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

FEDERAL TRADE COMMISSION

[File No. 932 3040]

Great Expectations of Baltimore, 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 video dating service franchise 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 misled by the undisclosed finance charges and

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 Pennsylvania Avenue 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 of Baltimore, Inc., Great

Expectations of Washington, DC, Inc., Great Expectations of

Washington, 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 of Baltimore, Inc.,

Great Expectations of Washington, DC, Inc., and Great Expectations of

Washington, Inc., corporations, (hereinafter collectively 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 of Baltimore, Inc. (``GE Baltimore'') is a

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

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

place of business located at 40 York Rd., Suite 500, Towson, MD 21204.

2. Great Expectations of Washington, DC, Inc. (``GE DC'') is a

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

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

place of business located at 8601 Westwood Center Dr., Vienna, VA

22182.

3. Great Expectations of Washington, Inc., doing business as Great

Expectations of Raleigh/Durham (``GE Raleigh''), is a corporation

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

of the state of Maryland, with its office and principal place of

business located at 3714 Benson Dr., Suite 200, Raleigh, NC 27609.

4. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint.

5. 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.

6. 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 [[Page 29609]] 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.

7. 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 complaint, or that the facts

alleged in the draft complaint, other than the jurisdictional facts,

are true.

8. 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.

9. 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 GE Baltimore, GE DC, and GE Raleigh, 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. 1606 (a) and (c), and Sections 226.18(e)

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

B. Respondents GE Baltimore, GE DC, and GE Raleigh, 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 finance charge, as required by Section 106 of the TILA, 15

U.S.C. 1605, and Sections 226.4 and 226.18(d) of Regulation Z, 12 CFR

226.4 and 226.18(d);

C. Respondents GE Baltimore, GE DC, and GE Raleigh, 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 credit, do

forthwith cease and desist from failing to segregate the disclosures

required by the TILA from all other information provided in connection

with the transaction, including from the itemization of the amount

financed, as required by Section 128(b)(1) of the TILA, 15 U.S.C.

1638(b)(1), and Section 226.17(a) of Regulation Z, 12 CFR 226.17(a);

D. Respondents GE Baltimore, GE DC, and GE Raleigh, 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;

E. Respondents GE Baltimore, GE DC, and GE Raleigh, 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:

1. Failing to include, in the finance charge and the annual

percentage rate disclosed to the consumer, set-up or other fees that

are charged only to consumers who finance the costs of their

memberships, as required by Sections 106, 107, and 128 of the TILA, 15

U.S.C. 1605, 1606, and 1638, and Sections 226.4(b), 226.22, and 226.18(

d) and (e) of Regulation Z, 12 CFR 226.4(b), 226.22, and 226.18 (d) and

(e); and

2. Failing to exclude, from the amount financed disclosed to the

consumer, set-up or other fees that are charged only to consumers who

finance the costs of the their memberships, as required by Section 128

of the Truth in Lending Act, 15 U.S.C. 1638(a) and Section 226.18(b) of

Regulation Z, 12 CFR 226.18(b); and

F. Respondents GE Baltimore, GE DC, and GE Raleigh, 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 thirty (30) days following the date of service of this

order, respondents shall:

1. 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 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;

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 1; and [[Page 29610]]

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 shall provide the Federal Trade Commission with

the name and address of three independent accounting firms, with which

they, their officers, employees, attorneys, agents, and franchisees

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 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 the respondents.

III

It is further ordered that respondents, their successors and

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

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 ordered 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

Dear Great Expectations Customer:

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 were overcharged as a result of errors made by Great

Expectations 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 of

Baltimore, Inc. (``GE Baltimore''), Great Expectations of Washington,

DC, Inc. (``GE DC''), and Great Expectations of Washington, Inc. (``GE

Raleigh'').

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 GE Baltimore, GE DC, and GE Raleigh, as

creditors under the Truth in Lending Act (``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 accurately

calculate and disclose the annual percentage rate (``APR'') and the

finance charge, which resulted in some consumers paying more in

interest charges and finance charges than the franchises disclosed. The

complaint further alleges that this practice is unfair or deceptive in

violation of the Federal Trade Commission Act.

Additionally, the complaint alleges that these franchises 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, and have failed to separate the

itemization from all other information provided in connection with the

transaction. Also, these franchises failed to provide a descriptive

explanation of the financing terms. For example, the named franchises

failed to explain that the APR is ``the cost of your credit as a yearly

rate'' and that the finance charge is ``the dollar amount the credit

will cost you.'' The named franchises also failed to provide a

description of the amount financed, the total of payments, and the

total sales price.

The complaint also alleges that the named franchises failed to

include in the finance charge a set-up fee that each charged to its

customers that financed the costs of their memberships, but did not

charge to its customers that paid cash. The TILA requires that such

charges be made part of the finance charge. Instead, the named

franchises included the set-up fees in the amount financed, which

resulted in the finance charge and the APR being underdisclosed.

Finally, the complaint alleges that the named franchises failed to

identify the creditor in each transaction, and failed to provide the

total sales price.

The consent agreement would prohibit the franchises named herein

from failing to accurately calculate and disclose the APR and any other

terms required by the TILA.

The consent agreement includes a refund program requiring the named

franchises 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 the named franchises 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, and it is not intended to constitute an official

interpretation of [[Page 29611]] the agreement and proposed order or to

modify in any way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 95-13657 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M