Great Expectations Creative Management, Inc., et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 932 3040]

Great Expectations Creative Management, Inc., et al.; Proposed

Consent Agreement With Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

require, among other things, the franchisor of video dating services

and its four franchises to properly and accurately disclose the annual

percentage rate (APR) and other credit terms of financed memberships,

as required by the federal Truth in Lending Act and would require the

franchises to make refunds to consumers who were mislead by the

undisclosed finance charges and APRs. In addition, the consent

agreement would prohibit the respondents from providing franchises

contracts with pre-printed APRs.

DATES: Comments must be received on or before August 4, 1995.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Stephen Cohen, FTC/S-4429, Washington, DC 20580. (202) 326-3222.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the following consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Section 4.9(b)(6)(ii) of the Commission's Rules of

Practice (16 CFR 4.9(b)(6)(ii)).

In the Matter of Great Expectations Creative Management, Inc.,

Great Expectations, Inc., GEC Illinois, Inc., GEC Tennessee, Inc.,

and GEC Alabama, Inc., corporations. File No. 932 3040.

Agreement Containing Consent Order To Cease and Desist

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Great Expectations Creative Management,

Inc., Great Expectations, Inc., GEC Illinois, Inc., GEC Tennessee,

Inc., and GEC Alabama, Inc., corporations, (hereinafter sometimes

referred to as Proposed Respondents) and it now appearing that Proposed

Respondents are willing to enter into an agreement containing an order

to cease and desist from the use of the acts and practices being

investigated.

It Is Hereby Agreed by and between Proposed Respondents, their

attorneys, and counsel for the Federal Trade Commission that:

1. Great Expectations Creative Management, Inc. (``G/ECM'') is a

corporation organized, existing, and doing business under and by virtue

of the laws of the state of California, with its office and principal

place of business located at 16830 Ventura Blvd,, Suite P, Encino, CA

91436.

2. Great Expectations, Inc., (``G/EI'') is a corporation organized,

existing, and doing business under and by virtue of the laws of the

state of California, with its corporate office at 16830 Ventura Blvd.,

Suite P, Encino, CA 91436, and its principal places of business located

at 1640 S. Sepulveda Blvd., Suite 100, Los Angeles, CA 91436, 17207

Ventura Blvd., Encino, CA 91316, and 450 N. Mountain, Suite B, Upland,

CA 91786.

3. GEC Illinois, Inc. (``GE Illinois'') is a corporation organized,

existing, and doing business under and by virtue of the laws of the

state of Illinois, with its office and principal place of business

located at 1701 E. Woodfield Dr., Suite 400, Schaumburg, IL 60173.

4. GEC Tennessee, Inc. (``GE Tennessee'') is a corporation

organized, existing, and doing business under and by virtue of the laws

of the state of [[Page 29606]] California, with its office and

principal place of business located at 5552 Franklin Rd., Suite 200,

Nashville, TN 37220.

5. GEC Alabama, Inc. (``GE Alabama'') is a corporation organized,

existing, and doing business under and by virtue of the laws of the

state of Alabama, with its office and principal place of business

located at 7529 S. Memorial Pkwy., Suite C & D, Huntsville, AL 35802.

6. Proposed Respondents admit all the jurisdictional facts set

forth in the draft of complaint.

7. Proposed Respondents waive:

(a) Any further procedural steps;

(b) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law; and

(c) Any right to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement.

8. This agreement shall not become a part of the public record of

the proceeding unless and until it is accepted by the Commission. If

this agreement is accepted by the Commission, it, together with the

draft of complaint contemplated thereby, will be placed on the public

record for a period of sixty (60) days and information in respect

thereto publicly released. The Commission thereafter may either

withdraw its acceptance of this agreement and so notify Proposed

Respondents, in which event it will take such action as it may consider

appropriate, or issue and serve its complaint (in such form as the

circumstances may require) and decision, in disposition of the

proceeding.

