Pre-Paid Legal Services, Inc.; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 932-3019]

Pre-Paid Legal Services, Inc.; 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 or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require, among other things, Pre-Paid to pay

$165 to any consumer who purchased certain living trusts and who has

not already received a refund and does not live in a state with which

Pre-Paid has already settled. In addition, Pre-Paid, would be

prohibited from making misrepresentations about living trusts and would

be required to make certain disclosures with regard to legal challenges

that can be made against living trusts; the possibility of probate for

certain estates regardless of whether living trusts are used; and the

transfer of consumers' assets into the trusts. The agreement settles

allegations that the Pre-Paid made numerous false statements about the

benefits and appropriateness of living trusts, in general, and about

living trusts it sold, in particular.

DATES: Comments must be received on or before March 31, 1997.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Janice Charter, Federal Trade

Commission, Denver Regional Office, 1961 Stout Street, Suite 1523,

Denver, CO 80294. (303) 844-2272. Elizabeth Palmquist, Federal Trade

Commission, Denver Regional Office, 1961 Stout Street, Suite 1523,

Denver, CO 80294. (303) 844-2272.

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 above-captioned 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. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying complaint. An electronic copy of the

full text of the consent agreement package can be obtained from the

[[Page 4291]]

Commission Actions section of the FTC Home Page (for January 16, 1997),

on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A

paper copy can be obtained from the FTC Public Reference Room, Room H-

130, Sixth Street and Pennsylvania Avenue, N.W., Washington, D.C.

20580, either in person or by calling (202) 326-3627. 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)).

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has agreed to accept, subject to final

approval, a proposed consent order settling charges that Pre-Paid Legal

Services, Inc., violated Section 5 of the Federal Trade Commission Act.

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.

This matter concerns the sale of living trusts to senior citizens

through membership in the American Association for Senior Citizens

(``AASC'). The respondent covered by the proposed order is Pre-Paid

Legal Services, Inc., the company responsible for furnishing to and

preparing the living trusts for AASC.

The complaint alleges that the respondent violated Section 5 of the

Federal Trade Commission Act by making numerous misrepresentations

about the advantages of living trusts over other forms of estate

planning. Specifically, the complaint alleges that respondent has

misrepresented that (1) the use of a living trust avoids all

administrative costs; (2) at death, a living trust ensures that assets

are distributed immediately or almost immediately; (3) a living trust

cannot be challenged; (4) living trusts are prepared by local

attorneys; (5) a living trust protects against catastrophic medical

costs; (6) a living trust is the appropriate estate planning device for

every consumer; and (7) there are no disadvantages to a living trust.

The proposed consent order contains provisions which are designed

to remedy the alleged violations and to prevent the respondent from

engaging in similar acts and practices in the future. The proposed

order would prohibit the respondent from making the misrepresentations

alleged in the complaint and set forth above. Additionally, the order

would require the respondent to disclose to prospective purchasers that

living trusts may be challenged on similar grounds as wills and that

they may not be appropriate in all instances.

Under the order, the respondent also would be required to provide

four affirmative disclosures in situations where the statements would

be true. (1) Some states have created a mechanism for ``informal

probate'' of an estate if the estate meets certain criteria, which

significantly reduces the time involved in probate. This disclosure

would be required in states where informal probate is available. (2) If

the transfer of an individual's assets into the living trust is not

included in the price of creating the living trust, that fact must be

disclosed. (3) If it is the sole responsibility of the purchaser of the

living trust to transfer assets into the trust, that fact must be

disclosed. (4) In some states, but not in others, creditors have a

longer period of time to file claims against a living trust than

against a probated estate. This fact would have to be disclosed in such

states.

The proposed order would require the respondent to distribute the

proposed order to its officers, agents, and all personnel who

participate in any way with respondent's sales activities relating to

living trusts. Additionally, the order would require the respondent to

notify the Commission of any changes in its corporate structure and to

retain for three years all materials that it relies upon in making

representations covered by the order. Finally, the respondent is

required to file one or more compliance reports detailing its

compliance with the order.

The proposed order also requires the respondent to offer partial

refunds to any AASC member who has not previously received a refund

from either the respondent or AASC.

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, nor to modify in

any way their terms. The proposed consent order has been entered into

for settlement purposes only and does not constitute an admission by

the respondent that the law has been violated as alleged in the

complaint.

Donald S. Clark,

Secretary.

[FR Doc. 97-2206 Filed 1-28-97; 8:45 am]

BILLING CODE 6750-01-P