Savings Discount Club (ASDC) and two individual defendants, who
promoted advance-fee loans through a discount club, must establish
a restitution fund of about $3 million, are subject to a lifetime
ban on credit-related telemarketing and face a lifetime telemarketing
bond of $500,000.
agreed to these provisions in order to settle a complaint the
Federal Trade Commission filed jointly with the attorney general's
offices of Virginia, Wisconsin and North Carolina. The complaint
alleged the company pitched a fraudulent advance-fee loan promotion
to hundreds of thousands of consumers nationwide.
to the FTC, the defendants enrolled consumers who signed up for
the purported advance-fee loan program, without their knowledge,
in a "discount club," and required them to be "members"
of the club for three months prior to applying for the promised
loan. Additionally, the defendants charged consumers a $30 monthly
membership fee to remain in the club and be "eligible"
to apply for the loan.
defendants took advantage of consumers who were in financial need,
providing little or nothing in return for their up-front payment,
and misled them about the likelihood of securing a low-interest
loan," said J. Howard Beales III, director of the FTC's Bureau
of Consumer Protection. "It is believed that the defendants
collected almost $50 million over five years, with only $9 million
paid out to consumers through loans, discounts or other benefits,"
complaint against defendants ASDC (also known as The Tungsten
Group), Tungsten Group II (a sales arm of ASDC), Robert J. Demellweek
and David Vincent Jensen, the FTC and attorneys general charged
each violated Section 5 of the FTC Act, the Commission's Telemarketing
Sales Rule (TSR) and relevant state laws.
stated, in connection with their advance-fee loan scheme, the
defendants' telemarketers represented that consumers would get
a low-interest loan between $500 and $1,500 in exchange for an
up-front payment of $100. That $100 consisted of a $40 administrative
fee and the first and last monthly loan payments of $30 each.
If the consumer agreed, the defendants deducted $100 from his
or her bank account almost immediately via electronic transfer.
to the complaint, the defendants told many consumers who tried
to cancel that the $40 fee was non-refundable. Only after the
money was debited, however, did consumers find that the defendants
had enrolled them in a "discount club," in which consumers
could purportedly receive reduced prices on gas, oil changes,
prescription drug purchases, and other items.
also learned, contrary to what they thought, they had not been
"pre-approved" for the loan, but could only apply for
a loan after paying the $30 membership fee for three months. Those
consumers who did get a loan paid a loan repayment fee -- above
and beyond the monthly fee - resulting in total payments of nearly
$41 per month for a 12-month, $500 loan.
according to the FTC, those consumers who chose not to cancel
their "discount club" membership found it was nothing
more than a Ponzi scheme. That is, the sole source of the loans
to other consumers was the defendants' own funds, with an ever-increasing
number of consumers needed to fund the new loans. If the defendants
charged one consumer $100 on one day, for example, they would
have to find four additional consumers to be able to loan that
first consumer $500. Consumer expectations thus grew exponentially,
with less and less money available to pay out.
terms of the order, the defendants will pay about $3 million,
with a net amount of about $2.5 million available for consumer
redress. If they are found to have misrepresented their financial
condition or to have hidden assets, however, the order would require
the court to enter a $40 million judgment against the defendants.
the order bans the defendants for life from telemarketing credit-related
products or services and for three years from any telemarketing
or sales of any credit-related goods or services. The order also
imposes a lifetime bond requirement mandating they post a $500,000
bond before conducting any telemarketing or sales of credit-related
goods or services. It also prohibits the defendants from making
misrepresentations similar to those alleged in the complaint and
from violating the TSR. Finally, it requires the defendants to
comply with the state laws they are alleged to have violated.