TRIAAC Enterprises, Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 932 3040]

TRIAAC Enterprises, 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 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 Sec. 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)).

Agreement Containing Consent Order To Cease and Desist

In the matter of TRIAAC Enterprises, Inc., a corporation; File

No. 032 3040.

The Federal Trade Commission having initiated an investigation of

certain acts and practices of TRIAAC Enterprises, Inc., a corporation,

(hereinafter sometimes referred to as proposed respondent) and it now

appearing that proposed respondent is 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 respondent and counsel

for the Federal Trade Commission that:

1. TRIAAC Enterprises, Inc., doing business as Great Expectations

of Sacramento (``GE Sacramento''), 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 2277 Fair Oaks Blvd., Suite 195, Sacramento, CA 95825.

2. Proposed respondent admits 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 [[Page 29626]] 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 Sacramento, 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 Sacramento, 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 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. Respondent GE Sacramento, 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 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. Respondent GE Sacramento, 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;

E. Respondent GE Sacramento, 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 Sec. 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.

1604(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, it 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 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. [[Page 29627]]

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 respondent TRIAAC Enterprises, Inc. (``GE

Sacramento'').

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 Sacramento, 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 Sacramento 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 in violation of the Federal

Trade Commission Act.

Additionally, the complaint alleges that GE Sacramento 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 failed to separate the itemization

from all other information provided in connection with the transaction.

Also, GE Sacramento failed to provide a descriptive explanation of the

financing terms. For example, GE Sacramento 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.'' GE

Sacramento also failed to provide a description of the amount financed,

the total of payments, and the total sales price.

Finally, the complaint alleges that GE Sacramento failed to

identify the creditor in each transaction.

The consent agreement would prohibit GE Sacramento 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

Sacramento 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 Sacramento 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. 95-13660 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M