Universal Credit Acceptance Corporation

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF UNIVERSAL CREDIT ACCEPTANCE CORPORATION, ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE 7 FEDERAL TRADE COMMISSION ACT Docket 8821. Complaint, Oct. 6, 1970—Decision, Feb. 16, 1973. Order requiring three California corporations engaged in the advertising and sale of franchises which authorize franchisees to sell memberships in a credit card program, among other things to cease deceptions and misrepresentations with respect to the “Honor All Credit Card” program. Respondents are further required to offer a 7-day cooling-off period for cancellation of future contracts with full refund rights. An individual respondent is further required to refund all payments for franchise fees within 90 days to everyone who became members of franchisees during the last_seven years. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Universal Credit Acceptance Corporation, a corporation, Continental Credit Card Corporation, a corporation, and International Credit Card Corporation, a corporation, also trading as National Credit Service, and John Clifford Heater, individually and as an officer of Universal Credit Acceptance Corporation and International Credit Card Corporation, and Howard P. Gingold, individually and as an officer of Continental Credit Card Corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent Universal Credit Acceptance Corporation is a corporation organized, existing, and doing business under and by virtue of the laws of the State of California, with Vasa Ul) AUULE LAINUGD UUDS., ml Al. Obl 570 : Complaint its principal office and place of business located at 218 California Drive, Burlingame, California.

Respondent Continental Credit Card Corporation is a corporation organized, existing, and doing business under and by virtue . _.of the laws of the State of California, with its - principal office and placé 6f business located at 218 California Drive, Burlingame, California.

Respondent International Credit Card Corporation, also trading as National Credit Service, is a corporation organized, existing, and formerly doing business under and by virtue of the laws of the State of California, with its principal office and place of business formerly located at 2305 South E] Camino Real, San Mateo, California.

Respondent John Clifford Heater is an individual and an officer of Universal Credit Acceptance Corporation and “International Credit Card Corporation. His business address is the same as the corporate respondent, Universal Credit Acceptance Corporation. Respondent Howard P. Gingold is an individual and is an officer of Continental Credit Card Corporation, and his business address is the same as said corporate respondent. Respondent Heater has been and is primarily responsible for establishing, supervising, directing and controlling the acts and practices of each of said corporate respondents. He originally engaged in the business activities alleged herein under the names of National Credit Service and corporate respondent International Credit Card Corporation, and said activities were transferred to and have been continued under the names of corporate respondents Universal Credit Acceptance Corporation and Continental Credit Card Corporation. Respondent Gingold, in addition to his functions as president of respondent Continental Credit Card Corporation, also — has acted as a salesman of franchises for said corporation. The aforementioned respondents cooperate and act together in carrying out the acts and practices hereinafter set forth. Par. 2. Respondent International Credit Card Corporation, also trading as National Credit Service, was, and respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, John Clifford Heater, and Howard P. Gingold were and are now engaged in the advertising and offering for sale and sale of franchises which authorize the franchisees to sell retail merchants memberships in respondents’ “Honor All Credit Card” program for the use of respondents’ credit card services, and in Complaint 82 F.T.C.

the advertising and offering for sale, and sale of such services to retail merchants.

