FTC Charges Arizona Firm With Misleading and Threatening Consumers in Pitch to "Protect" Their Personal Information

The Federal Trade Commission today announced the filing of a federal district court complaint against an Arizona-based company and its principals for allegedly violating the FTC Act and the Telemarketing Sales Rule (TSR) during the phone sale of services purported to protect consumers’ personal information – including their social security number, credit card numbers, and bank account numbers – from fraud and identity theft. According to the Commission, consumers got little or nothing for their nearly $400 investment. The FTC also alleges that the company made threatening follow-up calls to customers who decided to cancel their payments.

The FTC filed the complaint announced today against Vector Direct Marketing, LLC (Vector), doing business as National Solicitation Guard and Anti-Solicitation Company. The complaint also names Lisa Miller – the registrant of Vector Direct’s Tempe, Arizona, mail drop – and Mike Stafford, both of whom are Vector’s members and mangers.

“False promises and scare tactics are not legitimate sales practices,” said Howard Beales, Director of the FTC’s Bureau of Consumer Protection. “Telemarketers with business models built on intimidation should expect to hear from Federal Trade Commission attorneys.”

Vector’s Business Practices

According to the FTC, since at least February 2003, Vector telemarketed services that it claimed would stop unwanted telemarketing calls and protect consumers’ personal information from fraud and identity theft. In calls to consumers, Vector allegedly told them that their personal information – including social security number, credit card numbers, and bank account information – could be found on various telemaketing lists. They also, in some cases, allegedly told consumers that Vector already had been able to buy this personal information from third-party list managers or brokers, and at times even repeated the consumers’ credit card number in an attempt to get them to buy Vector’s “services.” In addition, the FTC alleges that the defendants often told consumers that they had been identified as a target for fraud or identity theft, and often made threatening statements about the risk of not buying their services.

These purported services, which the defendants sold for between $380 and $399, allegedly included Vector’s assurance that the consumers’ personal information and financial information would be deleted from the telemarketing lists and that some consumers would receive a call-screening device that could stop all or most telemarketing calls. The FTC alleges, however, that only some of the consumers who purchased a call-screening device ever received one. In addition, Vector told consumers that by signing up for their service, they would personally receive the $1,500 “fine” collected every time a telemarketer called them. The fine “collection” and “distribution” allegedly never occurred. Finally, when customers later decided they did not want to buy Vector’s services, the defendants allegedly called and harassed them by threatening legal action or other serious consequences if they failed to pay, frightening some into resuming their payment. In some instances, the FTC alleges, Vector charged consumers for their “services,” even if they did not agree to buy them.

According to the FTC, some consumers received written materials from Vector informing them that, “[t]he process of removing your personal information [from telemarketing lists] has already begun. We have sent legal notice to the three major list compilers on your behalf . . . demanding that you (sic) information be added to there (sic) do not call list, and preventing your information from being added to any future sales lists.” In fact, the list compilers mentioned, Equifax, Experian, and TransUnion, are credit reporting agencies that do not sell customer lists that contain personal and/or financial information. The FTC alleges that Vector’s “legal notice” to these companies, therefore, did not afford consumers any protection. The companies do maintain “opt-out” and “do-not-solicit” lists, but there is no evidence that the names of Vector consumers were added to these lists.

The Commission’s Complaint

The Commission’s complaint against the Vector defendants contains five counts, two alleging violations of the FTC Act and three of the TSR. First, the FTC alleged the defendants violated the FTC Act by unfairly causing charges to be billed on consumers’ credit cards – or causing their bank account to be debited – without their authorization. Next, the FTC alleged that the defendants violated the Act by misrepresenting that they would cause consumers’ personal information, such as social security, credit card, and bank account numbers, to be removed from all the telemarketing lists that include this information so that consumers would no longer be the subjects of fraud.

Regarding the TSR, the Commission alleged that the defendants engaged in abusive telemarketing practices, in violation of the Rule, by causing consumers’ bank and credit card accounts to be debited and/or charged without their express informed consent. The FTC also alleged that the defendants misrepresented material aspects of the performance, efficacy, nature, or central characteristics of the products or services they were selling, including, but not limited to, claims that consumers’ personal information was on telemarketing lists, making them likely targets for fraud, and that they would cause the consumers’ personal information to be removed from all telemarketing lists that included that information. Finally, the FTC alleged that the defendants engaged in abusive telemarketing practices by using threats and intimidation in attempting to induce customers to pay for their products or services.

Through its action announced today, the FTC is seeking any and all temporary and permanent relief the court finds necessary to halt the defendants’ allegedly illegal conduct and provide redress to consumers harmed by their activities. This relief includes, but is not limited to, consumer redress, the recision or reformation of contracts with consumers, and the disgorgement of ill-gotten gains.

The Commission’s complaint also sought to freeze the defendants’ assets to ensure they were preserved pending the resolution of the case.

The Commission vote to issue the complaint was 5-0. The complaint was filed under seal in the U.S. District Court for District of Arizona at Phoenix on January 15, 2004 and unsealed on January 30, 2004.

NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law. The case will be decided by the court.

Copies of the Commission’s complaint 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, DC 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. 042-3019, Civ. No. CV04 0095 PHX SMM)