[Federal Register Volume 60, Number 107 (Monday, June 5, 1995)]
[Notices]
[Pages 29608-29611]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13657]
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FEDERAL TRADE COMMISSION
[File No. 932 3040]
Great Expectations of Baltimore, Inc., et al.; Proposed Consent
Agreement With 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 acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
require, among other things, the video dating service franchise to
properly and accurately disclose the annual percentage rate (APR) and
other credit terms of financed memberships, as required by the federal
Truth in Lending Act and would require the franchises to make refunds
to consumers who were misled by the undisclosed finance charges and
APRs.
DATES: Comments must be received on or before August 4, 1995.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Stephen Cohen, FTC/S-4429, Washington, DC 20580, (202) 326-3222.
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 following 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. 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)).
In the matter of Great Expectations of Baltimore, Inc., Great
Expectations of Washington, DC, Inc., Great Expectations of
Washington, Inc., corporations. File No. 932 3040.
Agreement Containing Consent Order To Cease and Desist
The Federal Trade Commission having initiated an investigation of
certain acts and practices of Great Expectations of Baltimore, Inc.,
Great Expectations of Washington, DC, Inc., and Great Expectations of
Washington, Inc., corporations, (hereinafter collectively referred to
as proposed respondents) and it now appearing that proposed respondents
are willing to enter into an agreement containing an order to cease and
desist from the use of the acts and practices being investigated,
It is hereby agreed by and between proposed respondents, their
attorneys, and counsel for the Federal Trade Commission that:
1. Great Expectations of Baltimore, Inc. (``GE Baltimore'') is a
corporation organized, existing, and doing business under and by virtue
of the laws of the state of Virginia, with its office and principal
place of business located at 40 York Rd., Suite 500, Towson, MD 21204.
2. Great Expectations of Washington, DC, Inc. (``GE DC'') is a
corporation organized, existing, and doing business under and by virtue
of the laws of the state of Maryland, with its office and principal
place of business located at 8601 Westwood Center Dr., Vienna, VA
22182.
3. Great Expectations of Washington, Inc., doing business as Great
Expectations of Raleigh/Durham (``GE Raleigh''), is a corporation
organized, existing, and doing business under and by virtue of the laws
of the state of Maryland, with its office and principal place of
business located at 3714 Benson Dr., Suite 200, Raleigh, NC 27609.
4. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint.
5. Proposed respondents waive:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law; and
(c) Any right to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement.
6. This agreement shall not become a part of the public record of
the proceeding unless and until it is accepted by the Commission. If
this [[Page 29609]] agreement is accepted by the Commission, it,
together with the draft of complaint contemplated thereby, will be
placed on the public record for a period of sixty (60) days and
information in respect thereto publicly released. The Commission
thereafter may either withdraw its acceptance of this agreement and so
notify proposed respondents, in which event it will take such action as
it may consider appropriate, or issue and serve its complaint (in such
form as the circumstances may require) and decision, in disposition of
the proceeding.
7. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law has been
violated as alleged in the draft of complaint, or that the facts
alleged in the draft complaint, other than the jurisdictional facts,
are true.
8. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
Rules, the Commission may, without further notice to proposed
respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint and its decision containing the
following order to cease and desist in disposition of the proceeding,
and (2) make information public in respect thereto. When so entered,
the order to cease and desist shall have the same force and effect and
may be altered, modified, or set aside in the same manner and within
the same time provided by statute for other orders. The order shall
become final upon service. Delivery by the U.S. Postal Service of the
complaint and decision containing the agreed-to order to proposed
respondents' address as stated in this agreement shall constitute
service. Proposed respondents waive any right they may have to any
other manner of service. The complaint may be used in construing the
terms of the order, and no agreement, understanding, representation, or
interpretation not contained in the order or the agreement may be used
to vary or contradict the terms of the order.
