[Federal Register Volume 60, Number 107 (Monday, June 5, 1995)]
[Notices]
[Pages 29598-29601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-13659]



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FEDERAL TRADE COMMISSION

[File No. 932 3040]


APM Enterprises--Minn Inc.; 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, a video dating service franchise to 
properly and accurately disclose the annual percentage rate (APR) and 
other credit [[Page 29599]] terms of financed memberships, as required 
by the federal Truth in Lending Act, and would require the franchise 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 Pa. Ave., NW., Washington, DC 20590.

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 an 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)).

Agreement Containing Consent Order To Cease And Desist

    In the Matter of APM Enterprises--Minn Inc., a corporation. File 
No. 932 3040.

    The Federal Trade Commission having initiated an investigation of 
certain acts and practices of APM Enterprises--Minn Inc., a 
corporation, (hereinafter referred to as proposed respondent) and it 
now appearing that proposed respondent is 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 respondent, its 
attorneys, and counsel for the Federal Trade Commission that:
    1. APM Enterprises--Minn Inc., doing business as Great Expectations 
of Minneapolis (``GE Minneapolis''), 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 3300 Edinborough Way, Suite 300, Edina, MN 55435.
    2. Proposed respondent admits all the jurisdictional facts set 
forth in the draft of complaint.
    3. Proposed respondent waives:
    (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.
    4. 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 
respondent, 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.
    5. This agreement is for settlement purposes only and does not 
constitute an admission by proposed respondent 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.
    6. 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 
respondent, (1) issue its complaint corresponding in form and substance 
with the draft of complaint here attached 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 respondent's address as stated in this agreement shall 
constitute service. Proposed respondent waives any right it 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.
    7. Proposed respondent has read the proposed complaint and order 
contemplated hereby. It understands that once the order has been 
issued, it will be required to file one or more compliance reports 
showing that it has fully complied with the order. Proposed respondent 
further understands that it 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 Minneapolis, its successors and assigns, and its 
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 Truth in Lending Act, 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;
    B. Respondent GE Minneapolis, its successors and assigns, and its 
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 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);
    C. Respondent GE Minneapolis, its successors and assigns, and its 
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. Secs. 1632 and 1638(a), 
and Sections 226.17 and 226.18 of Regulation Z, 12 CFR 226.17 and 
226.18;
    D. Respondent GE Minneapolis, its successors and assigns, and its 
officers, agents, representatives, and employees, directly or through 
any corporation, subsidiary, division, or other device, in connection 
with the offering of credit, [[Page 29600]] do forthwith cease and 
desist from failing to comply with the TILA, 15 U.S.C. Sec. 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, respondent shall:
    1. Determine to whom respondent 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. 
Sec. 1607(e);
    3. Mail a refund check to each eligible consumer in the amount 
determined above, along with Attachment 1; and
    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, respondent shall provide the Federal Trade Commission with 
the name and address of three independent accounting firms, with which 
it, its 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 respondent;
    C. Within thirty (30) days following the date of adjustments made 
pursuant to this section, respondent shall direct the independent agent 
to review a statistically-valid sample of refunds. Respondent shall 
provide the Federal Trade Commission with a certified letter from the 
independent agent confirming that respondent has 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 respondent.

III

    It Is Further Ordered that respondent, its 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 its 
compliance with this order.
IV

    It Is Further Ordered that respondent, its 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 respondent, its successors and 
assigns, shall secure from each such person a signed statement 
acknowledging receipt of said order.

V

    It Is Further Ordered that respondent, 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 its 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 respondent 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 it has 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 respondent APM Enterprises--Minn, Inc. 
(``GE Minneapolis'').
    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 Minneapolis, as a creditor under the 
Truth in Lending Act (``TILA''), has 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. GE Minneapolis failed to accurately calculate and disclose 
the annual percentage rate (``APR''), which resulted in some consumers 
paying more in interest charges than the franchise 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 GE Minneapolis 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 has failed to separate the 
itemization from all other information provided in connection with the 
transaction. Also, GE Minneapolis failed to provide a descriptive 
explanation of the financing terms. For example, GE Minneapolis 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.'' GE Minneapolis also failed to provide a description of the 
amount financed, the total of payments, and the total sales price.
    Additionally, the complaint alleges that GE Minneapolis failed to 
conspicuously disclose the finance charge. The purpose of the required 
disclosure is to make this term apparent to consumers.
    Finally, the complaint alleges that GE Minneapolis failed to 
identify the creditor in each transaction and failed to provide the 
total sales price. [[Page 29601]] 
    The consent agreement would prohibit GE Minneapolis 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 GE 
Minneapolis to make adjustments to the account of any consumer to whom 
it 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 GE Minneapolis to maintain 
records of its compliance with the consent agreement, distribute copies 
of the agreement to its employees, and advise the Federal Trade 
Commission of any changes in its 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 the agreement and proposed order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 95-13659 Filed 6-2-95; 8:45 am]
BILLING CODE 6750-01-M