my - Respondents5 1 4 1 1 3 1032 572 79 32 96.716476 firsts 1 4 1 1 4 1132 565 73 39 96.608475 sells 1 4 1 1 5 1224 560 199 44 96.768906 franchises5 1 4 1 1 6 1442 574 36 30 96.621590 to5 1 4 1 1 7 1501 581 148 29 96.340660 persons5 1 4 1 1 8 1672 572 80 32 96.711151 who5 1 4 1 1 9 1774 572 118 32 95.902229 invest5 1 4 1 1 10 1915 582 21 22 91.593712 a5 1 4 1 1 11 1959 572 79 33 91.593712 sub-4 1 4 1 2 0 718 622 1321 39 -1 5 1 4 1 2 1 718 622 146 31 96.437500 stantial5 1 4 1 2 2 886 632 78 21 96.437500 sums 1 4 1 2 3 986 623 39 30 96.172569 of5 1 4 1 2 4 1045 632 126 28 96.475563 moneys 1 4 1 2 5 1193 633 39 21 96.527512 as5 1 4 1 2 6 1255 633 20 21 96.640808 a5 1 4 1 2 7 1296 622 179 32 95.911049 conditions 1 4 1 2 8 1498 623 37 31 96.721870 to5 1 4 1 2 9 1557 622 108 39 96.014717 beings 1 4 1 2 10 1687 622 151 38 96.727280 granted5 1 4 1 2 11 1862 622 177 32 96.299995 exclusive4 1 4 1 3 0 718 671 1321 40 -1 5 1 4 1 3 1 718 671 116 39 96.556473 rights5 1 4 1 3 2 861 673 37 31 96.730659 to5 1 4 1 3 3 926 673 62 31 95.025703 sells 1 4 1 3 4 1017 673 259 38 96.633202 memberships5 1 4 1 3 5 1306 672 35 32 96.085869 in5 1 4 1 3 6 1372 672 246 38 96.657822 respondents’5 1 4 1 3 7 1650 672 147 32 87.257103 “Honors 1 4 1 3 8 1827 672 56 31 96.124458 All5 1 4 1 3 9 1916 672 123 32 96.629295 Credit4 1 4 1 4 0 716 722 1321 39 -1 5 1 4 1 4 1 716 722 117 33 85.007614 Card”5 1 4 1 4 2 847 732 169 29 96.121071 programs 1 4 1 4 3 1039 722 239 39 96.568588 (hereinafter5 1 4 1 4 4 1292 722 162 33 95.817780 referred5 1 4 1 4 5 1468 724 36 31 95.817780 to5 1 4 1 4 6 1518 732 39 22 96.866806 as5 1 4 1 4 7 1573 722 245 38 96.383530 respondents’5 1 4 1 4 8 1833 722 204 39 96.461540 program).4 1 4 1 5 0 718 772 1318 39 -1 5 1 4 1 5 1 718 772 145 37 96.707054 Second,5 1 4 1 5 2 889 773 150 37 96.415031 directly5 1 4 1 5 3 1063 773 68 31 96.582169 ands 1 4 1 5 4 1157 773 156 38 96.582169 through5 1 4 1 5 5 1340 773 85 31 96.509781 such5 1 4 1 5 6 1452 772 234 37 96.461433 franchisees,5 1 4 1 5 7 1715 772 234 38 96.155487 respondents5 1 4 1 5 8 1976 773 60 31 77.209686 sell]4 1 4 1 6 0 717 820 1322 41 -1 5 1 4 1 6 1 717 822 95 32 96.317886 theirs 1 4 1 6 2 826 823 114 31 96.280243 credits 1 4 1 6 3 954 823 83 32 96.399094 cards 1 4 1 6 4 1054 823 159 38 96.228943 clearing5 1 4 1 6 5 1228 823 154 32 96.872673 services5 1 4 1 6 6 1390 820 44 34 96.872673 to5 1 4 1 6 7 1450 822 103 32 96.701553 retails 1 4 1 6 8 1569 822 206 32 96.709404 merchants5 1 4 1 6 9 1800 822 239 38 96.478859 (hereinafter4 1 4 1 7 0 718 872 1320 39 -1 5 1 4 1 7 1 718 872 161 32 96.179054 referred5 1 4 1 7 2 900 873 37 31 96.603432 to5 1 4 1 7 3 958 883 39 21 96.870621 as5 1 4 1 7 4 1018 872 211 39 95.733833 members),5 1 4 1 7 5 1252 872 80 32 96.551811 who5 1 4 1 7 6 1354 872 116 32 96.609756 invest5 1 4 1 7 7 1492 872 215 32 96.401558 substantial5 1 4 1 7 8 1731 882 98 22 96.313026 sums5 1 4 1 7 9 1852 872 39 32 96.590637 of5 1 4 1 7 10 1912 882 126 28 96.435829 money4 1 4 1 8 0 718 922 1319 38 -1 5 1 4 1 8 1 718 932 39 22 95.709038 as5 1 4 1 8 2 778 922 87 38 95.709038 fees,5 1 4 1 8 3 888 923 85 31 96.868309 dues5 1 4 1 8 4 995 923 69 31 96.268623 ands 1 4 1 8 5 1087 923 135 31 96.064919 services 1 4 1 8 6 1245 923 181 31 96.064919 discounts5 1 4 1 8 7 1449 932 44 22 96.856331 on5 1 4 1 8 8 1516 922 115 32 95.668716 credits 1 4 1 8 9 1653 922 102 32 96.295906 sales.5 1 4 1 8 10 1780 922 257 38 96.319984 Respondents’4 1 4 1 9 0 717 971 1320 40 -1 5 1 4 1 9 1 717 981 170 29 96.754967 programs 1 4 1 9 2 913 973 141 31 96.293884 entitles5 1 4 1 9 3 1079 973 176 31 96.725189 members5 1 4 1 9 4 1280 974 37 30 96.384842 to5 1 4 1 9 5 1342 972 61 32 95.565483 sells 1 4 1 9 6 1429 971 95 32 96.160583 theirs 1 4 1 9 7 1551 972 197 38 96.160583 respective5 1 4 1 9 8 1774 971 169 40 96.174385 products5 1 4 1 9 9 1969 972 68 32 96.199814 anda 1 4 1 10 0 719 1015 1320 51 -1 5 1 4 1 10 1 719 1022 154 32 96.234604 services5 1 4 1 10 2 897 1024 37 30 96.677101 to5 1 4 1 10 3 958 1024 196 31 96.507729 customers5 1 4 1 10 4 1178 1022 211 44 96.385574 presenting5 1 4 1 10 5 1411 1033 70 27 96.899216 any5 1 4 1 10 6 1505 1032 66 22 96.711029 ones 1 4 1 10 7 1594 1022 40 32 96.035912 of5 1 4 1 10 8 1657 1032 21 21 96.914680 a5 1 4 1 10 9 1703 1015 99 45 96.562042 large5 1 4 1 10 10 1826 1022 150 31 96.253067 numbers 1 4 1 10 11 2000 1022 39 31 96.774712 of4 1 4 1 11 0 718 1071 1321 39 -1 5 1 4 1 11 1 718 1072 112 31 94.496269 credits 1 4 1 11 2 850 1073 104 31 96.123489 cards5 1 4 1 11 3 975 1073 179 37 96.494446 approved5 1 4 1 11 4 1174 1073 48 37 96.772324 by5 1 4 1 11 5 1243 1072 245 38 96.562668 respondents,5 1 4 1 11 6 1510 1072 71 32 96.596237 ands 1 4 1 11 7 1602 1073 37 31 96.668709 to5 1 4 1 11 8 1660 1071 136 33 96.667145 submits 1 4 1 11 9 1817 1071 86 32 96.482811 such5 1 4 1 11 10 1926 1071 113 32 96.537186 credit4 1 4 1 12 0 718 1121 1321 40 -1 5 1 4 1 12 1 718 1121 149 40 96.529678 charges5 1 4 1 12 2 885 1124 37 30 96.451057 to5 1 4 1 12 3 941 1123 243 38 96.377541 respondents.5 1 4 1 12 4 1205 1122 247 39 96.392487 Respondents5 1 4 1 12 5 1472 1121 123 33 96.392487 collects 1 4 1 12 6 1613 1121 60 32 96.512802 thes 1 4 1 12 7 1693 1122 151 38 96.481361 charges5 1 4 1 12 8 1864 1121 95 31 96.437523 from5 1 4 1 12 9 1979 1121 60 31 96.828796 thea 1 4 1 13 0 717 1171 1208 39 -1 5 1 4 1 13 1 717 1172 197 31 96.577148 customers5 1 4 1 13 2 934 1172 40 31 95.839172 of5 1 4 1 13 3 992 1172 176 32 96.221184 members5 1 4 1 13 4 1189 1172 70 32 96.713097 ands 1 4 1 13 5 1282 1172 106 31 96.229248 remits 1 4 1 13 6 1408 1173 169 37 96.398895 payments 1 4 1 13 7 1598 1172 37 31 95.995110 to5 1 4 1 13 8 1656 1171 61 32 96.227783 thes 1 4 1 13 9 1739 1171 186 32 96.127594 members.3 1 4 2 0 0 718 1220 1334 1108 -1 4 1 4 2 1 0 766 1220 1271 37 -1 5 1 4 2 1 1 766 1222 85 32 95.238281 Par.5 1 4 2 1 2 868 1223 30 31 91.507828 8.5 1 4 2 1 3 