FTC, States Give “No Credit” to Finance-Related Scams in Latest Joint Law Enforcement Sweep

FTC, States Give “No Credit” to Finance-Related Scams in Latest Joint Law Enforcement Sweep

September 5, 2002


Fraudulent telemarketers constantly prey on consumers seeking personal credit or finance-related assistance, according to the Federal Trade Commission and 15 state and federal law enforcers, who today announced “Operation No-Credit” – a joint law enforcement campaign targeting a wide range of credit-related frauds. The FTC and other law enforcement entities filed 43 actions as part of this campaign. Operation No-Credit highlights the efforts of the FTC and other law enforcement entities to halt some of the financial frauds occurring throughout the nation. The cases in this telemarketing sweep encompass a variety of financial frauds that impact consumers’ credit, including typical advance fee credit card, credit repair, pay day loan, debt adjustment, and debt negotiation schemes, as well as new credit identity scams. The FTC has filed a series of federal court complaints alleging violations of law in the following areas:

Seven separate enterprises offer consumers “major credit cards,” such as a MasterCard or Visa, or a loan, for a one-time advance fee, that never produce the promised credit cards or loans.

A California firm calling itself a “debt negotiation” company promises financially strapped consumers that it could reduce their debt and restore their credit by negotiating with creditors. But the company does little other than charge exorbitant fees while consumers stop making required payments to their creditors and plunge deeper and deeper into financial ruin.

An Oregon firm calling itself a “financial finder and matching service,” offers to match consumers to charitable foundations that are most likely to give cash grants – which, unlike loans, never need to be repaid – to individuals who have “genuine reasons for needing the money,” regardless of credit history or collateral. But what consumers receive is a useless list of foundations and general instructions on applying for a grant.

“In these uncertain economic times, finance-related scams are especially outrageous because they prey on the most vulnerable consumers – those out of work, those with poor credit ratings, or those who need money right away for emergencies,” said J. Howard Beales, III, Director of the FTC’s Bureau of Consumer Protection. “Working with our federal, state, and local partners, we are stopping scam artists who make false promises with no intention of delivering the goods. Our warning to these disreputable businesses is: we will track you down and stop your illegal practices.”

Many of the cases highlighted today involve extensive cooperation among federal, state, and local law enforcement agencies. These actions include lawsuits, cease and desist orders, consent agreements, and even criminal indictments. (See attached chart.)

According to the FTC, advance-fee credit schemes continue to be among the most commonly-reported complaints in the Consumer Sentinel database that the FTC maintains and that hundreds of law enforcement agencies use. In advance-fee credit card scams, the perpetrators tell consumers that for an advance fee – sometimes several hundred dollars – they will receive an unsecured credit card. Frequently, the consumers get nothing of value. Other times they only receive a list of banks or a booklet of tips on how to obtain a credit card. In no case did the defendants issue a major credit card to a consumer.

OPERATION NO-CREDIT LAW ENFORCEMENT:
(See list of cases and contacts.)

The FTC filed its actions under Operation No-Credit against:

Jubilee Financial Services, Inc., of Downey, California; company president, John E. Gustavsen; Jabez Financial Group, Inc., and its president, Curtis Cobb.

These defendants allegedly lured consumers with false promises that consumers would be able to eliminate all of their unsecured debt by paying off only a fraction of what the consumers actually owed. According to the FTC, the defendants told consumers that if the consumers made monthly payments to the defendants’ debt negotiation program, the consumers would eliminate their debt and improve their credit rating. The defendants also told consumers to allow the defendants to handle all aspects of the debt negotiation. The FTC alleges that the defendants rarely contacted consumers’ creditors, causing consumers to damage their credit ratings and accrue additional late fees and finance charges. (Complaint filed in the U.S. District Court, Central District of California, on August 19, 2002. Civil Action No. CV 02-6468 ABC (Ex); FTC File No. 022 3148.)

(The FTC staff received invaluable assistance on this case from the Better Business Bureau of the Southland (Southern California) and the National Foundation for Credit Counseling.)

