UNITED STATES

Annual Report on Consumer Issues
1999

Federal Trade Commission

The Federal Trade Commission enforces a variety of federal antitrust and consumer protection laws. The Commission seeks to ensure that the nation's markets function competitively, and are vigorous, efficient, and free of undue restrictions. The Commission also works to enhance the smooth operation of the marketplace by eliminating acts or practices that are unfair or deceptive. In general, the Commission's efforts are directed toward stopping actions that threaten consumers' opportunities to exercise informed choice. Finally, the Commission undertakes economic analysis to support its law enforcement efforts and to contribute to the policy deliberations of the Congress, the Executive Branch, other independent agencies, and state and local governments when requested.

Consumer Protection Mission

The Consumer Protection Mission is advanced by four law enforcement programmes – Advertising Practices, Marketing Practices, Financial Practices, and Enforcement – supported by Planning and Information, Consumer and Business Education, Economic and Consumer Policy Analysis, and Program Management. Staff in the Commission’s eight regional offices also support the Mission by bringing a wide variety of consumer protection cases in the various programmes and acting as important contacts for state Attorneys General and other state and local consumer protection officials.

Advertising Practices Program

The Advertising Practices Program enforces the nation’s "Truth-in-Advertising" laws. Whether advertisements appear on television or radio, in newspapers or magazines, or on the Internet, these laws require companies to tell the truth and to back up their claims with reliable, objective evidence. The programme uses a variety of tools to protect consumers from misleading claims, including law enforcement actions in federal and administrative courts, liaison and guidance to industries, advocacy for effective self-regulation by the advertising industry and better screening of advertisements by the media, and consumer education. Working to protect consumers’ health, safety and economic interests, the programme’s efforts span a broad range of products and trade practices.

• Advertising for foods, over-the-counter drugs, dietary supplements, and medical devices: The Advertising Practices Program devotes substantial resources to ensuring the accuracy of health claims in advertising and has taken action against companies making deceptive representations. The programme also works with the dietary supplement industry providing guidance to encourage accuracy in claims for these products. In the past two years, the FTC has paid close attention to the marketing of health-care products on the Internet, using enforcement actions, e-mail advisories, and other techniques to curb health fraud on this medium. In addition to traditional law enforcement actions, the FTC formulates business education materials to help companies develop the kind of substantiation necessary to support health claims in advertisements for these products and consumer materials to help consumers locate reliable information and spot deceptive claims.
• Tobacco and alcohol advertising: The Advertising Practices Program leads the Commission's efforts to stop the deceptive or unfair marketing of tobacco and alcohol. In addition, the programme: administers federal laws governing the rotation of health warnings on advertisements and packaging for cigarettes and smokeless tobacco; publishes annual Reports to Congress monitoring cigarette advertising and marketing as well as biennial Reports on smokeless tobacco advertising and marketing; and enforces the "broadcast ban" on advertising for smokeless tobacco. It monitors self-regulation of the alcohol advertising industry and encourages improved standards and compliance.
• Children’s advertising and consumer privacy: The Commission has long been a leader in protecting children from unfair or deceptive advertising and marketing practices. In recent years, the programme has been an important voice in the ongoing debate about privacy and commerce on the Internet, especially with regard to the collection of information from and marketing directed to children. The Commission issued a final rule to implement the Children’s Online Privacy Protection Act, which was enacted into law on 21 October 1998. The Act requires that operators of Web sites directed to children or who knowingly collect personal information from children provide parents with notice of their information practices and obtain verifiable parental consent prior to collecting personal information from children under age 13.
• Advertising in new media: New technologies have opened new avenues for companies to communicate useful product information to prospective customers. Although the medium may be innovative, the Commission’s cardinal principle of truthful, substantiated advertising remains constant. Thus, the programme has taken an active role in recent years in ensuring that the same standards of accuracy apply to advertising claims made on the Internet, in infomercials, in home shopping, and other new forms of commerce. The agency’s commitment to staying abreast of developments in new technologies is evidenced by the establishment of an Internet Laboratory capable of monitoring emerging innovations in online advertising.
• Health care and weight loss: Each year consumers spend billions of dollars purchasing pills, potions, new technologies, and therapies for health and weight loss. The Commission works with other federal agencies, state Attorneys General, and other partners to combat misleading claims by providers of these products and services. Law enforcement actions are accompanied by innovative initiatives such as those undertaken to identify misleading Internet claims, and to lead a coalition of industry, academic, and government experts to combat the rising threat of obesity through voluntary industry guidelines and education.

