[Federal Register Volume 60, Number 107 (Monday, June 5, 1995)]
[Notices]
[Pages 29605-29608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13653]



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FEDERAL TRADE COMMISSION
[File No. 932 3040]


Great Expectations Creative Management, 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 franchisor of video dating services 
and its four franchises 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 mislead by the 
undisclosed finance charges and APRs. In addition, the consent 
agreement would prohibit the respondents from providing franchises 
contracts with pre-printed 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 Pa. Ave., 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 Creative Management, Inc., 
Great Expectations, Inc., GEC Illinois, Inc., GEC Tennessee, Inc., 
and GEC Alabama, 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 Creative Management, 
Inc., Great Expectations, Inc., GEC Illinois, Inc., GEC Tennessee, 
Inc., and GEC Alabama, Inc., corporations, (hereinafter sometimes 
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 Creative Management, Inc. (``G/ECM'') is a 
corporation organized, existing, and doing business under and by virtue 
of the laws of the state of California, with its office and principal 
place of business located at 16830 Ventura Blvd,, Suite P, Encino, CA 
91436.
    2. Great Expectations, Inc., (``G/EI'') is a corporation organized, 
existing, and doing business under and by virtue of the laws of the 
state of California, with its corporate office at 16830 Ventura Blvd., 
Suite P, Encino, CA 91436, and its principal places of business located 
at 1640 S. Sepulveda Blvd., Suite 100, Los Angeles, CA 91436, 17207 
Ventura Blvd., Encino, CA 91316, and 450 N. Mountain, Suite B, Upland, 
CA 91786.
    3. GEC Illinois, Inc. (``GE Illinois'') is a corporation organized, 
existing, and doing business under and by virtue of the laws of the 
state of Illinois, with its office and principal place of business 
located at 1701 E. Woodfield Dr., Suite 400, Schaumburg, IL 60173.
    4. GEC Tennessee, Inc. (``GE Tennessee'') is a corporation 
organized, existing, and doing business under and by virtue of the laws 
of the state of [[Page 29606]] California, with its office and 
principal place of business located at 5552 Franklin Rd., Suite 200, 
Nashville, TN 37220.
    5. GEC Alabama, Inc. (``GE Alabama'') is a corporation organized, 
existing, and doing business under and by virtue of the laws of the 
state of Alabama, with its office and principal place of business 
located at 7529 S. Memorial Pkwy., Suite C & D, Huntsville, AL 35802.
    6. Proposed Respondents admit all the jurisdictional facts set 
forth in the draft of complaint.
    7. 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.
    8. 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 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.
    9. 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 compliant or that the facts alleged 
in the draft complaint, other than the jurisdictional facts, are true. 
This agreement shall apply only to the U.S. operations of Proposed 
Respondents.
    10. 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.
    11. 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 G/ECM, a corporation, its successors and assigns, and 
its officers, agents, representatives, and employees, directly or 
through any corporation, subsidiary, division, or other device, do 
forthwith cease and desist from:
    1. Providing a retail installment contract or any other financial 
instrument or disclosure to its franchisees that violates the Truth in 
Lending Act (``TILA''), 15 U.S.C. 1601 et seq., and Regulation Z, 12 
CFR Part 226;
    2. Providing a retail installment contract or other TILA disclosure 
that contains a pre-printed annual percentage rate;
    3. Providing instructions for calculating or disclosing the annual 
percentage rate, finance charge, or monthly payments that conflict with 
the TILA and Regulation Z;
    4. Failing to take reasonable steps sufficient to ensure that its 
franchisees are complying with the TILA or Regulation Z including, but 
not limited to, reviewing and randomly testing TILA disclosures used by 
its franchisees;
    5. Failing to terminate, unless prohibited by state law, any 
franchise that G/ECM knows or should know does not comply with the TILA 
or Regulation Z;
    6. Failing to make available to its franchisees a computer program 
or other comparable system that accurately calculates the disclosures 
required by the TILA and Regulation Z; and
    7. Failing to provide Attachment 1 to all of its current 
franchisees;
    B. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama, 
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. Secs. 1606 (a) and (c), 
and Sections 226.18(e) and 226.22 of Regulation Z, 12 CFR 226.18(e) and 
226.22;
    C. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama, 
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;
    D. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama, 
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 sixty (60) days following the date of service of this 
order, Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama 
shall:
    1. For each TILA disclosure relating to any executory contract or 
any contract consummated within two years prior to July 20, 1994, 
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 [[Page 29607]] 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; 
provided, however, that no determination need be made for any person 
that has already received a full refund of all finance charges paid to 
Respondents;
    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 2; provided, however, that 
should such consumer have a balance due and owing Respondents and 
should Respondents have a legal right to collect such balance under 
state law and under the terms of their contract with the consumer, the 
refund maybe applied to that balance and the excess, if any, shall be 
refunded to each such consumer;
    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 G/EI, GE Illinois, GE Tennessee, and GE Alabama 
shall provide the Federal Trade Commission with the name and address of 
three independent accounting firms, with which they, their officers, 
employees, attorneys, and agents, 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 G/EI, GE Illinois, GE Tennessee, 
and GE Alabama 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 Respondents G/EI, GE 
Illinois, GE Tennessee, and GE Alabama.