Grant Search, Inc., of Ashland, Oregon; Steven G. Levine and Scott Stettnichs; Grant Pac, Inc., and Sunday R. Levine.

The defendants allegedly told consumers that the defendants would match consumers with a suitable foundation “most likely to approve [their] your grant,” regardless of the purpose of the grant. The defendants offered the purported grants as substitutes for traditional credit to consumers who have bad credit histories. The FTC alleges that although consumers could buy the program at two different prices, they received the same outdated list of foundations regardless of which program they purchased. Consumers learned that individuals were not eligible for the vast majority of the grants. The defendants offered a 100 percent money-back guarantee of the application fee, but when consumers requested a refund, the defendants denied the refund based on certain conditions or restrictions that the defendants did not previously disclose. (Complaint filed in the U.S. District Court for the Western District of Missouri, on August 15, 2002. Civil Action No. 02-4174-CV-C-NKL; FTC File No. 022 3201.)

(The FTC staff received invaluable assistance on this case from the Council on Foundations in Washington, D.C., the Western Washington/Oregon Better Business Bureau, and the Oregon Department of Justice.)

Bay Area Business Council, Inc.; Bay Area Business Council Customer Service Corp.; America Leisure Card Corp., of Largo, Florida; Peter J. Porcelli, II; Christopher Tomasulo; and Bonnie A. Harris.

The defendants purportedly offered consumers guaranteed low-interest unsecured MasterCard credit cards. According to the FTC, although consumers paid as much as $499 to receive the credit card, most consumers did not receive the promised credit cards. A few received a “temporary” or “dummy”card with the MasterCard logo, the name “Bay Area Business Council,” and a non-magnetic black stripe on the back. When consumers called to activate the card, the defendants told them for the first time that they had a debit card and not a credit card. The defendants also told consumers that they had to pay an additional fee and deposit money for any purchases made on the account. The FTC alleges that the defendants told consumers a specific amount during the sales call, but charged additional amounts. (Complaint filed in the U.S. District Court for the Northern District of Illinois, Eastern Division, on August 13, 2002. Civil Action No. 02-C-5762; FTC File No. 022 3150.)

(The FTC staff received invaluable assistance on this case from the Sunrise Police Department.)

Brent Shivers, doing business as Credit Card Services and Destyni Enterprises, of Dallas, Texas.

The defendants allegedly told consumers that for a $79 up-front fee, they would receive a Visa or MasterCard credit card. The FTC alleges that in many instances consumers received nothing from the company after they paid the fee. In a few instances, consumers received bank credit card applications that included additional fees or only offered secured credit cards. When consumers requested a refund, the defendants either ignored the request or informed the consumers that they must meet specific criteria that the defendants did not previously disclose. (Complaint filed in the U.S. District Court for the Northern District of Texas, on August 14, 2002. Civil Action No. 3-02CV1727-G; FTC File No. 022 3168.)

1st Beneficial Credit Services LLC., doing business as First Beneficial Credit Services; First Beneficial Credit Services, Inc.; and American Capitol, of Toronto, Canada; and Viktor Golub, doing business as Platinum Express.

The defendants’ telemarketers, operating out of the Toronto area, called U.S. consumers and offered guaranteed Visa or MasterCard credit cards with substantial credit limits for a $199 advance fee. The FTC alleges that consumers never received the promised credit card. (Complaint filed in the U.S. District Court for the Northern District of Ohio, Eastern Division, in Cleveland, on August 14, 2002. Civil Action No. 1:02CV1591; FTC File No. 022 3169.)

(The FTC staff received invaluable assistance on this case from the Delaware Better Business Bureau; Delaware Attorney General’s Office – Consumer Protection Unit; Tennessee Regulatory Authority; Phonebusters – Ontario Provincial Police; Industry Canada; USPIS – Postal Inspectors in Albany and Buffalo; and Ontario Ministry of Consumer and Business Services.)