Marketing Practices Program

The Marketing Practices Program fights schemes that use high and low technology to defraud consumers. The programme studies trends, brings law enforcement actions, conducts regulatory and policy review, and educates consumers in connection with deceptive practices that occur in the sale of consumer goods and services. The priorities of the programme are to keep pace with fraudulent and deceptive schemes which can cause the greatest harm to consumers:

• Internet fraud: The Marketing Practices Program leads the FTC’s law enforcement effort to keep fraud artists from overrunning the Internet. The focus of the programme concentrates on staff training to keep pace with the latest Internet schemes; undercover surveillance; and rapid law enforcement response when fraudulent schemes are detected. Marketing for all non-health-related goods and services are included in this programme.
• Telemarketing fraud: The Marketing Practices Program enforces the FTC’s Telemarketing Sales Rule, and uses Section 5 of the FTC Act to take action against deceptive telemarketing schemes. Working closely with the regional offices, state Attorneys General, and other public and private sector partners, the programme targets areas for law enforcement, organises enforcement sweeps, and helps publicise consumer and business education information to reduce telemarketing fraud.
• Telecommunications and new technologies: The Marketing Practices Program enforces the FTC’s Pay-Per-Call Rule and uses Section 5 of the FTC Act to challenge practices that use various components of the telecommunications system to victimise consumers. Studying new communications technologies helps to anticipate opportunities for fraud and stop them when they emerge.
• Investment opportunity fraud: The Marketing Practices Program enforces the FTC’s Franchise Rule and uses Section 5 of the FTC Act to combat fraudulent and deceptive practices in the sale of franchises, business opportunities, and other investment opportunities. Efforts are co-ordinated with the Securities and Exchange Commission and state authorities to concentrate FTC resources on frauds and schemes that fall outside of their jurisdiction.
• Direct mail fraud: The Marketing Practices Program co-ordinates a federal and state campaign to systematically analyse complaint data about scams that are pitched to consumers by mail - "regular or e-mail" - and makes sure that companies receiving large numbers of complaints are targeted for enforcement action. The programme works with the American Association of Retired Persons (AARP) and 10 000 of its volunteers to train consumers to spot deceptive mail solicitations and prevent fraud. The programme also works with a private sector coalition to educate industry and consumers about how to prevent victimisation.
• Warranties and contracts: The Marketing Practices Program has the responsibility for enforcement of the Magnuson-Moss Warranty Act and its implementing rules. The Act, Rules, and related commercial contract law were recently studied to determine whether the growing sale of information and intellectual property to consumers over the Internet.

Financial Practices Program

The Financial Practices Program promotes fairness and accuracy in the provision of financial services and in the use of financial information. Financial services, including credit and leasing, play important roles in the daily lives of most Americans, who use credit cards, take out loans, and lease major products. These services also present challenging consumer protection issues, such as protecting the privacy of sensitive personal information. The Financial Practices Program identifies and addresses these issues, so that consumers continue to benefit from the widespread availability of financial services.

• Discrimination, home equity fraud, and debt collection: The Financial Practices Program enforces laws against illegal discrimination, home equity fraud, and abusive debt collection practices. Discrimination in credit – charging higher prices or denying credit based on reasons unrelated to creditworthiness, such as race or gender – is a serious problem, and the programme seeks to ensure that everyone is able to obtain credit on their own merit. The programme also leads nationwide efforts to enforce laws against fraudulent home equity practices, which target consumers who are poor, or who already have problems with credit, and can result in the loss of consumers’ homes. Finally, abusive debt-collection practices can contribute to personal bankruptcy, job loss, and other problems, and the programme uses enforcement and education to raise the standards in this area.
• Accuracy and privacy of credit information: The Financial Practices Program works to ensure the accuracy and privacy of financial information maintained about consumers, which can be used to screen applicants for loans, jobs, and insurance. This effort is pursued through enforcement of the Fair Credit Reporting Act, which holds credit bureaus and furnishers of information responsible for the accuracy of credit information, gives consumers the right to check and correct their credit reports, and limits how financial information can be used.
• Consumer privacy online: The Financial Practices Program continues to take a leading role in nationwide efforts to protect consumer privacy online. Building on expertise gained at a series of FTC privacy workshops, the Commission has continued to encourage the development of effective self-regulatory approaches to this issue. In 1998, the Commission conducted an extensive survey of commercial Web sites' information practices and issued a report to Congress on its findings and recommendations. Since then, the Commission has continued to work with industry and consumers to understand and respond to developments that affect consumer privacy; it has also continued to educate the public about these developments through workshops, testimony, and reports.
• Costs of credit and leasing: Another major focus of the programme is to ensure that consumers have accurate and complete cost information before they enter into credit and leasing transactions – information that allows them to compare offers and make informed purchasing decisions. The Commission pursues this by challenging deceptive advertising and disclosures about significant payments hidden in fine print, thus ensuring that consumers are given accurate and readable cost disclosures before they make purchases.

