hills death.

For over 50 years, People to People Ambassador Programs has helped more than 400,000 program participants travel to seven continents while maintaining an extraordinary track record of safety, the organization states on its Web site.

People to People also continues to tout its ties to former President Eisenhower, claiming he founded the organization. Mary Jean Eisenhower reiterated that claim in the marketing letter that uses Tyler Hills name.

Through this experience, students can enhance their academic achievements while fulfilling the vision my grandfather, President Dwight D. Eisenhower, had for promoting peace through understanding when he founded People to People International in 1956, she writes.

Founding documents

But President Eisenhowers name is not listed on the incorporation records filed with the Missouri Secretary of States office for a non-profit organization called People to People.

The purpose of that organization, founded on October 31, 1961, is to encourage and promote in every way possible contacts between citizens of the United States and people of other lands, that will increase understanding to the end that there may be a lasting and enduring peace. This non-profit People to People organization was incorporated by Alfred Frankfurter, Franklin Murphy, and Joyce C. Hall, according to records with the Missouri Secretary of States Office.

A New York Times story dated June 10, 1958, states the People to People Foundation was formed to "implement a 1956 proposal by President Eisenhower to promote international understanding. That non-profit foundation, the paper wrote, was organized in 1957 and President Eisenhower served as its honorary chairman. The 1958 Times article also stated that the People to People Foundation had recently dissolved because it had served its purpose.

Back in Minnesota, the Hills have contacted postal authorities about People to Peoples marketing letter that uses their sons name without their permission.

ConsumerAffairs.com has also learned the Hills recently reached a confidential agreement with People to People International in the wrongful death lawsuit they filed in connection with their sons death.

Litigation, however, is still pending against the other parties named in that action: The Ambassadors Group, Inc., People to People Student Ambassador Programs, a United Kingdom organization called docleaf Limited, and the delegation leaders on Tyler's trip. A trial date is set for July in that case.

More about People to People

By Truman Lewis
ConsumerAffairs.com

May 12, 2009
For years, cigarette smokers have paid a whopping "sin tax" each time they buy a pack of coffin nails. Now the Senate is savoring the notion of doing something similar with soft drinks and other sugary confections. Proceeds would help finance comprehensive health care.

The Senate Finace Committee has a session scheduled today to hear varying proposals from experts who've been looking for ways to help finance President Obama's proposed universal health care plan, expected to cost $1.2 trillion.

Among the leading proponents of the idea is the Center for Science in the Public Interest (CSPI), a longtime crusader for less sugar, salt and other harmful food additives. It advocates a federal excise tax on sugary sodas as well as energy and sports drinks and sweetened tea drinks. Diet sodas would get a free ride.

Current thinking is that a tax of three cents per 12-ounce drink would generate about $24 billion over the next four years. That's a mere drop in the health-care bucket but CSPI founder Michael Jacobson says it's long overdue.

He calls soda "one of the most harmful products in the food supply" and thinks the tax would discourage consumers from slugging down so much of the stuff. Jacobson notes that sugary drinks contribute to obesity, diabetes and other modern scourges. He says at least a dozen states already tax sweetened drinks.

There's general agreement among researchers that liquid calories are a bigger health risk than those that come from solid foods. A study just last month found that sugary beverages had a stronger impact on weight than solid calorie intake. A study in the journal Pediatrics in 2006 showed a direct correlation between weight gain in teenagers and the consumption of soda and other sugary drinks.

Also in 2006, researchers at the Harvard School of Public Health reviewed the most credible scientific nutrition studies conducted over the last 40 years and found that one-third of all carbohydrate calories in the American diet come from added sweeteners. Of that total, the study claims, beverages account for about half those calories.

Research reported at a national meeting of the American Chemical Society in 2007 found that soft drinks sweetened with high-fructose corn syrup may contribute to the development of diabetes, particularly in children.

The beverage industry, not surprisingly, isn't sweet on the idea. The American Beverage Association argues that a tax won't teach children how to have a healthy lifestyle and claims the tax would unfairly target lower-income Americans.

The idea may not go down well with voters either. New York recently backed off a proposal to levy an 18 percent tax on sugary drinks despite experts' ringing endorsement of the idea.

Yale obesity expert Kelly Brownell and New York Health Commissioner Thomas R. Frieden were both among the supporters of New York's proposed penny-per-ounce tax, which they argued could reduce consumption by more than ten percent and raise $1.2 billion a year in New York state alone.

The Federal Trade Commission has charged a home mortgage lender and its owner with violating federal law by charging Hispanic consumers higher prices for mortgage loans than non-Hispanic white consumers — price disparities that cannot be explained by the applicants credit characteristics or underwriting risk.

The FTC seeks to bar future violations by Golden Empire Mortgage, Inc., of Bakersfield, Calif., and obtain redress for consumers.

Mortgage lenders must ensure that pricing discretion does not lead to illegal pricing discrimination, FTC Chairman Jon Leibowitz said. The FTC will continue to enforce the fair lending laws so that American borrowers are treated equally based on their credit — not their race, national origin, or gender.

According to the FTCs complaint, Golden Empire violated the Equal Credit Opportunity Act (ECOA) in pricing mortgage loans. They allegedly gave loan officers and branch managers wide discretion to charge, in addition to the risk-based price, overages through higher interest rates and higher up-front charges. The defendants allegedly paid loan officers a percentage of the overages as a commission and failed to monitor whether Hispanic consumers were paying higher overages than non-Hispanic white borrowers.

