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

FEDERAL TRADE COMMISSION

[File No. 932-3040]

Great Expectations of Columbus, Inc.; 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, a 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 franchise 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 Street and Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Stephen Cohen, FTC/S-4429, Washington, D.C. 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 Columbus, Inc., a

corporation; 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 Columbus, Inc., a

corporation, (hereinafter referred to as proposed respondent) and it

now appearing that proposed respondent is willing to enter into an

agreement containing a order to cease and desist from the use of the

acts and practices being investigated,

It is Hereby Agreed by and between proposed respondent, its

attorney, and counsel for the Federal Trade Commission that:

1. Great Expectations of Columbus, Inc. (``GE Columbus'') 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

11835 West Olympic Boulevard, East Tower, Suite 490, Los Angeles,

California, 90064, and its principal place of business located at 1103

Schrock Rd., Suite 101, Columbus, OH 43229.

2. Proposed respondent admits to all the jurisdictional facts set

forth in the draft of complaint.

3. Proposed respondent waives:.

(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.

4. 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

respondent, 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.

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

constitute an admission by proposed respondent 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.

6. 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

respondent, (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 respondent's

address as stated in this agreement shall constitute service. Proposed

respondent waives any right it 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.

7. Proposed respondent has read the proposed complaint and order

contemplated hereby. It understands that once the order has been

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

showing that it has fully complied with the order. Proposed respondent

further understands that it 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 Columbus, its successors and assigns, and its

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. Respondent GE Columbus, its successors and assigns, and its

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

any corporation, [[Page 29612]] 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

226.28(d);

C. Respondent GE Columbus, its successors and assigns, and its

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. Respondent GE Columbus, its successors and assigns, and its

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, respondent shall:

1. Determine to whom respondent 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

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, respondent shall provide the Federal Trade Commission with

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

it, its 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 respondent;

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

pursuant to this section, respondent shall direct the independent agent

to review a statistically-valid sample of refunds. Respondent shall

provide the Federal Trade Commission with a certified letter from the

independent agent confirming that respondent has 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 respondent.

III

It is Further Ordered that respondent, its 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 its

compliance with this order.

IV

It is Further Ordered that respondent, its 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 respondent, its successors and

assigns, shall secure from each such person a signed statement

acknowledging receipt of said order.

V

It is Further Ordered that respondent, 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 its 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 respondent 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 it has 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 cause 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 respondent Great Expectations of Columbus,

Inc. (``GE Columbus'').

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 Columbus, as a creditor under the

Truth in Lending Act (``TILA''), has 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. GE Columbus 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 franchise disclosed. The complaint further alleges

that this practice is unfair or deceptive violation of the Federal

Trade Commission Act. [[Page 29613]]

Additionally, the complaint alleges that GE Columbus 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 GE Columbus failed to identify

the creditor in each transaction.

The consent agreement would prohibit GE Columbus 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 GE

Columbus to make adjustments to the account of any consumer to whom it

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 GE Columbus to maintain

records of its compliance with the consent agreement, distribute copies

of the agreement to its employees, and advise the Federal Trade

Commission of any changes in its 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 the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 95-13658 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M