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Two Barcode Resellers Settle FTC Charges That Principals Invited Competitors to Collude

Two Internet resellers of UPC barcodes used by retailers for price scanning and inventory purposes, have settled charges that they violated the Federal Trade Commission Act by inviting competitors to join in a collusive scheme to raise the prices charged for barcodes sold online.

Universal product codes are issued by an international association that sets global supply chain standards, and many companies pay the association membership fees to receive UPC barcodes for their products. Some small businesses purchase UPC barcodes through resellers in an online secondary market in order to avoid the cost of joining the association. In the secondary UPC barcode market, competition among resellers has driven prices lower in the past few years.

In separate complaints, the FTC charged that InstantUPCCodes.com and its principal, Jacob J. Alifraghis, and 680 Digital, Inc., d/b/a Nationwide Barcode and its principal, Philip B. Peretz violated the FTC Act by inviting competitors to collude to raise prices for barcodes sold over the Internet.

The FTC complaints charge that on August 4, 2013, Alifraghis of Instant sent a message to Peretz of Nationwide proposing that the two companies, along with a third barcode seller, “Competitor A,” together raise their prices to meet the higher prices charged by another company, “Competitor B.” Instant’s Alifraghis allegedly then sent a similar email invitation to Competitor A, and the next day, Nationwide’s Peretz forwarded Instant’s message to Competitor A, asking for its thoughts on the proposal.

Without agreement from Competitor A, Nationwide and Instant did not take action to raise prices, but allegedly continued to discuss by email a possible price-fixing scheme for barcodes, conditioned on the participation of Competitor A. Competitor A never responded to any email nor did it agree to participate in the proposed scheme. The improper discussions continued through January of this year, stopping only after the FTC began its investigation into the matter.

The Commission charges Instant and Nationwide with inviting an agreement to raise prices in violation of Section 5 of the FTC Act. The FTC has not alleged, however, that the invitations to collude resulted in an agreement on price or other terms of competition. Because under some circumstances, an agreement on price or other terms or an invitation to collude could potentially constitute criminal conduct, the FTC routinely refers such cases to the Department of Justice to investigate.

The proposed orders setting the complaints against Instant and Nationwide and their respective principals are designed to remedy the anticompetitive conduct. Specifically, the proposed orders bar Instant and Nationwide from:

communicating with their competitors about barcode rates or prices;
entering into, participating in, maintaining, organizing, implementing, enforcing, inviting, offering, or soliciting an agreement with any competitor to divide markets, allocate consumers, or fix prices; and
urging any competitor to raise, fix, or maintain price or to limit or reduce the terms or levels of service they provide.

The Commission vote to accept the proposed consent order for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through August 18, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically about the Instant proposed consent order or the Nationwide consent order or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section. If you prefer to file your comment on paper, mail your comment to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue, NW, Suite CC-5610 (Annex D), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street, SW, 5th Floor, Suite 5610 (Annex D), Washington, DC 20024.

The FTC is requesting that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of up to $16,000.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., NW, Room CC-5422, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC Publishes Official Rules for Zapping Rachel Robocall Contest

Zapping Rachel of Cardholder Services, showing a female silhouette with insect face and antennae

In its ongoing efforts to eradicate robocallers like “Rachel From Cardholder Services,” the Federal Trade Commission announced the official rules for its second robocall challenge, Zapping Rachel. The contest will be held at DEF CON 22 in Las Vegas Aug. 7-10, and offers participants $17,000 in cash prizes for open-source solutions to help build the next-generation robocall honeypot, circumvent or trick a honeypot, and analyze data from an existing honeypot.

A robocall honeypot is an information system designed to attract robocalls and gather information about them, which can help researchers and investigators combat these illegal, prerecorded messages.

Zapping Rachel will consist of three stand-alone phases. For the first “Creator” phase, contestants will build honeypots that can recognize inaccurate information in the calls they receive, such as spoofed caller IDs, and identify calls that are likely robocalls. In the second “Attacker” phase, contestants will think like robocallers and attempt to circumvent or trick a honeypot created for the contest. The third “Detective” phase asks contestants to analyze data and develop an algorithm to predict which calls from an existing honeypot are likely robocalls. Judges will score submissions based on functionality and accuracy, as well as innovation and creativity.

