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A U.S. District Court Judge has ordered a halt to the illegal practices of Canadian operators who deceptively posed as domain name registrars and sent bogus bills to thousands of U.S. small businesses and nonprofit organizations for their annual “WEBSITE ADDRESS LISTING.” Many of the businesses and nonprofits believed they would lose their Web site addresses unless they paid the bill, so they paid. The Federal Trade Commission alleged that in most cases the defendants did not provide domain registration services, did not provide the “search optimization” services it claimed to provide, and bilked small businesses and nonprofits out of millions of dollars.

According to the FTC, since 2004, Toronto-based Internet Listing Service has been sending fake invoices to small businesses and others, listing the existing domain name of the consumer’s Web site or a slight variation on the domain name, such as substituting “.org” for “.com.” The invoice appears to come from the businesses’ existing domain name registrar and contains terms such as “WEBSITE ADDRESS LISTING” and “ANNUAL WEBSITE SEARCH ENGINE LISTING.” The invoice also claims to include a search engine optimization service. Most consumers who receive the “invoices” are led to believe that the defendants are their current domain name registrar and that they must pay them to maintain their registrations of domain names. Other consumers are induced to pay based on defendants’ claims that their “Search Optimization” service will “direct mass traffic” to their sites and that their “proven search engine listing service” will result in “a substantial increase in traffic.”

The FTC’s complaint charged that most consumers who paid the defendants’invoices do not receive any domain name registration services and that the “search optimization” service is ineffective and does not result in increased traffic to the consumers’ Web sites.

The FTC charged that the “invoices” represented that the defendants had a preexisting business relationship with the consumer. The “invoices” also represented that consumers owed money for the continued registration of their Web site names and that the defendants would provide continued registration services for consumers. The defendants also claimed that the “search optimization” service would substantially increase traffic to consumers’ Internet Web sites. The FTC alleged all that of these claims were false and violated federal law.

A federal district court judge in Chicago, Robert M. Dow, Jr., ordered a halt to the deceptive claims and froze the defendants’ assets held in the United States, pending trial. The FTC will seek a permanent halt to the scheme and ask the court to order redress to victimized consumers.

The defendants named in the FTC complaint are Data Business Solutions Inc., also doing business as Internet Listing Service Corp., ILS Corp., ILSCORP.NET, Domain Listing Service Corp., DLS Corp., and DLSCORP.NET, and its principals, Ari Balabanian, Isaac Benlolo and Kirk Mulveney. They are based in suburban Toronto, Canada.

This case was brought with the invaluable assistance of the Toronto Strategic Partnership, Microsoft Corporation, the Internet Corporation for Assigned Names and Numbers (ICANN), and the Better Business Bureau of Chicago and Northern Illinois. Wild West Domains, Inc. also provided assistance in this matter.

The Toronto Strategic Partnership consists of the FTC, the U.S. Postal Inspection Service, Competition Bureau Canada, the Toronto Police Service – Fraud Squad, the Ontario Ministry of Government Services, the Ontario Provincial Police – Anti-Rackets, the Royal Canadian Mounted Police, and the United Kingdom’s Office of Fair Trading.

The Commission vote to file the complaint was 4-0.

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. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

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.

(ils3)
( FTC File No. 0723038)

A U.S. District Court Judge has ordered a halt to the illegal practices of Canadian operators who deceptively posed as domain name registrars and sent bogus bills to thousands of U.S. small businesses and nonprofit organizations for their annual “WEBSITE ADDRESS LISTING.” Many of the businesses and nonprofits believed they would lose their Web site addresses unless they paid the bill, so they paid. The Federal Trade Commission alleged that in most cases the defendants did not provide domain registration services, did not provide the “search optimization” services it claimed to provide, and bilked small businesses and nonprofits out of millions of dollars.

According to the FTC, since 2004, Toronto-based Internet Listing Service has been sending fake invoices to small businesses and others, listing the existing domain name of the consumer’s Web site or a slight variation on the domain name, such as substituting “.org” for “.com.” The invoice appears to come from the businesses’ existing domain name registrar and contains terms such as “WEBSITE ADDRESS LISTING” and “ANNUAL WEBSITE SEARCH ENGINE LISTING.” The invoice also claims to include a search engine optimization service. Most consumers who receive the “invoices” are led to believe that the defendants are their current domain name registrar and that they must pay them to maintain their registrations of domain names. Other consumers are induced to pay based on defendants’ claims that their “Search Optimization” service will “direct mass traffic” to their sites and that their “proven search engine listing service” will result in “a substantial increase in traffic.”

The FTC’s complaint charged that most consumers who paid the defendants’invoices do not receive any domain name registration services and that the “search optimization” service is ineffective and does not result in increased traffic to the consumers’ Web sites.

