FTC Will Grant Three-Month Delay of Enforcement of Red Flags Rule Requiring Creditors and Financial Institutions to Adopt Identity Theft Prevention Programs

The Federal Trade Commission will delay enforcement of the new “Red Flags Rule” until August 1, 2009, to give creditors and financial institutions more time to develop and implement written identity theft prevention programs. For entities that have a low risk of identity theft, such as businesses that know their customers personally, the Commission will soon release a template to help them comply with the law. Today’s announcement does not affect other federal agencies’ enforcement of the original November 1, 2008 compliance deadline for institutions subject to their oversight.

“Given the ongoing debate about whether Congress wrote this provision too broadly, delaying enforcement of the Red Flags Rule will allow industries and associations to share guidance with their members, provide low-risk entities an opportunity to use the template in developing their programs, and give Congress time to consider the issue further,” FTC Chairman Jon Leibowitz said.

The Fair and Accurate Credit Transactions Act of 2003 (FACTA) directed financial regulatory agencies, including the FTC, to promulgate rules requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. FACTA’s definition of “creditor” applies to any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment does not, by itself, make an entity a creditor. Some examples of creditors are finance companies; automobile dealers that provide or arrange financing; mortgage brokers; utility companies; telecommunications companies; non-profit and government entities that defer payment for goods or services; and businesses that provide services and bill later, including many lawyers, doctors, and other professionals. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

During outreach efforts last year, the FTC staff learned that some industries and
entities within the agency’s jurisdiction were uncertain about their coverage under the Red Flags Rule. During this time, FTC staff developed and published materials to help explain what types of entities are covered, and how they might develop their identity theft prevention programs. Among these materials were an alert on the Rule’s requirements, www.ftc.gov/bcp/edu/pubs/business/alerts/alt050.shtm, and a Web site with more resources to help covered entities design and implement identity theft prevention programs, www.ftc.gov/redflagsrule. The compliance template will be available on this Web site.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(Red Flags Deadline Extension)

FTC Issues Final Rules Amending Parts 3 and 4 of the Agency’s Rules of Practice

The Federal Trade Commission today adopted as final the interim rules amending Parts 3 and 4 of the agency’s Rules of Practice that were announced last December, and also further amended several rules and eliminated one. The amendments are designed to streamline and improve the agency’s “Part 3” adjudicative proceedings. They expedite the prehearing, hearing, and appeal phases; streamline discovery and motion practice; and ensure that the FTC can apply its substantive expertise, as appropriate, earlier in the process.

Today’s action is part of the FTC’s broad and systematic internal review of its adjudicative proceedings process. While the current rulemaking is now completed, the FTC will review the rules on a bi-annual basis and consider additional changes if warranted.

Through the Federal Register notice announced today, the Commission has made changes to several areas of the rules. First, the amendments eliminate Rule 3.11A (Fast Track Proceedings). The Fast Track Proceedings are unnecessary because of the expedited deadlines in the new Part 3 rules.

Second, changes in Rule 3.25 clarify the procedures for the Commission to consider possible settlements while a matter is in administrative litigation.

Third, Rule 3.31(g) has been amended to be consistent with a new federal rule of evidence regarding how parties must deal with documents subject to privilege that another party claims were inadvertently produced.

Finally, amended Rule 4.2 requires a party to file a redacted public version of a petition for certain types of Commission action (such as a petition to quash a subpoena) in non-Part 3 matters if it requests confidential treatment for the petition. The rule also makes other changes that will facilitate the development of a new Commission electronic filing system for adjudicative proceedings.

The interim rules adopted as final today remain in effect and continue to apply to all Commission adjudicatory proceedings that were commenced after January 13, 2009. The further revisions to rules and the elimination of Rule 3.11A will govern all proceedings that are initiated on or after the date the notice is published in the Federal Register.

The Commission vote to amend certain rules, eliminate one rule, and otherwise adopt the interim rules as final was 4-0. The notice containing these revisions is available on the FTC’s Web site at , and will be published in the Federal Register shortly.

