Great Southern Video, Inc., et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 932 3040]

Great Southern Video, 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 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 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, 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)).

Agreement Containing Consent Order To Cease and Desist

In the matter of Great Southern Video, Inc., New West Video

Enterprises, Inc., MWVE, Inc., and Sun West Video, Inc.,

corporations; File No. 932 3040.

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Great Southern Video, Inc., New West

Video Enterprises, Inc., MWVE, Inc., and Sun West Video, 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

attorney, and counsel for the Federal Trade Commission that:

1. Great Southern Video, Inc., doing business as Great Expectations

of Dallas (``GE Dallas''), is a corporation organized, existing, and

doing business under and by virtue of the laws of the state of Texas,

with its office and principal place of business located at 14180 Dallas

Parkway, Suite 100, Dallas, TX 75240.

2. New West Video Enterprises, Inc., doing business as Great

Expectations of Houston (``GE Houston''), is a corporation organized,

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

state of Texas, with its office and principal place of business located

at 50 Briarhollow, Suite 100, Houston, TX 77027.

3. MWVE, Inc., doing business as Great Expectations of Cleveland,

Inc. (``GE Cleveland''), is a corporation organized, existing, and

doing business under and by virtue of the laws of the state of Ohio

with its office and principal place of business located at 6300

Rockside Rd., Suite 200, Cleveland, OH 44131.

4. Sun West Video, Inc., doing business as Great Expectations for

Singles (``GE Phoenix''), is a corporation organized, existing, and

doing business under and by virtue of the laws of the state of Arizona

with its office and principal place of business located at 5635 N.

Scottsdale Rd., Suite 190, Scottsdale, AZ 85253.

5. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint.

6. 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.

7. 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.

8. 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.

9. 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 [[Page 29614]] 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.

10. 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. Respondents GE Dallas, GE Houston, GE Cleveland, and GE Phoenix,

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 Truth in Lending Act (``TILA''), 15

U.S.C. 1606 (a) and (c), and Secs. 226.18(e) and 226.22 of Regulation

Z, 12 CFR 226.18(e) and 226.22;

B. Respondents GE Dallas, GE Houston, GE Cleveland, and GE Phoenix,

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 Secs. 226.4 and 226.18(d) of

Regulation Z, 12 CFR 226.4 and 226.18(d);

C. Respondents GE Dallas, GE Houston, GE Cleveland, and GE Phoenix,

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 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 Sec. 226.17(a) of Regulation Z, 12 CFR

226.17(a);

D. Respondents GE Dallas, GE Houston, GE Cleveland, and GE Phoenix,

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 Secs. 226.17

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

E. Respondents GE Dallas, GE Houston, and GE Phoenix, 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. Sec. 1605, 1606, and 1638, and Secs. 226.4(b), 226.22, and

226.18 (d) and (e) and Regulation Z, 12 CFR Sec. 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 their memberships, as required by section 128 of

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

Regulation Z, 12 CFR Sec. 226.18(b); and

F. Respondents GE Dallas, GE Houston, GE Cleveland, and GE Phoenix,

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 Sec. 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 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, 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; [[Page 29615]]

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 Southern Video, Inc.

(``GE Dallas''), New West Video Enterprises, Inc. (``GE Houston''),

MWVE, Inc. (``GE Cleveland''), and Sun West Video, Inc. (``GE

Phoenix'').

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 Dallas, GE Houston, GE Cleveland, and

GE Phoenix, 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. The complaint also

alleges that these franchises failed to disclose the finance charge

more conspicuously than any other disclosure except the APR and the

creditor's identity.

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 GE Dallas, GE Houston, and GE

Phoenix 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, these

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

resulted in the finance charge and the APR being underdisclosed.

The complaint also alleges that GE Houston failed to disclose the

amount financed and the total of payments.

Finally, the complaint alleges that all of 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 the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 95-13662 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M