In order to participate, contestants must be present at DEF CON, register in person and meet the eligibility criteria. Contestants can register as an individual or a team, and can compete in one, two, or all three phases of the contest. Please see the official rules for a full description of eligibility and judging criteria.

Judges and Prizes

An expert panel will judge all submissions. The judges are Dr. Mustaque Ahamad, Dr. Matthew Blaze, and Jonathan Curtis. Ahamad is a professor of computer science at the Georgia Institute of Technology, and a global professor of engineering at New York University Abu Dhabi. Blaze is a professor of computer science at the University of Pennsylvania School of Engineering and Applied Science. Curtis is the director of Solutions and Intelligence within the Compliance and Enforcement Sector at the Canadian Radio-television and Telecommunications Commission.

The FTC will announce the top scores at the end of the conference. Official winners will be announced at a later time to permit verification of contestants’ eligibility for a prize. The top prize for each phase is $3,133.70, and the judges may also award $1,337 for each honorable mention (with up to two honorable mentions per phase).

NOTE: The FTC may limit the number of contestants who can participate in each phase to ensure judges have sufficient time to review submissions. Contestants who wish to be eligible for prizes must satisfy additional eligibility and legal requirements. Complete contest rules are available in the robocall contest Federal Register Notice.

FTC Releases its First Spanish-Language ‘Fotonovela’

The Federal Trade Commission is launching its first “fotonovela” as part of the agency’s ongoing efforts to raise awareness about scams targeting the Latino community.

Impostores del Gobierno follows the story of a young woman who responds to a call from a man who claims to be from the government — and who convinces her to send him money. The plot is based on real complaints to the FTC from Spanish speakers throughout the nation, and offers practical tips on how to tell when a phone call, text or email is from a government imposter. The tips include:

If you answer a call from someone who says they work for the government and you won money in a “grant”, lottery or contest, it’s a scam. The government doesn’t call you or send you an email or text to give you money.
If anyone tells you to wire money or use a pre-paid card to collect your “prize,” it’s a scam. If you have to pay, it’s not a prize – it’s a purchase.

The FTC received more than two million complaints from consumers in 2013. The top complaint category was identity theft; imposter scams in general ranked fourth.

Copies of Impostores del Gobierno are available free from ftc.gov/bulkorder, and it’s available as a pdf at ftc.gov/fotonovela.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.

FTC and Florida Halt Internet ‘Yellow Pages’ Scammers

New Federal Trade Commission actions have stopped three Montreal-based telemarketing operations that allegedly bilked millions of dollars from small businesses, churches, nonprofits and local government agencies by charging them for unwanted listings in online “yellow pages” directories. In addition, a federal court has entered a judgment and order against another Montreal-based directory scam in a case brought by the FTC last year.

“Businesses and other organizations should train their staff to hang up on cold calls about business directory services,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Report them to the FTC. We can pursue these cases even if the scammers hide in another country.”

At the request of the FTC and the Office of the Florida Attorney General, federal judges in Florida temporarily halted and froze the assets of two operations, National Business Advertising and Your Yellow Pages. In another case brought by the FTC in Washington state, a federal judge temporarily halted the unlawful business practices of another operation, OnlineYellowPagesToday.com. In all three cases, the government seeks to permanently stop the illegal practices and make the defendants return victims’ money. In a fourth case brought by the FTC in November 2013, Online Public Yellow Pages, a federal judge entered a $15.6 million judgment against the defendants and banned them from the directory business.

The defendants in these cases allegedly sent deceptive invoices to small businesses throughout the United States for unordered business directory listings. If the recipients disputed the invoices, the defendants used a variety of collection tactics, such as playing audio recordings that purportedly proved that the businesses’ employees authorized the business directory listings. The businesses report, however, that the recordings sounded as if they were doctored or merely reflected that an employee had confirmed or verified the business’s contact information in a previous telephone call without agreeing to new services. Many consumers paid the defendants only to avoid potentially damaging collection actions and to end the harassment.

The defendants are charged with law violations for misrepresenting that they had a preexisting business relationship with consumers, that consumers had agreed to buy directory listings, and that consumers owed them money.