Premier Financial Services International, Inc., of Coral Springs, Florida; Premier Financial Services of Tennessee, Inc., of Nashville; First Financial Debt Consolidation Inc., of Oakland Park, Florida; and Scott Jason Kaduk.

The defendants’ telemarketers told consumers that they had been pre-approved for a major credit card, Visa or MasterCard, for a one-time fee ranging from $189 to $219. The defendants told consumers that the one-time charge was for the credit card and purported benefits packages. According to the FTC, the defendants assured the consumers that if the consumers paid the required fee, they would receive a credit card. In fact, the banks had not approved the consumer’s request for a credit card. Consumers had to complete an additional bank application with the bank’s own credit criteria, a fact not disclosed to consumers before the defendants debited the consumers’ bank accounts.

(Complaint filed in the U.S. District Court for the Southern District of Florida, in Miami, on August 13, 2002. Civil Action No. 02-CIV-61134 Moore; FTC File No. 022 3151.)

(The FTC staff received invaluable assistance on this case from the Coral Springs, Florida Police Department, and the U.S. Postal Inspection Service – Tampa and Nashville.)

Westcal Equipment, Inc., doing business as Pioneer First; PF Member Services., Inc., of Buffdale, Utah; Robert Barr, Candace Rodriguez, Charles Schmidt, and Wayne Wrath.

The defendants advertised their Pioneer First Platinum credit card in exchange for an advance fee of $189. The ads guaranteed consumers a Pioneer First Platinum card, with a $5000 credit limit and zero percent interest for 12 months, as long as the applicant is 18 years old, a legal U.S. resident, and has a checking account. The advertisements included the logo of a major credit card. In fact, the FTC alleges, the Pioneer First credit card is not a major credit card but a catalog card good only for purchasing merchandise through Pioneer First. The FTC alleges that the defendants debited consumers’ checking accounts without authorization. (Complaint filed in the U.S. District Court, Western District of Washington, at Seattle, on August 19, 2002. Civil Action No. CO2-1793L; FTC File No. 022 3172.)

(The State of Washington is a co-plaintiff in this matter. The FTC staff and the State of Washington received invaluable assistance on this case from the Utah State Bureau of Investigations; the Utah Department of Commerce, Consumer Protection Division; the Nevada Office of the Attorney General; and the Las Vegas Office of the FBI.)

Star Credit Services Inc. and James Shovak, of Holbrook, New York.

The defendants guaranteed that the consumers who paid an advance fee would always obtain a loan for a desired amount regardless of past credit history, and further guaranteed refunds to any consumer who did not get a loan. Consumers typically did not receive the loans the defendants promised. Consumers also discovered, after they paid the advance fee, that they were required to submit a rejection letter from each and every lender before the defendants would issue refunds. According to the FTC, even those consumers who fulfilled the requirements to receive a refund were unsuccessful. (Complaint filed in the U.S. District Court, Eastern District of New York, in Central Islip, NY, on August 14, 2002. Civil Action No. CV-02-4500; FTC File No. 022 3202.)

Tyme Lock 2000, Inc., of Nevada, doing business as United Family Services and USA Membership Services; Total Resources, Inc.; Ruth R. Adams, and Stella L. Aguilar.

The defendants make unsolicited phone calls to consumers in some instances, telling them that for a fee of approximately $189, they will receive a major credit card, and either a personal computer, cell phone, or camera. Consumers paid by having the defendants debit their checking accounts. The FTC alleges that instead of receiving a credit card or other promised items, consumers received a packet of materials which included applications to banks for credit cards, and offers for computers or cell phones which required the consumers to contract with an internet service provider or a telephone company. (Complaint filed in the U.S. District Court, District of Nevada, on August 19, 2002; Civil Action No. CV-S-02-1078-JCM-RJJ; FTC File No. 022 3032.)

The FTC alleges that the defendants in all nine of the cases listed above engaged in deceptive practices in violation of the FTC Act and the Telemarketing Sales Rule (TSR). In each case, the FTC is seeking permanent orders prohibiting the defendants from engaging in similarly deceptive finance-related schemes, and is asking the courts to freeze the defendants’ assets. Where appropriate, the FTC is also seeking the appointment a receiver.