III

    It Is Further Ordered that Respondents, their successors and 
assigns, shall maintain for at least five (5) years from the date 
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 Order 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

Important Notice To Great Expectations' Franchisees

    We have reached a settlement with the Federal Trade Commission 
concerning their claims of alleged violations of the Truth in 
Lending Act and the Federal Trade Commission Act. The Federal Trade 
Commission believes that the retail installment contracts and the 
formula listed on them that we may have provided to you in the past 
may not comply with the Truth in Lending Act.
    As part of our settlement, we agreed to alert you to immediately 
stop using any retail installment contracts we provided until you 
can verify that they comply with all local, state, and federal laws. 
As always, we recommend that you have your forms reviewed by your 
own attorney. We have a computer software program available for your 
use that can be used to help you make sure your disclosures are 
accurately calculated. To obtain a copy of this program, please 
contact Keith Granirer.

    Jeffrey Ullman

President

Great Expectations Creative Management, Inc.

Attachment 2

    Dear Great Expectations Member: 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 may have 
been overcharged as a result of a possible error 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 Creative 
Management, Inc. (``G/ECM''), Great Expectations, Inc. (``G/EI''), GEC 
Illinois, Inc. (``GE Illinois''), GEC Tennessee, Inc. (``GE 
Tennessee''), and GEC Alabama, Inc. (``GE Alabma'').
    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 G/ECM provided its franchises with Truth 
in Lending Act (``TILA'') disclosures that, when used by those 
franchises, resulted in false and misleading disclosures of the annual 
percentage rate (``APR'') and finance charge to consumers. Thus, the 
complaint alleges that G/ECM engaged in unfair or deceptive acts or 
practices in violation of Section 5 of the Federal Trade Commission 
Act.
    The complaint also alleges that G/EI, GE Illinois, GE Tennessee, 
and GE Alabama, as creditors under the 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 
[[Page 29608]] accurately calculate and disclose the APR, which 
resulted in some consumers paying more in interest charges than the 
franchises disclosed. The complaint further alleges that this practice, 
when engaged in by G/EI, GE Alabama, and GE Illinois, was unfair or 
deceptive in violation of the Federal Trade Commission Act.
    Additionally, the complaint alleges that G/EI, GE Illinois, GE 
Tennessee, and GE Alabama 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.
    Finally, the complaint alleges that G/EI, GE Illinois, GE 
Tennessee, and GE Alabama failed to identify the creditor in each 
transaction.
    The consent agreement would prohibit G/ECM from providing any 
disclosures to its franchises that violate the TILA. Because G/ECM 
disseminated TILA disclosure forms that contained pre-printed APRs 
without also providing adequate instructions for accurately calculating 
and disclosing the APR, the consent agreement would prohibit G/ECM's 
use of forms containing pre-printed APRs in the future. The consent 
agreement would further prohibit G/ECM from providing any calculation 
instructions that conflict with the TILA.
    The consent agreement would require G/ECM to make sure that its 
franchises are complying with the TILA, including reviewing and 
randomly testing franchises' TILA disclosures. The consent agreement 
would also require G/ECM to make available to its franchises a program 
that accurately calculates the disclosures required by the TILA and 
would require G/ECM to terminate, where permitted by state law, any 
franchise that it knows or should know does not comply with the TILA.
    The consent agreement would prohibit G/EI, GE Illinois, GE 
Tennessee, and GE Alabama from failing to accurately calculate and 
disclose the APR and other terms required by the TILA.
    The consent agreement includes a refund program requiring G/EI, GE 
Illinois, GE Tennessee, and GE Alabama 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 G/EI, GE Illinois, GE 
Tennessee, and GE Alabama 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, an it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 95-13653 Filed 6-2-95; 8:45 am]
BILLING CODE 6750-01-M