9. Proposed respondents have read the proposed complaint and order
contemplated hereby. They understand that once the order has been
issued, they will be required to file one or more compliance reports
showing that they have fully complied with the order. Proposed
respondents further understand that they may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
Order
I
It is ordered that:
A. Respondent GE Baltimore, GE DC, and GE Raleigh, their successors
and assigns, and their officers, agents, representatives, and
employees, directly or through any corporation, subsidiary, division,
or other device, in connection with the offering of credit, do
forthwith cease and desist from failing to accurately calculate and
disclose the annual percentage rate, as required by Sections 107 (a)
and (c) of the TILA, 15 U.S.C. 1606 (a) and (c), and Sections 226.18(e)
and 226.22 of Regulation Z, 12 CFR 226.18(e) and 226.22;
B. Respondents GE Baltimore, GE DC, and GE Raleigh, their
successors and assigns, and their officers, agents, representatives,
and employees, directly or through any corporation, subsidiary,
division, or other device, in connection with the offering of credit,
do forthwith cease and desist from failing to accurately calculate and
disclose the finance charge, as required by Section 106 of the TILA, 15
U.S.C. 1605, and Sections 226.4 and 226.18(d) of Regulation Z, 12 CFR
226.4 and 226.18(d);
C. Respondents GE Baltimore, GE DC, and GE Raleigh, their
successors and assigns, and their officers, agents, representatives,
and employees, directly or through any corporation, subsidiary,
division, or other device, in connection with the offering credit, do
forthwith cease and desist from failing to segregate the disclosures
required by the TILA from all other information provided in connection
with the transaction, including from the itemization of the amount
financed, as required by Section 128(b)(1) of the TILA, 15 U.S.C.
1638(b)(1), and Section 226.17(a) of Regulation Z, 12 CFR 226.17(a);
D. Respondents GE Baltimore, GE DC, and GE Raleigh, their
successors and assigns, and their officers, agents, representatives,
and employees, directly or through any corporation, subsidiary,
division, or other device, in connection with the offering of credit,
do forthwith cease and desist from failing to make all disclosures in
the manner, form, and amount required by Sections 122 and 128(a) of the
TILA, 15 U.S.C. 1632 and 1638(a), and Sections 226.17 and 226.18 of
Regulation Z, 12 CFR 226.17 and 226.18;
E. Respondents GE Baltimore, GE DC, and GE Raleigh, their
successors and assigns, and their officers, agents, representatives,
and employees, directly or through any corporation, subsidiary,
division, or other device, in connection with the offering of credit,
do forthwith cease and desist from:
1. Failing to include, in the finance charge and the annual
percentage rate disclosed to the consumer, set-up or other fees that
are charged only to consumers who finance the costs of their
memberships, as required by Sections 106, 107, and 128 of the TILA, 15
U.S.C. 1605, 1606, and 1638, and Sections 226.4(b), 226.22, and 226.18(
d) and (e) of Regulation Z, 12 CFR 226.4(b), 226.22, and 226.18 (d) and
(e); and
2. Failing to exclude, from the amount financed disclosed to the
consumer, set-up or other fees that are charged only to consumers who
finance the costs of the their memberships, as required by Section 128
of the Truth in Lending Act, 15 U.S.C. 1638(a) and Section 226.18(b) of
Regulation Z, 12 CFR 226.18(b); and
F. Respondents GE Baltimore, GE DC, and GE Raleigh, their
successors and assigns, and their officers, agents, representatives,
and employees, directly or through any corporation, subsidiary,
division, or other device, in connection with the offering of credit,
do forthwith cease and desist from failing to comply with the TILA, 15
U.S.C. 1601 et seq., and Regulation Z, 12 CFR part 226.
II
Refund Program
It is further ordered that:
A. Within thirty (30) days following the date of service of this
order, respondents shall:
1. Determine to whom respondents disclosed on the original TILA
disclosure an annual percentage rate that was miscalculated by more
than one quarter of one percentage point below the annual percentage
rate determined in accordance with Section 226.22 of Regulation Z, 12
CFR 226.22, or that disclosed a finance charge that was miscalculated
by more than one dollar below the finance charge determined in
accordance with Section 226.4 of Regulation Z, 12 CFR 226.4, so that
each such person will not be required to pay a finance charge in excess
of the finance charge actually disclosed or the dollar equivalent of
the annual percentage rate actually disclosed, whichever is lower, plus
a tolerance of one quarter of one percentage point;
2. Calculate a lump sum refund and a monthly payment adjustment, if
applicable, in accordance with Section 108(e) of the TILA, 15 U.S.C.
1607(e);
3. Mail a refund check to each eligible consumer in the amount
determined above, along with Attachment 1; and [[Page 29610]]
4. Provide the Federal Trade Commission with a list of each such
consumer, the amount of the refund, the number of payments refunded,
the amount of adjustment for future payments and the number of future
payments to be adjusted.