National Business Advertising

According to a complaint filed by the FTC and the State of Florida in the U.S. District Court for the Southern District of Florida, Miami Division, the defendants in this case – Francois Egberongbe, Robert N. Durham, Sr., and 7051620 Canada Inc., also d/b/a National Business Advertising, Nationwide Marketing Bureau Inc., National Biz Ads, and Yellow Business Ads – used a variety of deceptive tactics to represent that consumers owed money for business directory listings and advertising services they never ordered, and in many cases, never received.

These defendants also pretended to be various debt collection companies, such as TransUnion Credit Bureau, Regional Debt Recovery, and RDR Collections Inc. The defendants got some consumers to pay, in amounts ranging from $200 to more than $1,500, by promising to stop contacting them and to close the accounts, but they kept billing them afterward. In addition to the federal charges, the complaint alleges that the defendants violated the Florida Deceptive and Unfair Trade Practices Act.

Your Yellow Pages

According to a complaint filed by the FTC and the State of Florida in the U.S. District Court for the Southern District of Florida, Miami Division, the defendants in this case – Donovan B. Hinds, a/k/a Donavan B. Hinds; Ernest Baxter, a/k/a Ernest Baster and Carl Jenkins; Andrew Beitler; Your Yellow Pages Inc., also d/b/a EBS Collections; Rapid Pages Inc., also d/b/a Rapid Yellow Pages; and City Pages Inc., also d/b/a City Yellow Pages and Online City Yellow Pages – used a variety of deceptive tactics to represent that consumers owed money for business directory listings they never ordered. They often cold-called small businesses or non-profits, and often falsely claimed that the consumers owed them money for the second year of a two-year contract, and that the consumers owed amounts ranging from $400 to more than $1,800.

These defendants also pretended to be a Florida debt collection company, EBS Collections. They got some consumers to pay by promising to stop contacting them, but they kept billing them anyway. In addition to the federal charges, the complaint alleges that the defendants violated the Florida Deceptive and Unfair Trade Practices Act.

OnlineYellowPagesToday.com

According to a complaint filed by the FTC in the U.S. District Court for the Western District of Washington, the defendants – Oni Nathifa Julien; OnlineYellowPagesToday.com Inc.; USYellowPageDirectory.com Inc.; 7703236 Canada Inc., also doing business as OnlineYellowPagesToday.com, Target Marketing, and Oniks Media; and 7095333 Canada Inc., also d/b/a USYellowPageDirectory.com and Oniks Media – typically contacted consumers under the guise of confirming contact information in a directory in which the small business or other organization already appeared. Subsequently, the defendants billed consumers $479.95 or more, using the walking fingers image often associated with local yellow page directories on invoices and other correspondence.

The Commission vote authorizing the staff to file the three complaints was 5-0.

Online Public Yellow Pages

On May 8, 2014, the U.S. District Court for the Northern District of Illinois, Eastern Division, entered a default judgment of more than $15.6 million based on consumers’ losses, and a permanent injunction against the defendants behind a Canadian based directory scam operation, Mohamad Khaled Kaddoura, Derek Cessford and Aaron Kirby, and the 15 companies they ran. The FTC charged in a complaint against the operation filed in November of last year that the defendants claimed to be calling consumers about existing yellow pages listings or cancellation requests, but then billed them $499 or more for unwanted new listings, and often bullied consumers into paying by threatening to sue them or damage their credit ratings. The court subsequently halted the scheme and froze the defendants’ assets, pending litigation.

The court order announced today also prohibits the defendants from misrepresenting material facts about any products and services, selling or otherwise benefitting from customers’ personal information, failing to properly dispose of customer information, and collecting money from customers.

