Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC charges against car sale operation lead to $5.1 million judgment, ban on telemarketing, payment processing, (Dec 2, 2013)

By Tobias J. Gillett, J.D., LL.M.

A Canadian telemarketing operation that allegedly deceived consumers into paying fees for access to buyers for cars they listed for sale online must pay $5.1 million and is permanently barred from telemarketing and payment processing (FTC v. Loewen, FTC File No. 112 3104, Case No. 12-cv-1207 MJP).

According to the FTC’s complaint, the operation would place telemarketing calls to consumers who listed vehicles on listing websites such as Craigslist or AutoTrader.com, and claim to have a client seeking the same model of car listed in the advertisement. The telemarketers would offer to put the consumer in contact with the prospective buyer in exchange for a fee, typically $399, and would often claim that the buyer would pay a price sufficiently higher than the consumer’s asking price to cover the fee. The telemarketers would also offer “refund insurance” for a further $99 that would purportedly guarantee that the consumer would receive a refund if the vehicle was not sold at the end of a 90-day period.

However, the defendants would not follow through with their promises to arrange meetings with prospective buyers, according to the complaint. Consumers who attempted to obtain a refund would discover that they could apply for a refund only during a seven day window after the expiration of the 90 day term of the contract, that a request for a refund had to be accompanied by proof of ownership of the vehicle as issued by a state or provincial authority, and that the request had to be notarized and sent to the defendants via certified mail. Consumers who failed to complete all of a series of steps not disclosed prior to their payment, including uploading photos of their vehicle and reviewing advertisements drafted by the defendants, were ineligible for a refund even if they paid the $99 fee. Even consumer who submitted all of the required documentation and completed all of the enrollment steps did not receive refunds.

The FTC alleged that the defendants violated the FTC Act through their deceptive sales practices, and violated the FTC’s Telemarketing Sales Rule by misrepresenting material aspects of their service and failing to disclose material aspects of their refund policy. In addition, the complaint asserted that defendants Readypay Services, Inc. and Xavier Processing Services, LLC violated the Telemarketing Sales Rule by assisting and facilitating the operation, including through the provision of payment processing services.

In October, the court issued an order granting summary judgment to the FTC, finding that the defendants violated the FTC Act and the Telemarketing Sales Rule. The court found that the defendants’ misrepresentations were specific, material, and misleading. The court found the high rate of chargebacks on credit card payments to the defendants to be indicative of the deceptive nature of the representations. The four defendant corporate entities, 0803065 B.C. Ltd., 0881046 B.C. Ltd., Readypay, and Xavier, were found to be “a common enterprise.” In addition, Matthew J. Loewen was held individually liable due to his ability, as an officer of each of the companies, to control the deceptive acts, and due to his awareness of a high probability of fraud from the high rate of chargebacks, his regular changing of D/B/A names to avoid bad publicity, his knowledge of certain refund procedures, and his awareness that employees ceased calling California and British Columbia telephone numbers to avoid local “disgruntled consumers,” among other facts.

The final judgment against the defendants permanently prohibits them from engaging in telemarketing or payment processing. In addition, the defendants are barred from making material misrepresentations when selling used vehicles, and from further violations of the Telemarketing Sales Rule. The defendants are prohibited from benefitting from consumer information acquired through the operation, and must destroy such information within 30 days of written notice to do so.

The order also imposes a 5,109,366.62 monetary judgment against the defendants, jointly and severally, an amount intended to represent the amount of consumer injury caused by the unlawful activities alleged in the FTC’s complaint.

Companies: 0803065 B.C. Ltd.; 0881046 B.C. Ltd.; Readypay Services, Inc.; Xavier Processing Services, LLC

News: ConsumerProtection FederalTradeCommissionNews