Marketers of College Scholarship Services Settle FTC Charges of Misrepresenting Ability to Obtain Financial Aid for Students

As part of the FTC’s ongoing “Project ScholarScam” – a law enforcement and consumer education outreach program to combat fraudulent college financial aid schemes – the Federal Trade Commission has announced that Integrated Capital, Inc., doing business as National Student Financial Aid (NSFA), and its president, Sheila Cuccia, have agreed to pay $115,000 in consumer redress to settle charges of misrepresenting their ability to obtain college financial aid for students. The settlement prohibits the defendants, based in Carson City, Nevada, from making any false claims in connection with the marketing and sale of college financial aid services.

The FTC’s scholarship scams Web site, www.ftc.gov/scholarshipscam, gives students and parents information about spotting and avoiding scholarship scams. A fact sheet, bookmark, and poster can be downloaded from the site, and are available free from the FTC by calling 1-877-FTC-HELP. In addition, the FTC, in conjunction with the Departments of Education and Justice, publishes an annual report to Congress on college scholarship fraud that discusses these agencies’ enforcement and education efforts to combat scholarship scams, and is accessible from the scholarship scam Web site. The FTC Web site also links to the Department of Education’s financial aid information for students at, www.studentaid.ed.gov/students/publications.

According to the FTC’s complaint, NSFA sold college financial aid services to at least 40,000 consumers, resulting in excess of $10 million in revenues. The defendants sent high school students and their parents letters inviting them to a free financial aid seminar. Until approximately January 2001, the letters stated that the students were personally selected to attend the seminar, and provided a “personal reservation number” and several dates and times that the students and their parents could attend a “personal interview.” According to the FTC, the interviews, typically held in local hotels, were sales seminars at which the defendants promoted their college planning and financial aid services. These services, ranging in price from $795 to $1,200, purportedly helped consumers receive substantially more financial aid than they could get on their own. The defendants allegedly told parents they would prepare a personalized career profile for the students; find colleges that offered majors in their chosen fields with the best financial aid packages; professionally analyze consumers’ financial situations; prepare personalized financial aid reports; and design customized strategies to maximize the amount of financial aid consumers likely would receive. In reality, according to the FTC, the defendants provided consumers generalized information, not customized career and financial strategies.

The FTC’s complaint alleges that NSFA misrepresented that: 1) students were selected based on their qualifications to participate in the defendants’ financial aid and admissions program; and 2) consumers who purchased their services were likely to receive substantially more financial aid than consumers could get on their own. The complaint also alleges that between October 1997 and October 1999 the defendants falsely represented that they would refund their fees to consumers who did not obtain $2,500 in financial aid to attend a state college or $3,000 to attend a private college.

The proposed stipulated order prohibits the defendants, in connection with the advertising, promotion, offer for sale, or sale of any academic good or service, from falsely representing, that:

• they have selected students based on any specific criteria;
  
• consumers are likely to receive substantially more financial aid than they otherwise could obtain without the defendants’ services;
  
• consumers will receive a refund if they do not obtain any financial aid as a result of buying any academic good or service;
  
• consumers are likely to receive, or that the defendants’ customers have received, a specified amount of financial aid; and
  
• consumers will receive customized advice tailored to their specific academic planning or financial needs.

The order also prohibits the defendants from falsely representing: a) any material fact regarding any academic good or services, and b) any material term, condition, or limitations on any refund policy. Further, the settlement requires the defendants to make certain affirmative disclosures in their sales presentations and advertising, including that:

• purchasing NSFA’s services does not guarantee that a consumer will get financial
  aid or get more financial aid than the consumer otherwise could have obtained without purchasing NSFA’s services;
  
• purchasing NSFA’s services does not guarantee that a consumer’s child will be
  accepted by any college or university;
  
• NSFA provides no services until it receives a completed questionnaire, that certain services must be specifically requested, and that failure to utilize any services does not entitle consumers to a refund;
  
• consumers may not realize the full benefit of NSFA’s services if their children are within six months of graduating high school, have not made reasonable efforts to complete necessary paperwork for admissions and financial aid, or are only considering attending community college; and
  
• consumers who are not U.S. citizens may not be eligible for federal or state financial aid.

In addition, the order requires the defendants to pay $115,000 in consumer redress and disgorgement. The order contains an avalanche clause in the amount of $300,000, if it is found that the defendants misrepresented their financial condition. Finally, the settlement contains various recordkeeping requirements to assist the FTC in monitoring the defendants’ compliance.

The Consumer Education Campaign

Unscrupulous companies guarantee or promise scholarships, grants, or fantastic financial aid packages. Many use high pressure sales pitches at seminars where consumers are required to pay immediately or risk losing out on the “opportunity.” The FTC cautions students and parents to look and listen for these tell-tale lines:

• “The scholarship is guaranteed or your money back.”
  
• “You can’t get this information anywhere else.”
  
• “I just need your credit card or bank account number to hold this scholarship.”
  
• “You’ve been selected” by a “national foundation” to receive a scholarship.

For those students and parents who attend a seminar selling financial aid or scholarship services, the FTC says:

• Take your time. Do not allow yourself to be rushed into paying at the seminar.
  
• Investigate the organization you are considering paying. Talk to a guidance counselor or financial aid advisor before spending your money. You may be able to get the same help for free.
  
• Be cautious about purchasing from seminar representatives who are reluctant to answer your questions. Legitimate business people are more than willing to give you information about their services.
  
• Ask what the total fee will be, what services the organization will provide, and what the company’s refund policy is. Get this information in writing.

The Commission vote to authorize staff to file the complaint and proposed stipulated final consent order was 4-1, with Commissioner Mozelle Thompson issuing a separate statement. In his statement, Thompson said that although he agrees that the Commission should file the Complaint against these defendants and seek injunctive and monetary relief, he voted against filing the settlement because the proposed Stipulated Final Consent Order lacks an adequate “avalanche clause.” “I believe that the Commission’s orders providing limited monetary relief based on an inability to pay full consumer redress should include an avalanche clause that represents the full amount of consumer injury,” Thompson said.

According to Thompson, an avalanche clause serves several useful purposes. It undercuts the incentive for defendants to hide assess since they will remain subject to forfeiture for consumer redress. And, Thompson said, an avalanche clause with a provisional monetary judgment “sends a clear, unambiguous signal to all fraudsters that their risk exposure upon breach will approximate the amount of injury, not just the amount that a court initially orders paid as monetary relief.” In this settlement, Thompson noted, the consent order provides an avalance clause covering NFSA’s ability to pay in the amount of only $300,000. This amount is more than thirty times below the $10 million or more that NFSA grossed from over 40,000 customers through its unlawful promotion and sales tactics. “Such a minuscule avalanche clause is simply not appropriate for this case,” Thompson said.

The complaint and proposed stipulated final consent order was filed in the U.S. District Court for the District of Nevada, in Reno, Nevada, on August 1, 2003. The consent order is subject to court approval.

NOTE: This stipulated final consent order is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated final consent orders have the force of law when signed by the judge.

Copies of the complaint and proposed stipulated final consent order are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 002 3242)
(Civil Action No. not available at press time)