Enforcement Program

The Enforcement Program protects consumers from deception and fraud in three ways. First, the programme protects consumers by stopping deceptive advertising and marketing practices that cause economic losses. A large portion of the practices targeted concern deceptive offering of career placement, scholarships, and products involving credence claims (such as engine treatments, alternatives to laundry detergent). Second, the programme ensures that companies ordered to stop deceptive practices do so; compliance is checked on in traditional as well as new media. The programme includes both civil penalty actions for violations of administrative orders and actions for civil and criminal contempt for violations of federal court orders. Third, the programme ensures that consumers receive important information required by various laws and rules to help them make accurate comparisons and informed decisions. As an adjunct, the programme regularly reviews these rules to keep them current.

• Practices causing economic injury: The Enforcement Program files civil actions against firms that cause consumers financial harm through false or misleading ads or practices. It also investigates and issues reports on diverse issues relevant to consumers on a daily basis, such as whether scanner prices in retail stores match the advertised price, and whether milk and dairy packages contain the amount of product stated on the label.
• Career placement and scholarships: Fraud artists prey on consumers concerned about finding jobs and financial assistance for college. Recent targets of enforcement have been against firms who advertised nonexistent US Postal Service jobs as a means to sell useless exam materials, and telemarketers who falsely promise "guaranteed" college grants. Consumer education plays an important role in preventing this type of fraud.
• Compliance with Commission Orders: Violations of the FTC Act may result in an administrative order, directing the responsible individuals or companies to stop their unlawful practices. The programme monitors those under order to ensure they cease their deceptive practices and fulfill any affirmative obligations, such as providing redress to injured consumers. Oversight of companies’ practices is accomplished by reviewing reports that companies must submit soon after the order is entered to show that they have changed their conduct. At other points in time, investigations are conducted to assess whether compliance has been maintained. If a company’s practices violate an order, the programme typically contacts the company to make sure it understands its obligations and this usually results in full compliance. In some instances, because of the egregiousness or willfulness of the violative conduct, formal action and civil penalties are sought to stop and deter additional violations.
• Project Scofflaw: Fraudulent practices or especially egregious deceptive practices frequently result in federal court orders that forbid future deceptive practices, provide redress to consumers and impose additional relief as appropriate. Because defendants subject to these orders sometimes engage in serious order violations, strong enforcement measures such as civil or criminal contempt actions can be necessary. The Enforcement Program co-ordinates "Project Scofflaw," which systematically tracks defendants under FTC-related federal court orders, identifies violators, pursues civil contempt remedies as appropriate and works with criminal authorities to prosecute violators for criminal contempt.
• Rule enforcement: The Enforcement Program enforces a variety of laws, rules and guidelines that require sellers to provide consumers with important pre-purchase information. For example, the Care Labeling Rule requires clothing to be labelled with cleaning instructions; the Mail or Telephone Order Rule requires sellers to ship merchandise within the time promised or let consumers know there will be a delay; the Appliance Labeling Rule requires major home appliances to be labelled with energy efficiency information; and the Environmental Marketing Guides tell marketers how to advertise the environmental benefits of their products without misleading consumers. The programme helps consumers and businesses to understand their rights and duties through educational efforts and by answering inquiries. If a company’s practices significantly violate a rule, the programme pursues formal action and civil penalties.
• Regulatory reform: Keeping rules and guides up to date so that they continue to be meaningful, and repealing outdated, unnecessary ones is an important role of the programme, accomplished by reviewing all rules and guides every ten years. Thus far, the programme has reviewed nearly 76% of the rules and guides; almost half of those were repealed after review, others were revised or consolidated in some cases to harmonise requirements with international standards to facilitate international trade.

