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NOTE: Here is where you can find advertising law information based on news briefs that appeared in past issues of Advertising Compliance Service, "Your Single Essential Advertising Law Resource," during the month of February 2001.



Darryl Smith, the principal of American Consumer Membership Services, Inc. (ACMS), agreed to a permanent ban from engaging in any telemarketing, or in the advertising, promotion, marketing, or sale of services relating to credit cards, loans or other extensions of credit as part of a settlement with FTC. FTC had alleged that Smith and ACMS, deceptively telemarketed offers of pre-approved, guaranteed VISA or MasterCard credit cards for a $69 fee to consumers with credit problems. Instead of the promised cards, consumers received vouchers, coupons and other offers, and occasionally credit card applications with lists of banks to apply to for a credit card, often requiring additional bank fees of as much as $150. FTC also charged that Smith and ACMS misrepresented their refund policy. Under the settlement, the defendants agreed to pay over $40,000 in consumer redress.

NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Stipulated final judgments and default judgments have the force of law when signed by the judge.

(American Consumer Membership Services, FTC File No. X990087; Civil Action No. 99 CV 1206, January 29, 2001.)


The "2000 online holiday shopping season seems to have gone more smoothly for consumers than the 1999 online holiday season" from FTC's perspective. So announced Jodie Bernstein, Director of FTC's Bureau of Consumer Protection.

Right after the 1999 holiday season, when the Internet was still burgeoning, FTC had brought civil penalty actions against many well-known e-tailers for allegedly violating FTC's Mail or Telephone Order Merchandise Rule. The companies paid over $1.5 million in total penalties--not to mention their associated legal costs. Many e-tailers have gone out of business since the time of FTC's action--largely for lack of capital--so there are now far fewer e-tailers of which to complain.

Accordingly, Bernstein pronounced that, "No investigations tied solely to the 2000 holiday season appear warranted."

(Online Holiday Shopping Experience, FTC Release, January 30, 2001.)


FTC has approved the first "safe harbor" program under the terms of the Children's Online Privacy Protection Act (COPPA). The Children's Advertising Review Unit of the Council of Better Business Bureaus (CARU), the children's arm of the advertising industry's self-regulatory program established in 1974, was the first "safe harbor" program that FTC has approved under COPPA's terms. Safe harbor programs are industry self-regulatory guidelines that, if adhered to, are deemed to comply with the Act.

CARU Has Long History of Working to Protect Children
From Unfair and Deceptive Advertising Practices

"CARU has a long history of working to protect children from unfair and deceptive advertising practices and we're pleased to have CARU as a partner in protecting children's online privacy." So said Jodie Bernstein, Director of FTC's Bureau of Consumer Protection.

In October 1999, FTC issued the Children's Online Privacy Protection Rule. This Rule requires children's website operators to post comprehensive privacy policies on their sites, notify parents about their information practices, and obtain parental consent before collecting personal information from children under the age of 13. The Rule, which went into effect on April 21, 2000, was issued to implement the Children's Online Privacy Protection Act, passed by Congress in 1998. The Act also directed FTC to review and approve guidelines that would serve as safe harbors.

CARU's safe harbor application was published in a Federal Register Notice and FTC sought public comment about whether the proposed guidelines provided "the same or greater protections for children" as those contained in the Children's Online Privacy Protection Rule; whether the mechanisms used to independently assess operators' compliance with the guidelines would be effective; and whether incentives for operators' compliance with the guidelines would be effective. CARU then amended its safe harbor application to address the issues raised by the public comments.

Seeming Unwieldiness and Unworkability
Of This Bureacratic Scheme

FTC says that it "continues to receive and review COPPA safe harbor applications." The seeming unwieldiness and unworkability of this bureaucratic scheme is pointed up by the fact that FTC has now only approved one safe harbor for COPPA--and it took nearly one year to do so. Moreover, its approval was for one of the nations' premiere experts in protecting children from unfair and deceptive advertising practices. Can individual companies and/or websites provide a "safe harbor" program? Advertising Compliance Service asked Toby Levin, of FTC's Bureau of Consumer Protection, this question. "It's possible for an individual company to provide a safe harbor program," she told us. "It's designed more for a field program," she said. Accordingly, such entities as CARU are more likely to be approved. Levin told us that FTC will act on the applications of two other entities "within one month or two."

The Commission vote to approve the CARU safe harbor application was 5-0.

(Children's Advertising Review Unit of the Council of Better Business Bureaus (CARU), FTC File No. P004504, February 1, 2001.)


Ameritel Payphone Distributors, Inc., and its owner, Roy Barnett Goodman, targeted by FTC as part of a nationwide crackdown on fraudulent business opportunities, agreed to pay $40,000 to settle the charges against them. The settlement ends the litigation in this case, which was among 35 cases brought by FTC and the Department of Justice as part of "Project Biz-illion$," a multi-prong state/federal attack on alleged traditional business opportunity scams.

This case, like most "Project Biz-illion$" actions, was launched against defendants that advertised in the classified section of daily newspapers to market payphone, vending machine, display rack, or work-at-home business opportunities scams, according to FTC. Among other things, defendants made unsupported earnings claims, FTC said.

According to FTC, Ameritel Payphone Distributors sold payphone business opportunities. FTC charged the company and its owner with making false and misleading claims about the earnings that could be realized, the availability of local, profitable payphone locations, and the inclusion of such locations as part of the business venture. FTC also charged them with failing to comply with the provisions of the Franchise Rule designed to help potential purchasers protect themselves from false profitability claims. An investment for three payphones was about $4,500. The defendants' advertisements often included estimates of potential earnings of up to $200,000 per year.

Under the consent judgment, Ameritel Payphone Distributors and Goodman are barred from misrepresenting any fact material to a consumer's purchasing decision in connection with the sale of business opportunity ventures. The settlement, which required the court's approval, also bars defendants from misrepresenting that a purchaser would earn in excess of a specified amount, or would be provided profitable locations for the payphones.

Also, the settlement requires defendants to pay $40,000 in consumer redress with an avalanche clause which would require them to pay $8 million if they're found to have made omissions or misrepresentations about their financial condition.

The stipulated judgment and order for permanent injunction was filed in the U.S. District Court for the Southern District of Florida, Miami Division, on January 31, 2001, and approved by the court.

NOTE: This stipulated judgment and order is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.

(Ameritel Payphone Distributors, Inc., et al., FTC Matter No. X000012, Civil Action No. 00-0514 Civ. GOLD/SIMONTON, February 6, 2001.)




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