Virginia Mail-order Retailer Settles FTC Charges for Misleading Ads and Deceptive 'Upselling' for Buying Club Service

The Federal Trade Commission has settled charges against a Virginia company for numerous allegations of false and unsubstantiated claims concerning weight-loss products, pain-relief magnets, air cleaners, and hair-growth stimulants, and for deceptively "upselling" a buyer's club service. TechnoBrands, Inc., (TBI) formerly known as Comtrad Industries, and its president, Charles J. Anton, have agreed to settle FTC charges that they engaged in deceptive advertising claims for six products they sold. The FTC alleged that TBI made unsubstantiated performance, efficacy and benefit claims; misrepresented the validity of tests or studies; and used deceptive testimonials or endorsements. Under the terms of the proposed consent agreement, the respondents are required to pay $200,000 in consumer redress, and would be required to have competent and reliable scientific evidence to support claims made for the specific products challenged, as well as for other products sold by TBI. In a separate action, filed in federal district court, TBI has agreed to pay more than $200,000 in consumer redress for its role in the deceptive telemarketing of a buyer's club service after completing the sale of its own products. The Commission charged that the company did not clearly alert consumers that their credit cards would automatically be charged if they did not cancel the membership before the end of a "free" 30-day trial or that their credit card numbers were being turned over to a different company.

TBI, located in Colonial Heights, Virginia, is a mail-order retail seller of various gadgets, electronic items, and diet, health, and beauty products manufactured by third parties. It markets these products through direct mail catalogs, on the Internet, and in magazine and newspaper ads. TBI creates the advertising claims, develops marketing strategy, prints promotional materials, takes orders from consumers, ships the products, and handles returns and consumer complaints.TBI does business as The Lifestyle Resource, TechnoScout, Ennovations, Tech Update, and International Collectors' Society.

The Proposed Consent Agreement Concerning Misleading Ads

The claims challenged in the FTC's complaint against TBI relate to six of its products: the Hollywood 48-Hour Miracle Diet; the Enforma System, a dietary supplement for weight loss; the BMI Magnetic Kit, an analgesic device; Nisim New Hair Biofactors System, a preparation to stimulate hair growth; the Clarion Ionic Filter Ceiling Fan, an air cleaning device; and the Sila Ionic Air Purifier, another air cleaning device.

The FTC alleged that TBI made numerous false and unsubstantiated claims concerning the weight loss that consumers can achieve with the Hollywood Diet and Enforma; the pain relief that can be achieved with the BMI Magnetic Kit; the effectiveness of Nisim in stopping hair loss and stimulating hair growth; the ability of the air cleaners to eliminate various pollutants from indoor space; and the health benefits of using the Clarion Fan.

Under the terms of the proposed consent agreement announced today for public comment, TBI must possess competent and reliable scientific evidence to substantiate claims that:

• Consumers who use the Hollywood Diet, or any substantially similar product, can lose 10 pounds in 48 hours;
• By using Enforma, or any substantially similar product, consumers can achieve substantial weight loss, or avoid weight gain, without a restricted calorie diet or exercise;
• Use of the BMI Magnetic Kit, or any substantially similar product, relieves severe pain; relieves pain more effectively than other kinds of treatment; and relieves pain by enlarging blood vessels, increasing blood flow, reducing inflammation, or suppressing the body's production of pain-causing chemicals;
• Nisim, or any substantially similar product, stops hair loss in a matter of days or stimulates hair growth as effectively as prescription products;
• The Clarion Ceiling Fan, or any substantially similar product, eliminates dust mites and pet dander from the user's environment, or that consumers who use the product will experience relief from allergies and other respiratory problems; and
• The Sila Air Purifier, or any substantially similar product, eliminates mold, mildew, bacteria, chemicals, and other pollutants from a user's environment.