Planning and Information Program

The Planning and Information Program develops, analyses, and supplies information in order to target law enforcement and educational efforts, measure the impact of Mission activities, and allocate resources. The programme is responsible for various projects and functions, including:

• Consumer Response Center and Consumer Information System: The Consumer Response Center responds to consumer complaints and inquiries received by telephone, mail, and via the Internet. Information from these complaints is collected in the Consumer Information System and used to target law enforcement and consumer and business education programmes. In fiscal year 1999, the Commission introduced its toll-free number, 877-FTC-HELP, allowing all segments of consumers to report complaints and request educational materials.
• Consumer Sentinel: Consumer Sentinel is a binational, multi-state computerised consumer fraud database that uses the Internet to provide secure access to more than 225 000 consumer complaints for approximately 220 law enforcement organisations across the United States and Canada. The site provides law enforcement access to telemarketing, direct mail, and Internet complaints from the FTC’s Consumer Information System database and from various law enforcement partners. The site also provides other information useful for investigations and prosecutions.
• Identity theft: The Identity Theft and Assumption Deterrence Act of 1998 charged the FTC with setting up a centralised consumer complaint and education service for victims of identity theft. In performance of this mandate, the programme has developed a database, prepared consumer education materials, and participated in a network of public and private sector organisations in addressing the problem of identity theft.
• International co-ordination: The programme co-ordinates the international work of the Consumer Protection Mission. A high priority in this area is the creation of legal and technological mechanisms for information sharing among international law enforcers.
• Operations: The programme administers the core financial, administrative, and litigation support activities of the Mission. In addition, the programme manages the agency’s consumer protection redress activities. The programme also manages a multi-agency Web site, www.consumer.gov, linking over 20 federal agency Web sites that provide information to consumers nationwide. Another important responsibility is the co-ordination of strategic planning and performance measurement. Strategic planning is integrated with budgeting to provide a roadmap to guide staff activities and accomplish the Mission goal and objectives.

The Consumer and Business Education Program plans, develops, and implements proactive and creative mission-related campaigns targeted to both broad and segmented consumer and industry audiences. This effort encourages informed consumer choice and competitive business practices in the marketplace, and is viewed by the Commission as a cost-effective way to help minimise consumer injury and obtain compliance with the law. To leverage expertise and limited resources, the programme also partners with businesses, trade associations, consumer groups and other government agencies. A consumer and/or business education component is included in each major Consumer Protection law enforcement initiative.

Program Management

The goal of the Consumer Protection Mission is to prevent fraud, deception, and unfair business practices in the marketplace. The Mission works to accomplish this goal by identifying practices that cause the greatest consumer injury, stopping these practices through law enforcement, and preventing consumer injury through education. This programme is responsible for the overall management of the Mission and the accomplishment of its goal and objectives.

Senior managers provide direction to Mission staff and promote the efficiency and effectiveness of Mission programmes by, among other things, managing strategic planning, allocating resources, monitoring and reviewing substantive initiatives, and managing human resources.

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 Objective I: Identify fraud, deception, and unfair practices that cause the greatest consumer injury.

Data collection and sharing

• Consumer Response Center The Consumer Response Center, established in 1997, is feeding thousands of consumer complaints and inquiries each week into the Consumer Information System database. The database, which now has more than 400 000 entries, is being used in targeting law enforcement and consumer education programmes. Our priorities now are to expand data collection and analysis.

• Consumer Sentinel Launched in December 1997, Consumer Sentinel is a binational, multi-state computerised consumer fraud database that uses the Internet to provide secure access to more than 225 000 consumer complaints for approximately 220 law enforcement organizations across the United States and Canada.

• Identity Theft The FTC was given new responsibility under the Identity Theft and Assumption Deterrence Act of 1998, which makes it a federal crime to knowingly transfer or use another person’s means of identification to commit any unlawful activity. The Act requires the FTC to i) log the receipt of complaints by victims of identity theft; ii) provide these individuals with information; and iii) refer complaints to the major national consumer reporting and law enforcement agencies. ID theft data is currently being captured in the Sentinel data base, and a new database dedicated to ID theft is being designed. Consumer education on ID theft was developed and released.