916 1222 39 31 96.076576 In5 1 4 2 1 4 972 1222 60 32 96.105522 thes 1 4 2 1 5 1048 1232 124 22 96.683769 courses 1 4 2 1 6 1188 1222 69 32 96.680489 ands 1 4 2 1 7 1275 1222 149 32 96.319443 conducts 1 4 2 1 8 1441 1222 39 32 96.616882 of5 1 4 2 1 9 1495 1221 95 32 96.804375 theirs 1 4 2 1 10 1606 1221 165 32 96.277924 business5 1 4 2 1 11 1789 1231 38 22 96.277924 as5 1 4 2 1 12 1846 1220 191 37 96.696686 aforesaid,4 1 4 2 2 0 718 1271 1321 39 -1 5 1 4 2 2 1 718 1272 216 38 96.153847 respondents 1 4 2 2 2 959 1272 258 32 96.500389 International5 1 4 2 2 3 1246 1271 123 33 96.429146 Credits 1 4 2 2 4 1395 1271 93 32 96.429146 Cards 1 4 2 2 5 1516 1271 249 39 96.511658 Corporation,5 1 4 2 2 6 1792 1271 74 32 96.954369 also5 1 4 2 2 7 1892 1271 147 38 96.428917 trading4 1 4 2 3 0 718 1320 1321 39 -1 5 1 4 2 3 1 718 1332 39 21 96.832863 as5 1 4 2 3 2 786 1322 168 31 96.769142 National5 1 4 2 3 3 986 1322 123 32 96.719704 Credits 1 4 2 3 4 1138 1322 153 37 96.365913 Service,5 1 4 2 3 5 1321 1322 65 31 96.765999 has5 1 4 2 3 6 1416 1322 139 36 95.860977 caused,5 1 4 2 3 7 1586 1321 69 32 96.138031 ands 1 4 2 3 8 1687 1321 234 38 93.135460 respondents5 1 4 2 3 9 1953 1320 86 33 91.888138 Uni-4 1 4 2 4 0 718 1375 1319 39 -1 5 1 4 2 4 1 718 1376 115 31 96.754463 versal5 1 4 2 4 2 861 1376 123 32 95.999901 Credits 1 4 2 4 3 1010 1377 221 37 96.400581 Acceptances 1 4 2 4 4 1258 1376 247 38 96.846046 Corporation,5 1 4 2 4 5 1535 1376 228 31 96.216110 Continental5 1 4 2 4 6 1793 1375 123 32 96.548119 Credits 1 4 2 4 7 1945 1375 92 32 96.824120 Card4 1 4 2 5 0 718 1428 1321 40 -1 5 1 4 2 5 1 718 1429 249 38 96.350143 Corporation,5 1 4 2 5 2 1001 1431 133 30 96.243752 Heaters 1 4 2 5 3 1166 1430 69 32 96.473038 ands 1 4 2 5 4 1270 1430 151 38 96.525848 Gingold5 1 4 2 5 5 1454 1440 93 21 96.944824 were5 1 4 2 5 6 1580 1429 69 32 96.849716 ands 1 4 2 5 7 1684 1439 61 22 96.797127 ares 1 4 2 5 8 1779 1439 79 22 96.760750 now5 1 4 2 5 9 1891 1428 148 39 96.760750 causing4 1 4 2 6 0 720 1483 1319 47 -1 5 1 4 2 6 1 720 1483 95 38 87.408318 theirs 1 4 2 6 2 851 1484 224 38 87.408318 advertising5 1 4 2 6 3 1111 1486 132 30 91.530281 matters 1 4 2 6 4 1262 1486 54 30 91.235779 -to5 1 4 2 6 5 1348 1485 63 45 48.048882 be5 1 4 2 6 6 1433 1484 185 38 48.048882 published5 1 4 2 6 7 1660 1485 33 30 94.570236 in5 1 4 2 6 8 1734 1494 227 27 94.570236 newspapers5 1 4 2 6 9 2000 1484 39 31 95.756943 of4 1 4 2 7 0 719 1530 1320 51 -1 5 1 4 2 7 1 719 1537 190 32 94.624008 interstate5 1 4 2 7 2 946 1539 207 42 93.119560 circulations 1 4 2 7 3 1192 1539 69 31 82.512505 and_5 1 4 2 7 4 1298 1538 95 31 96.212547 theirs 1 4 2 7 5 1429 1530 237 46 96.810287 promotional5 1 4 2 7 6 1703 1537 184 32 96.293396 materials5 1 4 2 7 7 1924 1539 37 30 95.333076 to5 1 4 2 7 8 1996 1537 43 32 95.333076 be4 1 4 2 8 0 718 1591 1321 39 -1 5 1 4 2 8 1 718 1591 129 32 95.682823 mailed5 1 4 2 8 2 866 1602 41 21 95.682823 or5 1 4 2 8 3 925 1593 190 30 96.145828 otherwise5 1 4 2 8 4 1133 1593 177 36 96.333160 conveyed5 1 4 2 8 5 1330 1593 36 30 96.480728 to5 1 4 2 8 6 1386 1592 143 31 96.347908 various5 1 4 2 8 7 1550 1602 149 28 96.398865 persons5 1 4 2 8 8 1720 1592 161 38 96.029694 residing5 1 4 2 8 9 1901 1591 138 32 96.191513 outside4 1 4 2 9 0 718 1645 1320 39 -1 5 1 4 2 9 1 718 1645 60 32 96.355347 thes 1 4 2 9 2 805 1646 99 31 96.597542 States 1 4 2 9 3 930 1647 39 30 96.546555 of5 1 4 2 9 4 994 1647 200 31 96.098030 California5 1 4 2 9 5 1220 1647 36 31 95.191246 in5 1 4 2 9 6 1284 1647 84 31 95.191246 each5 1 4 2 9 7 1396 1647 68 31 95.476891 ands 1 4 2 9 8 1492 1656 106 28 95.476891 every5 1 4 2 9 9 1626 1647 101 31 93.708359 States 1 4 2 9 10 1754 1646 40 31 93.708359 of5 1 4 2 9 11 1819 1646 60 31 96.635933 thes 1 4 2 9 12 1907 1646 131 31 96.436752 United4 1 4 2 10 0 720 1700 1319 39 -1 5 1 4 2 10 1 720 1700 119 31 95.258339 States5 1 4 2 10 2 870 1701 70 30 95.258339 ands 1 4 2 10 3 973 1701 34 30 96.099442 in5 1 4 2 10 4 1041 1701 141 38 96.674698 foreign5 1 4 2 10 5 1216 1701 190 31 96.389137 countries.5 1 4 2 10 6 1441 1701 235 38 96.423309 Advertising5 1 4 2 10 7 1709 1701 142 36 93.174042 matter,5 1 4 2 10 8 1885 1700 154 38 91.520126 applica-4 1 4 2 11 0 718 1753 1321 41 -1 5 1 4 2 11 1 718 1753 105 38 96.145126 tions,5 1 4 2 11 2 851 1755 191 37 96.080261 contracts,5 1 4 2 11 3 1071 1755 182 32 96.609428 franchises 1 4 2 11 4 1282 1756 235 38 96.650154 agreements,5 1 4 2 11 5 1548 1755 134 37 96.236458 letters,5 1 4 2 11 6 1712 1754 126 32 96.418640 checks5 1 4 2 11 7 1867 1764 41 21 96.855019 or5 1 4 2 11 8 1937 1754 102 31 96.353676 other4 1 4 2 12 0 719 1808 1333 34 -1 5 1 4 2 12 1 719 1808 144 31 96.360191 written5 1 4 2 12 2 896 1809 234 32 96.094902 instruments5 1 4 2 12 3 1162 1809 69 32 92.351547 ands 1 4 2 12 4 1264 1809 451 33 39.572777 communications.-hayve.5 1 4 2 12 5 1736 1809 88 31 96.716331 been5 1 4 2 12 6 1858 1809 79 30 96.762917 sents 1 4 2 12 7 1969 1808 83 31 96.609367 and.4 1 4 2 13 0 721 1862 1318 40 -1 5 1 4 2 13 1 721 1862 90 31 96.333084 have5 1 4 2 13 2 839 1862 86 31 96.585350 been5 1 4 2 13 3 956 1863 159 32 96.859749 received5 1 4 2 13 4 1144 1864 158 31 96.763794 between5 1 4 2 13 5 1330 1863 61 32 93.284775 thes 1 4 2 13 6 1420 1864 214 38 91.112762 respondnts5 1 4 2 13 7 1664 1865 38 29 96.855904 at5 1 4 2 13 8 1730 1863 96 31 96.608078 theirs 1 4 2 13 9 1855 1863 115 38 96.608047 places5 1 4 2 13 10 2000 1863 39 30 96.720932 of4 1 4 2 14 0 718 1916 1320 40 -1 5 1 4 2 14 1 718 1916 163 32 96.550957 business5 1 4 2 14 2 915 1917 134 32 96.720901 located5 1 4 2 14 3 1084 1917 35 31 96.248886 in5 1 4 2 14 4 1154 1917 211 37 96.248886 California,5 1 4 2 14 5 1399 1917 70 32 95.915062 ands 1 4 2 14 6 1503 1927 149 29 95.915062 persons5 1 4 2 14 7 1687 1917 36 31 96.684982 in5 1 4 2 14 8 1757 1917 145 31 95.326286 various5 1 4 2 14 9 1936 1916 102 32 95.326286 other4 1 4 2 15 