The complaint alleged that the companys policy and practice of allowing loan officers to charge discretionary overages resulted in Hispanics being charged higher prices because of their national origin price disparities that are substantial, statistically significant, and cannot be explained by factors related to underwriting risk or credit characteristics of the applicants.

The ECOA and its implementing Regulation B bar creditors from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age, or the fact that an applicants income is derived from public assistance.

More information about consumers rights under the ECOA is available online.

Older Americans who draw Social Security benefits are getting an extra $250 payment from the government. But if they fall for the latest Social Security scam, they stand to lose a lot more.

The $250 checks are part of the governments recently-passed economic stimulus program. Retirees are getting the extra payment to help cope with the economic downturn and, hopefully, spur the economy by making some extra purchases. About 52 million people are scheduled to receive the checks.

But the Social Security Administration is warning that scammers have been sending out spam email, promising urgent news about the stimulus payment.

If recipients click on the link in the email, they will go to a Web site that, in all appearances, looks like a government site. However, its really the scammers site, designed to elicit sensitive information such as Social Security numbers, bank account numbers and date of birth.

With that information, scammers can clean out victims bank accounts or open new lines of credit in their names, without their knowledge.

AARP says some of the problem stems from the fact that the government has changed the way that retirees receive their stimulus money. Last year, only those people who filed a tax return received a rebate check. If Social Security recipients did not file a return, they didnt receive a payment.

This year you dont have to file a return to collect a check. The check will be sent automatically. Instead of coming from the IRS, the way it did last year, this years payment will come from the Social Security Administration. This change, AARP says, is part of the reason for the confusion.

Social Security recipients should be highly suspicious of anyone who claims they can help them secure their stimulus payment usually in exchange for a fee. The Social Security Administration says no assistance is necessary the check will be mailed directly to the consumer.

May 11, 2009
The rise in Aprils unemployment rate to 8.9 percent was greeted in some quarters as less bad news because the number of newly unemployed actually went down. But a closer look at the numbers reveals some grim news for baby boomers nearing retirement.

A breakdown of the Labor Department report shows the unemployment rate for older workers -- those age 55 and older -- hit an all-time record last month. According to the report, nearly 1.85 million older workers were unemployed in April, an unemployment rate in that group of 6.4 percent.

Besides losing their income, AARP says older workers are also losing health insurance coverage, at a time in their lives when they really need it.

Speaking at the Senate Finance Committees roundtable on expanding health care coverage, AARP President Jennie Chin Hansen said there are now more than 7 million Americans between the ages of 50 and 64 who lack health coverage.

Comprehensive reform to provide affordable coverage to all Americans could not be more urgent, as coverage losses are snowballing in our current economy, she said. One recent report estimated that 4 million Americans have lost coverage since the recession began, and as many as 14,000 may be losing coverage every day. This is on top of 46 million who lacked coverage in 2007.

Chinn said Americans between ages 50-64 are especially vulnerable, since they are not yet eligible for Medicare. The problem is made worse, she said, by growing unemployment.

People in this age range who lose job-based coverage often find it impossible to get affordable individual coverage because insurers consider age and pre-existing conditions when setting rates and most Americans in this age range have one if not several such conditions, Hansen said.

Chinn said AARP is seeking a policy that would make coverage affordable for everyone by:

• Guaranteeing that all individuals and groups wishing to purchase or renew coverage can do so regardless of age or pre-existing conditions;

• Prohibit charging higher premiums because of health status or claims experience;

• Providing a choice of qualified plans through an Exchange or Connector;

• Providing subsidies based on income so coverage is affordable for everyone;

• Addressing costs system-wide through prevention and wellness, care coordination, fighting fraud, waste, and abuse, and revising incentives to reward quality rather than quantity of care; and

• Ensuring that any cost-sharing obligations do not create barriers to needed care.

May 11, 2009
A New York City-based get-rich-quick promoter has been shown the door in Iowa. Attorney General Tom Miller said the company claimed customers could make $25,000 in two weeks.

What caught our eye was that the so-called World Wealth Syndicate was using a Beaver Avenue address in Des Moines to market its deceptive schemes all over the country, said Miller. It was nothing but a mail drop-box but the Des Moines address might wrongly induce some consumers to think the operation was firmly planted in the heartland, and to let down their guard.

An Iowa judge issued an order permanently prohibiting Christopher Lamparello of New York, NY, from marketing any of his programs in Iowa, and from using an Iowa mailing address or implying any connection to Iowa that does not exist.

Lamparello operated as World Wealth Syndicate, Publishing Company, Inc., and Pridemore Publishing Company, Inc.

The get-rich-quick programs usually sold for about $25-$30. They were marketed under names such as Big Cash Flier, How I made $99 an Hour, God Wants You to Be Rich, and $1,000 a Day! Miller said his office is aware of more than 150 Iowans who ordered Lamparellos programs.

The so-called money-making opportunities didnt cost a huge amount, but they didnt hold a prayer of success either, Miller said. They probably preyed on people who were least likely to afford any loss -- people who are desperate and vulnerable in tough economic times.

The judge also ordered Lamparello to make full refunds to any Iowa customer who requested one in writing to the Attorney Generals Consumer Protection Division, Hoover Bldg., 1305 East Walnut St., Des Moines, IA 50319. (Call 515-281-5926, or 888-777-4590.)