Surf Days

Since December 1996, the FTC has systematically "surfed" the Internet in order to monitor the online marketplace. Through fiscal year 1999, the FTC and 250 partners have conducted 20 Surf Days on topics ranging from pyramid schemes through health claims to environmental marketing claims, and have identified over 4 000 sites making dubious claims. The staff sends e-mail warnings to online marketers found to be engaged in questionable practices, and identifies possible targets for law enforcement. In the past year, the FTC staff and its law enforcement partners continued to use this efficient approach to surveillance.

• International Health Claim Surf Day In the first international health claims surf day, the FTC led 80 organisations from 25 countries in a surf of 1 200 Internet sites to find false advertising claims about the treatment or prevention of six major diseases, including cancer, arthritis and HIV/AIDS.

• Investment Opportunity Surf Day The FTC, along with over 30 state and federal agencies and two national associations in the United States and Canada surfed over 400 sites to find bogus investment promotions.

• Environmental Marketing Claims A surf of 150 Internet sites using environmental advertising found that most of them were in compliance with the Guides for the Use of Environmental Marketing Claims.

• Coupon Surf Day The FTC and the Coupon Information Center identified over 50 Internet advertisements as potentially fraudulent coupon-related schemes.

• Jewelry Guide Compliance Surf FTC staff surfed 100 Web sites advertising jewelry to determine compliance with the FTC’s recently updated Jewelry Guides.

Internet Program

The easy access to the Internet enjoyed by consumers and legitimate businesses is exploited by scam artists. As online commerce has grown, so has online fraud and deception. In response, the FTC has created a comprehensive Internet programme of monitoring (see Surf Days) and law enforcement. In the past year, the FTC brought 61 cases involving fraudulent or deceptive online marketing practices. Since 1994, the FTC has brought 100-plus enforcement actions, which have targeted more than 300 corporate and individual defendants on behalf of millions of online consumers and small business.

• Credit Identity Scam "Operation New ID – Bad Idea" The FTC and a group of state Attorneys General brought their first joint law enforcement sweep of Internet cases. The sweep involved scams, spread quickly over the Internet and in e-mail, in which consumers are promised clean credit histories by obtaining new identification numbers. Eighteen law enforcement agencies participated in the sweep.

• Internet Credit Card "Cramming" The FTC filed suit against 11 defendants in FTC v. J.K. Publications et al., charging them with "cramming" unauthorised charges onto consumers’ credit card accounts for unordered Internet services. The estimated fraudulent charges in the case, which is still in litigation, may exceed USD 40 million.

• Online Pyramid Schemes In one of several online pyramid cases, the FTC brought suit against FutureNet et al., and obtained a final order requiring defendants, among other things, to pay USD 1 million in consumer redress, and to post a sizeable bond before engaging in any multi-level marketing operation.

• Online Auctions In Craig Hare, the FTC charged that the defendant used online auction houses to offer merchandise he never delivered. The court permanently banned defendant from engaging in Internet commerce. The FTC referred the case for criminal prosecution; defendant pleaded guilty to wire fraud, was sentenced to six months home detention and three years probation, and was ordered to pay USD 22 000.

• Online Health and Diet Claims The FTC brought three cases charging the targets with making false or unsubstantiated claims for health and diet products sold on line. In two cases, the respondents agreed to administrative consent orders barring future misrepresentations; in the third, a federal district court froze defendants’ assets, and the FTC is seeking a permanent injunction and consumer redress.

• Business Opportunity and Investment Scams The FTC brought four cases involving money making scams that promoted Internet-related or high-tech ventures, such as computer kiosks, digital photo vending machines, Web site development businesses, and an online gambling casino.

• International Co-operation The FTC targeted an Australian Internet domain name scam, and alerted Australian Competition and Consumer Commission authorities, which charged the company and its principal with misleading and deceptive conduct. As many as 13 000 consumers in at least nine countries were duped by the copycat Internet domain name registry.

Online Privacy

Recognizing that consumers continue to have serious concerns about privacy in the online environment, the FTC has made this issue a priority. It also has encouraged industry to address consumer privacy concerns through self-regulation.