0 719 1970 1319 40 -1 5 1 4 2 15 1 719 1970 118 32 96.434502 States5 1 4 2 15 2 871 1971 40 31 96.035339 of5 1 4 2 15 3 941 1971 60 31 96.799385 thes 1 4 2 15 4 1036 1971 130 33 95.941193 United5 1 4 2 15 5 1201 1972 118 32 96.803375 States5 1 4 2 15 6 1353 1972 68 32 96.453430 ands 1 4 2 15 7 1456 1972 40 32 96.398499 of5 1 4 2 15 8 1528 1971 143 39 96.637123 foreign5 1 4 2 15 9 1707 1971 189 32 96.637123 countries.5 1 4 2 15 10 1933 1971 50 31 96.871544 As5 1 4 2 15 11 2018 1981 20 21 96.442978 a4 1 4 2 16 0 721 2024 1318 46 -1 5 1 4 2 16 1 721 2024 110 31 96.408577 results 1 4 2 16 2 860 2025 39 31 96.072403 of5 1 4 2 16 3 928 2025 77 32 96.798859 said5 1 4 2 16 4 1036 2026 190 31 96.535217 interstate5 1 4 2 16 5 1256 2026 224 38 96.113937 advertising5 1 4 2 16 6 1510 2026 70 32 96.113937 ands 1 4 2 16 7 1612 2026 201 38 96.723839 promotions 1 4 2 16 8 1835 2025 79 45 96.430779 ands 1 4 2 16 9 1948 2035 39 21 96.373383 as5 1 4 2 16 10 2019 2035 20 21 96.373383 a4 1 4 2 17 0 723 2078 1315 41 -1 5 1 4 2 17 1 723 2078 111 31 96.383026 results 1 4 2 17 2 859 2078 40 32 95.994774 of5 1 4 2 17 3 924 2079 77 31 96.325478 said5 1 4 2 17 4 1027 2080 250 32 96.417641 transmissions 1 4 2 17 5 1306 2081 69 31 96.285439 ands 1 4 2 17 6 1405 2081 133 38 96.115387 receipts 1 4 2 17 7 1564 2081 40 31 96.945908 of5 1 4 2 17 8 1630 2080 76 32 95.870865 said5 1 4 2 17 9 1735 2080 143 32 93.271225 written5 1 4 2 17 10 1907 2080 131 31 92.207474 instru-4 1 4 2 18 0 720 2133 1319 40 -1 5 1 4 2 18 1 720 2133 116 30 95.094452 ments5 1 4 2 18 2 875 2133 69 31 95.094452 ands 1 4 2 18 3 985 2134 326 37 96.043686 communications,5 1 4 2 18 4 1353 2134 234 39 96.611710 respondents5 1 4 2 18 5 1627 2134 91 32 96.472755 have5 1 4 2 18 6 1758 2135 219 31 96.058533 maintained5 1 4 2 18 7 2019 2145 20 20 96.811829 a4 1 4 2 19 0 718 2185 1319 36 -1 5 1 4 2 19 1 718 2185 213 33 96.108711 substantial5 1 4 2 19 2 961 2197 124 22 96.108711 courses 1 4 2 19 3 1113 2187 38 32 96.901474 of5 1 4 2 19 4 1177 2187 104 32 95.806267 trades 1 4 2 19 5 1309 2187 35 32 96.079361 in5 1 4 2 19 6 1374 2188 76 32 96.079361 said5 1 4 2 19 7 1480 2188 203 33 96.418571 franchises5 1 4 2 19 8 1713 2189 69 32 94.911125 ands 1 4 2 19 9 1812 2188 113 33 94.911125 credits 1 4 2 19 10 1954 2188 83 32 96.024246 card4 1 4 2 20 0 718 2241 1318 38 -1 5 1 4 2 20 1 718 2241 154 31 95.438934 services5 1 4 2 20 2 898 2241 34 31 95.595230 in5 1 4 2 20 3 958 2251 205 28 96.171799 commerce,5 1 4 2 20 4 1189 2253 38 22 95.215378 as5 1 4 2 20 5 1255 2243 238 31 36.515194 “commerce”5 1 4 2 20 6 1519 2243 31 31 96.209496 is5 1 4 2 20 7 1578 2243 135 32 96.236565 defined5 1 4 2 20 8 1741 2243 34 31 96.737495 in5 1 4 2 20 9 1804 2243 59 32 96.364037 thes 1 4 2 20 10 1890 2242 146 33 96.504822 Federal4 1 4 2 21 0 719 2294 486 34 -1 5 1 4 2 21 1 719 2294 115 32 96.092499 Trades 1 4 2 21 2 862 2295 236 32 96.239510 Commissions 1 4 2 21 3 1127 2298 78 30 85.252640 Act.3 1 4 3 0 0 715 2349 1323 205 -1 4 1 4 3 1 0 766 2349 1272 39 -1 5 1 4 3 1 1 766 2349 84 31 93.773018 Par.5 1 4 3 1 2 874 2351 30 30 95.388649 4.5 1 4 3 1 3 928 2350 38 30 96.574913 In5 1 4 3 1 4 989 2350 60 32 96.171158 thes 1 4 3 1 5 1071 2361 123 22 96.428001 courses 1 4 3 1 6 1216 2352 70 31 96.458778 ands 1 4 3 1 7 1309 2352 149 31 96.273552 conducts 1 4 3 1 8 1480 2352 40 31 96.273552 of5 1 4 3 1 9 1541 2352 95 31 96.398582 theirs 1 4 3 1 10 1659 2352 181 31 95.992035 aforesaid5 1 4 3 1 11 1865 2352 173 36 95.992035 business,4 1 4 3 2 0 720 2404 1317 41 -1 5 1 4 3 2 1 720 2404 234 39 96.202682 respondents5 1 4 3 2 2 987 2415 78 21 96.403908 now5 1 4 3 2 3 1097 2416 135 28 96.403908 engages 1 4 3 2 4 1264 2406 46 37 96.201492 in,5 1 4 3 2 5 1344 2406 135 38 96.769531 and/or5 1 4 3 2 6 1511 2406 90 32 96.356483 have5 1 4 3 2 7 1633 2407 160 38 96.955093 engaged5 1 4 3 2 8 1827 2407 46 37 96.379402 in,5 1 4 3 2 9 1907 2417 20 21 91.453461 a5 1 4 3 2 10 1960 2417 77 21 91.453461 con-4 1 4 3 3 0 718 2457 1319 43 -1 5 1 4 3 3 1 718 2457 143 39 92.011650 tinuing5 1 4 3 3 2 889 2468 169 29 96.439674 programs 1 4 3 3 3 1087 2460 37 31 95.622154 of5 1 4 3 3 4 1153 2460 199 40 96.139565 recruiting5 1 4 3 3 5 1380 2460 224 33 96.274155 franchisees5 1 4 3 3 6 1633 2462 37 31 96.915390 to5 1 4 3 3 7 1700 2461 61 32 96.194298 sells 1 4 3 3 8 1793 2461 244 39 96.360832 respondents’4 1 4 3 4 0 715 2512 1320 42 -1 5 1 4 3 4 1 715 2512 154 31 96.376106 services5 1 4 3 4 2 899 2514 69 31 95.465302 ands 1 4 3 4 3 998 2515 39 30 96.799835 of5 1 4 3 4 4 1065 2515 127 38 95.998009 selling5 1 4 3 4 5 1220 2515 259 39 96.435280 memberships5 1 4 3 4 6 1510 2516 37 30 95.639374 in5 1 4 3 4 7 1579 2516 246 38 93.543312 respondents’5 1 4 3 4 8 1856 2526 179 28 93.543312 program. Waa meek Veen ee ERR BATE Ah oy aan Aaa we 570 Complaint A. SALE OF FRANCHISES Respondents solicit the sale of their franchises in the following manner and by the following means. Respondents publish, or cause to be published, in magazines and newspapers of regional and na- _ _tional circulation and disseminate through the mails advertisements inviting inquiries from persons interested in becoming franchisees. To persons who respond to such invitations, respondents send through the mails advertising and promotional material containing many statements and representations regarding respondents’ services and the financial and other benefits to be enjoyed by persons who become franchisee of respondents. Persons who express further interest receive a telephone sales presentation by one of respondents’ sales representatives and, in most instances, are invited to visit respondents’ place of business, now in Burlingame, California. Respondents also disseminate said advertisements, statements and representations through existing franchisees for the purpose of soliciting the sale of subfranchises, new franchises, and the resale of franchises.