Copies of the Federal Register notice detailing the final rules are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC File No. P072104)

FTC Issues Final Rules Amending Parts 3 and 4 of the Agency’s Rules of Practice

The Federal Trade Commission today adopted as final the interim rules amending Parts 3 and 4 of the agency’s Rules of Practice that were announced last December, and also further amended several rules and eliminated one. The amendments are designed to streamline and improve the agency’s “Part 3” adjudicative proceedings. They expedite the prehearing, hearing, and appeal phases; streamline discovery and motion practice; and ensure that the FTC can apply its substantive expertise, as appropriate, earlier in the process.

Today’s action is part of the FTC’s broad and systematic internal review of its adjudicative proceedings process. While the current rulemaking is now completed, the FTC will review the rules on a bi-annual basis and consider additional changes if warranted.

Through the Federal Register notice announced today, the Commission has made changes to several areas of the rules. First, the amendments eliminate Rule 3.11A (Fast Track Proceedings). The Fast Track Proceedings are unnecessary because of the expedited deadlines in the new Part 3 rules.

Second, changes in Rule 3.25 clarify the procedures for the Commission to consider possible settlements while a matter is in administrative litigation.

Third, Rule 3.31(g) has been amended to be consistent with a new federal rule of evidence regarding how parties must deal with documents subject to privilege that another party claims were inadvertently produced.

Finally, amended Rule 4.2 requires a party to file a redacted public version of a petition for certain types of Commission action (such as a petition to quash a subpoena) in non-Part 3 matters if it requests confidential treatment for the petition. The rule also makes other changes that will facilitate the development of a new Commission electronic filing system for adjudicative proceedings.

The interim rules adopted as final today remain in effect and continue to apply to all Commission adjudicatory proceedings that were commenced after January 13, 2009. The further revisions to rules and the elimination of Rule 3.11A will govern all proceedings that are initiated on or after the date the notice is published in the Federal Register.

The Commission vote to amend certain rules, eliminate one rule, and otherwise adopt the interim rules as final was 4-0. The notice containing these revisions is available on the FTC’s Web site at , and will be published in the Federal Register shortly.

Copies of the Federal Register notice detailing the final rules are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FTC File No. P072104)

FTC Obtains $18.9 Million Judgment Against Ponzi Scheme Operators

At the request of the Federal Trade Commission, a federal court has imposed a judgment of $18.9 million against operators of an “Internet kiosk” business opportunity scam, clearing the way for the FTC to distribute more than $2 million to the victims of their illegal Ponzi scheme.
The court found that the operators of the scam violated the FTC Act and the agency’s Franchise Rule by duping hundreds of consumers into buying Internet kiosk business opportunities with promises of lucrative earnings. In its final order, the court banned the key defendants from promoting any future business ventures and barred all defendants from making further misrepresentations.

As a result of the court order, consumers will be reimbursed more than $2 million. This amount includes approximately $450,000 in funds that the court froze at the FTC’s request, as well as $1.5 million in funds that previously had been seized by the FBI and had been the subject of a civil forfeiture action brought by the Office of the U.S. Attorney.

The court previously found that some funds that the defendants paid to their attorneys should go to victims of the scheme as well. One attorney agreed to return $40,000. The court ordered the other attorney to return $238,000.

The FTC’s complaint, filed in 2005, charged the California-based defendants with misrepresenting the earnings potential of the Internet kiosk business opportunity and misrepresenting the availability and/or profitability of locations for the machines. The free-standing kiosks housed a computer and a mechanism to accept payments. The Internet kiosks were designed to allow the public to access the Internet, for a fee, from locations such as hotels, bowling alleys, and convenience stores. According to the FTC, more than 450 consumers purchased thousands of kiosks.

The U.S. District Court for the District of Nevada agreed with the FTC that the venture was a Ponzi scheme. “Revenue” payments sent to investors each month did not come from the kiosk businesses, but from the infusion of money paid by new investors. In fact, the defendants installed only a small fraction of the kiosk businesses they had sold. This left the majority of investors holding worthless interests in nonexistent kiosks.