• Case Law GeoCities, one of the most popular sites on the World Wide Web, agreed to settle charges that it had misrepresented the purposes for which it was collecting personal identifying information from children and adults. It agreed to post a clear and prominent privacy notice, and to obtain parental consent before collecting information from children 12 and under.

• Information Broker In the first federal action of its kind, an information broker, Touch Tone Information, Inc., was charged with illegally obtaining and selling consumers’ private financial information.

• Children’s Online Privacy Protection Act of 1998 Enacted in October 1998, the Act requires the FTC to promulgate regulations to protect the privacy of personal information collected on line from children under 13, and provide measures to allow parents greater control over the collection and use of this information. The FTC initiated a rulemaking proceeding, and conducted a Kids Privacy Alert to notify Web sites of its action. A final rule implementing the Act became effective in April 2000.

Telecommunications Program

With the deregulation of the telephone industry, the telephone billing and collection system became available to a variety of vendors. While these developments benefit consumers, they also open the door to greater opportunities for scams. Fraudulent operators, taking advantage of this new billing system, have found numerous ways to "cram" unauthorised charges on consumers’ telephone bills. Since October 1997, the FTC has received over 12 000 consumer complaints about cramming. The FTC has responded aggressively to the problem.

• Cases The FTC has brought seven cases to stop telephone billing fraud and to obtain redress for consumers. A recent settlement with American TelNet, one of the largest providers of audiotext services, bars these illegal practices and requires the defendants to write off USD 37.4 million in unpaid disputed charges, and to pay USD 2 million in redress to consumers who disputed but ultimately paid the charges. The Interactive Audiotext Services, Inc. defendants stipulated to a permanent injunction requiring them to pay up to USD 4 million in redress and forgive another USD 9 million in charges.

• 900-Number Rule To address cramming more broadly, the FTC has proposed to revise its 900-Number Rule to require the express authorisation of persons to be billed for "telephone-billed purchases," and to provide for dispute resolution protections for such purchases. In addition, the revised rule would address abuses in the offering of audiotext services.

Law Enforcement Sweeps

One of the most effective tools in the battle against fraud has been the law enforcement "sweep". Since 1995, the FTC has coordinated 50 such sweeps against a variety of scams, enlisting the help of state Attorneys General, the Department of Justice, the FBI, the US Postal Inspection Service, and private groups, such as members of the American Association of Retired Persons (AARP). To date, these sweeps have led to the filing of 1 393 law enforcement actions, including 342 by the FTC that have prevented over USD 600 million in consumer injury.

• Operation Missed Giving The FTC and 40 state charities enforcement agencies, with the help of AARP, brought 39 actions against defendants making fraudulent solicitations for a wide variety of charitable donations. The FTC’s cases in the sweep involved over USD 10 million in consumer injury.

• Operation Cure.All This sweep was launched as a law enforcement and consumer education campaign focused on stopping quacks and supplying consumers with quality information. Four proposed settlements that resulted from the Health Claims Surf Day were announced; the companies were charged with making unsubstantiated health claims for products advertised on the Internet.

• Operation Auction Guides The goal of this law enforcement and consumer education campaign was to to shut down operations that make fraudulent claims about obtaining government-seized cars or homes for very small amounts of money, and acquiring at-home and government employment, and to inform consumers about the need for caution in dealing with claims like these. As part of this effort, the FTC, US Postal Inspection Service, the California Attorney General’s Office, and the Tulare County, CA, District Attorney’s Office charged six companies engaged in deceptive marketing of "how to" guides which made a variety of misrepresentations to induce consumers to pay for auction or business opportunity information.

• Credit Identity A crackdown by the FTC, DOJ, US Postal Inspection Service, and nine state and local law enforcers on scam artists who promise consumers a new credit identity resulted in 16 law enforcement actions, including seven complaints filed by the FTC and one complaint filed by DOJ at the FTC’s request.

• Operation Cold Call FTC staff helped create and execute an unprecedented criminal law enforcement sweep of over 60 telemarketing rooms under California’s telemarketing registration statute. Participants included the FBI, California Attorney General’s office, Los Angeles District Attorney’s office, and others. The results to date: 15 telemarketers indicted and over USD 100 000 paid in fines.

