[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