Telemarketers charged with misrepresenting the costs and conditions of packages of magazine subscriptions and refusing to honor cancellation and refund requests have agreed to settle charges that they violated federal law.
The settlement with Cross Media Marketing Corporation and its subsidiary Media Outsourcing, Inc. bars deceptive sales practices and requires the companies to monitor claims and disclosures their sales agents make. In addition, the corporations have agreed to a $1.1 million civil penalty, which is suspended upon payments totaling $350,000, based on the financial status of the corporations.
In April 2002, the Federal Trade Commission and the Department of Justice charged the telemarketers, who also operate under the name Consolidated Media Services or CMS, with violating federal laws by misrepresenting and failing to disclose adequately the costs and conditions of magazine subscription agreements and buying-club memberships.
The complaint alleged that the defendants' telemarketers either call consumers offering free prizes and sweepstakes opportunities or send mailings soliciting consumers to call the telemarketers. Near the end of these calls, the telemarketers pitch the magazine subscription packages with allegedly misleading suggestions that the consumers will get some "free" magazines and get others at a small weekly cost.
"Often consumers have not agreed to purchase anything, or agreed but attempt to cancel the order, yet are charged on their credit card. In addition, consumers often are billed for buying clubs after accepting what they are told is a free trial membership," according to court documents.
The complaint alleged that neither the "free" memberships nor the "free" magazines are free. The magazine subscription "bundles" allegedly cost consumers an average of $600. The complaint further alleged that the defendants tell consumers who try to cancel magazines either during verification calls, or later when they discover misrepresentations, that they cannot not cancel.
The complaint also charged that the defendants failed to cancel subscriptions and pay refunds, and failed to monitor their independent sales representatives and discontinue dealing with those who were violating federal law. The complaint further alleged that the defendants were violating a previously issued FTC order prohibiting deceptive practices in selling magazines.
The named defendants include Cross Media, a Delaware corporation based in New York; Media Outsourcing, based in Atlanta, Georgia; Ronald S. Altbach, then-chief executive officer and chairman of Cross Media and president of Media Outsourcing; Dennis Gougion, a vice president; and Richard Prochnow, who previously owned and operated the magazine telemarketing business under the names Direct Sales Inc. and Magazine Sweepstakes Ltd.
The settlement with Dennis H. Gougion, an officer of the companies, similarly bars deceptive sales practices and requires him to post a $1 million performance bond if he engages in telemarketing or assists others engaged in telemarketing in any way other than performing specified publisher-seller liaison responsibilities. Gougion has agreed to a $100,000 civil penalty suspended upon payment of $10,000, based on his financial status.