The FTC charged that the “invoices” represented that the defendants had a preexisting business relationship with the consumer. The “invoices” also represented that consumers owed money for the continued registration of their Web site names and that the defendants would provide continued registration services for consumers. The defendants also claimed that the “search optimization” service would substantially increase traffic to consumers’ Internet Web sites. The FTC alleged all that of these claims were false and violated federal law.

A federal district court judge in Chicago, Robert M. Dow, Jr., ordered a halt to the deceptive claims and froze the defendants’ assets held in the United States, pending trial. The FTC will seek a permanent halt to the scheme and ask the court to order redress to victimized consumers.

The defendants named in the FTC complaint are Data Business Solutions Inc., also doing business as Internet Listing Service Corp., ILS Corp., ILSCORP.NET, Domain Listing Service Corp., DLS Corp., and DLSCORP.NET, and its principals, Ari Balabanian, Isaac Benlolo and Kirk Mulveney. They are based in suburban Toronto, Canada.

This case was brought with the invaluable assistance of the Toronto Strategic Partnership, Microsoft Corporation, the Internet Corporation for Assigned Names and Numbers (ICANN), and the Better Business Bureau of Chicago and Northern Illinois. Wild West Domains, Inc. also provided assistance in this matter.

The Toronto Strategic Partnership consists of the FTC, the U.S. Postal Inspection Service, Competition Bureau Canada, the Toronto Police Service – Fraud Squad, the Ontario Ministry of Government Services, the Ontario Provincial Police – Anti-Rackets, the Royal Canadian Mounted Police, and the United Kingdom’s Office of Fair Trading.

The Commission vote to file the complaint was 4-0.

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. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

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.

(ils3)
( FTC File No. 0723038)

The Federal Trade Commission has authorized its staff to file comments with the U.S. Department of Housing and Urban Development (HUD) concerning proposed amendments to regulations implementing the Real Estate Settlement Procedures Act (RESPA).

RESPA and its implementing regulations govern settlement services for most residential purchase, refinance, and home equity mortgage transactions. RESPA requires that consumers receive certain disclosures during the mortgage process, including the Good Faith Estimate (GFE) within three days of the loan application and the HUD-1 Settlement Statement at closing.

On March 14, 2008, HUD issued a proposed rule to revise mortgage disclosures required under RESPA. In comments prepared by the Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning, the FTC staff states that some of the proposed modifications could help consumers better understand and compare loan terms and closing costs. However, staff believes that some of them also may have the unintended consequence of further complicating the already complex mortgage process. The FTC staff believes consumers would benefit most if the federal government commenced a comprehensive effort to reform federal mortgage disclosures.

In addition to these general views on mortgage disclosure reform, the FTC staff comments focus on seven issues arising from HUD’s proposed rule:

Revised GFE Form and Application Concept: Regarding HUD’s proposal to improve and standardize the GFE form to help consumers shop among loan originators, the FTC staff suggests that HUD consider reevaluating the new “GFE application” concept. If the concept is retained, the staff suggests re-labeling it so that consumers do not confuse a GFE application with a mortgage application, and educating consumers about the differences between these two parts of the mortgage lending process. The staff also suggests that HUD consider allowing loan originators to ask for more information in accepting a GFE application than the proposed rule would permit, because limiting the information the originators obtain may result in the loan terms disclosed on the GFE being dramatically different from the final terms offered after full underwriting.

Revised HUD-1 Form and HUD-1 Closing Script Addendum: HUD’s proposed rule intends to make it easier for consumers to compare the estimated settlement costs on the GFE form with the actual costs on the HUD-1 form and in the new Closing Script that settlement agents must read to consumers. The FTC staff recommends that HUD consider clarifying or modifying several aspects of the revised HUD-1 form, Closing Script, and Comparison Chart of GFE and HUD-1 terms, including the following:

• HUD should conduct further consumer testing of the Closing Script and Comparison Chart, including assessing whether settlement agents can adequately convey the information.
• HUD should consider assigning to lenders, rather than settlement agents, the responsibility of completing as much of the Closing Script as possible.
• HUD should evaluate whether to issue a guidance document explaining to settlement agents their responsibilities if there are inconsistencies between the relevant documents, and revising the Closing Script to inform consumers of their options if estimated settlement cost “tolerances” are exceeded.
• HUD should consider clarifying the “unforeseeable circumstances” that, among other things, allow costs to increase substantially between the time of the GFE and HUD-1.

Mortgage Broker Compensation Disclosures: HUD proposes revising the disclosure requirements for mortgage broker compensation received in the form of a yield spread premium from the lender. The FTC staff comments urge HUD to consider reevaluating its proposed broker compensation disclosures, which could adversely affect consumers and competition. The comments also recommend that HUD consider evaluating and testing alternative disclosures to determine what will most benefit consumers.

