Magazine Telemarketers Agree to Settle Charges of Debiting Consumers' Checking Accounts without Authorizatrion

An Oklahoma company, its affiliated corporations, and its officials have reached a settlement of charges filed earlier this year by the Federal Trade Commission. The settlement prohibits these defendants from charging consumers’ credit cards and debiting their checking accounts without approval from the consumer, and requires them to pay $1.5 million in consumer redress.

In March, the FTC filed charges in federal court against Diversified Marketing Service Corp. (DMS) of Oklahoma City, Oklahoma, and its president, H.G. Kuykendall, Jr. The FTC subsequently added as defendants in this case H.G. Kuykendall, Sr., C.H. Kuykendall, National Marketing Service, Inc., NPC Corporation of the Midwest, and Magazine Club Billing Service, Inc.

In its complaint, the FTC charged that the defendants sold their magazine subscriptions packages by placing “cold” sales calls to consumers and making a variety of misrepresentations. Diversified charged consumers from $500 to $800 for a magazine subscription package. The alleged misrepresentations include false claims about the cost of the subscriptions -- for instance, claiming that some subscriptions were free or for longer terms than actually was the case. In addition, the FTC charged that in some cases the defendants misled consumers about the reason for needing their checking account numbers -- in fact, the defendants used the account numbers to process so-called “demand drafts,” or “phone checks,” which, unlike conventional checks, do not require a consumer’s signature on a printed document. Finally, the FTC charged that Diversified refused to cancel consumers’ subscriptions despite promises that consumers could change their minds, falsely claiming that consumers were bound by contract for multi-year subscriptions.

The settlement with Diversified prohibits the defendants from making the misrepresentations alleged in the complaint. The defendants are required to comply with all applicable state laws regarding cancellation rights -- many states have laws that permit customers to cancel magazine subscriptions at will. Further, the defendants are prohibited from reporting to credit agencies a consumer’s failure to pay for a subscription order where the defendants lack evidence establishing a valid debt is owed. The defendants also will be required to remove any derogatory credit information they submitted to the reporting agencies in the past. Additionally, the defendants are required to obtain the consumer’s express agreement to a purchase and the consumer’s express authorization to bill charges to the credit card. In the case of demand drafts used to debit consumers’ checking accounts, the defendants will be required to comply with the Telemarketing Sales Rule, which among other things, requires advance express verifiable authorization of demand drafts.

The settlement further requires that the defendants actively monitor the activities of their sales force. They are required to provide copies of the sales scripts to be used by their representatives when contacting consumers, and to provide consumers with a written document outlining the material terms of the agreement. The settlement prohibits the defendants from delegating customer service responsibilities to sales agents or independent sales organizations, and requires the defendants to review any consumer complaints concerning their sales organizations or employees. In addition, the defendants are prohibited from failing to cancel, at the consumer’s request, any subscription order where the defendants have reason to believe that a misrepresentation prohibited by the order was made.

The settlement requires the immediate payment of $1.5 million to be used for consumer redress.

The FTC filed the settlement with Diversified in the U.S. District Court for the Western District of Oklahoma, In Oklahoma City. The settlement, subject to approval by the judge, was filed and signed by the judge on Oct. 18. The Commission vote to file the proposed settlement was 5-0.

The FTC has a consumer brochure about Automatic Debit Scams. Copies are available from the address below.

NOTE: A consent judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge.

Copies of the settlement, the consumer brochure, and other documents associated with this case are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: https://www.ftc.gov

(Civil Action No.: 96-0388M)
(FTC File No. X96 0025)