"Project $cholar$cam" Defendants Settle FTC Charges

A Florida company and its officers have been banned from providing scholarship services and business information reporting services as part of a settlement resolving Federal Trade Commission charges that they fraudulently promoted these services to consumers across the country. In addition to the bans, the settlement would require the defendants to pay $50,000 in monetary liability. This case is one of several enforcement actions the FTC announced as part of "Project $cholar$cam," a nationwide crackdown on fraudulent scholarship search services launched in September 1996.

Judge Wilkie D. Ferguson, Jr., in U.S. District Court for the Southern District of Florida, granted the FTC's request for a stipulated final order and permanent injunction against National Scholarship Foundation (NSF), D.B.F., National Business Reporting Bureau (NBRB), and their officers, Calvin Morse, Eleanor Morse, Dorothy Beam, Sandra Brown, James McKenna, and Timothy Quinn, on September 21, 1998.

According to the FTC's complaint, NSF sent hundreds of thousands of postcards each year to potential college students and their families to solicit NSF's scholarship search services. The postcard listed an 800-number to call for information and "immediate confirmation." When a consumer called the 800-number, a company representative would tell the caller that NSF could guarantee $1000 worth of free grants and scholarships for a student if the caller paid a fee. The caller was told that NSF would refund its $189 fee to anyone who did not receive $1,000 or more in scholarship money through NSF within one year, the complaint alleged.

In fact, the FTC charged that NSF did not fulfill its promise to find sources for its customers that would likely lead them to scholarships worth a minimum of $1,000. While NSF claimed to match its customers' needs and qualifications to particular scholarship sources, NSF often provided its customers with the names of scholarships for which the customers did not qualify. Many NSF customers were unable even to obtain scholarship applications, let alone scholarships, using NSF's information. Thus, the service that NSF provided to its customers was generally worthless. In addition, according to the FTC, NSF rarely honored its refund guarantee.

In order to add an aura of legitimacy to their business, NSF representatives also encouraged consumers to call NBRB as a reference and NSF representatives sent consumers a report on NSF purportedly prepared by NBRB. The defendants represented that NBRB was an independent, third-party reporting organization that provided objective and reliable reports about NSF's business practices. The FTC charged that NBRB, in fact, was not an independent, third-party reporting agency; rather, NBRB was owned and operated by some of the same individuals who owned and operated NSF. Furthermore, NBRB's "report" on NSF contained several misrepresentations.

In addition to the ban on providing scholarship services and business information reporting service, the stipulated final order would permanently bar the defendants from engaging in telemarketing credit services and from assisting others in telemarketing credit services unless they first obtain an $100,000 performance bond. Also, the stipulated final order contains various record keeping provisions to enable the FTC to evaluate the defendants' compliance with the order.

The Commission vote to seek the permanent injunction was 4-0, with Commissioner Orson Swindle issuing a separate statement. In his statement, Swindle said that although he agreed that "strong relief is needed in this case and that most of the relief contained in the order is necessary and appropriate," he does not support the relief relating to credit services because "it is [not] reasonably related to preventing the defendants from engaging in unlawful conduct that is the same as or similar to that challenged in the complaint."

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

Copies of the complaint and stipulated final order, as well as consumer education material associated with "Project $cholar$cam," are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD 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 File No. X980003; Case No. 97-8836-CIV-FERGUSON )