The defendants in the case are Kaddoura, Cessford and Kirby; Modern Technology Inc., also doing business as Online Local Yellow Pages; Strategic Advertisement Ltd., also d/b/a Local Business Yellow Pages; Dynamic Ad Corp., also d/b/a Yellow National Directory and Yellowpages Local Directory; Wisetak Inc., also d/b/a Online Public Yellow Pages and US Public Yellow Pages; Wisetak, Inc., also d/b/a Online Public Yellow Pages and US Public Yellow Pages; Internet Solutions LLC, also d/b/a Public Yellow Pages; Yellow Pages Express Inc., also d/b/a Yellow Pages Express; Yellow Pages Online Inc., also d/b/a Yellow Pages Online; CessTech Inc., also d/b/a Yellow US Pages; SEO Online Inc., also d/b/a Yellow Local Directory; SEO Online LLC; SEOOnline, also d/b/a Public Yellow Pages; SEM Pundits Inc., also d/b/a Yellow Pages Online; CC Recovery Corporation, also d/b/a CC Recovery; and M&A Recovery Inc., also d/b/a MA Recovery.

The FTC would like to thank the Office of the Florida Attorney General, the Royal Canadian Mounted Police and the Centre of Operations Linked to Telemarketing Fraud (Project COLT) for their valuable assistance. Launched in 1998, Project COLT combats telemarketing-related crime and includes members of the Royal Canadian Mounted Police, Sureté du Québec, Service de Police de la Ville de Montréal, Canada Border Services Agency, Competition Bureau of Canada, Canada Post, U.S. Department of Homeland Security (U.S. Immigration and Customs Enforcement and the U.S. Secret Service), the U.S. Postal Inspection Service, the Federal Trade Commission, and the Federal Bureau of Investigation. Since its inception, Project COLT has recovered $26 million for victims of telemarketing fraud.

To learn more about directory scams, read the FTC’s Small Business Scams.

Too Good To Be Green: Company’s Plastic Lumber Claims Don’t Hold Up

An Illinois-based firm that manufactures, markets, and sells plastic lumber is the latest to find itself in trouble with the Federal Trade Commission, after allegedly making deceptive claims in its advertising and marketing material that many of its products are made entirely of recycled plastic. In reality, according to the FTC, the products were made of less than three-quarters recycled plastic.

Under a proposed FTC settlement, the company, Engineered Plastics Systems, LLC (EPS), must have credible evidence to support any environmental benefit claims it makes, with scientific proof, if necessary. It also requires EPS to be able to specifically substantiate any claims it makes about the amount of recycled content in its products.

“This is the second case the FTC has brought in the last two months related to environmental claims for plastic lumber products,” said Jessica Rich, Director of the Federal Trade Commission’s Bureau of Consumer Protection. “Companies know that consumers are increasingly looking to buy products with ‘green’ attributes. But companies can’t sell products by make false environmental claims – that’s against the law.”

EPS is based in Elgin, Illinois, and makes, advertises, sells, and distributes plastic lumber products, including picnic tables and benches. According to the complaint, since at least June of 2011, the company has run ads and distributed promotional material for its plastic lumber products describing their environmental attributes. For example, the company claimed, among other things, that some of its benches and tables were:

“Made entirely of recycled plastic lumber”;
“All recycled plastic design”; and
“Constructed using 2×4 recycled plastic lumber profiles.”

In its administrative complaint, the FTC alleges that while a reasonable consumer would likely interpret EPS’s claims to mean that its products are made from all, or virtually all, recycled plastic, in fact, between June 2011 and 2014, they contained, on average, only about 72 percent recycled plastic. The products also contained some non-recycled plastic and a mineral component.

Specifically, the complaint charges that the company made deceptive environmental claims for its Eco, Hexagonal, and Perennial tables; and its Garden, Geneva, and Trailside benches. None of these products, the FTC alleged, are made of “all or virtually all recycled plastic,” and the company’s claims therefore violate the FTC Act, which prohibits deceptive and misleading advertising.

The proposed consent order is designed to prevent EPS from making similarly deceptive environmental claims in the future. It prohibits the company from making any representations regarding the recycled content or environmental benefit of any product or package, unless they are true, not misleading, and substantiated by competent and reliable evidence. If necessary, the company may be required to provide scientific evidence that the claims are true. Further, consistent with the FTC’s Green Guides for Environmental Marketing (commonly known as the Green Guides), EPS specifically must substantiate recycled content claims with evidence that the content is made from materials recovered from the waste stream.

The proposed order, which also contains compliance and reporting requirements, will expire in 20 years. Its terms are similar to those in the proposed order setting similar FTC charges earlier this year against American Plastic Lumber, Inc.