Other Fraud and Deception Cases

• Franchise In Minuteman Press International, Inc., a federal district court found defendants liable for violations of Section 5 and the Franchise Rule. The defendants were permanently enjoined from such practices, and agreed to pay USD 3.47 million in redress to injured franchisees.

• Herbal "Viagra" In American Urological Corp., the FTC charged sellers of seven impotence products, including one called Vaegra, with making false claims about the efficacy of their products. The defendants agreed to a settlement requiring a USD 6 million performance bond, and imposing a USD 18.5 million judgement.

• Ponzi Scheme A federal district court has entered an order stopping a deceptive Ponzi scheme that bilked consumers for more than USD 35 million. The Sterling Group and Affordable Media were charged with falsely promising prospective investors they would quickly earn high returns on their investments in blocks of television commercials. A judgment was entered for the amount of the injury. The court also incarcerated two individual defendants for six months, finding them in civil contempt for failing to repatriate USD 1.3 million in Ponzi profits stashed abroad. The contempt order was upheld on appeal.

• Credit Card Laundering The FTC obtained landmark settlements with foreign scam operators for more than USD 1.3 million in redress for American consumers. The settlements stemmed from the FTC’s first credit card laundering case under the Telemarketing Sales Rule, and its first multi-agency enforcement effort against Canadian firms targeting US residents in foreign lottery schemes.

Unfair and Deceptive Practices Cases

Computer & New Technologies

• Iomega Corporation, the world’s leading manufacturer of portable data storage products, agreed to settle charges it violated the Mail Order Rule when it failed to fulfill rebate and merchandise premium requests for its products. The company paid a USD 900 000 civil penalty.

• The FTC tentatively approved a consent agreement with Apple Computer to settle charges that it had deceptively advertised that consumers who purchased its products would receive free access to technical support personnel for as long as they owned the product. The agreement would require Apple to fulfill its "Apple Assurance" promise to customers, and to reimburse each Apple Assurance consumer who paid a fee for technical support.

• Gateway 2000 agreed to pay USD 290 000 to the US Treasury to settle charges it made false and misleading claims about its on-site warranty service.

Tobacco

• R.J. Reynolds Tobacco Co. agreed to settled charges that its advertisements for Winston "no additives" cigarettes are deceptive. Under the settlement, which the FTC has tentatively approved, the company agreed to prominently disclose in future ads that a "no additives" claim does not mean a safer cigarette

Dietary Supplements

• In New Vision International, the respondents settled charges that they made unsubstantiated claims in advertising that their dietary supplements could cure the behavioral disorders, Attention Deficit Disorder or Attention Deficit Hyperactivity Disorder. Up to 2.5 million school-aged children in the United States have these disorders.

Made in USA

• The FTC obtained settlements with six companies to resolve allegations that the companies made misleading "Made in USA" claims for a variety of products. The companies are prohibited from misrepresenting the extent to which their products are made in the United States.

Engine Treatments

• Administrative complaints were issued charging Motor Up Engine Treatment with making deceptive advertising claims and Dura Lube Super Engine Treatment with making false and unsubstantiated advertising claims, in violation of federal laws.

Modeling Agencies

• The Court issued a permanent injunction against National Talent Associates, a seller of child-modeling services. The FTC also filed a complaint and obtained an asset freeze against Screen Test U.S.A., a bogus model and talent scout operation. Three other modeling agencies agreed to an interim court order not to engage in certain practices, such as luring consumers with exaggerated promises of lucrative modeling and acting jobs, pending final resolution of the complaint filed against them in federal district court.

Debt Collection

• FTC vs. Nationwide Credit, Inc. Nationwide Credit agreed to pay a USD 1 million civil penalty as part of a settlement to resolve allegations that the company violated the Fair Debt Collection Practices Act – the largest ever paid in a debt collection case. The settlement includes a comprehensive consumer complaint and resolution programme developed by Nationwide’s new management and owners.

• Franklin Acceptance Corporation agreed to pay an USD 800 000 civil penalty, the largest ever obtained in settlement of alleged violations of the Equal Credit Opportunity Act.

• Three producers of over-the-counter head lice treatments, Del Pharmaceuticals, Pfizer, Inc., and Care Technologies, Inc., agreed to modify their advertising to settle charges they misled consumers about product use and effectiveness.

