Advance-Fee Credit Card Scammers Ordered to Stop, Pay Nearly $10 Million

This posting was written by Darius Sturmer, editor of CCH Trade Regulation Reporter.

In an FTC action, the federal district court in Chicago has entered several new orders against the Canadian operators of a cross-border advance-fee credit card telemarketing scam, permanently enjoining the corporate defendants and a principal from operating the scheme, directing them to pay nearly $10 million in consumer redress, and holding two other individuals in contempt of court for violating the terms of preliminary injunctions issued earlier in the case.

FTC Complaint

According to the FTC's September 2005 complaint, the defendants had, since at least 2004, used outbound telemarketing to contact consumers in the United States and offer them major credit cards for an advance fee of $249. The defendants typically claimed that the credit cards would have a $2,000 credit limit, zero percent interest, and no annual fees. They often targeted their offers at consumers with poor credit histories.

Consumers who provided their bank account information did not receive a major credit card, but instead were sent an application for either a "stored value card" or "cash card" that had no line of credit associated with it and could be used only if the consumer first loaded funds onto the card.

The complaint also alleged that the defendants violated the law by calling consumers on the FTC's National Do-Not-Call Registry.

In early May 2007, the FTC entered into a settlement of its charges with three of the individuals who allegedly ran the operation (CCH Trade Regulation Reports ¶16,007).

Final Orders

The final orders—which concern all 13 of the corporate defendants, as well as the individual defendant—barred the defendants from: (1) making, or assisting anyone else in making, any false or misleading statements concerning any fact material to a consumer's decision to buy any program, product, or service; and (2) violating, or helping anyone else to violate the Telemarketing Sales Rule.
The orders also held the defendants jointly and severally liable for $9.89 million (the total amount of consumer injury associated with the scam), froze their assets until they have satisfied the judgment, and barred them from selling their customer lists. Finally, the orders contained provisions designed to ensure future compliance with the FTC Act and the orders themselves.

Contempt Order

Civil contempt orders had been entered against one individual defendant and a non-party, for violations of the preliminary injunction issued by the court in January 2006, the FTC announced. In papers submitted to the court, the Commission demonstrated that just a few months after entry of the preliminary injunction, the individual defendant began a new telemarketing venture that falsely promised consumers they would receive at least $5,000 in government grants in exchange for an application fee of several hundred dollars.

The non-party, who along with his employees provided customer service for the venture, withdrew these fees from consumers' bank accounts, in total taking over $650,000 from consumers, approximately $550,000 of which he transferred to the individual defendant and the rest of which he kept in fees for himself. The court found that this conduct violated the preliminary injunction.

Among other things, the preliminary injunction froze the defendants' assets and prohibited them from engaging in deceptive conduct. It prohibited third parties who received notice of the order from assisting the defendants in violating it. Because the non-party customer service provider had been notified of this order, he was therefore bound by it. The court ordered the two individuals to return the $657,648 that they took from U.S. consumers victimized by their grants scam, and it imposed a fine of $5,000 per day for each day the amount remains unpaid.

The case is FTC v. Centurion Financial Benefits, LLC, U.S. District Court for the Northern District of Illinois, Civil Action No. 05C 5542. The consent decrees and civil contempt order were filed on July 5, 2007. Further details appear at the FTC web site and CCH Trade Regulation Reporter ¶16,026.