Typical and illustrative of said representations and statements appearing in advertising and promotional material, but not all inclusive thereof, are the following:

FULL OR PART TIME BUSINESS You can have a SECURE FUTURE as a business partner with America’s leading credit organization. Our unique service allows retail business firms to honor over 200 million credit cards now in-use, including most major oil company cards * * * with guaranteed payment from us.

Opportunity for EXCEPTIONALLY HIGH EARNINGS. $10,000 investment required. Partial financing considered. Renewals and bonuses insure permanent security and income. No age limit. For personal interview, write Universal Credit Acceptance Corp., Box 598, Burlingame, California 94010. WRITE TODAY, while your area is still available. DID YOU NOTICE THIS AD IN THE BUSINESS OPPORTUNITIES SECTION OF YOUR NEWSPAPER? ARE YOU LOOKING—for a profitable addition to your present income or business? Why not diversify with a non-competitive service that offers immediate profits and a virtually unlimited opportunity for future business expansion. .

NOW—YOU CAN OBTAIN THE SALES RIGHTS for the “HONOR ALL CREDIT CARD” program in your area. Through our program, any merchant, large or small, can make instant credit sales to more than 100 million credit card customers * * * with guaranteed payment. It is the most appealing business and sales promotion program on the market today! ° FIND OUT FOR YOURSELF! Ask any merchant if he would like to be able to accept the 3 leading all-purpose credit cards plus those issued by Complaint 82 F.T.C.

over 50 different oil companies—over 100 million potential customers— without risking his own money.

‘YOUR PROFITS ARE IMMEDIATE—THEY ARE SUBSTANTIAL— THEY ARE CONTINUOUS! This is the opportunity you’ve been waiting for * * * the chance to own a secure, profitable full or part-time business. Complete details can be yours at once. Simply fill out the attached card and ’ MAIL TODAY.

B, SALE OF CREDIT CARD SERVICES Respondents solicit the sale of their credit card services to members in the following manner and by the following means. Respondents disseminate through the mails to retail-merchants advertisements and promotional material containing many statements and representations regarding respondents’ services and the financial benefits to be enjoyed by persons who become members. Leads resulting from responses to said mailings are forwarded to respondents’ franchise holders who also make such statements and representations directly with the aid of sales kits, and other material supplied to them by respondents. Typical and illustrative of said representations and statements to prospective members, but not all inclusive thereof, are the following: ee UNIVERSAL CREDIT ACCEPTANCE CORP * * * the nation’s largest credit card clearing house, is your answer to increased business. You fill out just ONE simple form for any credit sale. You receive ONE BIG CHECK for all credit sales every month. It’s fast! It’s easy! It’s PROFIT- ABLE! Payment is guaranteed, non-recourse. Par. 5. By and through the statements arid representations con=~ tained in the advertising and promotional material referred to in Paragraph Four hereof, and others similar thereto but not expressly set out herein, and in the course of oral sales presentations, respondents, their agents, representatives and employees, for the purpose of inducing the sale of franchises, memberships and credit card services, represent, and have represented, directly or by implication:

A. To prospective franchisees, that:

1. Franchisees selling memberships in respondents’ program can expect to receive profitable earnings from the sale of two to five memberships per week, and can expect to remain active franchisees selling memberships for many years. 570 Complaint 2. Respondents’ program can be sold with ease to retail merchants.

3. Solicited prospective franchisees do not risk losing any expenditure of money in coming to Burlingame, California for an interview; and that respondents have authorized the reimburse- ' ~~ Ynent of the prospects’ air fare-expenses-for such interviews. _- 4. Solicited prospective franchisees do not risk losing their deposits or downpayments submitted with applications for franchises; and that such deposits or downpayments are refundable if the applicants withdraw or otherwise do not consummate the franchise agreements.

5. Geographical areas offered to prospective franchisees have not been previously franchised; or that the areas offered have been franchised before and were profitable for the prior franchisees. 6. Respondents offer only a limited number of sales franéhises to qualified individuals.

7. There is a “Regional Manager” of respondents who is interviewing other franchise applicants for the same area as each franchise prospect; and that the prospective franchisees must act immediately to be considered for a franchise. 8. Franchise holders receive substantial benefits from renewals of memberships, and from annual bonuses based on a percentage of net credit charges submitted by members in each franchisee’s territory. Te 9. Franchise holders risk losing little or nothing in investing in a franchise; that respondents will repurchase the franchise and/or aid in its resale; and that the franchise is a vested property right which may be sold, assigned, transferred, or testated. B. To both prospective franchisees and prospective members, 1. Respondents’ program has received national acceptance. 2. There are thousands of members honoring all credit cards under respondents’ program each and every month. 3. All credit charges submitted under respondents’ program are guaranteed payable without recourse; that respondent’s assume all risk of nonpayment by the members’ customers; that members can expect to be successful and satisfied with the program’s performance; and that members usually continue using respondents’ program for two years and renew their contracts thereafter.

576 FEDERAL TRADE COMMISSION DECISIONS . Complaint 82 F.T.C.

4, Articles used to solicit sales of franchises and memberships are unsolicited and impartial accounts about respondents’ program.