9. This agreement is for settlement purposes only and does not

constitute an admission by Proposed Respondents that the law has been

violated as alleged in the draft of compliant or that the facts alleged

in the draft complaint, other than the jurisdictional facts, are true.

This agreement shall apply only to the U.S. operations of Proposed

Respondents.

10. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to Proposed

Respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint and its decision containing the

following order to cease and desist in disposition of the proceeding,

and (2) make information public in respect thereto. When so entered,

the order to cease and desist shall have the same force and effect and

may be altered, modified, or set aside in the same manner and within

the same time provided by statute for other orders. The order shall

become final upon service. Delivery by the U.S. Postal Service of the

complaint and decision containing the agreed-to order to Proposed

Respondents, address as stated in this agreement shall constitute

service. Proposed Respondents waive any right they may have to any

other manner of service. The complaint may be used in construing the

terms of the order, and no agreement, understanding, representation, or

interpretation not contained in the order or the agreement may be used

to vary or contradict the terms of the order.

11. Proposed Respondents have read the proposed complaint and order

contemplated hereby. They understand that once the order has been

issued, they will be required to file one or more compliance reports

showing that they have fully complied with the order. Proposed

Respondents further understand that they may be liable for civil

penalties in the amount provided by law for each violation of the order

after it becomes final.

Order

I

It Is Ordered that:

A. Respondent G/ECM, a corporation, its successors and assigns, and

its officers, agents, representatives, and employees, directly or

through any corporation, subsidiary, division, or other device, do

forthwith cease and desist from:

1. Providing a retail installment contract or any other financial

instrument or disclosure to its franchisees that violates the Truth in

Lending Act (``TILA''), 15 U.S.C. 1601 et seq., and Regulation Z, 12

CFR Part 226;

2. Providing a retail installment contract or other TILA disclosure

that contains a pre-printed annual percentage rate;

3. Providing instructions for calculating or disclosing the annual

percentage rate, finance charge, or monthly payments that conflict with

the TILA and Regulation Z;

4. Failing to take reasonable steps sufficient to ensure that its

franchisees are complying with the TILA or Regulation Z including, but

not limited to, reviewing and randomly testing TILA disclosures used by

its franchisees;

5. Failing to terminate, unless prohibited by state law, any

franchise that G/ECM knows or should know does not comply with the TILA

or Regulation Z;

6. Failing to make available to its franchisees a computer program

or other comparable system that accurately calculates the disclosures

required by the TILA and Regulation Z; and

7. Failing to provide Attachment 1 to all of its current

franchisees;

B. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama,

their successors and assigns, and their officers, agents,

representatives, and employees, directly or through any corporation,

subsidiary, division, or other device, in connection with the offering

of credit, do forthwith cease and desist from failing to accurately

calculate and disclose the annual percentage rate, as required by

Sections 107 (a) and (c) of the TILA, 15 U.S.C. Secs. 1606 (a) and (c),

and Sections 226.18(e) and 226.22 of Regulation Z, 12 CFR 226.18(e) and

226.22;

C. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama,

their successors and assigns, and their officers, agents,

representatives, and employees, directly or through any corporation,

subsidiary, division, or other device, in connection with the offering

of credit, do forthwith cease and desist from failing to make all

disclosures in the manner, form, and amount required by Sections 122

and 128(a) of the TILA, 15 U.S.C. 1632 and 1638(a), and Sections 226.17

and 226.18 of Regulation Z, 12 CFR 226.17 and 226.18;

D. Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama,

their successors and assigns, and their officers, agents,

representatives, and employees, directly or through any corporation,

subsidiary, division, or other device, in connection with the offering

of credit, do forthwith cease and desist from failing to comply with

the TILA, 15 U.S.C. 1601 et seq., and Regulation Z, 12 CFR part 226.