The FTC’s complaint named Charles Castro, Elizabeth Castro, Gregory High, Network Services Depot, Inc., Network Marketing, LLC, doing business as Network Services Marketing,
LLC, Net Depot, Inc., Network Services Distribution, Inc., and Sunbelt Marketing, Inc. as defendants (collectively the Castro Entities), and Phyllis Watson as a relief defendant. The Castro Entities are located in Orange County, California. The FTC also filed a separate complaint against a set of entities based in San Diego County, California, who worked closely with the Castro Entities to perpetrate the scam. The entities named in that complaint, Edward Bevilacqua, Bikini Vending Corp., 360 Wireless Corp., and MyMart, Inc., agreed to settle the FTC’s charges and have been banned from selling any business venture or franchise in the future.

The participation of these defendants in the kiosk scam has landed two key principals, Edward Bevilacqua and Charles Castro, in California state prison. As a result of criminal prosecutions brought by the Office of the San Diego County District Attorney, they were indicted on 48 counts of securities fraud by a San Diego County Grand Jury in September 2006. Bevilacqua pleaded guilty to felony securities fraud in February 2009 and is serving a seven-year prison term. Castro pleaded guilty to felony securities fraud in 2008 and is serving a three-year term. The FTC referred the cases to the San Diego District Attorney in 2005.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File No. 042-3188; Civil Action No. CVS 050440 LDGLRL)
(NSD.wpd)

FTC Announces Agendas for Resale Price Maintenance Workshops in May

The Federal Trade Commission today announced the agendas for the next two in its series of public workshops on resale price maintenance (RPM). Panels will focus on the history of the practice, empirical evidence on the effects of RPM, and how it should be analyzed under the antitrust laws. The agendas, which are posted on the Commission’s Web site at http://www.ftc.gov/opp/workshops/rpm/, outline the schedule for the two events, which will be held at FTC Headquarters in Washington, DC, on May 20 and 21, 2009.

RPM typically involves an agreement between a manufacturer and retailer setting the prices at which the retailer will resell the manufacturer’s goods to consumers. If the agreement requires the retailer to sell the goods only at or above prices established by the manufacturer, it is called minimum RPM. On the other hand, if the agreement requires the retailer to sell the products only at or below the price established by the manufacturer, it is said to be maximum RPM.

Last October, the Commission announced it would hold a series of public workshops in early 2009 to examine, for the purposes of enforcing Section 1 of the Sherman Act and Section 5 of the FTC Act, how to best distinguish between uses of RPM that benefit consumers and those that do not.

The May workshops will be comprised of three panels, two on May 20, and one on May 21. The first panel will be moderated by Pauline Ippolito, Acting Director of the FTC’s Bureau of Economics, and will examine empirical evidence on the effects of RPM. Specifically, it will review existing empirical studies of RPM, or studies of other vertical restraints that might inform the thinking on RPM. The panel also will explore potential future research in light of possible testable hypotheses underlying the competitive effects of RPM.

The second panel, to be moderated by Laurel Price, Attorney Advisor to FTC Commissioner Pamela Jones Harbour, will examine the legal and business history of the use of RPM in the United States. It will explore how RPM has been treated in this country historically, as well as the legal and business management doctrines related to RPM.

The third panel, also to be moderated by Price, will examine “rule of reason analyses” after the Supreme Court’s landmark Leegin decision, and will assess guidance provided by the Leegin Court regarding the analysis of RPM.

Each workshop is free and open to the public. Pre-registration is not required. A more-detailed description of each workshop will be issued before it takes place, will include information on the workshop location, and will solicit additional public comment on the topic to be addressed. Information on how to submit comments on the workshop series as a whole can be found on the workshop Web page at: http://www.ftc.gov/opp/workshops/rpm/. All written comments will be placed on the public record.

Each workshop will be accessible to people with disabilities. Anyone needing a related accommodation should contact Carrie McGlothlin at the FTC at 202-326-3388. Such requests should include a detailed description of the accommodations needed and contact information if more information is needed. Please provide advance notice of accommodation needs.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(RPM Workshop.09.final.wpd)

FTC Announces Agendas for Resale Price Maintenance Workshops in May

The Federal Trade Commission today announced the agendas for the next two in its series of public workshops on resale price maintenance (RPM). Panels will focus on the history of the practice, empirical evidence on the effects of RPM, and how it should be analyzed under the antitrust laws. The agendas, which are posted on the Commission’s Web site at http://www.ftc.gov/opp/workshops/rpm/, outline the schedule for the two events, which will be held at FTC Headquarters in Washington, DC, on May 20 and 21, 2009.