Information for Consumers

The FTC has information for consumers in a blog post on its website on environmental claims for plastic products. Also, the FTC provides detailed guidance to businesses on such claims in the Green Guides.

The Commission vote to accept the proposed consent order for public comment was 5-0. The FTC will publish a description of the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through August 18, 2014, after which the Commission will decide whether to make the proposed consent order final. Interested parties can submit written comments electronically or in paper form by following the instructions in the “Invitation To Comment” part of the “Supplementary Information” section.

FTC Testifies on How Professional Licensing and Regulation Can Affect Competition Before House Committee on Small Business

In testimony before Congress today, the Federal Trade Commission described how it evaluates the potential competitive effects of regulating occupations, trades, and professions, and the agency’s efforts to promote competition among professionals.

Testifying on behalf of the Commission before the House Committee on Small Business, Andrew I. Gavil, Director of the FTC’s Office of Policy Planning, discussed the impact of licensure on occupations from nursing to accounting. For some occupations, licensure may be an appropriate policy response to identified consumer protection or safety concerns. Some licensure regulations, however, can impede competition while offering few, if any, significant consumer benefits, the testimony stated.

“In the long term,” the testimony stated, some licensure regulations “can cause lasting damage to competition and the competitive process by rendering markets less responsive to consumer demand and by dampening incentives for innovation in products, services, and business models. Occupational regulation can be especially problematic when regulatory authority is delegated to a nominally ‘independent’ board comprising members of the very occupation it regulates. When the proverbial fox is put in charge of the henhouse, board members’ financial incentives may lead the board to make regulatory choices that favor incumbents at the expense of competition and the public.”

To address these concerns, the FTC selectively responds to calls for public comment and invitations from legislators and regulators to identify and analyze specific licensure restrictions that can harm competition without offering significant consumer benefits, the testimony stated.

The agency urges federal, state and local policy makers, as well as private, self-regulatory authorities, to consider whether a particular licensure regulation is likely to have a significant and adverse effect on competition, is targeted to address actual risks of harm to consumers, and is tailored to minimize any burden on competition, or whether less restrictive alternatives are available.

For example, FTC staff advocacy comments have addressed the physician supervision requirements some states impose on advanced practice registered nurses (APRNs), because they enable some health care professionals to restrict access to the market by other health care professionals, potentially raising prices and reducing access to some primary health care services. The staff have suggested that mandatory supervision of APRNs may not be a justified form of occupational regulation.

Since the 1970s, the testimony noted, the Commission staff has submitted hundreds of comments and amicus briefs to state and self-regulatory entities on competition policy and antitrust law issues regarding real estate brokers, electricians, accountants, lawyers, dentists and dental hygienists, nurses, eye doctors and opticians, and veterinarians. In recent years its competition advocacy efforts have also addressed advertising restrictions, automobile distribution, nursing scope of practice restrictions, accreditation standards, taxicabs and related forms of passenger vehicle transportation, casket sales, and real estate brokerage.

The FTC also has used its enforcement authority to challenge anticompetitive behavior by independent boards of occupational regulators, as well as private actors who restrain competition, the testimony noted. Its actions have included challenges to agreements among competitors that restrained advertising and solicitation, price competition, and contract or commercial practices, as well as direct efforts to prohibit competition from new rivals, without any significant justification.

The Commission vote approving the testimony and its inclusion in the formal record was 5-0.

For information about the benefits of competition, read Competition Counts.

The FTC’s Office of Policy Planning works with the Commission and its staff to develop long-range competition and consumer policy initiatives, consistent with the FTC’s unique mission to conduct research and engage in advocacy on issues that affect competition, consumers, and the U.S. economy. The Office of Policy Planning submits advocacy filings; conducts research and studies; organizes public workshops; issues reports; and advises staff on cases raising new or complex policy and legal issues. To reach the Office of Policy Planning, send an e-mail to [email protected]. Like the FTC on Facebook, follow us on Twitter, read our blogs, and subscribe to press releases for the latest FTC news and resources.