II

Refund Program

It is further ordered that:

A. Within sixty (60) days following the date of service of this

order, Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama

shall:

1. For each TILA disclosure relating to any executory contract or

any contract consummated within two years prior to July 20, 1994,

determine to whom Respondents disclosed on the original TILA disclosure

an annual percentage rate that was miscalculated by more than one

quarter of one percentage point below the annual percentage rate

determined in accordance with Section 226.22 of Regulation Z, 12 CFR

226.22, or that disclosed a finance charge that [[Page 29607]] was

miscalculated by more than one dollar below the finance charge

determined in accordance with Section 226.4 of Regulation Z, 12 CFR

226.4, so that each such person will not be required to pay a finance

charge in excess of the finance charge actually disclosed or the dollar

equivalent of the annual percentage rate actually disclosed, whichever

is lower, plus a tolerance of one quarter of one percentage point;

provided, however, that no determination need be made for any person

that has already received a full refund of all finance charges paid to

Respondents;

2. Calculate a lump sum refund and a monthly payment adjustment, if

applicable, in accordance with Section 108(e) of the TILA, 15 U.S.C.

1607(e);

3. Mail a refund check to each eligible consumer in the amount

determined above, along with Attachment 2; provided, however, that

should such consumer have a balance due and owing Respondents and

should Respondents have a legal right to collect such balance under

state law and under the terms of their contract with the consumer, the

refund maybe applied to that balance and the excess, if any, shall be

refunded to each such consumer;

4. Provide the Federal Trade Commission with a list of each such

consumer, the amount of the refund, the number of payments refunded,

the amount of adjustment for future payments and the number of future

payments to be adjusted;

B. No later than fifteen (15) days following the date of service of

this order, Respondents G/EI, GE Illinois, GE Tennessee, and GE Alabama

shall provide the Federal Trade Commission with the name and address of

three independent accounting firms, with which they, their officers,

employees, attorneys, and agents, have no business relationship. Staff

for the Division of Credit Practices of the FTC shall then have the

sole discretion to choose one of the firms (``independent agent'') and

so advise Respondents;

C. Within thirty (30) days following the date of adjustments made

pursuant to this section, Respondents G/EI, GE Illinois, GE Tennessee,

and GE Alabama shall direct the independent agent to review a

statistically-valid sample of refunds. Respondents shall provide the

Federal Trade Commission with a certified letter from the independent

agent confirming that Respondents have complied with Part II. A. of

this order;

D. All costs associated with the administration of the refund

program and payment of refunds shall be borne by Respondents G/EI, GE

Illinois, GE Tennessee, and GE Alabama.

III

It Is Further Ordered that Respondents, their successors and

assigns, shall maintain for at least five (5) years from the date

service of this order and, upon thirty (30) days advance written

request, make available to the Federal Trade Commission for inspection

and copying all documents and other records necessary to demonstrate

fully their compliance with this order.

IV

It Is Further Ordered that Respondents, their successors and

assigns, shall distribute a copy of this order to any present or future

officers and managerial employees having responsibility with respect to

the subject matter of this order and that Respondents, their successors

and assigns shall secure from each such person a signed statement

acknowledging receipt of said order.

V

It Is Further Ordered that Respondents,. for a period of five (5)

years following the date of service of this order, shall promptly

notify the Commission at least thirty (30) days prior to any proposed

change in their corporate structure such as dissolution, assignment, or

sale resulting in the emergence of a successor corporation, the

creation or dissolution of subsidiaries or affiliates, or any other

change in the corporation that may affect compliance obligations

arising out of the order.

VI

It Is Further Order that Respondents shall, within one hundred and

eighty (180) days of the date of service of this order, file with the

Commission a report, in writing, setting forth in detail the manner and

form in which they have complied with this order.

Attachment 1

Important Notice To Great Expectations' Franchisees

We have reached a settlement with the Federal Trade Commission

concerning their claims of alleged violations of the Truth in

Lending Act and the Federal Trade Commission Act. The Federal Trade

Commission believes that the retail installment contracts and the

formula listed on them that we may have provided to you in the past

may not comply with the Truth in Lending Act.

As part of our settlement, we agreed to alert you to immediately

stop using any retail installment contracts we provided until you

can verify that they comply with all local, state, and federal laws.