RPM typically involves an agreement between a manufacturer and retailer setting the prices at which the retailer will resell the manufacturer’s goods to consumers. If the agreement requires the retailer to sell the goods only at or above prices established by the manufacturer, it is called minimum RPM. On the other hand, if the agreement requires the retailer to sell the products only at or below the price established by the manufacturer, it is said to be maximum RPM.

Last October, the Commission announced it would hold a series of public workshops in early 2009 to examine, for the purposes of enforcing Section 1 of the Sherman Act and Section 5 of the FTC Act, how to best distinguish between uses of RPM that benefit consumers and those that do not.

The May workshops will be comprised of three panels, two on May 20, and one on May 21. The first panel will be moderated by Pauline Ippolito, Acting Director of the FTC’s Bureau of Economics, and will examine empirical evidence on the effects of RPM. Specifically, it will review existing empirical studies of RPM, or studies of other vertical restraints that might inform the thinking on RPM. The panel also will explore potential future research in light of possible testable hypotheses underlying the competitive effects of RPM.

The second panel, to be moderated by Laurel Price, Attorney Advisor to FTC Commissioner Pamela Jones Harbour, will examine the legal and business history of the use of RPM in the United States. It will explore how RPM has been treated in this country historically, as well as the legal and business management doctrines related to RPM.

The third panel, also to be moderated by Price, will examine “rule of reason analyses” after the Supreme Court’s landmark Leegin decision, and will assess guidance provided by the Leegin Court regarding the analysis of RPM.

Each workshop is free and open to the public. Pre-registration is not required. A more-detailed description of each workshop will be issued before it takes place, will include information on the workshop location, and will solicit additional public comment on the topic to be addressed. Information on how to submit comments on the workshop series as a whole can be found on the workshop Web page at: http://www.ftc.gov/opp/workshops/rpm/. All written comments will be placed on the public record.

Each workshop will be accessible to people with disabilities. Anyone needing a related accommodation should contact Carrie McGlothlin at the FTC at 202-326-3388. Such requests should include a detailed description of the accommodations needed and contact information if more information is needed. Please provide advance notice of accommodation needs.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(RPM Workshop.09.final.wpd)

FTC Charges Marketers of Hoodia Weight Loss Supplements With Deceptive Advertising

The Federal Trade Commission has charged the suppliers of supposed Hoodia gordonii, also known as hoodia, with deceptive advertising for claiming that using their product would lead to weight loss and appetite suppression. In its complaint, the FTC alleges that the defendants not only made false and deceptive claims about what hoodia could do, but also, on one or more occasions, claimed that their product was Hoodia gordonii, a plant native to southern Africa, when it was not. The FTC has requested that the court order the defendants not to make false or deceptive statements or destroy documents pending trial. The Commission seeks to permanently bar the defendants from deceptively advertising hoodia, and to obtain disgorgement of the defendants’ profits from their hoodia sales.

The defendants allegedly made false and deceptive claims when advertising their fake hoodia to trade customers who manufactured and marketed supplements. The complaint further charges that the defendants provided trade customers with deceptive advertising and promotional materials – along with other materials that purported to substantiate their claims. These customers then had the means to deceive consumers who bought weight-loss products purportedly containing hoodia. The complaint charges that the defendants made these false and deceptive claims about their product: that it would enable consumers to lose weight and suppress appetites; that it was scientifically proven to suppress appetite, resulting in weight loss; that it was clinically proven to reduce caloric intake by 1,000 to 2,000 calories per day; that it was derived from South African Hoodia gordonii; and that hoodia was an effective treatment for obesity.

The complaint names Delaware-based Nutraceuticals International, LLC, New Jersey-based Stella Labs, LLC, and four individuals as liable for these charges. The individual defendants are David J. Romeo, whom the complaint identifies as controlling both companies; and Deborah B. Vickery, Craig Payton, and Zoltan Klivinyi, who are officers or directors of one
or both companies.

