Sterling Connections, Inc., et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 932 3040]

Sterling Connections, 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.

[[Page 29623]] 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)).

In the Matter of STERLING CONNECTIONS, INC., PRIVATE EYE

PRODUCTIONS, INC., AND GREATEX DENVER, 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 Sterling Connections, Inc., Private Eye

Productions, Inc., and GREATEX Denver, 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. Sterling Connections, Inc., doing business as Great Expectations

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

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

with its office and principal place of business located at 305 108th

Ave., N.E., Suite 205, Bellevue, WA 98004.

2. Private Eye Productions, Inc., doing business as Great

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

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

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

located at 5531 S.W. Macadam Ave., Suite 225, Portland, OR 97201.

3. GREATEX Denver, Inc., doing business as Great Expectations of

Denver (``GE-Denver''), is a corporation organized, existing, and doing

business under and by virtue of the laws of the state of Washington

with its office and principal place of business located at 3773 Cherry

Creek North Dr., Suite 140, Denver, CO 80209.

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 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 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. Respondents GE Seattle, GE Portland, and GE Denver, 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 Seattle, GE Portland, and GE Denver, 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);

C. Respondents GE Seattle, GE Portland, and GE Denver, their

successors and assigns, and their officers, agents, representatives,

and [[Page 29624]] 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 226.17 and 226.18;

D. Respondents GE Seattle, GE Portland, and GE Denver, 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. For each TILA disclosure relating to any executory contract or

any contract or any contract consummated within two years prior to

August 2, 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 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 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, respondents 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 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 responsibilty with repsect to

the subject matter of this order and that respondemts. their succesors

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 are 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 respondents Sterling Connections, Inc.

(``GE Seattle''), Private Eye Productions, Inc., (``GE Portland''), and

GREATEX Denver, Inc. (``GE-Denver'').

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 compliant alleges that GE Seattle, GE Portland, and GE Denver,

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''),

which resulted in some consumers paying more in interest 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 identify.

Additionally, the complaint alleges that these franchises failed to

accurately [[Page 29625]] 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.

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. 95-13663 Filed 6-2-95; 8:45 am]

BILLING CODE 6750-01-M