B. No later than fifteen (15) days following the date of service of
this order, respondents shall provide the Federal Trade Commission with
the name and address of three independent accounting firms, with which
they, their officers, employees, attorneys, agents, and franchisees
have no business relationship. Staff for the Division of Credit
Practices of the FTC shall then have the sole discretion to choose one
of the firms (``independent agent'') and so advise respondents;
C. Within thirty (30) days following the date of adjustments made
pursuant to this section, respondents shall direct the independent
agent to review a statistically-valid sample of refunds. Respondents
shall provide the Federal Trade Commission with a certified letter from
the independent agent confirming that respondents have complied with
Part II.A. of this order;
D. All costs associated with the administration of the refund
program and payment of refunds shall be borne by the respondents.
III
It is further ordered that respondents, their successors and
assigns, shall maintain for at least five (5) years from the date of
service of this order and, upon thirty (30) days advance written
request, make available to the Federal Trade Commission for inspection
and copying all documents and other records necessary to demonstrate
fully their compliance with this order.
IV
It is further ordered that respondents, their successors and
assigns, shall distribute a copy of this order to any present or future
officers and managerial employees having responsibility with respect to
the subject matter of this order and that respondents, their successors
and assigns, shall secure from each such person a signed statement
acknowledging receipt of said order.
V
It is further ordered that respondents, for a period of five (5)
years following the date of service of this order, shall promptly
notify the Commission at least thirty (30) days prior to any proposed
change in their corporate structure such as dissolution, assignment, or
sale resulting in the emergence of a successor corporation, the
creation or dissolution of subsidiaries or affiliates, or any other
change in the corporation that may affect compliance obligations
arising out of the order.
VI
It is further ordered that respondents shall, within one hundred
and eighty (180) days of the date of service of this order, file with
the Commission a report, in writing, setting forth in detail the manner
and form in which they have complied with this order.
Attachment 1
Dear Great Expectations Customer:
As part of our settlement with the Federal Trade Commission for
alleged violations of the Truth in Lending Act, we are sending you the
enclosed refund check in the amount of $______. The refund represents
the amount you were overcharged as a result of errors made by Great
Expectations in calculating or disclosing the annual percentage rate or
finance charge.
[In addition, your future monthly payments have been reduced.
Starting immediately, your monthly payments will be $______.]
We regret any inconvenience this may have caused you.
Great Expectations
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from respondents Great Expectations of
Baltimore, Inc. (``GE Baltimore''), Great Expectations of Washington,
DC, Inc. (``GE DC''), and Great Expectations of Washington, Inc. (``GE
Raleigh'').
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.
The complaint alleges that GE Baltimore, GE DC, and GE Raleigh, as
creditors under the Truth in Lending Act (``TILA''), have violated the
TILA and its implementing Regulation Z. Specifically, the TILA requires
creditors to make clear and consistent disclosures of the credit terms
in a financed transaction. These franchises failed to accurately
calculate and disclose the annual percentage rate (``APR'') and the
finance charge, which resulted in some consumers paying more in
interest charges and finance charges than the franchises disclosed. The
complaint further alleges that this practice is unfair or deceptive in
violation of the Federal Trade Commission Act.
Additionally, the complaint alleges that these franchises failed to
accurately disclose the itemization of the amount financed, which
assists consumers in understanding whether they are being charged a
prepaid finance charge or whether any of the proceeds are being
distributed to third parties, and have failed to separate the
itemization from all other information provided in connection with the
transaction. Also, these franchises failed to provide a descriptive
explanation of the financing terms. For example, the named franchises
failed to explain that the APR is ``the cost of your credit as a yearly
rate'' and that the finance charge is ``the dollar amount the credit
will cost you.'' The named franchises also failed to provide a
description of the amount financed, the total of payments, and the
total sales price.
The complaint also alleges that the named franchises failed to
include in the finance charge a set-up fee that each charged to its
customers that financed the costs of their memberships, but did not
charge to its customers that paid cash. The TILA requires that such
charges be made part of the finance charge. Instead, the named
franchises included the set-up fees in the amount financed, which
resulted in the finance charge and the APR being underdisclosed.
Finally, the complaint alleges that the named franchises failed to
identify the creditor in each transaction, and failed to provide the
total sales price.
The consent agreement would prohibit the franchises named herein
from failing to accurately calculate and disclose the APR and any other
terms required by the TILA.
The consent agreement includes a refund program requiring the named
franchises to make adjustments to the account of any consumer to whom
they disclosed an APR or finance charge that was lower than the amount
the consumer actually was required to pay.
The consent agreement would also require the named franchises to
maintain records of their compliance with the consent agreement,
distribute copies of the agreement to their employees, and advise the
Federal Trade Commission of any changes in their corporate structure.
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 [[Page 29611]] the agreement and proposed order or to
modify in any way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 95-13657 Filed 6-2-95; 8:45 am]
BILLING CODE 6750-01-M