The Commission vote authorizing the staff to file the complaint was 4-0. On March 20, 2009, the FTC filed its complaint in the U.S. District Court for the District of New Jersey. The court has set a preliminary injunction hearing for April 29, 2009.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has or is being violated, and it appears to the Commission that a proceeding is in the public interest. A complaint is not a finding or ruling that the defendants have actually violated the law.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(FTC File Nos. 0823130 and 0723075)
(Nutraceuticals NR.wpd)

Commission Reopens Public Comment Period On Used Car Rule; Commission Approves Amended Complaint in Matter of Group One Networks, Inc.; Commission Proposes Amendments to Fuel Economy Guide; Joint FTC/DOJ Comment Says Supreme Court of Hawaiis Draft Rule

Commission Reopens Public Comment Period On Used Car Rule

– The Commission has reopened the public comment period for the regulatory review of the Used Motor Vehicle Trade Regulation Rule (Used Car Rule) through June 10, 2009. On July 21, 2008, the FTC issued a Federal Register notice seeking public comments on the effectiveness and impact of the Rule, which was promulgated in 1984 and updated in 1995. The Used Car Rule requires used car dealers to disclose on a window sticker (the Buyers Guide) whether they are offering a dealer warranty, and if so, its basic terms and conditions. The Rule also requires that dealers use Spanish-language versions of the Buyers Guide when conducting sales in Spanish.

In the July notice, the FTC stated that the public comment period regarding the review of the Rule would end on September 19, 2008. Based on the request of several organizations, the Commission extended the public comment period until November 19, 2008, and is now reopening the comment period for an additional 45 days. Information on how and where to submit comments can be found in a new Federal Register notice on the Commission’s Web site.

The Commission vote approving the extension of the public comment period was 4-0. (FTC File No. P087604; the staff contact is John C. Hallerud, FTC Midwest Region, Chicago, 312-960-5615; see press release dated July 16, 2008, at http://www.ftc.gov/opa/2008/07/ucr.shtm.)

Commission Approves Amended Complaint in Matter of Group One Networks, Inc.

– The Commission has approved an amended complaint that adds a new defendant and charges in the action currently pending against Group One Networks, Inc. The original complaint, filed in February 2009, alleged deception in the marketing of an advance-fee credit card, unauthorized billing in a separate online scam, and violations of the FTC’s Telemarketing Sales Rule (TSR), including its Do Not Call Provisions. Through the amended complaint, the Commission is adding four defendants to the case: 1) Credit First Financial Solution, LLC; 2) Group One Administrative, Inc.; 3) Tall Pines Administrative Services, LLC; and 4) Suncoast Data Services, LLC.

The amended complaint also includes new counts alleging that the defendants violated the FTC Act and TSR in marketing their latest program, an interest-rate reduction program called Credit First Financial Solutions, by misrepresenting that they would lower consumers’ interest rates by negotiating with creditors, would save consumers between $1,500 and $20,000 within 30 days of enrollment, would provide a full refund if consumers did not get the promised
savings, and that they had been in business since 1997 and had relationships with thousands of financial institutions. The defendants currently are subject to preliminary injunction that prohibits them from violating the FTC Act and the TSR, freezes their assets, and appoints a receiver over the corporate defendants. No trial date has been set.

The vote authorizing the staff to file the amended complaint was 4-0. (FTC File No. X090027, Civ. No. 08:09-cv-352-T-26MAP; the staff contact is J. Ronald Brooke, Jr., Bureau of Consumer Protection, 202-326-3484; see press release dated March 4, 2009, at http://www.ftc.gov/opa/2009/03/groupone.shtm.)

Commission Proposes Amendments to Fuel Economy Guide

– The Commission has proposed amendments to the agency’s Guide Concerning Fuel Economy Advertising for New Automobiles (the Fuel Economy Guide) (16 C.F.R. Part 259). The Fuel Economy Guide was adopted in 1975 to prevent deceptive fuel economy advertising and to facilitate the use of fuel economy information in advertising. The proposed amendments would change the Guide to reflect developments in automobile technology, as well as changes to the U.S. Environmental Protection Agency’s (EPA) fuel economy labeling rules for new automobiles.