As always, we recommend that you have your forms reviewed by your

own attorney. We have a computer software program available for your

use that can be used to help you make sure your disclosures are

accurately calculated. To obtain a copy of this program, please

contact Keith Granirer.

Jeffrey Ullman

President

Great Expectations Creative Management, Inc.

Attachment 2

Dear Great Expectations Member: As part of our settlement with

the Federal Trade Commission for alleged violations of the Truth in

Lending Act, we are sending you the enclosed refund check in the

amount of $______. The refund represents the amount you may have

been overcharged as a result of a possible error in calculating or

disclosing the annual percentage rate or finance charge.

[In addition, your future monthly payments have been reduced.

Starting immediately, your monthly payments will be $______.]

We regret any inconvenience this may have caused you.

Great Expectations

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from respondents Great Expectations Creative

Management, Inc. (``G/ECM''), Great Expectations, Inc. (``G/EI''), GEC

Illinois, Inc. (``GE Illinois''), GEC Tennessee, Inc. (``GE

Tennessee''), and GEC Alabama, Inc. (``GE Alabma'').

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

The complaint alleges that G/ECM provided its franchises with Truth

in Lending Act (``TILA'') disclosures that, when used by those

franchises, resulted in false and misleading disclosures of the annual

percentage rate (``APR'') and finance charge to consumers. Thus, the

complaint alleges that G/ECM engaged in unfair or deceptive acts or

practices in violation of Section 5 of the Federal Trade Commission

Act.

The complaint also alleges that G/EI, GE Illinois, GE Tennessee,

and GE Alabama, as creditors under the TILA, have violated the TILA and

its implementing Regulation Z. Specifically, the TILA requires

creditors to make clear and consistent disclosures of the credit terms

in a financed transaction. These franchises failed to

[[Page 29608]] accurately calculate and disclose the APR, which

resulted in some consumers paying more in interest charges than the

franchises disclosed. The complaint further alleges that this practice,

when engaged in by G/EI, GE Alabama, and GE Illinois, was unfair or

deceptive in violation of the Federal Trade Commission Act.

Additionally, the complaint alleges that G/EI, GE Illinois, GE

Tennessee, and GE Alabama failed to accurately disclose the itemization

of the amount financed, which assists consumers in understanding

whether they are being charged a prepaid finance charge or whether any

of the proceeds are being distributed to third parties.

Finally, the complaint alleges that G/EI, GE Illinois, GE

Tennessee, and GE Alabama failed to identify the creditor in each

transaction.

The consent agreement would prohibit G/ECM from providing any

disclosures to its franchises that violate the TILA. Because G/ECM

disseminated TILA disclosure forms that contained pre-printed APRs

without also providing adequate instructions for accurately calculating

and disclosing the APR, the consent agreement would prohibit G/ECM's

use of forms containing pre-printed APRs in the future. The consent

agreement would further prohibit G/ECM from providing any calculation

instructions that conflict with the TILA.

The consent agreement would require G/ECM to make sure that its

franchises are complying with the TILA, including reviewing and

randomly testing franchises' TILA disclosures. The consent agreement

would also require G/ECM to make available to its franchises a program

that accurately calculates the disclosures required by the TILA and

would require G/ECM to terminate, where permitted by state law, any

franchise that it knows or should know does not comply with the TILA.

The consent agreement would prohibit G/EI, GE Illinois, GE

Tennessee, and GE Alabama from failing to accurately calculate and

disclose the APR and other terms required by the TILA.

The consent agreement includes a refund program requiring G/EI, GE

Illinois, GE Tennessee, and GE Alabama to make adjustments to the

account of any consumer to whom they disclosed an APR or finance charge

that was lower than the amount the consumer actually was required to

pay.

The consent agreement would also require G/EI, GE Illinois, GE

Tennessee, and GE Alabama to maintain records of their compliance with

the consent agreement, distribute copies of the agreement to their

employees, and advise the Federal Trade Commission of any changes in

their corporate structure.

The purpose of this analysis is to facilitate public comment on the

proposed order, an it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 95-13653 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M