- November 21, 2010
- Posted by: Seth Heyman
- Category: Marketing & Advertising Law
If you’re only offering credit to purchase products from your own merchandise catalog, don’t call it a credit card. The Federal Trade Commission recently settled charges against six credit card marketers that allegedly deceived consumers into paying for what the agency said were “bogus” cards and charged illegal fees.
According to the FTC’s complaint, the defendants targeted consumers with credit problems by using mailers that promised to “build” credit with a “guaranteed” $7,500 credit line and cash advance benefit. Although the cards looked like typical credit cards, they could only be used to purchase products from the defendants’ merchandise catalog, the agency said. In other words, the program wasn’t a credit card offer, but a shopping club.
The defendants falsely claimed that the cards could be used to fully finance purchases and that they could improve the users’ credit ratings, the FTC alleged, and that users would have access to a low-cost, no-fee, or guaranteed cash advance benefit. In addition, the agency said the defendants falsely claimed that if consumers returned the card, they would receive a refund for the $120 activation fee.
Under the terms of the settlement, the defendants agreed to stop engaging in certain marketing practices and to the imposition of a $28.5 million judgment that will be suspended when the proceeds from sales of certain properties are surrendered.
Specifically, the defendants are barred from violating the Telemarketing Sales Rule, must disclose all fees and costs as well as the refund or cancellation policy before consumers are asked to pay, and cannot misrepresent any material fact in connection with the sale of any product or service.
In fact, the “credit card” offer in question was closer to a continuity discount merchandise club. If the defendants complied with Telemarketing Sales Rule and made the necessary disclosures, they may not have sold as many memberships, but they probably would have been able to keep what they earned.