Los Angeles-based Total Call International, Inc. can no longer charge "hidden and deceptive" fees for its pre-paid calling cards, according to California Attorney General Edmund G. Brown Jr.

"Total Call International has raked in profits by advertising bargain basement prices then charging exorbitant fees when their cards were used. This new agreement," said Brown, safeguards consumers "by forcing this company to fully disclose hidden and deceptive calling card fees."

Brown charged that Total Call International advertised low per-minute base rates on its calling cards and then charged steep, undisclosed add-on fees and surcharges when consumers used their cards, Brown said. This significantly reduced the amount of calling time available.

Brown and the California Public Utilities Commission launched an investigation and prepared a lawsuit contending that Total Call International violated a California law that specifically requires disclosure of pre-paid calling card fees, as well as California's false advertising and unfair competition laws.

The stipulated judgment resolving the case requires Total Call International to:

• Disclose all fees, add-ons, and surcharges in a clear and conspicuous manner and include those charges in the marketing of its per-minute rate.

• Maintain records and allow the Attorney General's office to monitor its activities to determine if Total Call International is in compliance with the settlement and California Law.

• Pay civil penalties of $300,000.

During the course of the investigation, Total Call International agreed to stop charging a "real-time rate surcharges," costing the company $1.5 million in profits. Total Call International did not admit any wrongdoing.

Calling cards, often sold at newsstands and grocery stores, are meant to be a convenient, affordable tool for users that make frequent international calls and may not have regular access to telephone service.

Brown says calling card users should take the following steps to protect themselves:

1. Make sure you're getting what you pay for — buy a card for a small denomination first to test out the service.

2. Check with family and friends to find out their experience with calling cards.

3. Ask retailers if they stand behind the card if the telephone service is unsatisfactory. It's important to remember that the store where the card is purchased doesn't control the quality of the service.

4. Remember that very low rates, particularly for international calls, may indicate poor customer service, or a sign that hidden fees and surcharges apply.

5. Always look for disclosures about surcharges, monthly fees, per-call access, in addition to advertised rate-per-minute.

6. Check the expiration date. Some cards expire after a certain amount of time.

7. Make sure the card comes in a sealed envelope or has a sticker covering the PIN. Otherwise, anyone who copies the PIN can use the phone time you've already paid for.

By the time it was finally announced, there was little suspense: the 19 major banks subjected to the federal government's "stress test" got a passing grade. Federal Reserve Chairman Ben Bernanke, in announcing the results, said all the banks are solvent and should resume lending.

The idea of a stress test was the government's way of determining which of the large, "too-big-to-fail" banks had enough assets to remain solvent, even if the recession gets worse. All had received "bailout" money from the government, though some, like JPMorgan Chase, said they want to return the money because they dont need it.

However, even though they were deemed solvent, ten large banks were told they need to add to their capital reserves. Ten of the 19 banks have been ordered to raise a total of $74.6 billion within the next six months. In addition, some may be forced to "sell" more stock to the government, which in turn could dictate changes in management.

While it was known that banks like Citigroup and Bank of America were certain to need more cash, the list contained a few surprises, including Wells Fargo and Morgan Stanley. Wells Fargo said it would raise $6 billion by selling stock to the public. Morgan Stanley said it plans to sell stocks and bonds to raise $5 billion.

But nearly all banks, the Fed said, should be able to raise the additional capital on their own. Only one bank, GMAC, is likely to need additional help from the taxpayers.

Banks are required by law to maintain a certain percentage of assets to balance their loans and liabilities. Prior to the economic meltdown, most large banks had invested billions of dollars in mortgage backed securities, which lost most of their value as the subprime mortgage market collapsed and took real estate down with it.

Those "toxic" assets precipitated last fall's credit crunch, as banks could not lend money. The idea behind the stress test was to restore confidence in the banking system so that lending will resume.

For the average consumer, the stress test doesn't mean much, other than improved confidence in banks should help the overall economy recover faster. Those with a stock portfolio may regain some of the value they lost if Wall Street, as expected, responds favorably to the results.

Consumers shouldn't be concerned that their bank was deemed to need more money. Even if a bank failed, deposits of up to $250,000 are insured by the Federal Deposit Insurance Corporation. Besides, the whole idea behind the stress test was to make sure than none of the 19 banks fail.

And don't expect your credit card rates to go down anytime soon. Banks may be on the road to improved health, but they still need cash. Higher rates on consumer credit — especially on any credit that could be considered risky — are likely here to stay.

Charging that they offer consumers "false hope" while charging "tremendous fees," New York Attorney General Mario Cuomo has launched a nationwide investigation of debt settlement companies, which he said too often prey on consumers who have fallen onto financial hard times.

A lawyer who represents an industry trade group said Cuomo was engaging in "a P.R. stunt."

Today, millions of hardworking Americans are finding themselves imprisoned by debt. In response, a rogue industry has stepped in, offering consumers false hope, charging tremendous fees, and leaving them in a worse financial situation, Cuomo said. Our mission is clear: to hold unscrupulous businesses accountable; to rein in a renegade industry; and to ensure that people are not victimized when faced with financial hardship.

Cuomo said he has issued subpoenas to 14 debt settlement companies and one law firm: American Debt Foundation, Inc.; American Financial Service; Consumer Debt Solutions; Credit Answers, LLC; Debt Remedy Solutions, LLC; Debt Settlement America; Debt Settlement USA; Debtmerica Relief; DMB Financial, LLC; Freedom Debt Relief; New Era Debt Solutions; New Horizons Debt Relief Inc.; Preferred Financial Services, Inc.; U.S. Financial Management Inc. (d.b.a. My Debt Negotiation); and the Allegro Law Firm.

The subpoenas include requests designed to uncover the companies fee structures, how many people have benefitted from the companies services, and what kind of relief the companies are actually providing.

Cuomo is also currently investigating Nationwide Asset Services, Inc., based in Phoenix, Arizona, and Credit Solutions of America, Inc., based in Addison, Texas.

Debt settlement companies typically promise to negotiate with credit card companies and other lenders on consumers' behalf. Most charge an initial fee of 15 percent or more of the initial debt.

But Cuomo said the debt settlement plans are often "inherently flawed" and he said that, based upon consumer complaints, it appears that many consumers are being misled regarding the nature of the services offered by these companies. For example, he said that some companies falsely represent that they can reduce consumers credit card debt by as much as 75 percent through negotiations with creditors.

The debt settlement plans are generally premised on consumers aggregating savings, over one to three years, from which both the payment of the companys fees and any negotiated settlement are to be made. Yet most consumers who are targeted by these companies are unable to meet the savings requirements because of their precarious financial situation, Cuomo charged.

Some of the companies also urge consumers to seek additional sources of funds through means such as selling their blood plasma, mowing lawns, cutting down on car insurance, and borrowing from their neighbors and church. Even for those consumers who can meet the requirements set out by a plan, their amount of aggregated savings is ordinarily insufficient to settle their debts, Cuomo said. As a result, many consumers find themselves worse off financially because of these debt settlement plans.

Consumer advocates say that many consumers would benefit more from working directly with their creditors, seeking credit counseling, or consulting an attorney about filing for bankruptcy. Additionally, even when enrolled in a debt settlement plan, consumers are often still subjected to collection efforts and lawsuits filed by their creditors. Consumers are even told not to discuss their debt situation with creditors.

On April 14, 2009, Cuomo arrested the owner of Long Island-based American Legal Process for allegedly providing sewer service to thousands of New Yorkers owing debt. According to the Attorney Generals criminal complaint and civil suit, this company failed to properly notify individuals that they faced debt-related lawsuits. As a result, individuals would unknowingly default and have judgments entered against them, without the chance to defend themselves.

Reader reviews of debt settlement services

May 8, 2009
Authorities in New Jersey have charged a Monmouth County financial advisor with defrauding investment clients out of millions of dollars through a Ponzi scheme.

Maxwell B. Smith III of Fair Haven, New Jersey, was charged by summons complaint with first-degree money laundering, second-degree securities fraud and second-degree theft by deception. The charges, filed in Superior Court in Morris County, resulted from an investigation by the Division of Criminal Justice Major Crimes Bureau.

According to a certification filed in court, Smith allegedly defrauded at least 13 mostly elderly investors out of approximately $10 million between 1992 and 2009 by selling them fraudulent investments. Smith allegedly laundered the stolen investor funds through bank accounts he controlled and used the funds for his personal expenses.

"This defendant ruthlessly preyed on elderly investors, targeting longtime clients who trusted him to look out for their interests," said Attorney General Anne Milgram. "Instead, Smith deceived them and stole their money, in some instances depriving retired investors of their life savings."

Since 1974, Smith has been a registered agent and investment representative with numerous broker dealer firms licensed to sell investment products in New Jersey. Smith worked for an investment firm based in Tinton Falls from January 2005 to April 2009, when the firm fired him and reported his alleged fraudulent conduct to securities regulators, Milgram said.

Since 1992, Smith marketed investments he called "Health Care Financial Partnership Direct Municipal Loans." He represented that Health Care Financial was an entity that made investments involving the financing and refinancing of health care facilities such as nursing homes and continuing care retirement centers for the elderly.

Milgram said Smith represented that the investments were safe and free from federal income tax, and he promised semi-annual interest payments of 7.5 percent to 9 percent. In fact, she says, the investments did not exist. They were part of a Ponzi scheme by which Smith misappropriated approximately $10 million in investor funds.

The investigation revealed that the victims were instructed by Smith to make their investment checks payable to "Merrill Lynch" and send them to Health Care Financial at an address he provided in New York, which was actually a Mail Boxes Etc. mail drop leased by Smith.

Smith allegedly deposited the investor funds into a Merrill Lynch bank account in his name. Instead of investing the funds for the investors, Smith allegedly laundered the funds through a series of financial transactions to other bank accounts he controlled, using a small portion of the victims' own funds to pay them interest on the bogus investments. The interest payments provided a false impression to the victims that their investment with Smith was bonafide.

The investigation also revealed that Smith created a false "Summary of Essential Information" prospectus for the Health Care Financial investment which he provided to the victims, as well as false investment confirmation letters sent to them after they invested their funds.

First-degree money laundering carries a maximum sentence of 20 years in state prison and a $500,000 fine, while second-degree crimes carry a maximum sentence of 10 years in prison and a $150,000 fine.

Its that time of year when consumers need to be wary of deceptive door-to-door magazine salespeople, who often claim theyre raising money for college, charity, or class trips.

The Better Business Bureau says it has received 1,100 complaints in the past year from consumers nationwide who say they lost money in fraudulent door-to-door magazine sales schemes.

