NOTE: This website is where you can find advertising law information based on archived news briefs from past issues of Advertising Compliance Service. This archived news brief was published in Advertising Compliance Service in May 2001.

As part of its ongoing "Project ScholarScam," a law enforcement and consumer education effort to combat fraudulent scholarship promotion schemes, College Resource Management, Inc. (CRM), and its principals, Scott Traynor and Steven Daughenbaugh, agreed to settle FTC charges of misrepresenting their ability to obtain college financial aid for students. The settlement bars defendants from making false claims in connection with the marketing and sale of college financial services and from violating FTC's Rule Concerning Cooling-Off Period for Sales Made at Home or at Certain Other Locations (Cooling-Off Rule). The order also requires defendants to pay $40,000 in disgorgement.

According to FTC's complaint, defendants marketed their financial aid services through a direct mail campaign targeted to high school students and their parents. Defendants' letter said that they had identified the student as "eligible" to enroll in their "nationally recognized college financial aid and placement assistance service," and invited the student to call a toll-free number to arrange an interview.

According to FTC, the interviews, typically held at local hotels, were really high-pressure sales seminars at which the defendants promoted their college planning and financial aid services. These services, ranging in price from $995 to $1,068 depending upon whether parents paid up-front or over time, purportedly helped consumers get more financial aid than they could on their own.

Defendants told consumers they would prepare a personalized career profile for their students and find colleges that offered majors in those particular fields with the best financial aid packages, professionally analyze consumers' financial situations, prepare a personalized financial aid report, and design customized strategies to maximize the amount of financial aid consumers would likely receive. In reality, according to FTC, defendants provided consumers

FTC's complaint alleges that the defendants

(1) falsely represented that students were selected based on their qualifications to participate in the defendants' financial aid program;

(2) falsely represented that consumers who purchased their services were likely to receive substantially more financial aid than consumers could obtain without those services; and

(3) failed to disclose, or disclose adequately, that their service agreement would be automatically renewed each year at a cost of $300 per year unless consumers wrote to cancel at least 30 days prior to the renewal date.

The stipulated order bars the defendants, in connection with the advertising, promotion, offer for sale, or sale of any academic good or service, from falsely representing, expressly or by implication, that:

students have been identified by the defendants based on any specific criteria;

consumers are likely to receive substantially more financial aid than they could otherwise obtain without the defendants' services;

consumers will receive a refund if they do not obtain any financial aid as a result of buying any academic good or service;

consumers are likely to receive, or that the defendants' customers have received, a specified amount of financial aid; and

consumers will receive customized advice tailored to their specific academic planning or financial needs.

The order also bars defendants from failing to disclose to consumers

(a) any policy of automatic renewal, and

(b) any material term, condition, or limitation on any refund policy.

Also, the settlement requires the defendants to make certain affirmative disclosures in their sales presentations and advertising, including that purchasing CRM's services does not guarantee that a:

consumer will get financial aid or get more financial aid than the consumer could have otherwise obtained without purchasing CRM's services; and

consumer's child will get accepted by a college or university.

Finally, the order requires defendants to pay $40,000 as disgorgement.

The Commission vote authorizing staff to file the complaint and settlement was 5-0. The case was filed in the U.S. District Court for the Northern District of Texas, Dallas Division, on May 1, 2001, and the court entered the final order on May 2, 2001.

NOTE: This stipulated order and judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated judgments are subject to approval by the court and have the force of law when signed by the judge.

(College Resource Management, Inc., Civil Action No.: 3-01CV0828-G, FTC File No. 002 3004, May 10, 2001.)

FTC recently denied a petition requesting an FTC rulemaking proceeding as to the advertising and marketing of basmati and jasmine rice. The petition was filed in 2000 by The Research Foundation for Science, Technology and Ecology; the Center for Food Safety; and the International Center for Technology Assessment. That petition asked FTC to begin a rulemaking proceeding to bar advertisers and marketers from using the terms "basmati" or "jasmine" to characterize rice grown in the U.S.

