FTC Enforcement Lawsuits and The Electronic Funds Transfer Act
Charles Carreon
FTC ENFORCEMENT LAWSUITS
As a government entity, the FTC is image-conscious. The agency says it uses its big gun to go after large cases that will “shape the law,” rather than pursuing consumer complaints on a case-by-case basis. This strategy makes some sense, because it creates high profile results that the rest of the industry can follow. For example, the FTC sued AOL for advertising a “free trial period” that was difficult to cancel, tacking on extra charges without adequate disclosure, and charging credit accounts without written authorization. Gateway and Juno were both nailed for providing ISP service for “free” that actually entailed additional long-distance or toll-charges. Dell signed a consent decree agreeing not to misrepresent computer leases as sales using small point type and other low-tech dodges. Iomega paid a $900,000 fine for failing to stand behind rebate and free merchandise promotions. In November, 2001, the FTC reached a $30 Million settlement with Crescent Publishing Group and two operators for harvesting credit card numbers by offering free pornography website access and then charging recurring monthly membership fees. Rumor has it Crescent's ill-gotten gains ran as high as $125 Million, which makes a $30 Million fine seem like a reasonable cost of doing business. Crescent's defense to the lawsuit collapsed just a few months after its rights to process Visa transactions were completely cut off by Visa USA, Inc. in April, 2000. Along the way, Crescent had transferred its merchant Visa account to a location in Guatemala, in order to carry on its unethical practices.
The FTC racked up a notable win in FTC v. Anderson, compelling the operators of a pyramid scheme to either disgorge funds they had garnered from their fraudulent activities, or be arrested. While debtor's prison has been abolished, the court's right to imprison persons for contempt of court, such as the willful refusal to repatriate assets (which in the Anderson case had been stowed away in the Cook Islands) remains unquestioned. Following this lead in the Sex.Com case, Judge James A. Ware ordered the arrest of defendant and Mexican foreign resident Steven Michael Cohen, who ultimately had even his appeal dismissed in August, 2002 under the “fugitive disentitlement doctrine,” that says that a person who is a fugitive in a foreign country cannot petition the courts for redress. In this way, FTC cases like Anderson open the door to more aggressive action by private parties to protect rights.
THE ELECTRONIC FUNDS TRANSFER ACT
The FTC also sits at the epicenter of some important laws that govern Internet commerce. Some of those laws are unobtrusive, not generating a lot of litigation, like EFTA, the Electronic Funds Transfer Act. This statute tells banks how to operate their ATMs and online credit card virtual terminals. It specifies the time periods that a consumer has to protest a charge (sixty days) and permits banks to use the practice of tentatively crediting funds back to the consumer pending investigation of the disputed charges. This important statute bears a look if you are an online merchant. It will probably comfort you to know the source of the rules that the banks apply when processing transactions. It also gives you something to fall back on when you're on the phone trying to straighten out a Visa transaction that's gone wrong. There are rules, and when you know them, it's like having the key to the lock.
FTC ENFORCEMENT LAWSUITS
As a government entity, the FTC is image-conscious. The agency says it uses its big gun to go after large cases that will “shape the law,” rather than pursuing consumer complaints on a case-by-case basis. This strategy makes some sense, because it creates high profile results that the rest of the industry can follow. For example, the FTC sued AOL for advertising a “free trial period” that was difficult to cancel, tacking on extra charges without adequate disclosure, and charging credit accounts without written authorization. Gateway and Juno were both nailed for providing ISP service for “free” that actually entailed additional long-distance or toll-charges. Dell signed a consent decree agreeing not to misrepresent computer leases as sales using small point type and other low-tech dodges. Iomega paid a $900,000 fine for failing to stand behind rebate and free merchandise promotions. In November, 2001, the FTC reached a $30 Million settlement with Crescent Publishing Group and two operators for harvesting credit card numbers by offering free pornography website access and then charging recurring monthly membership fees. Rumor has it Crescent's ill-gotten gains ran as high as $125 Million, which makes a $30 Million fine seem like a reasonable cost of doing business. Crescent's defense to the lawsuit collapsed just a few months after its rights to process Visa transactions were completely cut off by Visa USA, Inc. in April, 2000. Along the way, Crescent had transferred its merchant Visa account to a location in Guatemala, in order to carry on its unethical practices.
The FTC racked up a notable win in FTC v. Anderson, compelling the operators of a pyramid scheme to either disgorge funds they had garnered from their fraudulent activities, or be arrested. While debtor's prison has been abolished, the court's right to imprison persons for contempt of court, such as the willful refusal to repatriate assets (which in the Anderson case had been stowed away in the Cook Islands) remains unquestioned. Following this lead in the Sex.Com case, Judge James A. Ware ordered the arrest of defendant and Mexican foreign resident Steven Michael Cohen, who ultimately had even his appeal dismissed in August, 2002 under the “fugitive disentitlement doctrine,” that says that a person who is a fugitive in a foreign country cannot petition the courts for redress. In this way, FTC cases like Anderson open the door to more aggressive action by private parties to protect rights.
THE ELECTRONIC FUNDS TRANSFER ACT
The FTC also sits at the epicenter of some important laws that govern Internet commerce. Some of those laws are unobtrusive, not generating a lot of litigation, like EFTA, the Electronic Funds Transfer Act. This statute tells banks how to operate their ATMs and online credit card virtual terminals. It specifies the time periods that a consumer has to protest a charge (sixty days) and permits banks to use the practice of tentatively crediting funds back to the consumer pending investigation of the disputed charges. This important statute bears a look if you are an online merchant. It will probably comfort you to know the source of the rules that the banks apply when processing transactions. It also gives you something to fall back on when you're on the phone trying to straighten out a Visa transaction that's gone wrong. There are rules, and when you know them, it's like having the key to the lock.