FTC Charges Telemarketer with Contempt; Asks Court to Order $51 Million in Consumer Redress

The Federal Trade Commission has charged an Oklahoma telemarketing group with violating the terms of an October 1996 settlement barring illegal billing practices. The agency has asked a U. S. District Court to cite the defendants for contempt of court, bar them from the telemarketing business, and order $51 million in consumer redress.

The FTC motion seeking a civil contempt ruling names Diversified Marketing Services, Inc.; H.G. Kuykendall, Jr.; H.G. Kuykendall, Sr.; C.H. Kuykendall; National Marketing Service, Inc.; NPC Corporation of the Midwest; and Magazine Club Billing Service. They are based in Oklahoma City, Oklahoma.

In March 1996, the FTC filed suit charging the defendants with making misrepresentations in telemarketing magazine subscription packages to consumers. Specifically, the agency charged that the defendants misrepresented the cost or duration of the subscriptions; misrepresented the reason they obtained consumers' account information; charged consumers' accounts without authorization; refused to cancel subscriptions; misrepresented consumers' rights to cancel telemarketing contracts under state law; and threatened consumers' credit ratings. The court issued a Temporary Restraining Order and a Preliminary Injunction, froze the defendants' assets and appointed a receiver to oversee the business operations.

In October 1996, the defendants stipulated to a Permanent Injunction to settle the FTC allegations. The Permanent Injunction prohibits the defendants from making the misrepresentations alleged in the complaint, requires the defendants to comply with the FTC Act, the Telemarketing Sales Rule, and state laws, and called for $1.5 million in consumer redress.

In papers filed with the court January 28, the FTC alleges that the defendants are engaged in the same misleading and illegal practices they were charged with in 1996 and that they agreed to cease. "As shown by consumer complaints to state attorneys general, local branches of the Better Business Bureau, private attorneys, the FTC, and to the defendants themselves, the scope of the defendants' contempt is widespread. It is almost as though defendants erased from their minds that they had been sued, agreed to be bound by a federal Court order, and are obligated to comply with the law and the permanent injunction," the document says.

The FTC charges that the defendants have continued to:

• misrepresent the cost and duration of subscriptions;
• misrepresent consumers' ability to cancel their subscriptions;
• misrepresent enforceability of the subscription package agreements;
• misrepresent the need for consumers' account information; and
• charge consumers without authorization or agreement.

In addition, the agency alleges that the defendants violated certain record keeping provisions that were required by the 1996 order to allow the FTC to monitor compliance.

The Commission has asked the Court to ban the defendants from engaging or participating in any type of telemarketing unless they can demonstrate to the Court that they can engage in telemarketing without violating the law. The agency has also asked the Court to award $51 million in consumer redress.

The original lawsuit citing these defendants and the motion for contempt citation were brought with the invaluable assistance of the Office of the Attorney General of Oklahoma. This case is part of Project Scofflaw, an initiative to prosecute violators of FTC-obtained court orders.

NOTE: The issuance of a Motion to Show Cause why a defendant should not be held in civil contempt does not constitute a finding or ruling that the defendant actually has violated the court's order. A determination of whether the defendants have violated the order will be made by the court.

Copies of the Motion to Show Cause Why Defendants Should not be Found in Contempt for Violating the Permanent Injunction, and an FTC Report, "Project Scofflaw's First Five Years," 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. X96 0025)