Markets Wired

An operation marketing Visa- and MasterCard-branded prepaid debit cards to subprime consumers has agreed to settle Federal Trade Commission charges that it made unauthorized debits from consumers’ bank accounts and engaged in deceptive marketing practices. The settlement requires the defendants to pay $2,258,258 for consumer redress, plus the proceeds from the sale of an automobile. In addition, one of the defendants, Dale Paul Cleveland, must pay taxing authorities an additional $667,288.

According to the FTC’s complaint, filed in federal court in July 2007, the defendants marketed bank-issued prepaid debit cards under a variety of names through Web sites and pop-up and e-mail advertisements that directed consumers to sites for the individual cards (including Acclaim Visa, Impact Visa, Sterling Visa, VIP Advantage Visa, Vue Visa, Elite Plus MasterCard, Impact MasterCard, Secure Deposit MasterCard, VIP MasterCard, and Vue MasterCard). They also marketed unrelated short-term loans on Web sites such as www.SuperAutoSource.com and www.SuperCashSource.com. The complaint alleged that, among other things, the defendants debited, without authorization, a $159.95 “application and processing” fee from consumers’ bank accounts, including from consumers who did not submit an online application for the prepaid cards or who had applied for an unrelated short-term loan.

Under the proposed settlement, defendants EdebitPay, LLC, EDP Reporting, LLC, EDP Technologies Corporation, Secure Deposit Card, Inc., Dale Paul Cleveland, and William Richard Wilson, all located in Los Angeles, California, are prohibited from debiting a consumer’s account or causing billing information to be submitted for payment without first obtaining the consumer’s express informed consent. The defendants are required to clearly and conspicuously disclose the costs to obtain and use any prepaid, debit, or credit card, and that the defendants will use consumers’ personally identifiable information to impose such costs, in close proximity to any instruction to provide such information and to statements such as “No Annual Fees” or “No Security Deposit” that represent that a card can be obtained “free,” without obligation, or at a reduced cost.

The order also prohibits the defendants from misrepresenting any fact material to a consumer’s decision to apply for or purchase any product or service. In addition, it requires the defendants to clearly and conspicuously disclose certain material information before a consumer applies for or purchases any product or service, such as any charge that will be assessed against the consumer’s bank account; any method that will be used to debit the account; that the consumer’s personally identifiable information will be used to debit the account; that such information will be sold or transferred to third parties for marketing purposes; the material attributes of the product or service being offered; and, if a representation is made about a refund or cancellation policy, a statement of all material terms and conditions of the policy.

The order also requires the defendants to investigate and resolve, within 30 days, any consumer complaint or refund request, and to take reasonable steps to monitor and ensure that the defendants’ agents, representatives, employees, independent contractors, and marketing affiliates comply with the order.

The Commission vote to authorize staff to file the stipulated final order was 5-0. The order was filed in the U.S. District Court for the Central District of California, and was entered by the court on January 17th.

NOTE: This stipulated final order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

Copies of the order are available from the FTC’s Web site at http://www.ftc.gov and 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 and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, click http://www.ftc.gov/ftc/complaint.shtm or call 1-877-382-4357. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to more than 1,600 civil and criminal law enforcement agencies in the U.S. and abroad. For free information on a variety of consumer topics, click http://ftc.gov/bcp/consumer.shtm.