U.S. Cracks Down on Online Rebate Scam

Several companies that used bogus “rebate” checks to con consumers into signing up for Internet yellow page listings agreed to settle U.S. Federal Trade Commission (FTC) charges that their operations were deceptive and violated federal law, the FTC said Friday.

“Consumers in many areas of the United States have suffered substantial monetary loss as a result of defendants’ unlawful acts or practices,” the FTC said.

In June 2000, the FTC filed charges in U.S. District Court for the District of Arizona against Mesa-based YP.net; Telco Billing, Inc., Publication Management, Inc.; and individual defendants Gregory B. Crane, William D. O’Neal, Michael K. Bloomquist and Joseph T. Carlsen.

According to the FTC, the defendants sent checks marked “Rebate Account” for US$3.50 to consumers all over the U.S. The FTC alleges that nothing on the front of the checks alerted consumers that by depositing the check they were agreeing to purchase an Internet yellow page listing at the rate of $19.95 per month for a year.

The Fine Print

“Most consumers never see the terms and conditions for defendants’ Internet advertising services, which are only set forth in small print on the back of the check, and on a letter printed on the inside of the envelope that can only be seen if consumers were to rip apart the other sealed sides of the envelope,” the FTC said.

The small print also notified consumers that they had a 60-day cancellation period. After that period expired, the consumers were sent past due notices, invoices or notices from collection agencies, demanding payment for Internet listing services. In some instances, the defendants billed the consumer’s telephone bill, the FTC alleged.

Conned consumers who tried to locate their Internet listing on the defendants’ Web site were either unable to do so, or the information was inaccurate and full of misspellings, according to the FTC. The FTC said the defendants targeted small businesses and nonprofit organizations.

Settlements Reached

The settlements bar the defendants from using the term “rebate” on solicitation checks and bar misrepresentations that consumers can obtain rebates without incurring any obligation.

The defendants are also required to “clearly and conspicuously” disclose the obligations that consumers will incur in cashing solicitation checks, and to send notices to consumers confirming service and billing agreements.

All consumers are to be given the opportunity to cancel the service, and consumers who signed up for the service between April 1, 2000 and July 14, 2000 are to be given the option of a two-month refund.

Related Cases

The FTC also said that in the course of its investigation, it identified a related company, Simple.Net, that allegedly marketed Internet access services using a similar scam.

The FTC reached a settlement agreement with Simple.Net that requires the company and its co-defendants — Simple Access, Inc.; Dial Up Services, Inc.; and ISP Marketing, Inc. — to send confirmation notices to customers who signed up for their service, giving the consumers the opportunity to cancel and receive a refund.