Average Cost Pricing, Negotiated Discounts, and Competition: HUD’s proposed rule recognizes pricing mechanisms intended to promote greater competition and lower consumer settlement costs. The FTC staff comments support these goals and the amendments that would allow average cost pricing and remove restrictions against quantity discounts. However, the comments encourage HUD to consider whether pricing restrictions on the re-sale of settlement service components and prohibitions on referral fees may inadvertently decrease competition and efficiency in the settlement services market.

Definition of “Required Use” of Affiliated Business Services: HUD’s proposed rule would expand the definition of “required use” of services that affiliated businesses provide. FTC staff recommends that HUD reconsider the proposed change. The expanded definition could deprive customers of the lower prices that can result from bundling related services. HUD also may wish to test the effectiveness of the affiliated business disclosure.

Consumer Research: The FTC staff commends HUD’s use of consumer testing in developing its proposed revised GFE and closing disclosures. The staff also urges HUD to continue to carefully test and revise disclosures, particularly the Closing Script, to minimize consumer misunderstanding.

Comprehensive Reform of Federal Mortgage Disclosures: Although consumers would benefit from effective improvements in the GFE and HUD-1, the FTC staff’s experience and research suggests that consumers would benefit most from a more comprehensive effort to reform federal mortgage disclosures. The staff expresses a willingness to work with HUD and the Federal Reserve Board on such an effort.

The Commission vote authorizing the staff to file the comments was 4-0.

Copies of the comments can be found as a link to this press release on the FTC’s Web site. (FTC File No. V080012; the staff contacts are Carole Reynolds, 202-326-3224, and Jan Pappalardo, 202-326-3380)

(FYI RESPA)
(FTC File No. V080012)

The Federal Trade Commission has authorized its staff to file comments with the U.S. Department of Housing and Urban Development (HUD) concerning proposed amendments to regulations implementing the Real Estate Settlement Procedures Act (RESPA).

RESPA and its implementing regulations govern settlement services for most residential purchase, refinance, and home equity mortgage transactions. RESPA requires that consumers receive certain disclosures during the mortgage process, including the Good Faith Estimate (GFE) within three days of the loan application and the HUD-1 Settlement Statement at closing.

On March 14, 2008, HUD issued a proposed rule to revise mortgage disclosures required under RESPA. In comments prepared by the Bureau of Consumer Protection, Bureau of Economics, and Office of Policy Planning, the FTC staff states that some of the proposed modifications could help consumers better understand and compare loan terms and closing costs. However, staff believes that some of them also may have the unintended consequence of further complicating the already complex mortgage process. The FTC staff believes consumers would benefit most if the federal government commenced a comprehensive effort to reform federal mortgage disclosures.

In addition to these general views on mortgage disclosure reform, the FTC staff comments focus on seven issues arising from HUD’s proposed rule:

Revised GFE Form and Application Concept: Regarding HUD’s proposal to improve and standardize the GFE form to help consumers shop among loan originators, the FTC staff suggests that HUD consider reevaluating the new “GFE application” concept. If the concept is retained, the staff suggests re-labeling it so that consumers do not confuse a GFE application with a mortgage application, and educating consumers about the differences between these two parts of the mortgage lending process. The staff also suggests that HUD consider allowing loan originators to ask for more information in accepting a GFE application than the proposed rule would permit, because limiting the information the originators obtain may result in the loan terms disclosed on the GFE being dramatically different from the final terms offered after full underwriting.

Revised HUD-1 Form and HUD-1 Closing Script Addendum: HUD’s proposed rule intends to make it easier for consumers to compare the estimated settlement costs on the GFE form with the actual costs on the HUD-1 form and in the new Closing Script that settlement agents must read to consumers. The FTC staff recommends that HUD consider clarifying or modifying several aspects of the revised HUD-1 form, Closing Script, and Comparison Chart of GFE and HUD-1 terms, including the following:

• HUD should conduct further consumer testing of the Closing Script and Comparison Chart, including assessing whether settlement agents can adequately convey the information.
• HUD should consider assigning to lenders, rather than settlement agents, the responsibility of completing as much of the Closing Script as possible.
• HUD should evaluate whether to issue a guidance document explaining to settlement agents their responsibilities if there are inconsistencies between the relevant documents, and revising the Closing Script to inform consumers of their options if estimated settlement cost “tolerances” are exceeded.
• HUD should consider clarifying the “unforeseeable circumstances” that, among other things, allow costs to increase substantially between the time of the GFE and HUD-1.

Mortgage Broker Compensation Disclosures: HUD proposes revising the disclosure requirements for mortgage broker compensation received in the form of a yield spread premium from the lender. The FTC staff comments urge HUD to consider reevaluating its proposed broker compensation disclosures, which could adversely affect consumers and competition. The comments also recommend that HUD consider evaluating and testing alternative disclosures to determine what will most benefit consumers.