FTC Press Release

Defendant in Bogus Credit Card Offer Case Banned from Selling Credit-Related Products

February 3, 2005

Christopher Tomasulo, a defendant named in a Federal Trade Commission lawsuit against an operation that sold bogus credit cards through telemarketing, is banned from selling credit-related products. In 2002, the FTC filed charges against Bay Area Business Council, Inc., Peter J. Porcelli, II, and others for offering consumers a low-interest unsecured MasterCard credit card for a one-time processing fee. The defendants requested and debited the fee, $199 or more, from consumers’ bank accounts, but no consumers received credit cards. Instead, they received a package containing a non-functional “dummy” card with a MasterCard logo and the name “Bay Area Business Council” or “1st American Leisure Card” on the front, and a non-magnetic black strip on the back. After receiving the defendants’ package, consumers learned for the first time that, for additional fees, they could obtain a debit card, but never a credit card.

The settlement announced today with Christopher Tomasulo, alleged in the FTC’s amended complaint to be an officer of the defendant corporations, covers his supervision of the defendants’ customer service and sales operations. The settlement bans Tomasulo from selling credit-related products, and prohibits him from misrepresenting any fact material to a consumer’s decision to purchase any product or service.

In August 2002, the FTC filed a complaint against Bay Area Business Council, Inc.; Bay Area Business Council Customer Service Corp.; American Leisure Card Corp.; Peter J. Porcelli, II; Christopher Tomasulo; and Bonnie A. Harris, as part of the “Operation No-Credit” law enforcement sweep. The FTC amended its complaint in October 2002 to include: Bay Memberships, Inc.; Bay Vacations, Inc.; Sr. Marketing Consultants, Inc.; and Special Technologies, Inc.

In April 2004, a federal district court granted the FTC’s motion for summary judgment and issued a permanent injunction against the other defendants in the case. The Court’s final order bans the defendants from telemarketing and from selling credit-related products. The order also prohibits the defendants from making the types of misrepresentations cited in the FTC’s Amended Complaint, and from misrepresenting any fact material to a consumer’s decision to purchase the defendants’ products or services. In addition, the order requires the defendants to pay more than $12 million in consumer redress.

The settlement announced today pertains only to Tomasulo. In addition to the ban against selling credit-related products, the settlement contains a judgment for more than $12 million, which is suspended based on his inability to pay. The judgment will become payable in full if it is found that Tomasulo misrepresented his financial condition.

FTC Press Release

FTC Charges Mortgage Foreclosure “Rescuers” with Deceiving Homeowners

February 28, 2008

In an ongoing effort to crack down on businesses that prey upon homeowners facing foreclosure, the Federal Trade Commission has charged six businesses and three individuals with violating the Home Ownership and Equity Protection Act (HOEPA), the FTC Act, and the Truth in Lending Act (TILA) by enticing homeowners into high-cost, short-term loans secured by an additional mortgage on their homes. The FTC will seek to bar the defendants from further violations, make them forfeit their ill-gotten gains, and stop collection and foreclosure actions or efforts to seize or transfer properties.

The defendants are Safe Harbour Foundation of Florida, Inc., Silverstone Lending, LLC, Silverstone Financial, LLC, Southeast Advertising, Inc., Keystone Financial, LLC, MT25 LLC, Peter J. Porcelli II, Bonnie A. Harris, and Christopher Tomasulo.

According to the FTC’s complaint, Safe Harbour, Porcelli, Harris, and Tomasulo target homeowners facing foreclosure with claims such as “We have all the funds available to pay your bills and save your home from foreclosure. GUARANTEED!” The Silverstone companies and Keystone then provide high-cost, interest-only, short-term balloon-payment loans secured by second mortgages on homes already subject to foreclosure.