FTC Testifies on Efforts to Stop Phone Scams Before Senate Special Committee on Aging

In testimony before Congress today, the Federal Trade Commission described its work to fight telephone scams that harm millions of Americans, especially “grandparent” and other imposter scams where callers trick seniors into sending them money by pretending to be a friend or relative in distress or a representative of a government agency or a well-known company. The testimony outlined aggressive FTC law enforcement, as well as the agency’s efforts to educate consumers about these scams and to find technological solutions that will make it more difficult for scammers to operate and hide from law enforcement.

Testifying on behalf of the Commission before the Senate Special Committee on Aging, Lois Greisman, Associate Director of the FTC’s Division of Marketing Practices, said the FTC has brought more than 130 cases involving telemarketing fraud against more than 800 defendants during the past decade. The Commission has obtained judgments of more than $2 billion from the cases that have been resolved. Despite aggressive enforcement, the prevalence of phone scams remains unacceptably high – the testimony noted that the FTC receives tens of thousands of complaints about illegal phone calls every week, including imposter scams like the “grandparent scam.”

The testimony described the FTC’s interagency work, noting that since 2003, hundreds of fraudulent telemarketers have faced criminal charges and prison time as a result of FTC referrals to criminal law enforcement agencies. A U.S.-Canada operation, Project COLT, has led to 10 recent indictments of grandparent scammers, and information provided by the FTC has helped extradite and prosecute phone fraudsters. With the FTC’s assistance, Project COLT has recovered more than $26 million for victims of telemarketing fraud. In addition, the FTC has supported multiple prosecutions through a U.S.-Jamaica law enforcement task force, Project JOLT, including phone scams that targeted seniors and impersonated government agencies to promote fake lottery schemes.

The testimony outlined FTC education and outreach programs that reach tens of millions of people every year. Among them is the recently created “Pass It On” program that provides seniors with information, in English and Spanish, on a variety of scams targeting the elderly. The testimony also noted the agency’s work with the Elder Justice Coordinating Council to help protect seniors, and with the AARP Foundation, whose peer counselors provided fraud-avoidance advice last year to more than a thousand seniors who had filed complaints with the FTC about certain frauds, including lottery, prize promotion, and grandparent scams.

The testimony also described the FTC’s ongoing work to bring about technological changes that will make it more difficult for fraudsters to use the phone to scam consumers and to hide from law enforcement. Among these initiatives are an effort to make it harder for scammers to fake or “spoof” their caller ID information and the more widespread availability of technology that will block calls from fraudsters, essentially operating as a spam filter for the phone.

The Commission vote approving the testimony and its inclusion in the formal record was 5-0.

FTC Sends Refund Checks Totaling $9.3 Million to Nearly 200,000 Consumers Who Bought ‘Ab Circle Pro’ Device

An administrator working for the Federal Trade Commission is mailing 196,969 checks averaging $47.51 each to consumers who purchased an abdominal exercise device known as the Ab Circle Pro.

In August 2012, the FTC settled with Ab Circle Pro marketers Fitness Brands, four individuals, and seven other companies, after alleging that the defendants had deceptively advertised that exercising on the device for just three minutes a day would cause consumers to lose 10 pounds in two weeks.

The checks, which total $9.3 million, must be cashed within 60 days after they are issued. The deadline for filing a refund request has expired. Consumers who have questions should call 1-866-402-4752. For general refund information, see www.FTC.gov/refunds. The FTC never requires consumers to pay money or provide information before redress checks can be cashed.

Consumers should carefully evaluate advertising claims for exercise equipment. For more information see: Tips for Buying Exercise Equipment.

Prudent Management of Agricultural Credits Through Economic Cycles

The U.S. agricultural industry has reported overall profitability for several years, which has helped strengthen the overall credit quality of many insured financial institutions that serve agricultural clients. However, the U.S. Department of Agriculture (USDA) projects a slowdown in the growth of various financial indicators for U.S. farming and livestock sectors, and the agricultural sector remains susceptible to shocks such as weather-related events, market volatility, and declining land values. This Financial Institution Letter (FIL) reminds institutions engaged in agricultural lending to maintain sound underwriting standards, strong credit administration practices, and effective risk management strategies. When agricultural borrowers experience financial difficulties, the FDIC encourages financial institutions to work constructively with borrowers to strengthen the credit and mitigate loss.

Statement of Applicability to Institutions with Total Assets Under $1 Billion: This FIL applies to all FDIC-supervised financial institutions.

