Two Elmira, NY-based financial services companies and their principal have agreed to pay approximately $350,000 to settle Federal Trade Commission charges they deceptively marketed two advance-fee grant and loan programs - Free Cash Grants (FCG) and Borrowing Made Easier (BME). According to the FTC, Navestar D.M. Inc. (Navestar), Financial Services Network-USA Inc. (FSN) and their president, Paul Navestad, violated the FTC Act and the Telemarketing Sales Rule (TSR) by misrepresenting that consumers who purchased either of the programs were likely to receive grants and loans.
The FTC also alleged the defendants violated the FTC Act and the TSR by misrepresenting their refund policy for the FCG program, and alleged they violated the TSR by charging advance fees for the BME program. In addition to paying redress, the defendants are permanently banned from advertising, marketing or selling any credit- or grant-related goods or services.
The FTC filed charges against the defendants in June 2000 as part of "Operation Advance Fee Loan 2000" - a law enforcement sweep that targeted advance-fee loan scams. According to the FTC's complaint, Navestar operated the FCG program, which guaranteed free cash grants to consumers if they paid an advance fee of $47.
FSN operated the BME program, which promised bank loans to consumers who paid an advance fee of $45 to $60. The defendants advertised through direct mail solicitations, television, radio, and newspapers throughout the United States. The defendants' ads for the FCG program claimed consumers were pre-approved to receive free cash grants to use for various purposes such as debt consolidation or business start-ups, for a $47 advance fee. The defendants urged consumers to call an "'800" number with their assigned grant reservation number and offered consumers a full, money-back guarantee if they failed to get the grants. In fact, consumers who purchased the FCG program did not receive grants, and the defendants misrepresented their refund policy, according to the FTC.
In the BME program, the FTC alleged the defendants misrepresented that consumers purchasing the program were likely to obtain loans. The defendants claimed BME would purchase a certificate of deposit (CD) in a bank chosen by the consumer, which would then enable the consumer to obtain a loan from that same bank. The defendants required consumers to pay a fee to BME of 3 to 6 percent of the CD amount, as well as a contract fee between $100 and $1000, depending on the amount of the loan. In fact, the FTC alleged, when consumers went to their respective banks with the BME materials, loan officers told them the CD could not be used as collateral for a loan.
The settlement bans the defendants from advertising, marketing, promoting, offering for sale or selling any credit- or grant-related goods or services, or assisting others engaged in the same activities. The stipulated final judgment and order further prohibits the defendants from engaging in the practices alleged in the FTC's complaint. The settlement also prohibits the defendants from using aliases in business dealings and prohibits them from selling their customer lists.
The settlement, which requires the defendants to pay approximately $350,000, includes a right to reopen provision if the FTC finds the defendants made material misrepresentations or omissions on their financial statements.
The FTC was assisted in the case by New York State Attorney General Eliot Spitzer, whose office also pursued the defendants for contempt of a previous order settling an action for violations of the Telemarketing Sales Rule and New York state law. The New York case resulted in a settlement banning the defendants from soliciting consumers for credit- or grant-related services in New York and calling for the payment of $100,000 to New York for the costs of the case.
Under the terms of the settlements in the FTC and New York cases, the approximately $250,000 remaining will be used for consumer redress. The FTC will administer the consumer redress program.
The Commission vote to authorize staff to file the stipulated final judgment was 5-0. It was filed in the U.S. District Court, Western District of New York, in Rochester, on Jan. 3, 2002, and entered by the court.
The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov.