97-2206. Pre-Paid Legal Services, Inc.; Analysis to Aid Public Comment

[Federal Register Volume 62, Number 19 (Wednesday, January 29, 1997)]
[Notices]
[Pages 4290-4291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2206]


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FEDERAL TRADE COMMISSION
[File No. 932-3019]


Pre-Paid Legal Services, Inc.; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair or deceptive acts or practices and unfair methods of 
competition, this consent agreement, accepted subject to final 
Commission approval, would require, among other things, Pre-Paid to pay 
$165 to any consumer who purchased certain living trusts and who has 
not already received a refund and does not live in a state with which 
Pre-Paid has already settled. In addition, Pre-Paid, would be 
prohibited from making misrepresentations about living trusts and would 
be required to make certain disclosures with regard to legal challenges 
that can be made against living trusts; the possibility of probate for 
certain estates regardless of whether living trusts are used; and the 
transfer of consumers' assets into the trusts. The agreement settles 
allegations that the Pre-Paid made numerous false statements about the 
benefits and appropriateness of living trusts, in general, and about 
living trusts it sold, in particular.

DATES: Comments must be received on or before March 31, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Janice Charter, Federal Trade 
Commission, Denver Regional Office, 1961 Stout Street, Suite 1523, 
Denver, CO 80294. [phone]. Elizabeth Palmquist, Federal Trade 
Commission, Denver Regional Office, 1961 Stout Street, Suite 1523, 
Denver, CO 80294. [phone].

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreement containing a consent 
order to cease and desist, having been filed with and accepted, subject 
to final approval, by the Commission, has been placed on the public 
record for a period of sixty (60) days. The following Analysis to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the accompanying complaint. An electronic copy of the 
full text of the consent agreement package can be obtained from the

[[Page 4291]]

Commission Actions section of the FTC Home Page (for January 16, 1997), 
on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A 
paper copy can be obtained from the FTC Public Reference Room, Room H-
130, Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C. 
20580, either in person or by calling [phone]. Public comment is 
invited. Such comments or views will be considered by the Commission 
and will be available for inspection and copying at its principal 
office in accordance with Section 4.9(b)(6)(ii) of the Commission's 
Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission has agreed to accept, subject to final 
approval, a proposed consent order settling charges that Pre-Paid Legal 
Services, Inc., violated Section 5 of the Federal Trade Commission Act.
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will again review the 
agreement and the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    This matter concerns the sale of living trusts to senior citizens 
through membership in the American Association for Senior Citizens 
(``AASC'). The respondent covered by the proposed order is Pre-Paid 
Legal Services, Inc., the company responsible for furnishing to and 
preparing the living trusts for AASC.
    The complaint alleges that the respondent violated Section 5 of the 
Federal Trade Commission Act by making numerous misrepresentations 
about the advantages of living trusts over other forms of estate 
planning. Specifically, the complaint alleges that respondent has 
misrepresented that (1) the use of a living trust avoids all 
administrative costs; (2) at death, a living trust ensures that assets 
are distributed immediately or almost immediately; (3) a living trust 
cannot be challenged; (4) living trusts are prepared by local 
attorneys; (5) a living trust protects against catastrophic medical 
costs; (6) a living trust is the appropriate estate planning device for 
every consumer; and (7) there are no disadvantages to a living trust.
    The proposed consent order contains provisions which are designed 
to remedy the alleged violations and to prevent the respondent from 
engaging in similar acts and practices in the future. The proposed 
order would prohibit the respondent from making the misrepresentations 
alleged in the complaint and set forth above. Additionally, the order 
would require the respondent to disclose to prospective purchasers that 
living trusts may be challenged on similar grounds as wills and that 
they may not be appropriate in all instances.
    Under the order, the respondent also would be required to provide 
four affirmative disclosures in situations where the statements would 
be true. (1) Some states have created a mechanism for ``informal 
probate'' of an estate if the estate meets certain criteria, which 
significantly reduces the time involved in probate. This disclosure 
would be required in states where informal probate is available. (2) If 
the transfer of an individual's assets into the living trust is not 
included in the price of creating the living trust, that fact must be 
disclosed. (3) If it is the sole responsibility of the purchaser of the 
living trust to transfer assets into the trust, that fact must be 
disclosed. (4) In some states, but not in others, creditors have a 
longer period of time to file claims against a living trust than 
against a probated estate. This fact would have to be disclosed in such 
states.
    The proposed order would require the respondent to distribute the 
proposed order to its officers, agents, and all personnel who 
participate in any way with respondent's sales activities relating to 
living trusts. Additionally, the order would require the respondent to 
notify the Commission of any changes in its corporate structure and to 
retain for three years all materials that it relies upon in making 
representations covered by the order. Finally, the respondent is 
required to file one or more compliance reports detailing its 
compliance with the order.
    The proposed order also requires the respondent to offer partial 
refunds to any AASC member who has not previously received a refund 
from either the respondent or AASC.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order, nor to modify in 
any way their terms. The proposed consent order has been entered into 
for settlement purposes only and does not constitute an admission by 
the respondent that the law has been violated as alleged in the 
complaint.
Donald S. Clark,
Secretary.
[FR Doc. 97-2206 Filed 1-28-97; 8:45 am]
BILLING CODE 6750-01-P