Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS: FTC, Two States Seek to Shutter Telemarketing Operation Targeting Consumers Trying to Launch Home-Based Businesses, (Jan 17, 2013)

By E. Darius Sturmer, J.D.

The FTC, along with the attorneys general of New York and Florida, filed a lawsuit in the federal district court in New York City on January 9, aiming to shut down a broad telemarketing operation allegedly preying on consumers who mistakenly believed its services would help their home-based business succeed. At their request, the court signed an order requiring the defendants to stop their deceptive practices pending further litigation.

As alleged in the complaint, the enterprise encompasses at least 12 interrelated corporate entities, doing business under dozens of names, controlled by four individuals. According to the agencies, the defendants have taken more than $200 million from consumers across the country since 2008 alone. They called people who were trying to start a home-based business, falsely claimed affiliation with other companies that already did business with the consumer, and sold products and services they falsely claimed were essential for the business to succeed, such as tax return preparation and individualized tax advice, customized business planning and counseling, and business credit development services.

After an initial sale, the agencies charge, the defendants repeatedly called buyers to sell more purported services. They typically charged several thousand dollars per service, usually with a large initial fee and smaller monthly payments. They often convinced buyers to finance the charges if they had insufficient credit or savings and falsely claimed consumers would recoup the cost from earnings and tax deductions. The defendants allegedly often failed to provide the promised services. For example, the business planning documents the defendants provided typically were boilerplate and non-specific to the individual consumer, and expert tax and other business-related counseling was typically inaccessible. Consumers who sought refunds often did not get their money back because the defendants had an unworkable refund policy and pressured consumers not to cancel.

According to the complaint, the defendants relied on lists of potential customers they bought from sellers of work-at-home or other business development services, including those that were the subject of numerous consumer complaints and law enforcement actions. During sales calls, which typically lasted an hour or more, the defendants’ sales representatives did not disclose promptly that their purpose was to sell something, and often used high-pressure sales tactics and false claims.

The complaint alleges that the defendants falsely claimed affiliation with other companies, misrepresented the cost of their services and consumers’ earnings potential, and falsely claimed to provide specialized business assistance, in violation of the FTC Act. The defendants also allegedly violated the FTC’s Telemarketing Sales Rule by misrepresenting material facts about their services and failing to disclose promptly to people they called the seller’s identity, the call’s purpose, and the nature of the services. The complaint also alleges that the defendants violated the consumer protection laws of New York and Florida.

Companies: The Tax Club, Inc.

News: ConsumerProtection FederalTradeCommissionNews