TAMPA, Fla. (CN) - A federal judge imposed a $14.75 million sanction against the previously enjoined operators of an electronic mall who misled consumers seeking pay-day loans.
Bryon Wolf and Roy Eliasson had been slapped with the injunction in 2008 for misrepresenting cash-advance and credit-line offers through their company FTN Promotions.
The Federal Trade Commission complained to the court because it claimed that Wolf and Eliasson had violated the injunction through their operation of an electronic shopping mall called Member Services LLC.
U.S. District Judge James Moody described the mall, MSLLC, as a continuity program with negative-option features, meaning that it allowed sellers to ship products unless the consumer notifies the seller not to ship the products. It also included automatic-renewal plans in which a seller automatically charges a consumer unless the consumer cancels before the renewal.
The FTC claimed that the company bought leads from third parties and targeted people seeking payday loans.
Consumers who applied online for payday loan would be greeted with a popup window from MSLLC telling them in bold letters that they had been approved.
The MSLLC and affiliates did not offer payday loans, however, only credit to be used in its shopping mall.
Regulators moved to hold the defendants in contempt, claiming that MSLLC did not disclose its program's material terms promptly, clearly or conspicuously.
The disclosures and terms were in small, gray print at the very bottom of the screen.
An FTC investigator clicked "no" on the offer but was still debited $49.95 from the account used on the original payday loan application.
U.S. District Judge James Moody agreed Monday that the companies had violated the 2008 injunction and ordered them to pay the FTC $14.75 million.
He noted that such online charges accounted for the majority of MSLLC's income, and MSLLC resisted refund requests from consumers.
A former MSLLC employee, Stephanie Puckett, testified that it was the company's common practice to claim that consumers had agreed to join the program, even when consumers denied doing so and the defendants' own records substantiated those denials. The cancelation rates were extremely high, so high that at least two banks refused to continue doing business with MSLLC.
From June 2009 to June 2013, MSLLC attempted to debit the bank accounts of 606,321 consumers and was successful approximately 175,000 times, according to the ruling. The failed attempts were for a variety of reasons, including that many customers had insufficient funds in their accounts to pay the debit. The common result was an NSF charge to the consumer's account.
The 2008 injunction restrained the companies from misrepresenting themselves, either orally or in writing, from saying they are affiliated with consumers' banks or third parties whom consumer conducted business with.
It also restrained them from saying that a product or service is offered for "free" or "free trial" with "no obligations."
Rather than asking consumers to enroll in their fee-based program by pressing a button labeled "purchase program," the button bore the label "access account." Consumers were not told that the site did not give cash advances, pay-day loans or a general line of credit. They also were not told of the 25 percent down payment requirement in "clear and conspicuous" terms. Instead, the screen said the consumer was given a 75 percent credit and would have to do the math and go to the fine print to realize the cash down payment requirement.