“ 5.5 1 2 2 3 3 819 578 140 30 95.893585 Letters5 1 2 2 3 4 994 576 69 32 95.893585 ands 1 2 2 3 5 1097 557 169 57 96.080345 payments 1 2 2 3 6 1289 559 135 48 86.045090 ‘checks5 1 2 2 3 7 1459 546 94 61 90.285324 used5 1 2 2 3 8 1578 558 36 48 96.542725 to5 1 2 2 3 9 1648 575 112 30 96.165779 attest5 1 2 2 3 10 1795 575 51 30 95.209145 to5 1 2 2 3 11 1866 573 61 32 91.999390 thes 1 2 2 3 12 1962 582 75 22 91.999390 suc-4 1 2 2 4 0 716 622 1320 43 -1 5 1 2 2 4 1 716 637 75 21 96.204613 cess5 1 2 2 4 2 823 626 40 32 96.692596 of5 1 2 2 4 3 895 626 245 39 96.534119 respondents’5 1 2 2 4 4 1174 635 168 29 96.616905 programs 1 2 2 4 5 1375 635 62 21 90.452057 ares 1 2 2 4 6 1470 624 294 39 90.452057 representative,5 1 2 2 4 7 1798 615 134 46 95.722145 typical5 1 2 2 4 8 1967 622 69 32 95.722145 anda 1 2 2 5 0 717 671 1319 43 -1 5 1 2 2 5 1 717 678 155 36 96.021461 current,5 1 2 2 5 2 902 677 69 31 96.851120 ands 1 2 2 5 3 1001 677 80 31 96.558487 that5 1 2 2 5 4 1110 676 85 31 96.829895 such5 1 2 2 5 5 1225 676 124 31 93.270378 letters5 1 2 2 5 6 1378 675 70 32 96.222160 ands 1 2 2 5 7 1478 674 126 33 96.790901 checks5 1 2 2 5 8 1636 674 121 31 95.461975 reflects 1 2 2 5 9 1787 683 45 22 94.104858 an5 1 2 2 5 10 1865 671 171 33 94.104858 unbiased4 1 2 2 6 0 717 727 212 31 -1 5 1 2 2 6 1 717 727 212 31 95.809242 evaluation.3 1 2 3 0 0 717 755 1322 160 -1 4 1 2 3 1 0 763 755 1276 60 -1 5 1 2 3 1 1 763 779 29 30 96.347641 6.5 1 2 3 1 2 820 776 259 39 96.312065 Respondents’5 1 2 3 1 3 1108 786 169 29 96.486603 programs 1 2 3 1 4 1304 755 93 52 96.995819 costs5 1 2 3 1 5 1426 775 175 31 95.940750 members5 1 2 3 1 6 1630 774 92 31 95.940750 little5 1 2 3 1 7 1750 783 42 22 96.829506 or5 1 2 3 1 8 1821 773 152 38 96.379837 nothing5 1 2 3 1 9 2001 772 38 31 96.707375 at4 1 2 3 2 0 717 822 1320 42 -1 5 1 2 3 2 1 717 827 57 37 96.044228 all;5 1 2 3 2 2 811 827 70 32 96.210320 ands 1 2 3 2 3 915 827 80 31 96.700691 that5 1 2 3 2 4 1029 827 59 31 96.802521 thes 1 2 3 2 5 1124 836 168 28 96.257729 programs 1 2 3 2 6 1327 826 93 31 96.257729 costs5 1 2 3 2 7 1455 824 176 32 96.700111 members5 1 2 3 2 8 1666 823 81 32 95.816544 half5 1 2 3 2 9 1781 833 39 22 95.816544 as5 1 2 3 2 10 1857 822 105 32 95.988358 much5 1 2 3 2 11 1998 832 39 21 95.988358 as4 1 2 3 3 0 717 877 308 38 -1 5 1 2 3 3 1 717 877 146 38 96.470558 trading5 1 2 3 3 2 877 878 148 37 96.542870 stamps.3 1 2 4 0 0 717 921 1322 144 -1 4 1 2 4 1 0 762 921 1276 43 -1 5 1 2 4 1 1 762 929 29 30 94.965538 7.5 1 2 4 1 2 820 927 178 31 96.142937 Members5 1 2 4 1 3 1034 926 171 38 96.036987 completes 1 2 4 1 4 1240 926 76 37 96.592239 just5 1 2 4 1 5 1351 935 64 22 96.832253 ones 1 2 4 1 6 1451 924 126 39 96.007347 simple5 1 2 4 1 7 1612 924 97 31 96.814987 forms 1 2 4 1 8 1745 923 60 31 96.437576 for5 1 2 4 1 9 1842 923 45 31 94.238876 all5 1 2 4 1 10 1925 921 113 33 94.238876 credit4 1 2 4 2 0 717 971 1322 46 -1 5 1 2 4 2 1 717 977 161 38 96.468727 charges;5 1 2 4 2 2 913 977 70 31 96.666824 ands 1 2 4 2 3 1016 977 80 31 96.452484 that5 1 2 4 2 4 1128 975 176 33 96.493301 members5 1 2 4 2 5 1338 975 135 31 96.320343 receives 1 2 4 2 6 1507 974 169 38 95.569908 payments 1 2 4 2 7 1710 974 60 43 95.569908 for5 1 2 4 2 8 1804 972 87 33 96.274933 each5 1 2 4 2 9 1925 971 114 32 96.123276 credit4 1 2 4 3 0 718 1015 1028 50 -1 5 1 2 4 3 1 718 1026 129 39 96.851105 charges 1 2 4 3 2 861 1026 195 32 96.753822 submitted5 1 2 4 3 3 1072 1028 35 29 95.959106 to5 1 2 4 3 4 1123 1025 232 39 95.907532 respondents5 1 2 4 3 5 1370 1025 36 31 96.361694 in5 1 2 4 3 6 1423 1025 41 31 95.866547 305 1 2 4 3 7 1480 1024 97 38 95.866547 days.5 1 2 4 3 8 1726 1015 20 23 11.707542 ~3 1 2 5 0 0 719 1071 1319 87 -1 4 1 2 5 1 0 763 1071 1275 44 -1 5 1 2 5 1 1 763 1078 30 30 95.965210 8.5 1 2 5 1 2 820 1076 248 39 95.165230 Respondents5 1 2 5 1 3 1104 1085 61 22 96.529305 ares 1 2 5 1 4 1199 1075 60 32 96.676918 thes 1 2 5 1 5 1295 1075 134 38 96.620232 largest5 1 2 5 1 6 1463 1073 114 33 96.651024 credits 1 2 5 1 7 1612 1073 85 32 96.313004 cards 1 2 5 1 8 1734 1072 160 38 96.143097 clearing5 1 2 5 1 9 1929 1071 109 32 96.143097 house4 1 2 5 2 0 719 1125 227 33 -1 5 1 2 5 2 1 719 1127 35 31 95.523582 in5 1 2 5 2 2 770 1125 176 33 95.523582 America.3 1 2 6 0 0 722 1169 1315 93 -1 4 1 2 6 1 0 765 1169 1272 45 -1 5 1 2 6 1 1 765 1178 30 30 93.086380 9.5 1 2 6 1 2 822 1175 258 39 96.182846 Respondents’5 1 2 6 1 3 1118 1184 169 29 96.632042 programs 1 2 6 1 4 1324 1174 30 32 96.754364 is5 1 2 6 1 5 1390 1173 180 39 96.499565 approved5 1 2 6 1 6 1607 1182 40 22 96.769196 or5 1 2 6 1 7 1684 1172 175 31 95.556320 endorsed5 1 2 6 1 8 1896 1171 46 38 95.556320 by5 1 2 6 1 9 1977 1169 60 32 95.790977 thea 1 2 6 2 0 722 1221 1269 41 -1 5 1 2 6 2 1 722 1226 194 31 