FTC Acts to Stop Credit Card "Protection" Fraud

Highlighting the agency's continuing efforts to protect consumers from unscrupulous telemarketers pitching phony credit card "protection" offers, the Federal Trade Commission today announced that it has obtained stipulated final judgments against two defendants based in Oklahoma and Toronto, Canada, for violations of the FTC Act and Telemarketing Sales Rule (TSR), and has approved a modified consent decree with a third company based in Florida that will permanently ban it from all telemarketing operations for multiple violations of a Commission order related to another credit card protection scheme.

The first action was taken against Universal Marketing Services, Inc. (UMS), Brett Wimberley, and United Marketing Group, Ltd. (UMG) and Louie Paulozza. The complaint was filed in conjunction with the Oklahoma Attorney General and charges that the defendants deceptively marketed a credit card loss protection program. The matter was part of the FTC's Y2K Fraud Project, which resulted in similar actions against several companies in September 1999. As part of their pitch, according to the Commission, the companies told consumers that the Y2K bug could affect the computer files at credit card companies and additional "protection" was warranted. Most consumers did not order the "protection," but those who did were charged up to $199 and received little of value in return. In addition, some consumers who declined the coverage were billed anyway.

In the second action, the Commission authorized the filing of a modified complaint and permanent injunction in the form of a consent decree against GEP, Inc., Bank Card Security Center, Inc. and their owner Steve Zwicker for violating a February 1999 FTC order. The original complaint against the defendants alleged they violated Section 5 of the FTC Act and the TSR through the sale of their credit card "protection" programs. While prohibited from doing so by the order, they failed to provide consumers with material information about their services and business and lied about their services. The modified consent decree would ban the defendants from all telemarketing activities in the future.

"The law has made credit card protection obsolete," said FTC's Bureau of Consumer Protection Director Jodie Bernstein. "Consumers are not liable for any unauthorized charges over $50, and with many card companies even waiving the $50, it's an idea whose time has come and gone. These scam artists used a Y2K spin to scare unsuspecting consumers, and now it's their turn to pay."

Universal Marketing Services and United Marketing Group

According to the complaint filed by the Commission and the Oklahoma Attorney General, between December 1997 and November 1999, UMS and Brett Wimberley, based in Norman, Oklahoma; and UMG and Louie Paulozza, based in Toronto, engaged in schemes to deceptively market a credit card loss protection program. During this time, UMS marketed "The Registration Center" credit card protection, with UMG acting as one of its numerous independent telemarketers. Claiming that consumers' credit card numbers could be accessible through computer fraud, the defendants said that their service would cover losses from any unauthorized charges. In addition, they claimed that their protection plan would protect accounts from other Y2K-related problems. The companies charged between $189 and $199 for these "services."

Under the stipulated final order, UMS and Wimberley would be banned from engaging in, or assisting others in engaging in, the selling of credit card registration or credit card protection services through telemarketing. A $200,000 bond must be obtained if UMS and/or Wimberley ever engage in, or assist others in engaging in, telemarketing of any goods or services. In addition, both UMS and Wimberley would be prohibited from: 1) failing to comply with the TSR; 2) misrepresenting any affiliation with a consumer's credit card issuer or any other third party; 3) making any material misrepresentation about a consumer's credit-related rights or obligations under the law; 4) misrepresenting that the Y2K credit card protection package or any other Y2K-related product that they sell will safeguard against, mitigate or correct any potential failures or errors in credit card transactions resulting from Y2K-related problems; 5) making other misrepresentations related to a consumer's purchasing decision; and 6) charging a consumer's credit card account without their authorization. Finally, UMS and Wimberley would be banned from providing customers' identifying and financial information to anyone except the FTC or other law enforcement agencies, and would be prohibited from processing any purchases using taped authorizations, unless certain criteria are met. They also will pay a $100,000 judgment, either as consumer redress or disgorgement.

In the order against UMG and Paulozza, the defendants would be banned from engaging, or assisting others, in the sale of any credit card registration or credit card protection services.