Further, the proposed settlement would prohibit the respondents from making unsubstantiated claims about the comparative or absolute benefits, performance, or efficacy of any product or service, or about the existence, contents, validity, results, conclusions, or interpretations of any test, study, or research. In addition, the proposed settlement would prohibit the respondents from misrepresenting that any user testimony or endorsement of a product reflects the actual experience of the user. Further, the proposed settlement requires the respondents to pay $200,000 to the FTC.

Complaint and Stipulated Order Concerning Deceptive "Upselling" for Buying Club Service

In a separate action, the FTC has filed a complaint and stipulated order in federal district court alleging that TBI engaged in the deceptive telemarketing of a buyer's club service to consumers who ordered TBI products. The stipulated order includes a permanent injunction and requires TBI to pay more than $200,000 in consumer redress.

According to the FTC, TBI (then Comtrad) sold memberships in Triad Discount Buying Service, later, Best Price USA. TBI's telemarketers promoted a so-called "no obligation free trial" in Triad's buying club at the end of the call after a consumer had completed an order to buy TBI's product and provided credit card information. The telemarketer allegedly failed adequately to disclose, however, the following material facts: the consumer had to cancel the service before 30 days elapsed in order to avoid being charged for a year's membership; renewals each year were billed automatically to a credit card; and the credit card number provided by the consumer for the TBI product order would be turned over to Triad for the purpose of charging the membership.

The complaint alleges that TBI engaged in deceptive telemarketing practices when inducing consumers to purchase the buying club services. Specifically, the complaint alleges that TBI:

• Misrepresented that a consumer who agrees to the offer of a 30-day trial membership in a buying club incurs no obligation to take any action to avoid credit card charges for the membership;
• Represented that a consumer who agrees to the buyer's club offer will receive a "no obligation" trial membership, while failing to disclose adequately the material facts that: (1) a consumer who fails to contact the buying service within 30 days to cancel the membership automatically is enrolled in the buying service and his or her credit card is charged an annual fee; and (2) a member's credit card is charged a renewal fee each subsequent year unless the membership is cancelled;
• Misrepresented that the consumer's credit card will be charged only for the TBI products ordered by the consumer, and that no other charges will be made without the consumer's authorization; and
• Represented that the consumer's financial information, such as a credit card number, will be used only to pay for ordered products, while failing to disclose the material facts that the information will be turned over to a third party, which will charge the consumer's credit card for a buying service membership.

The proposed stipulated order, which requires the court's approval, applies when TBI is marketing or promoting any buying service, or is engaged in other telemarketing activity. The proposed settlement would prohibit TBI from falsely representing that a customer will or will not be charged or billed for goods or services, or will not be charged or billed without authorization. It would further prohibit TBI from submitting any billing information for payment or transferring billing information to a third party without the consumer's express and verifiable authorization, and requires TBI to comply with the Commission's Telemarketing Sales Rule. The proposed settlement would require the defendant to pay $200,000 to the FTC for consumer redress. In addition, TBI would turn over to the FTC any funds it is awarded in an ongoing bankruptcy proceeding involving Triad. Under the order, the funds may be combined with the redress fund in the Commission's action against Triad, FTC v. Ira Smolev, 01-8922 CIV-ZLOCH (S.D. Fla. Nov. 27, 2001).

Finally, both settlements contain various record keeping provisions to assist the FTC in monitoring TBI's compliance with the orders.

The Commission vote to accept the proposed administrative consent agreement and place it on the public record was 5-0. A summary of the proposed consent agreement will be published in the Federal Register shortly. It will be subject to public comment for 30 days, until March 30, 2002, after which the Commission will decide whether to make it final. Comments should be addressed to the Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The Commission vote to authorize staff to file the complaint and the proposed stipulated order was 5-0. The proposed settlement was filed in the U.S. District Court for the Eastern District of Virginia, in Richmond, on February 15, 2002, and requires the court's approval.

NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

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

Copies of the complaint and the stipulated order, as well as copies of the complaint, proposed consent agreement and analysis to aid public comment, 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.