As detailed in the Federal Register notice approved by the Commission, which will be published soon and can be found now as a link to this press release on the Commission’s Web site, the proposed amendments fall into three principal areas: 1) changes to terms and definitions to ensure consistency with EPA’s revised fuel economy labeling requirements; 2) modifications to expand the scope of existing guidelines to new vehicle types that run on fuels other than gasoline, such as natural gas and electricity; and 3) inclusion of guidance related to cruising range information in advertisements for vehicles that run on alternative fuels. The notice also explains how to submit public comments, which the Commission must receive by June 26, 2009.

The Commission vote approving publication of the Federal Register notice was 4-0. (FTC File No. R7711008; the staff contact is Hampton Newsome, Bureau of Consumer Protection, 202-326-2889; see press release dated May 4, 2007 at http://www.ftc.gov/opa/2007/05/fyi07241.shtm.)

Joint FTC/DOJ Comment Says Supreme Court of Hawaii’s Draft Rule on the Unauthorized Practice of Law Would Unduly Restrict Activities of Non-lawyers

– In a comment jointly filed with the Supreme Court of Hawaii, the Federal Trade Commission and the U.S. Department of Justice (DOJ) advised that a proposed rule concerning the practice of law could unduly restrict the activities of non-lawyers in Hawaii. The Federal Trade Commission and the U.S. Department of Justice (DOJ) have filed a joint comment addresses with the Supreme Court of Hawaii’s regarding its revised version of a rule proposed by the Hawaii State Bar Association (HSBA) concerning the unauthorized practice of law in the state. According to the joint comment, the proposed rule, which defines the practice of law and would assist with regulation, by clarifying what is and is not the practice of law, could unduly restrict the activities of non-lawyers in Hawaii.

The Commission and DOJ commented in January 2008 on the original version of the proposed rule, expressing concern that the general definition of the practice of law proposed by the HSBA likely would restrict non-lawyers from competing with lawyers, to the detriment of consumers. The comment explains that although the revised proposal addressed many of the concerns raised previously it still defines the practice of law too broadly. The comment recommends that the Court limit the definition of the practice of law to coverAccordingly, in the current comment, the agencies recommend that the Court adopt language similar to that found in Rule 49 of the District of Columbia Court of Appeals, which limits the definition of the practice of law to the provision of legal advice or services where there is a client relationship of trust and reliance. While the revised proposed rule contains many exceptions and exclusions to allow non-lawyers to compete with lawyers in Hawaii, the comment states that “exceptions cannot capture every instance where consumers would benefit from lawyer/non-lawyer competition.”

The Commission vote authorizing the filing of the comment was 4-0. A copy of the comment can be found on the FTC’s Web site and as a link to this press release. (FTC File No. V080004; the staff contact is Gustav P. Chiarello, Office of Policy Planning, 202-326-2633.)

Copies of the Federal Register notice detailing the final rules are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FYI 20.2009.wpd)

Commission Reopens Public Comment Period On Used Car Rule; Commission Approves Amended Complaint in Matter of Group One Networks, Inc.; Commission Proposes Amendments to Fuel Economy Guide; Joint FTC/DOJ Comment Says Supreme Court of Hawaiis Draft Rule

Commission Reopens Public Comment Period On Used Car Rule

– The Commission has reopened the public comment period for the regulatory review of the Used Motor Vehicle Trade Regulation Rule (Used Car Rule) through June 10, 2009. On July 21, 2008, the FTC issued a Federal Register notice seeking public comments on the effectiveness and impact of the Rule, which was promulgated in 1984 and updated in 1995. The Used Car Rule requires used car dealers to disclose on a window sticker (the Buyers Guide) whether they are offering a dealer warranty, and if so, its basic terms and conditions. The Rule also requires that dealers use Spanish-language versions of the Buyers Guide when conducting sales in Spanish.