The lenders allegedly violate HOEPA by extending credit based on the value of consumers’ collateral without regard to their repayment ability, by requiring balloon payments after only six months, by providing negatively amortized loans that cause consumers to owe more at the end of the loan than at the beginning, and by failing to make required disclosures. They allegedly violate TILA by grossly understating the annual percent rate (APR) and finance charges. For example, in at least one instance the disclosed APR was 28 percent but the actual APR was more than 100 percent.

All of the defendants are charged with violating TILA and its implementing Regulation Z by failing to make timely written disclosures and by failing to disclose accurately the amount being financed, the finance charge, the annual percentage rate, the payment schedule, the total payment amount, and the fact that the creditor has or will acquire a security interest in the consumer’s home. They also allegedly violate the FTC Act by understating the APR for the loans.

In a related civil contempt action, the FTC alleges that this conduct by Porcelli, Harris, Tomasulo, and others violates court orders entered in FTC v. Bay Area Business Council (see press releases dated May 13, 2004 and February 3, 2005), which prohibit them from marketing credit-related products to consumers.

FTC Press Release

Mortgage Foreclosure ‘Rescue’ Defendants Settle FTC Charges for Deceiving Homeowners

05/04/2009

Two individuals who lured homeowners into high-cost, short-term loans secured by an additional mortgage on their homes have settled FTC charges that they violated federal law – and a previous court order against them. Thomas C. Little, an attorney, also settled contempt charges based on his role in facilitating the scam. The Commission sued them and seven other defendants in February 2008 as part of an ongoing effort to crack down on businesses that prey upon homeowners facing foreclosure.

The defendants allegedly violated the Home Ownership and Equity Protection Act by extending credit based on the value of consumers’ collateral without regard to their repayment ability, by requiring balloon payments after only six months, by providing negatively amortized loans that cause consumers to owe more at the end of the loan than at the beginning, and by failing to make required disclosures.

The defendants also allegedly violated the Truth in Lending Act (TILA) by grossly understating the loans’ annual percent rate (APR) and finance charges. They also were charged with violating TILA and its implementing Regulation Z by failing to make timely written disclosures and by failing to disclose accurately the amount being financed, the finance charge, the APR, the payment schedule, the total payment amount, and the fact that the creditor has or will acquire a security interest in the consumer’s home. In addition, they allegedly violated the FTC Act by understating the APR for the loans.

The settlements with Christopher Tomasulo and Bonnie Werner (formerly Bonnie A. Harris) resolve these charges and impose judgments of $2,791,040.40 each, which will be suspended based on their inability to pay. The full judgments against them will become due immediately if they are found to have misrepresented their financial condition. The settlements also resolve charges that Tomasulo’s and Werner’s conduct was in contempt of orders entered against them in an earlier case brought by the Commission, FTC v. Bay Area Business Council, Inc. Those orders prohibit them from marketing credit-related products to consumers and ban Werner from telemarketing.

The settlements bar Tomasulo and Werner from trying to collect payments from any consumers for any credit-related product sold by any of the defendants, and from disclosing or benefitting from consumers’ personal information obtained by any of the defendants. Regarding any business Tomasulo and Werner own or manage, they must promptly investigate consumer complaints, monitor their sales personnel, and take corrective action when sales personnel engage in conduct prohibited by the orders. The orders also extend the period that Tomasulo and Werner must comply with provisions requiring them to report their employment status to the Commission and allow the agency to monitor their business practices.

The settlement with Thomas C. Little, an attorney who assisted the defendants, requires him to give up his earnings from the scam, $16,105. Little was named in the related civil contempt action, FTC v. Bay Area Business Council, Inc. He was legal counsel to some of the Bay Area Business Council defendants, including filing and arguing their appeals to the U.S. Court of Appeals for the Seventh Circuit in 2005.

FTC Press Release

Complaint
Order
Memorandum
Stipulated Judgement Order
Federal Trade Commission Memorandum in Support of Motion for Order to Show Cause Why Defendants and Respondents Should Not Be Held in Contempt
Stipulated Final Judgement
Stipulated Order for Permeant Injunction and Final Judgement
Stipulated Order for Permanent Injunction and Final Judgement (2)