[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