They also would be prohibited from the same six specific practices detailed in the UMS consent.

In addition, UMG and Paulozza have agreed to pay $45,000 as a monetary judgment. Both agreements also contain a "Right to Reopen" clause that would allow the Commission to seek financial redress if it is determined that the defendants' financial documents are not truthful.

Bank Card Security Center, Inc.

In February 1999, the Commission authorized a complaint and permanent injunction in the form of a consent decree against defendants GEP, Inc., Bank Card Security Center, Inc., and their owner Steve Zwicker alleging violations of the FTC Act and the TSR in their sale of credit card "protection" programs. The complaint alleged the defendants misrepresented that they were calling from consumers' credit card issuers and falsely told prospective consumers that they needed credit card protection because they could be liable for thousands of dollars of unauthorized charges unless they reported their card as lost within 48 hours.

Entered by the court on February 26, 1999, the consent prohibited the defendants from misrepresenting material facts in connection with selling any credit card protection product or service relating to a customer's purchasing decision. It also required the defendants to tape record sales verifications with consumers to capture the consumer's express consent to purchase services and to document the defendants' disclosure of specific material terms and information as required in the consent.

On May 26, 1999, the Florida Department of Agriculture and Consumer Services filed a criminal action against the defendants for violations of the Florida Racketeer Influenced and Corrupt Organizations Act and the Florida Fair Trade Practices Act. Working with the state, the FTC was able to identify instances where the defendants also allegedly violated the February 1999 Commission order.

Accordingly, under the terms of the modified consent, the defendants would now be banned from all telemarketing activities in the future, including assisting or facilitating any business engaged in telemarketing. In addition, the scope of the injunctive provisions enjoining the making of any misrepresentation has been expanded to include making such misrepresentations in the "promotion, sale, offering for sale or servicing of any product or service," not just credit-related products or services.

Credit Card Protection Consumer Education

The FTC's Office of Consumer and Business Education has developed three products regarding credit card "protection" offers and the use of credit cards in general. Each is available from the Commission's Consumer Response Center (see address and phone number below) and from the FTC web site. The first is a consumer alert on the general issue of credit card loss protection offers. It cautions consumers: "Don't buy the pitch-and don't buy the 'loss protection' insurance." The second is a bookmark designed to help consumers understand their rights concerning credit card billing procedures, the Fair Credit Billing Act and receiving credits when billed items are in dispute. The third, a brochure in the Commission's "Facts for Consumers" series, provides more detailed information on fair credit billing, including the types of disputes covered, what to do if you think your bill is incorrect, and other important consumer billing rights.

Specific tips to help consumers recognize and avoid credit card protection fraud include being wary of promoters who:

• tell you that you are liable for more than $50 of unauthorized charges on your credit card account;

• tell you that you need credit card loss protection because computer hackers can access your credit card number and charge thousands of dollars to your account;

• tell you that a computer bug could make it easy for thieves to place unauthorized charges on your credit card account; and

• tell you (or imply) that they are calling from "the security department" and want to activate the protection features on your new card.

The Commission vote to authorize the staff to file a Section 13(b) complaint and two Stipulated Final Judgments and Orders for Permanent Injunction in the matter of Universal Marketing Services was 5-0. The judgments and orders were filed in the Federal Court for the Western District of Oklahoma on June 20, 2000. The Commission vote to approve the filing of a modified consent decree against GEP, Inc., Bank Card Security Center, Inc., and Steve Zwicker was 5-0.

NOTE: A complaint is not a finding or ruling that the named party has violated the law. Stipulated Orders for Permanent Injunction are for settlement purposes only and do not constitute an admission of law violations. Stipulated Orders for Permanent Injunction have the force of law when signed by a judge.

Copies of the documents mentioned in this release 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; 877-FTC-HELP (877-382-4357); 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 Nos. X990041; 992-3237)
(Civil Action No. CIV-OO-1084L)