Financial Institution Letters
FIL-39-2014
July 16, 2014

Prudent Management of Agricultural Credits Through Economic Cycles

The U.S. agricultural industry has benefited from a decade of overall strong profitability, with several years of high commodity prices and improving livestock margins. Although crop prices have recently declined from record levels, they remain above historical averages. The generally strong financial performance of the agricultural sector is reflected in the robust credit quality reported by the nation’s agricultural lenders, with median agricultural loan delinquencies and chargeoffs near the lowest levels since the early 1970s. Profitability within the industry has improved the overall equity and working capital positions of many agricultural producers and related small businesses, and the USDA reports that the overall farm debt-to-asset ratio remains low at approximately 11 percent.

Notwithstanding the current strength of the agricultural industry, the USDA forecasts higher borrowing costs, moderation in the growth of farmland values, and a decline in net farm income (of approximately 27 percent) in 2014¹. Additionally, the industry remains susceptible to financial shocks from various sources, including weather-related events, market volatility, geopolitical risks, and declining commodity prices. Therefore, the implementation of sound risk-mitigation strategies is both a regulatory expectation and a prudent banking practice. The FDIC is re-emphasizing supervisory expectations by updating and replacing FIL-85-2010, titled Prudent Management of Agricultural Credit through Farming and Economic Cycles; FIL-85-2010 is hereby rescinded.

Prudent Credit Risk Management for Agricultural Lending

All financial institutions should maintain capital, reserves, and risk management systems commensurate with their credit activities and exposures. Risk analysis should center on a borrower’s cash flow and repayment capacity and not rely unduly on collateral values. For most agricultural loans, primary repayment sources include cash flows from anticipated crop production and livestock operations. Therefore, credit analysis should assess the timing and level of projected cash flows over a reasonable period and ensure that cash flows match the purpose and terms of a loan. Sound practices include evaluating baseline cash flows under significantly modified projections for key variables, such as input costs, interest rates, and sale prices.

Often, smaller farms and ranches rely on the principals’ personal wealth and resources, including off-farm wages, to support operations. Therefore, analysis of a borrower’s overall financial status, including credit history and use of nonbank credit, is an important part of assessing a borrower’s willingness and ability to repay their debts. This information should be considered with other subjective factors, such as a borrower’s management abilities and experience.

In addition to cash flow analysis, lenders should analyze secondary repayment sources and collateral support levels. For example, a borrower’s informed use of crop insurance and appropriate hedging products can reduce risks to the farming operation and the lending institution. Properly administered credit enhancements, such as Farm Service Agency guarantees, can also reduce credit-loss exposures. Although risk mitigation products and programs can be beneficial, lenders should focus the credit analysis on a borrower’s financial strength and repayment ability. Such analysis should be sensitive to evidence of speculation in agricultural land prices and commodities that may influence the market. Management should document all lien perfections; conduct timely, independent collateral inspections; and develop a process for monitoring collateral values to manage risk over the life of a loan.

Concentrations of credit to individual borrowers or segments of the agricultural industry should be identified and carefully managed. The FDIC expects institutions to effectively manage credit concentrations and comply with statutory lending limits; however, this does not mean lenders should automatically refuse credit to sound borrowers because of their particular business segment or geographic location. Instead, lenders should base loan decisions on the creditworthiness of individual borrowers, an institution’s risk appetite and tolerance, and the adequacy of risk management practices. These practices should include agricultural lending policies that detail the board’s risk tolerances and include appropriate procedures for identifying, monitoring, and controlling concentrations.

Developing Appropriate Workout Strategies for Agricultural Credits

During the agricultural crisis of the 1980s, the financial condition of many agricultural borrowers deteriorated due to depreciating land values, high interest rates, and volatile commodity prices. Despite the challenging conditions, many farm operators remained creditworthy bank customers who demonstrated a willingness and capacity to repay their debts. In situations where borrowers struggled to make scheduled payments, many financial institutions and borrowers found mutually beneficial ways to restructure credit facilities.

