Markets Wired

The Federal Trade Commission sued the operators of a Pennsylvania-based telemarketing scheme, alleging that they charged organizations such as businesses, schools, fire and police departments, and non-profits for books and newsletter subscriptions they never ordered.

The FTC’s complaint also names the defendants behind a New York-based debt collection operation, alleging that they illegally threatened the organizations if they failed to pay for the unordered merchandise.

“These defendants bill businesses and other entities for books and newsletters that were never ordered, and then send them to collections when they don’t pay,” said Bureau of Consumer Protection Director Andrew Smith. “This case shows the FTC will go after deceptive telemarketers that target businesses as well as people.”

According to the FTC’s complaint, since at least 2014, American Future Systems, Inc. (AFS), operating under the names Progressive Business Publications and the Center for Education and Employment Law, has called organizations nationwide offering to send sample books or newsletters for the organizations to try.

The newsletters and books focus on specific topics, such as human resources, environmental compliance, or employment law, and the AFS defendants typically charge several hundred dollars for an annual newsletter or newsletter with accompanying book subscription.

The FTC alleges that the AFS telemarketers often fail to disclose up-front that they are selling subscriptions, or deny they are selling anything at all. The FTC also alleges that, when they are able to get past the receptionist and reach a company employee, the telemarketers typically claim that they will send two issues of a newsletter at “no risk,” in the hopes that the company will like them and become a paid subscriber.

According to the FTC’s complaint, in reality, by the end of the call, if an employee agrees to accept what many believe to be free newsletters, AFS enrolls their organization in a negative option program without their consent, under which they are automatically invoiced for annual subscriptions to the newsletters. The FTC alleges that organizations have complained that they were billed for subscriptions they never ordered, and in many cases, never received.

After six months, for organizations that have not paid for unwanted and unordered subscriptions, the complaint alleges AFS forwards their accounts to a debt collection firm, International Credit Recovery, Inc. (ICR), which then uses false threats to collect the supposed debt. The FTC contends that the AFS defendants have consistently been ICR’s largest client, accounting for more than 99 percent of its revenue, as a result of such referrals. In addition, for more than a decade several organizations, including the Better Business Bureau, have warned consumers about the defendants’ deception.

The FTC charged that the defendants’ deceptive tactics violate the FTC Act and the Unordered Merchandise Statute. In addition to AFS and ICR, the FTC’s complaint names the sole owner of AFS, Edward M. Satell, and ICR’s two principals, Richard Diorio and Cynthia Powell.

The Commission vote approving the complaint was 5-0. In filing the complaint, the FTC is seeking an injunction permanently barring the defendants from the allegedly illegal conduct, as well as monetary relief that may be used to provide refunds to defrauded consumers.

NOTE: The Commission files a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest.