(Con)tempting fate

We’re not lyricists, but had the 1972 hit “You Don’t Mess Around with Jim” been addressed to defendants in FTC actions, here’s our proposed rewrite:

You don’t tug on Superman’s cape.
You don’t spit into the wind.

You don’t pull the mask off that old Lone Ranger.
And you don’t engage in acts and practices in contempt of a United States District Judge’s Permanent Injunction.

(Hey, we said we’re not lyricists.)  The latest chapter in the Suntasia case – a $14,750,000 contempt judgment issued by a federal judge in Tampa – serves as a reminder that you don't mess around with the terms of a court order.

The story starts seven years ago when the FTC filed suit against the operators of a massive Florida-based telemarketing scheme.  Under the pretext of “free” trial memberships in travel and discount clubs, the defendants got people to divulge their bank account information.  Then they enrolled them in negative option programs without their consent and debited their accounts over and over again without their express authorization.  That case ended with millions of dollars in refunds returned to consumers and tough injunctive provisions to change how the defendants do business in the future.  In particular, the order banned defendants Bryon Wolf and Roy Eliasson from misrepresenting material facts, failing to disclose key terms, and debiting consumers’ accounts without their consent.

The story should have ended there – but no.  Not long after the order was in place, Wolf and Eliasson were at it again, but with a different company name, Membership Services LLC, and a variation on the same illegal theme.  This time, they targeted people in financial trouble who had applied online for payday loans, cash advances, or lines of credit.  After supplying personal financial data, including bank account information, consumers were told “Congratulations!  You have been approved,”  "ACCOUNT STATUS: APPROVED," or other wording suggesting that the loan was on its way.   On some webpages, the defendants reinforced that message with images of gold coins, bags of cash, etc.  Also on those screens:  the personal information the applicant had already typed in.

But here's what was really going on.  Consumers’ initial entry of information was redirected from the original payday lender to an outfit owned by Wolf and Eliasson, which signed them up for inadequately disclosed continuity programs and debited their bank accounts.  Given that many applicants were already struggling financially, the unauthorized debits caused thousands of them to get hit with NSF fees.  And those loans?  What loans?  What the defendants really offered was “credit” at their “online shopping mall.”  So the FTC went back to court, asking the Judge to find the defendants in contempt.

After a hearing, including testimony from an undercover investigator from the FTC, the Court ruled that Wolf and Eliasson had violated the order “in many respects”:

“Members” were enrolled in the program without ever seeing the membership agreement. Consumers had to find and click on small, hyper-linked text to view it. Consumers were not asked to enroll in Defendants’ fee-based program by pressing a button labelled “purchase program.” Instead, this button bore the label “access account.” Consumers were not told that the site did not give cash advances, pay day loans, or a general line of credit. Consumers were not told of the 25% down payment requirement in “clear and conspicuous” terms. Instead, the screen said the consumer was given a 75% credit and the consumer was required to do the math and go to the fine print to realize a cash down payment was required.

The Court granted a sanction in the form the defendants’ net revenues – $14,750,000.

The message for businesses:  Unauthorized billing continues to be a top law enforcement target.  Companies need consumers’ express consent before debiting their bank account or using any other means to bill them.  Furthermore, the FTC isn’t an agency that makes a quick hit and moves on.  Enforcing Orders: FTC Follows Through offers a recap of recent actions demonstrating that enforcement provisions come with teeth.  When companies and individuals violate the terms of court orders, we'll take the steps necessary to see that defendants change their tune.  (So in that sense, maybe we’re lyricists after all.)

 

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