In the July notice, the FTC stated that the public comment period regarding the review of the Rule would end on September 19, 2008. Based on the request of several organizations, the Commission extended the public comment period until November 19, 2008, and is now reopening the comment period for an additional 45 days. Information on how and where to submit comments can be found in a new Federal Register notice on the Commission’s Web site.

The Commission vote approving the extension of the public comment period was 4-0. (FTC File No. P087604; the staff contact is John C. Hallerud, FTC Midwest Region, Chicago, 312-960-5615; see press release dated July 16, 2008, at http://www.ftc.gov/opa/2008/07/ucr.shtm.)

Commission Approves Amended Complaint in Matter of Group One Networks, Inc.

– The Commission has approved an amended complaint that adds a new defendant and charges in the action currently pending against Group One Networks, Inc. The original complaint, filed in February 2009, alleged deception in the marketing of an advance-fee credit card, unauthorized billing in a separate online scam, and violations of the FTC’s Telemarketing Sales Rule (TSR), including its Do Not Call Provisions. Through the amended complaint, the Commission is adding four defendants to the case: 1) Credit First Financial Solution, LLC; 2) Group One Administrative, Inc.; 3) Tall Pines Administrative Services, LLC; and 4) Suncoast Data Services, LLC.

The amended complaint also includes new counts alleging that the defendants violated the FTC Act and TSR in marketing their latest program, an interest-rate reduction program called Credit First Financial Solutions, by misrepresenting that they would lower consumers’ interest rates by negotiating with creditors, would save consumers between $1,500 and $20,000 within 30 days of enrollment, would provide a full refund if consumers did not get the promised
savings, and that they had been in business since 1997 and had relationships with thousands of financial institutions. The defendants currently are subject to preliminary injunction that prohibits them from violating the FTC Act and the TSR, freezes their assets, and appoints a receiver over the corporate defendants. No trial date has been set.

The vote authorizing the staff to file the amended complaint was 4-0. (FTC File No. X090027, Civ. No. 08:09-cv-352-T-26MAP; the staff contact is J. Ronald Brooke, Jr., Bureau of Consumer Protection, 202-326-3484; see press release dated March 4, 2009, at http://www.ftc.gov/opa/2009/03/groupone.shtm.)

Commission Proposes Amendments to Fuel Economy Guide

– The Commission has proposed amendments to the agency’s Guide Concerning Fuel Economy Advertising for New Automobiles (the Fuel Economy Guide) (16 C.F.R. Part 259). The Fuel Economy Guide was adopted in 1975 to prevent deceptive fuel economy advertising and to facilitate the use of fuel economy information in advertising. The proposed amendments would change the Guide to reflect developments in automobile technology, as well as changes to the U.S. Environmental Protection Agency’s (EPA) fuel economy labeling rules for new automobiles.

As detailed in the Federal Register notice approved by the Commission, which will be published soon and can be found now as a link to this press release on the Commission’s Web site, the proposed amendments fall into three principal areas: 1) changes to terms and definitions to ensure consistency with EPA’s revised fuel economy labeling requirements; 2) modifications to expand the scope of existing guidelines to new vehicle types that run on fuels other than gasoline, such as natural gas and electricity; and 3) inclusion of guidance related to cruising range information in advertisements for vehicles that run on alternative fuels. The notice also explains how to submit public comments, which the Commission must receive by June 26, 2009.

The Commission vote approving publication of the Federal Register notice was 4-0. (FTC File No. R7711008; the staff contact is Hampton Newsome, Bureau of Consumer Protection, 202-326-2889; see press release dated May 4, 2007 at http://www.ftc.gov/opa/2007/05/fyi07241.shtm.)

Joint FTC/DOJ Comment Says Supreme Court of Hawaii’s Draft Rule on the Unauthorized Practice of Law Would Unduly Restrict Activities of Non-lawyers

– In a comment jointly filed with the Supreme Court of Hawaii, the Federal Trade Commission and the U.S. Department of Justice (DOJ) advised that a proposed rule concerning the practice of law could unduly restrict the activities of non-lawyers in Hawaii. The Federal Trade Commission and the U.S. Department of Justice (DOJ) have filed a joint comment addresses with the Supreme Court of Hawaii’s regarding its revised version of a rule proposed by the Hawaii State Bar Association (HSBA) concerning the unauthorized practice of law in the state. According to the joint comment, the proposed rule, which defines the practice of law and would assist with regulation, by clarifying what is and is not the practice of law, could unduly restrict the activities of non-lawyers in Hawaii.