Termite Bait System

• In FTC vs. United Industries Corporation the FTC and eight Attorneys General obtained a preliminary injunction to require the marketer of TERMINATE, a termite bait system, to modify its advertising claims. The complaint alleges that the company’s claims about the effectiveness of the product, promoted as the first do-it-yourself termite home system, are deceptive and lack substantiation.

New Initiatives

• National Consumer Protection Week The FTC was in the lead in organising the second National Consumer Protection Week, which focused this year on a public/private campaign to provide information on how to shop safely from home – whether by telephone, mail order or online. Other organisers were the National Association of Consumer Agency Administrators, the National Association of Attorneys General, the National Consumers League, AARP, the Department of Justice and the US Postal Inspection Service.

• www.consumer.gov The FTC continues to manage www.consumer.gov and to recruit new agency members to participate in the site, which offers one-stop access to federal consumer information. In the past year, the number of members has grown from 60 agencies to 135.

• Year 2000 (Y2K) Problem The FTC was designated the lead agency for the Consumer Affairs Sector of the President’s Council for the Y2K Conversion. The FTC administered the federal government’s Y2K consumer information hotline and a Y2K Web site as part of www.consumer.gov, and issued consumer and business education materials. In addition the FTC brought three cases against Y2K scams.

• Partnership For Healthy Weight Management The Partnership for Healthy Weight Management, a coalition of 41 members from industry and consumer groups, government agencies, and the scientific and academic community, issued voluntary guidelines for the disclosure of certain core information in the marketing of weight loss products and services. It also produced a consumer education pamphlet and a public service announcement for television.

Publications

• Public Distribution In fiscal year 1999, the FTC issued 84 publications – 66 for consumers and 18 for business. It distributed approximately 6 million print publications to the public, and 2.6 million consumers accessed our consumer and business education publications at www.ftc.gov.

• Investments The FTC joined the Securities and Exchange Commission, the North American Securities Administrators Association, and a broad alliance of public and private organisations in a campaign to educate consumers about investing and saving.

• Home Improvement Fraud The FTC joined with federal, industry, and consumer group partners in a consumer education campaign to combat home improvement fraud. The education kit, "Home Improvement: Tools You Can Use", offers tips consumers can use to head off problems in advance. Consumers annually spend over USD 120 billion on home improvement projects.

• Environmental Marketing Claims The results of a Internet surf of sites using environmental advertising were announced on Earth Day in conjunction with the release of an updated edition of a consumer brochure, Sorting Out "Green" Advertising Claims.

• Modeling Agencies Concurrent with a law enforcement effort involving five modeling agencies, the FTC issued a brochure, If You’ve Got "the Look" – Look Out! Avoiding Modeling Scams.

• Made in USA The FTC released a guide for businesses making Made in USA claims to help ensure that advertising or marketing claims that a product is of US origin are not false or misleading.

• Dietary Supplements The FTC published A Guide for the Dietary Supplement Industry, a plain-English guide describing the basic principles of the law and using examples from the industry to illustrate how those principles apply in practice.

Reports

• Health Claims The FTC released Generic Copy Test of Health Claims in Advertising, a report of the results of staff research on consumer interpretation of food nutrition and health claims in advertising. The report examines consumer reactions to three categories of hypothetical print advertisements that make claims about the nutrient content and health benefits of food products.

• Made in USA The FTC issued US Origin Claims: Enforcement and Compliance Activities Since December 1997, reporting its efforts to ensure that products advertised or labeled as "Made in USA" are, in fact, all or virtually all of domestic origin.

• Fraud Report The FTC issued its third annual Fraud Report, The Case Against Cramming, highlighting the emergence of fraudulent practices in the telecommunications payment system, and the dramatic increase in consumer complaints about cramming. The report describes the FTC’s response to this new fraud – detection, deterrence, enforcement and education.

• Scanning Price Check II is a follow-up to the 1996 report about the accuracy of prices charged in stores with electronic checkout scanners. This study is a larger, more comprehensive review that compares scanned prices with the lowest posted or advertised price of a randomised sample of items in food, department, mass merchandise, drug, hardware, and other stores. The survey, conducted by the FTC, the Department of Commerce’s National Institute of Standards and Technology, and weights and measures offices in 37 jurisdictions, showed that the overall accuracy has improved since 1996, although one in 28 "sale" items are priced incorrectly.

Latest update 25 January 2001

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