The companies behind these schemes often hire high-school or college-age students and send them to neighborhoods nationwide to peddle magazines door-to-door. In many cases, these salespeople do not have the licenses required to sell products door-to-door. Some also use high pressure sales tactics or make misleading statement to convince consumer to buy the magazines.

According to the BBB, some salespeople claim theyre raising money to get their lives back in order. Others say the money from the magazine subscriptions will help a charity, pay for a school trip, or support the troops in Iraq.

Many consumers whove fallen for these ploys say theyve never received their promised and paid for magazines.

Because sales representatives are typically high school or college-age, victims readily believe the potentially fictitious sales pitch and often pay several hundred dollars for the subscriptions by personal check given directly to the sales reps, said Steve Cox, BBB spokesperson. Most complaints against such companies allege that sales reps took their check and the magazines never arrived, however, some complainants also allege being subjected to high-pressure and misleading sales tactics.

The BBB says it has received complaints about more than 50 companies selling magazines door-to-door. Consumers said those companies often failed to deliver the magazines consumers purchased. They also said salespeople made such misleading comments as: they wouldnt get to eat that day if they didnt sell a magazine subscription, they were neighborhood kids trying to raise money for a class trip, or the magazines consumers purchased would be sent to the troops serving in Iraq.

One consumer even called the police because she felt threatened by a salesperson who allegedly became angry when she wouldnt buy a magazine.

Salespeople victimized

The BBB says consumers arent the only ones duped in these door-to-door magazine schemes.

The young salespeople are also potentially being taken advantage of by their employers and forced to work long hours, endure substandard living conditions and have their wages withheld from them, Cox said.

Consumers can protect themselves from getting taken in a door-to-door magazine scheme by:

• Making sure the company selling the magazines doesnt have any complaints on file with the BBB, or other consumer protection groups;
• Never letting any salesperson high pressure them into buying a product;
• Asking the salesperson if theyre licensed and demanding to see a copy of that license.

Under the Federal Trade Commissions Three-Day Cooling-Off Rule, consumers have three days to cancel orders totaling more than $25 if those purchases were made in their home -- or at a location that is not the sellers permanent place of business. The salesperson should give consumers a copy of their receipt and a completed cancellation form they can send to the company. The law stipulates that companies must give customers a refund within 10 days of receiving the cancellation notice.

Consumers whove lost money in fraudulent magazine sales schemes can file complaints with their local law enforcement agencies, their states attorney generals office, and the Better Business Bureau.

By Jon Hood
ConsumerAffairs.com

May 7, 2009
A group of MacBook and MacBookPro owners have filed suit in federal court in California, claiming that Apples MagSafe power connectors have a dangerous design flaw that could cause a break or even start a fire.

The suit, filed in U.S. District Court in San Jose, alleges that the MagSafe connector dangerously frays, sparks, and prematurely fails to work under ordinary conditions and that the adapters are flawed and dangerous and present fire hazards.

The suit covers 85- and 60-watt versions of the power connectors. According to the complaint, the adapters wires eventually fray, negatively affecting performance and posing a fire hazard. Tim Broad, one of the named plaintiffs, says that the adapter almost burned my hand when I brushed it accidentally, and that it could have started a fire in his house had he not known about the problem and been vigilant in keeping an eye on it.

This is not the first time Apple has dealt with such problems; the company pulled the 85-watt versions from store shelves in October 2007, after reports that those connectors too were overheating, and in some cases smoking and sparking.

Apple also settled another class action in May 2008, which involved earlier versions of the MacBook and MacBookPro adapters. That suit alleged that Apple covered up the problem even after becoming aware of its existence. The settlement provided for reimbursement of between $25 and $79 for every person who owned one of the adapters.

The complaint accuses Apple of being negligent in designing the adapters, and says that Apple has not taken action to remedy the defects. The suit alleges breaches of consumer of express and implied warranties and California business codes. The plaintiffs are seeking money for replacement adapters, reimbursement for consumers who already bought new units, and punitive damages.

Plaintiffs Tim Broad, Naotaka Kitagawa and Jesse Reisman have all had to buy replacement adapters at one time or another, meaning they had to fork over about $80 of their hard-earned money.

According to the suit, the issue affects at least thousands and potentially hundreds of thousands of consumers, meaning that any eventual settlement would likely be in the millions. The suit envisions a class of plaintiffs made up of any consumer with an affected MacBook.

AppleInsider, a popular Mac-centric site, notes that Apple began redesigning the adapters after the October 2007 recall, but that any improvements havent been enough to solve the problem: customers have reported issues with fraying wires as recently as March 2009, long after the new adapters were on shelves.

Scammers have been quick to prey on consumer fears about swine flu, and Indiana Attorney General Greg Zoeller says he has already seen evidence of that in his state.

Telephone solicitors reportedly have called Indiana residents in an effort to sell "mandatory swine flu kits," claiming that the U.S. Centers for Disease Control and Prevention or the U.S. Department of Homeland Security are requiring their purchase.

Such claims, of course, are false and fraudulent. No level of government is requiring the purchase of a safety kit for the North American Influenza A (H1N1) outbreak. Moreover, a medical diagnosis should be left to a medical professional.