Average Cost Pricing, Negotiated Discounts, and Competition: HUD’s proposed rule recognizes pricing mechanisms intended to promote greater competition and lower consumer settlement costs. The FTC staff comments support these goals and the amendments that would allow average cost pricing and remove restrictions against quantity discounts. However, the comments encourage HUD to consider whether pricing restrictions on the re-sale of settlement service components and prohibitions on referral fees may inadvertently decrease competition and efficiency in the settlement services market.

Definition of “Required Use” of Affiliated Business Services: HUD’s proposed rule would expand the definition of “required use” of services that affiliated businesses provide. FTC staff recommends that HUD reconsider the proposed change. The expanded definition could deprive customers of the lower prices that can result from bundling related services. HUD also may wish to test the effectiveness of the affiliated business disclosure.

Consumer Research: The FTC staff commends HUD’s use of consumer testing in developing its proposed revised GFE and closing disclosures. The staff also urges HUD to continue to carefully test and revise disclosures, particularly the Closing Script, to minimize consumer misunderstanding.

Comprehensive Reform of Federal Mortgage Disclosures: Although consumers would benefit from effective improvements in the GFE and HUD-1, the FTC staff’s experience and research suggests that consumers would benefit most from a more comprehensive effort to reform federal mortgage disclosures. The staff expresses a willingness to work with HUD and the Federal Reserve Board on such an effort.

The Commission vote authorizing the staff to file the comments was 4-0.

Copies of the comments can be found as a link to this press release on the FTC’s Web site. (FTC File No. V080012; the staff contacts are Carole Reynolds, 202-326-3224, and Jan Pappalardo, 202-326-3380)

(FYI RESPA)
(FTC File No. V080012)

The Federal Trade Commission today told the Senate Committee on Commerce, Science, and Transportation that “legislation authorizing the Commission to seek civil penalties in spyware cases could add a potent remedy to those otherwise available to the Commission.” In testimony to the Committee, Eileen Harrington, Deputy Director of the FTC’s Bureau of Consumer Protection, said that when other enforcement options – seeking consumer redress or making the operators give up their ill-gotten gains – are not appropriate or sufficient remedies to deter spyware distributors, “a civil penalty may be the most appropriate remedy and serve as a strong deterrent.” The testimony states that the agency supports legislation that would provide “the Commission this valuable law enforcement tool.”

The testimony notes that while it is often challenging to locate and apprehend perpetrators who plant spyware on consumers’ computers, the FTC has “successfully challenged the distribution of spyware that causes injury to consumers online,” initiating 11 spyware-related law enforcement actions since 2004.

The testimony states that the Commission’s law enforcement cases targeting spyware reaffirm three key principles.

“The first is that a consumer’s computer belongs to him or her, not to the software distributor, and it must be the consumer’s choice whether or not to install software. This principle reflects the basic common-sense notion that Internet businesses are not free to help themselves to the resources of a consumer’s computer,” the testimony says. Several FTC cases alleged that the defendants downloaded spyware onto computers without consumers’ knowledge or consent.

The second principle holds that spyware downloaders cannot bury disclosures of material information needed to correct otherwise misleading impressions. “Specifically, burying material
information in an End User license Agreement will not shield a spyware purveyor . . .” the testimony states. It notes that in two FTC cases, “the defendants failed to disclose adequately that the free software they were offering was bundled with harmful software programs.”

The third principle is that if a distributor puts a program on a computer, a consumer should be able to uninstall or disable it. The testimony notes that in two FTC cases, the companies downloaded adware that displayed frequent pop-up ads. The agency alleged that “the companies deliberately made these adware programs difficult for consumers to identify, locate, and remove from their computers, thus thwarting consumer efforts to end the intrusive pop-ups.” Settlements required the companies to provide a readily identifiable means to uninstall the adware.

The testimony notes that the agency has coordinated some law enforcement initiatives targeting spyware with criminal enforcers. “Many of the worst abuses connected with spyware are criminal, and, in appropriate cases, the Commission coordinates closely with the Department of Justice.”

In addition to the FTC’s spyware law enforcement initiatives, the agency has made consumer education a priority. “In 2005, the Commission and a partnership of other federal agencies and the technology industry launched a multimedia, interactive consumer education initiative, OnGuard Online, along with a Spanish-language version, AlertaenLinea.” The site attracts more than 350,000 unique visits a month, and many other organizations have adapted the materials for their own use.

“The FTC will continue its aggressive law enforcement and innovative consumer education programs in the spyware arena,” the testimony states.

The Commission vote to approve the testimony was 4-0.

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.