96.728569 individuals 1 2 6 2 2 939 1226 134 31 96.531509 issuers5 1 2 6 2 3 1094 1225 39 32 96.919495 of5 1 2 6 2 4 1153 1225 59 31 96.286919 thes 1 2 6 2 5 1234 1224 112 32 96.495132 credits 1 2 6 2 6 1366 1224 103 31 96.581291 cards5 1 2 6 2 7 1489 1223 166 39 95.756332 accepted5 1 2 6 2 8 1678 1223 46 37 96.159294 by5 1 2 6 2 9 1746 1221 245 39 96.159294 respondents.3 1 2 7 0 0 715 1269 1341 138 -1 4 1 2 7 1 0 766 1269 1273 45 -1 5 1 2 7 1 1 766 1277 50 30 95.543434 10.5 1 2 7 1 2 844 1274 258 40 96.494392 Respondents’5 1 2 7 1 3 1123 1274 206 32 96.350357 authorized5 1 2 7 1 4 1351 1273 265 38 96.154770 capitalization5 1 2 7 1 5 1637 1272 40 32 96.260628 of5 1 2 7 1 6 1698 1271 205 39 96.145287 $3,000,0005 1 2 7 1 7 1925 1271 31 31 93.167770 is5 1 2 7 1 8 1977 1269 62 39 82.296524 liq-4 1 2 7 2 0 719 1320 1320 42 -1 5 1 2 7 2 1 719 1325 58 31 95.844017 uid5 1 2 7 2 2 805 1325 70 32 95.952873 ands 1 2 7 2 3 903 1325 174 32 96.245255 available5 1 2 7 2 4 1103 1326 38 30 96.185844 to5 1 2 7 2 5 1168 1323 146 39 96.268578 provides 1 2 7 2 6 1341 1323 164 32 96.463448 financial5 1 2 7 2 7 1535 1331 184 23 96.192429 resources5 1 2 7 2 8 1748 1321 69 32 95.698578 ands 1 2 7 2 9 1848 1320 126 38 95.698578 ability5 1 2 7 2 10 2002 1321 37 30 96.579163 to4 1 2 7 3 0 715 1375 1341 32 -1 5 1 2 7 3 1 715 1375 139 32 84.983162 ‘services 1 2 7 3 2 867 1375 187 32 95.355560 members.5 1 2 7 3 3 2048 1404 8 3 35.638840 .3 1 2 8 0 0 719 1419 1323 198 -1 4 1 2 8 1 0 765 1419 1272 41 -1 5 1 2 8 1 1 765 1426 51 30 94.434326 11.5 1 2 8 1 2 844 1425 179 31 95.602600 Members5 1 2 8 1 3 1049 1434 61 21 96.107384 ares 1 2 8 1 4 1136 1423 147 32 96.107384 assured5 1 2 8 1 5 1310 1434 21 21 96.697067 a5 1 2 8 1 6 1356 1422 186 32 96.697067 minimums 1 2 8 1 7 1572 1423 41 30 95.964294 105 1 2 8 1 8 1640 1422 147 38 96.684509 percent5 1 2 8 1 9 1813 1420 161 32 96.747437 increases 1 2 8 1 10 2002 1419 35 31 96.774590 in4 1 2 8 2 0 719 1470 1319 40 -1 5 1 2 8 2 1 719 1475 162 31 96.624451 business5 1 2 8 2 2 892 1474 137 35 96.267067 within5 1 2 8 2 3 1051 1473 59 32 97.009834 thes 1 2 8 2 4 1131 1473 80 32 96.680717 firsts 1 2 8 2 5 1233 1474 41 35 96.504539 125 1 2 8 2 6 1294 1473 142 47 96.508163 months5 1 2 8 2 7 1460 1472 106 38 96.835373 using5 1 2 8 2 8 1588 1470 247 39 96.189323 respondents’5 1 2 8 2 9 1858 1479 180 29 96.706253 program,4 1 2 8 3 0 720 1518 1319 39 -1 5 1 2 8 3 1 720 1518 69 38 96.475113 ands 1 2 8 3 2 805 1524 105 31 96.384453 that5 1 2 8 3 3 903 1534 35 21 96.384453 in5 1 2 8 3 4 955 1524 61 31 96.831879 thes 1 2 8 3 5 1034 1524 104 30 95.783295 events 1 2 8 3 6 1155 1523 112 31 96.259949 such5 1 2 8 3 7 1259 1518 158 36 0.000000 increases 1 2 8 3 8 1432 1522 85 32 96.353111 does5 1 2 8 3 9 1537 1523 61 30 95.755219 not5 1 2 8 3 10 1615 1520 232 37 93.272705 materialize,5 1 2 8 3 11 1867 1518 172 33 92.306999 member-4 1 2 8 4 0 719 1572 873 45 -1 5 1 2 8 4 1 719 1575 79 36 96.910881 ships 1 2 8 4 2 814 1574 85 31 96.697876 dues5 1 2 8 4 3 914 1574 71 31 96.738800 will5 1 2 8 4 4 1000 1574 43 31 96.965973 be5 1 2 8 4 5 1057 1572 136 45 96.664711 waived5 1 2 8 4 6 1207 1573 60 31 96.796707 for5 1 2 8 4 7 1280 1572 60 32 96.897247 thes 1 2 8 4 8 1354 1572 127 31 96.374237 seconds 1 2 8 4 9 1495 1581 97 28 96.960411 year.3 1 2 9 0 0 718 1617 1321 194 -1 4 1 2 9 1 0 766 1617 1273 45 -1 5 1 2 9 1 1 766 1625 51 30 96.260361 12.5 1 2 9 1 2 845 1623 247 39 95.873940 Respondents5 1 2 9 1 3 1121 1633 62 21 96.606430 ares 1 2 9 1 4 1210 1623 175 30 96.527710 members5 1 2 9 1 5 1414 1621 36 32 95.989029 in5 1 2 9 1 6 1480 1621 88 39 96.627769 goods 1 2 9 1 7 1599 1620 172 38 96.303139 standings 1 2 9 1 8 1800 1620 40 31 96.016556 of5 1 2 9 1 9 1868 1628 46 22 92.141769 an5 1 2 9 1 10 1944 1617 95 32 92.141769 inde-4 1 2 9 2 0 720 1666 1318 45 -1 5 1 2 9 2 1 720 1674 154 37 96.253174 pendent5 1 2 9 2 2 890 1673 248 38 96.272743 organizations 1 2 9 2 3 1156 1672 46 38 96.904091 by5 1 2 9 2 4 1219 1672 60 32 96.321983 thes 1 2 9 2 5 1297 1681 102 22 96.690582 names 1 2 9 2 6 1417 1671 39 32 96.690582 of5 1 2 9 2 7 1472 1671 60 31 96.342934 thes 1 2 9 2 8 1552 1670 86 31 96.310104 Fair5 1 2 9 2 9 1657 1670 117 31 96.310104 Trades 1 2 9 2 10 1792 1669 157 35 96.403450 Bureau;5 1 2 9 2 11 1969 1666 69 32 96.403450 anda 1 2 9 3 0 718 1716 1321 39 -1 5 1 2 9 3 1 718 1723 79 32 96.918961 that5 1 2 9 3 2 817 1723 61 32 96.887039 thes 1 2 9 3 3 899 1723 125 32 95.921234 Better5 1 2 9 3 4 1045 1722 171 32 95.921234 Business5 1 2 9 3 5 1238 1722 140 31 96.644577 Bureaus 1 2 9 3 6 1401 1721 65 31 96.864304 has5 1 2 9 3 7 1488 1721 144 31 96.023048 written5 1 2 9 3 8 1657 1730 44 20 96.023048 an5 1 2 9 3 9 1726 1717 231 37 93.297714 uncensored,5 1 2 9 3 10 1982 1716 57 32 93.188225 ob-4 1 2 9 4 