"Not only are these telephone solicitors cynically exploiting people's fears in order to commit fraud, but they also may be violating Indiana's telephone privacy laws," Zoeller said. "Depending on who was contacted, this scam may violate Indiana's Do Not Call statute; and if an unauthorized prerecorded message is used, it would violate Indiana's Auto-Dialer statute as well. In either event, consumers who receive such calls should keep the number, if possible, so that our office can investigate."

The Indiana State Department of Health (ISDH) is encouraging consumers to maintain good hygiene practices, such as washing their hands often, and avoiding those who might be ill. The Attorney General issued the consumer advisory after county emergency management agencies notified the Indiana Department of Homeland Security (IDHS) of the fraudulent calls to businesses in their communities.

"In outbreak situations, scam artists are often ready to take advantage of public concern," Indiana Department of Homeland Security Executive Director Joe Wainscott said. "People should be especially alert for solicitors who speak on behalf of state and federal agencies."

Find out everything you need to know about swine flu.

The real estate market may be showing faint signs of life, but other statistics reveal many homeowners have lost significant value in their homes and are in a negative equity position. Nearly 22 percent of homeowners currently owe more on their mortgage than their home is worth, according to the real estate Web site Zillow.com.

The first quarter of 2009 saw a continued decline of home values with the Zillow Home Value Index dropping 14.2 percent on a year-over-year basis to a value of $182,378. From its peak in the second quarter of 2006, U.S. real estate values have dropped a total of 21.8 percent after nine consecutive quarters of year-over-year declines.

That loss of value has left 21.9 percent of all U.S. homeowners "under water" at the end of March 2009. Many of those homeowners put little or no money down when they purchased their homes, but others have seen plunging home values erode much or all of their down payments.

"The sharp drops across the country have left eight regions — including the Modesto, Calif., Stockton, Calif. and Fort Myers, Fla. — with median values that are less than half those at their peak," said Zillow vice president of data and analytics Stan Humphries in his blog. "In 85 of the 161 markets covered this quarter, the annualized change over the past five years is negative or flat. For the first time in the data series stretching back to 1996, the five-year annualized appreciation for the United States overall is flat. Ten-year annualized appreciation is 4.7 percent."

Zillow estimates U.S. homes lost $704 billion in value during the first quarter of 2009, but despite that bad news, there were a few markets that started to show the first tentative signs of improvement. Markets such as Los Angeles, San Diego, Modesto and Merced — all which went into decline early and have sustained large declines — have now seen two or more consecutive quarters of smaller year-over-year declines in home values than in the previous quarter, Zillow reports.

Specifically, in the Los Angeles metro area, the Zillow Home Value Index fell 18.9 percent year-over-year, a smaller decline than the 20.8 percent and 20.7 percent declines seen in the third and fourth quarters of 2008, respectively.

In San Diego, home values fell 18 percent year-over-year, after falling 19.1 percent and 18.9 percent in the third and fourth quarters of last year. Both markets have been hard-hit by the housing downturn.

Los Angeles home values have fallen 33.6 percent since the peak of the market in the first quarter of 2006, and San Diego's have fallen 35.4 percent since that markets peak in the third quarter of 2005.

"It's quite a statement of current market conditions when the good news is that the bad news isn't getting worse," Humphries said.

Illinois Attorney General Lisa Madigan warned consumers facing significant credit card debt about the risks of debt settlement offers as she announced two lawsuits filed against debt settlement firms.

Madigan's lawsuits allege that the companies — SDS West Corporation, Aliso Viejo, Calif. and Debt Relief USA, Inc., Addison, Texas — engage in deceptive marketing practices, charge excessive fees and do little or nothing to improve consumers' financial standing.

"Too many people who find themselves under a mountain of credit card debt are tempted to turn to debt settlement companies that often worsen their financial problems," Madigan said. "After being enticed by these companies promises to reduce debt, consumers too often end up owing more than their original credit card debt."

Madigan said her office has seen an increase in advertisements for debt settlement companies that promise to significantly reduce consumers credit card debt and provide them with an alternative to bankruptcy protection. Typically, after consumers enroll in debt settlement programs, the companies charge excessive upfront fees and advise consumers to stop paying their credit card bills.

Despite this advice, the debt settlement companies fail to begin negotiations with consumers credit card companies for several months. As a result, credit card companies add fees and penalties to consumers credit card balances and often even begin collection efforts to recoup the debt, all of which puts the consumers in a worse financial situation.

In many instances, while consumers were enrolled in debt settlement programs, credit card companies have sued the consumers to collect the balance on the consumers accounts.

The lawsuits filed by Madigan name:

• SDS West Corporation, an Aliso Viejo, Calif.-based debt settlement agency; Bruce Hood, the Chief Operating Officer of SDS West; SDS West's Chief Executive Officer, Raymond Dorso; Nationwide Support Services, Inc., an Irvine, Calif.-based debt settlement servicer; and Joanne Garneau, President of Nationwide Support Services; and

• Debt Relief USA, Inc., a debt settlement firm based in Addison, Texas and Kelly E. Reilly, the President of Debt Relief USA.

SDS West

According to Madigan s complaint, SDS West and its business partner Nationwide Support Services inform consumers that their debt mediation services will help to reduce consumers debt by nearly 50 percent and that consumers will be debt-free in 12 to 36 months.

SDS West primarily markets the business partnership s debt settlement services, while Nationwide Support Services allegedly conducts the settlement negotiations with creditors. Madigan's complaint alleges that most consumers are unaware that Nationwide, not SDS West, performs the actual negotiations on their behalf.

