FTC Stops Two Deceptive Telemarketing Operations

Two telemarketing operations targeted by the Federal Trade Commission as part of a major law enforcement sweep last year must stop the deceptive tactics they allegedly used to trick consumers into buying overpriced magazine subscriptions and worthless medical discount plans – and must pay a total of $2.06 million in consumer redress.

The FTC filed the two cases in 2008 as part of “Operation Tele-PHONEY,” the largest telemarketing fraud sweep ever coordinated by the agency. With today’s announcement of a settlement in one case and a court order in the other, 11 of the 13 “Tele-PHONEY” cases have been resolved to the benefit of consumers.

In the magazine telemarketing case, the FTC charged that U.S. Magazine Services and its principal misled consumers by understating the monthly charges for its subscriptions. Although the actual monthly charge was disclosed in a later call – often after the consumers provided their billing information – some consumers learned of the charge only after checking their credit card bill or debit account balance. Consumers who subsequently tried to cancel the subscriptions were told that no cancellations were allowed. In addition, the defendants violated the FTC’s Telemarketing Sales Rule by failing to disclose important terms during their sales pitches.

The settlement order resolving the Commission’s charges bars the defendants from making any further misrepresentations when marketing any product or service, charging consumers without their express informed consent, or violating the Telemarketing Sales Rule. The order requires them to disclose important facts before consumers provide their billing information, including payment details and refund and cancellation policies. It also includes a $600,000 judgment against the defendants, to be paid over the next year.

In the other case, the Commission announced a court order and default judgment against Union Consumer Benefits and its owner, Naeem Alvi, who were charged with marketing worthless medical discount packages to elderly consumers throughout the United States. The FTC charged these defendants with using deception to persuade consumers to reveal their bank account information, and often pretending they were calling from the Social Security Administration, Medicare, or the consumers’ banks.

According to the FTC’s complaint, the defendants offered “free” benefits or a medical discount plan that – for a one-time fee – would supposedly save consumers money on medical care and prescriptions. The company then debited $399 from the consumers’ bank accounts, sending them only a package containing a prescription discount card that didn’t work. The FTC also charged the company with calling consumers whose telephone numbers are on the National Do Not Call Registry.

The court order bars the defendants from making misleading statements or misrepresentations about any product or service, including its effectiveness, total cost, conditions or restrictions, or refund policies. The defendants also are barred from misrepresenting that they are affiliated with government programs such as Medicare or Social Security, or consumers’ banks, or that they can provide consumers with substantial discounts on medical care or prescriptions in exchange for a one-time fee.

The court order also bars the defendants from violating the FTC’s Telemarketing Sales Rule, including the provisions of the National Do Not Call Registry, prohibits them from debiting consumers’ accounts without their consent, and imposes a $1.46 million judgment to provide redress to defrauded consumers.

The Commission vote approving the stipulated final judgment and order for permanent injunction against Your Magazine Provider, Inc., also doing business as U.S. Magazine Services and as Periodicals, and Jason W. Ellsworth was 4-0. It was filed in the U.S. District Court for the District of Montana and entered by the court on October 7, 2009.

The Commission filed the proposed default judgment and order for permanent injunction against Union Consumer Benefits defendants 6554962 Canada Inc. and Naeem Alvi in the U.S. District Court for the Northern District of Illinois, and it was entered by the court on August 19, 2009.

NOTE: Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendant of a law violation. Stipulated final orders require approval by the court and have the force of law when signed by the judge.