In denying the petition, FTC said it found no reason to believe that significant consumer injury is likely to arise from current rice marketing. Under U.S. Department of Agriculture (USDA) regulations, basmati and jasmine rice are included as examples of "aromatic rough rice" and are not limited to rice grown in any particular country. Moreover, FTC said it had no evidence to suggest that U.S.-grown rice is being misrepresented as rice from other parts of the world. Accordingly, FTC staff sent a letter to the petitioners informing them of FTC's decision.

(Commission Denial of Petition for Rulemaking Proceeding, FTC File No. P014506, May 15, 2001; see also: Advertising of U.S. Grown Rice as "Basmati" or "Jasmine" Letter Declining to Take Action on Request for Rulemaking to Prevent Such Advertising, May 15, 2001.)

Under recently finalized settlement agreements with FTC, Microsoft Corporation and Hewlett-Packard Company (HP) agreed to stop misrepresenting that Pocket PC handheld computers--personal digital assistants or "PDAs"--came with built-in wireless access to the Internet and e-mail at anytime and from anywhere. According to FTC, Pocket PC users must purchase and carry additional equipment such as a modem to get mobile access to the Internet and e-mail--a fact not clearly disclosed in the joint Microsoft-HP advertising campaign.

Microsoft had developed a new operating system for PDAs and licensed it to several Pocket PC equipment manufacturers, including Hewlett-Packard. In April 2000, Microsoft and HP announced the Pocket PC with a cooperative ad campaign that ran in such national publications as the Wall Street Journal, USA Today, New York Times, and Newsweek. These ads featured a picture of a specific Pocket PC--for example, the HP Jornada--and touted Pocket PCs generally.

HP and Microsoft will voluntarily disseminate consumer education materials about the various factors consumers should consider when buying PDAs, such as whether a PDA offers built-in wireless access. HP has already posted a brochure entitled "Helpful Facts About Personal Digital Assistants" on its Web site. HP will also include references to the brochure and its Web address in certain Jornada print advertising, e-mail the brochure to major consumer electronics retailers and encourage them to place it on their Web sites, and e-mail it to technology journalists and encourage them to write about it.

Microsoft will run an essay as a quarter-page ad in the Chicago Tribune, Los Angeles Times, New York Times, Seattle Post-Intelligencer, Seattle Times, San Jose Mercury News, Washington Post and Washington Times. The essay, entitled "Personal Digital Assistants are Personal," will discuss the capabilities and limitations of PDAs, highlighting the inability of most PDAs to provide wireless access to e-mail and the Internet without a modem. The essay and Microsoft's print ads for a period of one year will refer readers to a detailed consumer education brochure about the factors consumers should consider when buying PDAs.

While the Commission vote to finalize the consent agreements was 5-0, Commissioner Orson Swindle issued a separate statement. Commissioner Swindle expressed--

"strong reservations about the use of unenforceable 'voluntary' consumer education. In each of these cases, staff negotiated with the proposed respondent to achieve a consumer education campaign that is being undertaken wholly outside the confines of the order. . . . If consumer education is important enough to include in negotiations, there likely is some impact on what is achieved in negotiating the terms of the consent order itself. Moreover, to the extent that the FTC promotes such `voluntary' consumer education initiatives in our efforts to publicize the consent agreements, we may see many more deep-pocketed respondents seeking to add a bit of voluntary and unenforceable consumer education to a broader promotional campaign in exchange for a weaker order than might otherwise be negotiated."

NOTE: The consent agreements referenced in this release are for settlement purposes only and do not constitute admissions of law violations. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

(Microsoft Corporation, FTC File No. 002-3331, May 18, 2001; Hewlett-Packard Company, FTC File No. 002-3220, May 18, 2001; see also: Advertising Compliance Service, Tab #15, New Media, Article #113.)