The defendants tout their services as universally better than credit counseling and bankruptcy protection, and they allegedly promise consumers that they will contact all the consumers credit card companies and negotiate substantially reduced settlements of the outstanding credit card balances. From 2006 to the present, hundreds of Illinois consumers have enrolled in the defendants debt settlement program.

When consumers enroll in the program, they allegedly are instructed to stop making payments to the credit card companies and, instead, make monthly payments to the defendants program in order to build up a lump sum for use by Nationwide Support Services in negotiating a settlement with the credit card companies.

However, the first payments go toward a substantial fee of approximately 15 percent of the consumers total credit card debt. Consumers also are charged a monthly $50 maintenance fee. Madigan s complaint alleges that consumers did not understand (1) that their monthly payments would be used to pay fees before any performance of services on their behalf, and (2) that it takes several months to accumulate a lump sum payment to begin negotiating a payoff with the credit card companies.

Debt Relief USA

In the second lawsuit, Madigan alleges that Debt Relief USA promised consumers that its services would help reduce credit card debt by 40 to 60 percent and that consumers could be debt-free in as little as 36 months.

However, according to the complaint, Debt Relief USA failed to negotiate substantial reductions on most consumers accounts. Madigan s complaint alleges that most Illinois consumers dropped out of the program before Debt Relief USA settled any debt on their behalf, but after the consumers paid Debt Relief USA s nonrefundable fees.

From 2005 to 2008, at least 470 Illinois consumers enrolled in the Debt Relief USA program. When consumers enroll in the Debt Relief USA program, the defendants allegedly instruct consumers to stop paying their credit card bills and, instead, pay a monthly fee to Debt Relief USA based on how much they owe.

The defendants allegedly apply the first several monthly payments toward Debt Relief USA s upfront fee of up to 10 percent of the consumer s credit card debt. The defendants also apply each monthly payment toward Debt Relief USA s monthly maintenance fee of $29.95 to $39.95. The remainder of the monthly payment goes into an escrow account until enough money accrues to make a settlement offer to the credit card company, which often takes several months.

During this time, the complaint alleges, Debt Relief USA fails to attempt to settle any debts on consumers behalf. In addition, when Debt Relief USA reaches a settlement on one of the consumer s accounts, the company charges the consumer a settlement fee that is equal to 13 percent of the amount by which Debt Relief USA was able to reduce the consumer s debt through settlement negotiations.

In both cases, Madigan s complaints allege that the defendants have violated the Illinois Consumer Fraud and Deceptive Business Practices Act by misrepresenting the services they can provide to consumers and the impact that those services will have on consumers credit. Each complaint asks the court to enter a permanent injunction barring the defendants from engaging in debt settlement in Illinois and to order the defendants to pay restitution for aggrieved consumers, civil penalties of $50,000 for violating the Consumer Fraud Act, and an additional $50,000 for each violation committed with the intent to defraud.

Credit counseling

Madigan encouraged consumers in financial trouble to consider credit counseling instead of debt settlement services. The Attorney General advised consumers to look for credit counseling services that charge modest fees and provide true financial and budget counseling based on a consumer's personal circumstances.

In some instances, credit counselors may recommend that a consumer consult a debt management service, which will set up a debt payment plan based on the consumer s income, expenses, and debts. The consumer then makes one monthly payment which the debt management service provider then distributes to the consumer's creditors.

If Rep. Barney Frank (D-MA) has his way, Congress will vote to overturn the long-standing ban on Internet gambling. Frank said Tuesday he will introduce a bill to allow licensed gambling operators to accept bets from U.S. gamblers.

The measure has the backing of the Safe and Secure Internet Gambling Initiative, a group that supports legal online betting. The group estimates than Americans bet over $100 billion a year using offshore gaming sites. Use of those sites is currently against U.S. law.

Meanwhile, the measure has its opponents. University of Illinois professor and national gambling critic John W. Kindt claims legal gambling would make addictions worse and sink an already sputtering economy.

Kindt says supporters of a renewed push to lift the ban, which started with Attorney General Robert F. Kennedy's wire act against organized crime, are betting that online gambling will pay off in easy new tax dollars, but he contends the stakes are too high.

"The revenue they would get is miniscule compared to the devastation it would bring to financial systems, stock markets, national security and people's lives," said Kindt, a professor of business and legal policy.

Frank's bill would overturn the 2006 Unlawful Internet Gambling Enforcement Act, which strengthened the existing ban. Frank, Chairman of the House Financial Services Committee, also sought repeal but failed in 2007, just a year after the measure was passed and signed into law.

"It's outrageous that he's trying again," said Kindt, who has studied gambling for more than two decades. "This law was the result of 10 years of congressional hearings, where expert after expert warned of the dangers of gambling on the Internet."

Kindt, who testified in support of the law, says online gambling would inflame problems already linked to casinos. He says research shows bankruptcies increase 18 to 42 percent in areas with casinos, crime jumps 10 percent and rates for new addicted gamblers double.

But business and banking organizations have long complained about the gambling ban, saying it creates a burden on the financial services sector by requiring banks to identify and block illegal gambling transactions.

The Safe and Secure Internet Gambling Initiative says the tax revenue from online gaming is far from insignificant, saying it could total more than $60 billion over 10 years.