The Commission and DOJ commented in January 2008 on the original version of the proposed rule, expressing concern that the general definition of the practice of law proposed by the HSBA likely would restrict non-lawyers from competing with lawyers, to the detriment of consumers. The comment explains that although the revised proposal addressed many of the concerns raised previously it still defines the practice of law too broadly. The comment recommends that the Court limit the definition of the practice of law to coverAccordingly, in the current comment, the agencies recommend that the Court adopt language similar to that found in Rule 49 of the District of Columbia Court of Appeals, which limits the definition of the practice of law to the provision of legal advice or services where there is a client relationship of trust and reliance. While the revised proposed rule contains many exceptions and exclusions to allow non-lawyers to compete with lawyers in Hawaii, the comment states that “exceptions cannot capture every instance where consumers would benefit from lawyer/non-lawyer competition.”

The Commission vote authorizing the filing of the comment was 4-0. A copy of the comment can be found on the FTC’s Web site and as a link to this press release. (FTC File No. V080004; the staff contact is Gustav P. Chiarello, Office of Policy Planning, 202-326-2633.)

Copies of the Federal Register notice detailing the final rules are available from the FTC’s Web site at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

(FYI 20.2009.wpd)

FTC Concludes Case Against Marketers of Xenadrine EFX; Court Ruling Requires Final Defendant to Accept Settlement Terms

The Federal Trade Commission’s case against the marketers of Xenadrine EFX, a purported weight-loss product, has ended, with the final defendant in the case settling charges of false and unsubstantiated advertising. The marketers claimed that Xenadrine EFX was clinically proven to cause rapid and substantial weight loss and was more effective than ephedrine-based diet products, and their ads included consumer testimonials.

In 2005, the FTC charged defendant Tracy Chinery, her husband Robert Chinery, Jr., and one of their companies, RTC Research & Development, LLC, with making false and unsubstantiated weight-loss claims for Xenadrine EFX. In 2006, the U.S. District Court for the District of New Jersey entered a settlement agreement between the FTC and two of the three defendants – Robert Chinery and RTC – that prohibited such conduct and provided for consumer redress.

The parties agreed that the only remaining issue was whether Tracy Chinery’s conduct as the managing member of RTC and as an officer and employee of Nutraquest, Inc., the original marketer of Xenadrine EFX, was sufficient to find her personally liable for the advertising under the FTC Act. The parties stipulated to an expedited procedure under which Tracy Chinery would sign a settlement agreement that was virtually identical to the one signed by Robert Chinery and RTC unless the court rejected the Commission’s claims against Tracy Chinery by granting either a motion to dismiss or a motion for summary judgment in her favor.

The court denied Tracy Chinery’s motion to dismiss in July 2007, ordered discovery to proceed, and then denied her motion for summary judgment in March 2009. Tracy Chinery signed the settlement agreement, which the court has now entered.

Under the final order, all three defendants are barred from making any claims about the health benefits, performance, efficacy, safety, or side effects of any weight-loss product, dietary
supplement, food, drug, or device, unless the representation is true, not misleading, and substantiated by competent and reliable scientific evidence. The order also prohibits
misrepresentations about any test or study, and about the actual experience of any user or endorser. Finally, it requires clear and prominent disclosure of any relationship that would materially affect the weight or credibility given to a testimonial or endorsement provided by a user of the product.

Under the 2006 settlement, the defendants, including Tracy Chinery’s company, RTC, paid $8 million for consumer redress and agreed to limit their future advertising claims. The new settlement with Tracy Chinery does not require her to make any monetary payments beyond those already made under the 2006 settlement.

NOTE: Stipulated court orders are for settlement purposes only and do not necessarily constitute an admission by the defendants of a law violation. Stipulated orders have the force of law when signed by the judge.

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 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

(Xenadrine NR.wpd)
(Civil Action No. 05-3460 (GEB))