Antitrust Law Daily Wrap Up, TOP STORY—M.D. Fla.: FTC dismantles interest rate reduction scam, recovers $1.7M, (Feb 12, 2015)

By Greg Hammond, J.D.

The FTC has secured an over $1.7 million equitable monetary relief judgment against a credit card processing company and a participant in a telemarketing scam based on bogus credit card interest rate reduction services and timeshare resales. The federal district court in Orlando also banned the participant from initiating robocalls, engaging in telemarketing, and marketing debt relief products or services for a period of 20 years (FTC v. HES Merchant Services Company, Inc., February 11, 2015, Conway, A.).

Background. Ten defendants have previously settled FTC allegations that the purported scam violated the Telemarketing Sales Rule (TSR) and Section 5 of the FTC Act. Two defendants, however, did not settle, including Universal Processing Services of Wisconsin, LLC (UPS) and HES Merchant Services Company, Inc.

UPS is a credit card processing company that the FTC alleged violated the TSR by assisting and facilitating a credit card interest rate reduction scam. HES and owner Hal E. Smith were key participants in the telemarketing boiler room venture. They were accused of violating the TSR and Section 5 of the FTC Act by providing: (1) merchant accounts to charge upfront fees for the fake credit card interest rate reduction services; (2) “chargeback” recovery services to dispute and reverse chargebacks obtained by consumers; and (3) monitoring services to help address operational issues.

The court granted summary judgment in favor of the FTC in November 2014, and ordered the Commission to file motions for permanent injunction and monetary relief in the form of a requested final judgment.

Monetary judgment. The court granted the FTC’s request to obtain $1,734,972 in equitable monetary relief from UPS, HES, and Smith. The judgment amount constituted the undisputed net revenue of the scam, based on UPS’ records. The court determined that the judgment amount was necessary and appropriate to relieve the “substantial and undisputed consumer losses” in this case.

Permanent injunction. In addition, the court granted the FTC’s motion for permanent injunction against HES and Smith, finding that Smith did not appear to recognize the wrongful nature of his conduct, that he intends to resume similar business activities, and that there was no reason to believe he would abstain from future violations. Consequently, HES and Smith are prohibited—for a period of 20 years—from initiating or causing others to initiate robocalls; participating in telemarketing; and marketing debt relief products or services.

In addition, HES and Smith are restrained from misrepresenting or assisting others in misrepresenting: (1) terms or rates available for any loan or credit; (2) closing costs or other fees; (3) payment terms; (4) amount of cash to be disbursed to borrowers; (5) whether payment covers both interest and principal; (6) prepayment penalties; (7) interest rates or annual percentage rates; (8) any person’s ability to improve a consumer’s credit record, credit history, credit rating, or ability to obtain credit; (9) any aspect of a mortgage loan modification service or foreclosure relief service; or (10) advertising credit terms.

Lastly, HES and Smith are prohibited from making any representation or assisting others in making any representation about the benefits, performance, or efficacy of a product or service, unless HES and Smith possess and rely on competent and reliable evidence that substantiates the representation as true.

The case number is 6:12-cv-1618-Orl-22KRS.

Attorneys: Christopher D. Panek, FTC. Mark S. Guralnick (Mark S. Guralnick, PC) for HES Merchant Services Company, Inc. and Hal E. Smith. Thomas P. Wert (Roetzel & Andress, LPA) and Mark L. Rosenberg for Universal Processing Services of Wisconsin, LLC.

Companies: HES Merchant Services Company, Inc.; Universal Processing Services of Wisconsin, LLC

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