Two individuals who lured homeowners into high-cost, short-term loans secured by an additional mortgage on their homes have settled FTC charges that they violated federal law and a previous court order against them. Thomas C. Little, an attorney, also settled contempt charges based on his role in facilitating the scam. The Commission sued them and seven other defendants in February 2008 as part of an ongoing effort to crack down on businesses that prey upon homeowners facing foreclosure.

In a separate case, California Attorney General Edmund G. Brown Jr. won a guilty plea from 22-year old Anna Santos, who conned thousands of dollars from homeowners in a "cruel and sophisticated" loan scam. Santos will be formally sentenced on May 20 in Los Angeles Superior Court. She is expected to receive 2 years in prison.

In the FTC case, the defendants allegedly violated the Home Ownership and Equity Protection Act by extending credit based on the value of consumers collateral without regard to their repayment ability, by requiring balloon payments after only six months, by providing negatively amortized loans that cause consumers to owe more at the end of the loan than at the beginning, and by failing to make required disclosures.

The defendants also allegedly violated the Truth in Lending Act (TILA) by grossly understating the loans annual percent rate (APR) and finance charges. They also were charged with violating TILA and its implementing Regulation Z by failing to make timely written disclosures and by failing to disclose accurately the amount being financed, the finance charge, the APR, the payment schedule, the total payment amount, and the fact that the creditor has or will acquire a security interest in the consumers home. In addition, they allegedly violated the FTC Act by understating the APR for the loans.

The settlements with Christopher Tomasulo and Bonnie Werner (formerly Bonnie A. Harris) resolve these charges and impose judgments of $2,791,040.40 each, which will be suspended based on their inability to pay. The full judgments against them will become due immediately if they are found to have misrepresented their financial condition. The settlements also resolve charges that Tomasulos and Werners conduct was in contempt of orders entered against them in an earlier case brought by the Commission, FTC v. Bay Area Business Council, Inc. Those orders prohibit them from marketing credit-related products to consumers and ban Werner from telemarketing.

The settlements bar Tomasulo and Werner from trying to collect payments from any consumers for any credit-related product sold by any of the defendants, and from disclosing or benefitting from consumers personal information obtained by any of the defendants. Regarding any business Tomasulo and Werner own or manage, they must promptly investigate consumer complaints, monitor their sales personnel, and take corrective action when sales personnel engage in conduct prohibited by the orders. The orders also extend the period that Tomasulo and Werner must comply with provisions requiring them to report their employment status to the Commission and allow the agency to monitor their business practices.

The settlement with Thomas C. Little, an attorney who assisted the defendants, requires him to give up his earnings from the scam, $16,105. Little was named in the related civil contempt action, FTC v. Bay Area Business Council, Inc. He was legal counsel to some of the Bay Area Business Council defendants, including filing and arguing their appeals to the U.S. Court of Appeals for the Seventh Circuit in 2005.

California scams

Santos was arrested on March 12, 2009 after she used forged documents to convince victims to hand over thousands of dollars for non-existent loan modification services.

"Santos conned thousands of dollars from homeowners trying to save their homes through a cruel and sophisticated scam," Brown said. "She held out hope, but in reality did not provide an ounce of loan modification, leaving her victims unprotected and in far worse straits."

Santos obtained a fictitious business permit through the City of Los Angeles for "Payment Processing Department." She opened several bank accounts and two post office boxes under that name. She mailed flyers to vulnerable homeowners that appeared to be from victims' lenders or a government agency. The flyer used a large, bold header that read "Final Notice" and advised homeowners that they qualified for a special program to save their home from foreclosure.

After signing up for "loan modification services," homeowners then received what appeared to be "confirmation" that their lender had been notified. Many victims also received loan modification documents that appeared to be from their lender. These documents were all forgeries.

The victims were informed they had been placed in a "probationary" program and their mortgage payments should be submitted to "Payment Processing Department" and sent to a given post office box address. None of the payments were credited to the victims' home loans.

Payments sent to the post office box were retrieved by Ms. Santos and deposited into the bank accounts she had opened.

Santos targeted seniors and homeowners on the verge of foreclosure. It is believed that she scammed more than 100 victims. On average, victims lost approximately $3,000, at a time when they could not afford their mortgage, let alone additional fraudulent expenses.

Since taking office, Attorney General Brown has shut down loan modification and foreclosure rescue scams and fought companies that have misled vulnerable borrowers:

• In March 2009, Brown shut down Foreclosure Freedom, a fraudulent loan modification company that continued to collect fees and mortgage payments from dozens of homeowners without ever providing any loan modification services.

• In November 2008, Brown arrested three members of First Gov after the company demanded an up-front fee, ranging from $1,500 to $5,000, to participate in a loan-modification program and never renegotiated the loans.

• In October 2008, Brown announced an $8.68 billion settlement with Countrywide Home Loans after the company deceived borrowers by misrepresenting loan terms, loan payment increases, and borrowers' ability to afford loans.

• In May 2008, Brown shut down a team of scam artists that acquired deeds to hundreds of homes in foreclosure by convincing desperate consumers to pay $10,000 to place their property in a land grant, a phony and worthless real estate document, and then tricked homeowners into signing over the deed to their home and paying the company rent.

• In March 2008, Brown shut down Lifetime Financial, Nations Mortgage, Greenleaf Lending, Virtual Escrow, Olympic Escrow and Direct Credit Solutions after the companies ran a complex predatory lending scheme using bait and switch tactics to victimize thousands of homeowners, many of whom lost their homes.