The FDIC believes prudent loan workouts can take many forms, including the renewal or modification of loan terms, or the restructuring of credit facilities with or without concessions. Appropriate loan restructures can help farm customers negotiate adverse business conditions and allow additional time for borrowers to stabilize operations. Credits that are restructured consistent with sound banking, supervisory, and accounting practices can mitigate the risk of loss to the bank.

From a supervisory perspective, restructured loans to farming operations with the documented ability to repay debts under reasonably modified terms will not be subject to adverse classification solely because the value of the underlying collateral has declined. Further, an institution that implements prudent loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse classification.

The following issuances convey prudent banking principles that can be readily adapted to lending relationships in the agricultural sector:

Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers, February 12, 2010 (FIL-5-2010)
Interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts, October 30, 2009 (FIL-61-2009)
Interagency Statement on Meeting the Needs of Creditworthy Borrowers, November 12, 2008 (FIL-128-2008)

The continued availability of credit is vital to the success of our nation’s farming and livestock operations. Given the potential volatility in the agricultural sector, prudent risk management practices are necessary to ensure that agricultural credits are originated and administered consistent with sound lending standards. Community banks in particular have demonstrated a strong commitment to agricultural financing, and the FDIC encourages financial institutions to continue making prudent loans to creditworthy farmers and ranchers.

Cactus Juice Marketers to Pay $3.5 Million in Refunds to Consumers for Deceptive Claims that Their Product Treats Diseases

The marketers of a cactus-based fruit drink have agreed to provide $3.5 million for consumer refunds in order to settle FTC charges that they deceived consumers with unsupported claims that their drink, Nopalea, would treat a variety of health problems.

The settlement with dietary supplement company TriVita, Inc. is part of the FTC’s ongoing efforts to stop over-hyped health claims.

TriVita markets 32-ounce bottles of the “prickly pear” fruit drink, derived from the Nopal cactus, for up to $39.99 plus shipping and handling. According to the FTC’s complaint, advertisements on the defendants’ websites tout “Inflammation Relief without a Prescription.” The defendants’ infomercials featuring celebrity endorser and former supermodel Cheryl Tiegs, market Nopalea as an “anti-inflammatory wellness drink” that relieves pain, reduces and relieves joint and muscle swelling, improves breathing and alleviates respiratory problems, and relieves skin conditions. Trivita’s former Chief Science Officer, Brazos Minshew, also appears in the infomercials and links inflammation to allergies, Alzheimer’s disease, heart disease and diabetes. He notes in one of the infomercials that “over 200 articles published and archived at the National Institutes of Health demonstrate one thing: the Nopal cactus will reduce inflammation.” The infomercials also feature testimonials by satisfied consumers who are actually paid employees of defendants, according to the complaint.

“These kinds of unfounded claims are unacceptable, particularly when they impact consumers’ health,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Advertisers who cannot back up their claims with competent and reliable scientific evidence are violating the law.”

The defendants are charged with violating Sections 5 and 12 of the FTC Act by:

making unsupported claims that Nopalea significantly improves breathing and relieves sinus infections and other respiratory conditions, and provides significant relief from pain, swelling of the joints and muscles, and psoriasis and other skin conditions.
making false claims that the health benefits of Nopalea were proven by clinical studies.
failing to disclose that supposedly ordinary consumer endorsers were in fact TriVita sales people who received commissions for selling the defendants’ products.

Besides TriVita, Inc., the complaint names as defendants marketing company Ellison Media Company, and Michael R. and Susan R. Ellison, who control both companies.

Under the proposed settlement order, the defendants are barred from making the health claims alleged in the complaint when marketing Nopalea or any food, drug, or dietary supplement without randomized, double-blind, placebo-controlled human clinical tests conducted by qualified researchers; making any health claims without competent and reliable scientific evidence; misrepresenting that health benefits are clinically proven when they are not; and failing to disclose any material connection between endorsers of their products and themselves.

Consumers should carefully evaluate advertising for products that claim to cure diseases. For more information, see: Miracle Health Claims.

The Commission vote authorizing the staff to file the complaint and approving the proposed settlement order was 5-0. The FTC filed the complaint and proposed stipulated final order in the U.S. District Court for the District of Arizona on July 10, 2014. The proposed order is subject to court approval.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. Settlement orders have the force of law when approved and signed by the District Court judge.

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