0 718 1771 811 40 -1 5 1 2 9 4 1 718 1773 129 36 96.759384 jective5 1 2 9 4 2 871 1774 123 37 96.440506 reports 1 2 9 4 3 1017 1783 44 21 96.698471 on5 1 2 9 4 4 1087 1772 244 38 95.965622 respondents’5 1 2 9 4 5 1355 1771 174 32 96.266357 business.2 1 3 0 0 0 718 1839 1322 386 -1 3 1 3 1 0 0 766 1839 422 37 -1 4 1 3 1 1 0 766 1839 422 37 -1 5 1 3 1 1 1 766 1839 37 32 91.929268 C.5 1 3 1 1 2 830 1839 51 31 96.502365 To5 1 3 1 1 3 895 1839 187 37 96.127121 members,5 1 3 1 1 4 1096 1839 92 30 96.814941 that:3 1 3 2 0 0 719 1881 1320 145 -1 4 1 3 2 1 0 766 1881 1273 46 -1 5 1 3 2 1 1 766 1890 28 31 95.555092 1.5 1 3 2 1 2 822 1889 119 38 96.629410 Every5 1 3 2 1 3 958 1889 115 32 95.972969 credits 1 3 2 1 4 1090 1888 131 38 96.616127 charges 1 3 2 1 5 1240 1887 192 33 95.765884 submitted5 1 3 2 1 6 1450 1887 47 37 96.182487 by5 1 3 2 1 7 1515 1886 177 32 96.674591 members5 1 3 2 1 8 1712 1884 31 33 96.676857 is5 1 3 2 1 9 1763 1884 142 38 96.816116 subjects 1 3 2 1 10 1923 1884 37 30 96.530243 to5 1 3 2 1 11 1979 1881 60 33 96.991089 thea 1 3 2 2 0 719 1934 1320 41 -1 5 1 3 2 2 1 719 1940 91 30 96.834076 most5 1 3 2 2 2 835 1939 178 31 96.357819 intensive5 1 3 2 2 3 1038 1938 181 32 96.055862 collections 1 3 2 2 4 1246 1937 193 38 95.948402 procedures 1 3 2 2 5 1465 1937 36 31 96.511055 in5 1 3 2 2 6 1527 1936 61 31 96.214012 thes 1 3 2 2 7 1614 1935 114 32 96.172180 credits 1 3 2 2 8 1754 1934 179 37 92.990189 industry,5 1 3 2 2 9 1961 1942 78 22 92.390938 con-4 1 3 2 3 0 719 1985 1070 41 -1 5 1 3 2 3 1 719 1989 130 37 96.837761 sisting5 1 3 2 3 2 870 1989 41 31 96.703743 of5 1 3 2 3 3 928 1988 139 38 96.183945 billing,5 1 3 2 3 4 1089 1988 138 32 96.096817 outside5 1 3 2 3 5 1249 1987 181 32 96.479965 collections 1 3 2 3 6 1453 1986 68 32 96.238235 ands 1 3 2 3 7 1546 1986 88 38 96.258507 legal5 1 3 2 3 8 1660 1985 129 31 96.528282 action.3 1 3 3 0 0 718 2033 1322 192 -1 4 1 3 3 1 0 765 2033 1275 40 -1 5 1 3 3 1 1 765 2039 29 30 94.104591 2.5 1 3 3 1 2 821 2038 112 32 96.768097 When5 1 3 3 1 3 962 2049 20 20 96.981949 a5 1 3 3 1 4 1009 2037 158 32 96.599533 members 1 3 3 1 5 1193 2037 159 31 96.763893 becomes5 1 3 3 1 6 1381 2036 152 32 96.663879 inactive5 1 3 3 1 7 1561 2035 70 32 96.614349 ands 1 3 3 1 8 1660 2034 238 39 93.210876 respondents5 1 3 3 1 9 1927 2033 113 32 91.817459 deter-4 1 3 3 2 0 720 2081 1319 43 -1 5 1 3 3 2 1 720 2088 93 31 96.293564 mines 1 3 3 2 2 838 2088 56 31 96.293564 his5 1 3 3 2 3 919 2089 151 30 96.328201 accounts 1 3 3 2 4 1095 2088 30 31 96.328201 is5 1 3 3 2 5 1151 2088 35 30 96.408752 in5 1 3 3 2 6 1213 2097 154 27 96.434326 arrears,5 1 3 3 2 7 1396 2085 233 39 96.310997 respondents5 1 3 3 2 8 1656 2085 71 31 96.540558 will5 1 3 3 2 9 1756 2083 167 33 96.173935 institutes 1 3 3 2 10 1950 2081 89 39 96.830849 legal4 1 3 3 3 0 720 2130 1319 41 -1 5 1 3 3 3 1 720 2138 116 32 96.291977 actions 1 3 3 3 2 856 2138 60 32 96.291977 for5 1 3 3 3 3 936 2138 60 32 96.658440 thes 1 3 3 3 4 1016 2137 181 33 95.992912 collections 1 3 3 3 5 1219 2137 40 31 95.992912 of5 1 3 3 3 6 1278 2136 84 32 96.670540 such5 1 3 3 3 7 1384 2136 135 32 96.901817 monies5 1 3 3 3 8 1542 2135 119 32 96.445259 unless5 1 3 3 3 9 1682 2134 86 37 96.203094 they5 1 3 3 3 10 1789 2143 62 21 96.613876 ares 1 3 3 3 11 1874 2130 165 34 96.617538 remitted4 1 3 3 4 0 718 2185 876 40 -1 5 1 3 3 4 1 718 2188 46 36 78.759636 hy5 1 3 3 4 2 778 2188 60 31 95.815544 thes 1 3 3 4 3 853 2188 157 31 96.256279 members 1 3 3 4 4 1025 2189 36 29 96.651825 to5 1 3 3 4 5 1077 2187 233 38 96.340744 respondents5 1 3 3 4 6 1325 2196 92 28 96.598587 upon5 1 3 3 4 7 1434 2185 160 33 96.096756 demand.2 1 4 0 0 0 720 2253 1321 255 -1 3 1 4 1 0 0 766 2253 542 44 -1 4 1 4 1 1 0 766 2253 542 44 -1 5 1 4 1 1 1 766 2255 85 31 95.136902 Par.5 1 4 1 1 2 868 2255 30 31 94.310440 6.5 1 4 1 1 3 910 2255 43 42 94.310440 In5 1 4 1 1 4 969 2254 102 31 96.817917 truth5 1 4 1 1 5 1087 2254 68 31 96.394516 ands 1 4 1 1 6 1171 2253 35 31 96.791481 in5 1 4 1 1 7 1221 2253 87 31 96.477104 fact:3 1 4 2 0 0 720 2298 1319 100 -1 4 1 4 2 1 0 765 2298 1274 52 -1 5 1 4 2 1 1 765 2313 40 31 96.058693 A.5 1 4 2 1 2 832 2298 98 46 96.842438 With5 1 4 2 1 3 953 2313 138 37 96.411720 respects 1 4 2 1 4 1112 2313 37 30 96.411720 to5 1 4 2 1 5 1169 2311 60 32 96.663223 thes 1 4 2 1 6 1251 2310 303 39 96.116417 representations5 1 4 2 1 7 1577 2309 157 32 96.366676 directed5 1 4 2 1 8 1757 2310 37 30 96.705177 to5 1 4 2 1 9 1817 2306 222 40 96.570450 prospective4 1 4 2 2 0 720 2358 446 48 -1 5 1 4 2 2 1 720 2358 234 48 96.524452 franchisees:5 1 4 2 2 2 1164 2396 2 2 34.221245 =.3 1 4 3 0 0 720 2415 1321 93 -1 4 1 4 3 1 0 769 2415 1270 43 -1 5 1 4 3 1 1 769 2422 28 29 95.723068 1.5 1 4 3 1 2 825 2420 235 32 95.953186 Franchisees5 1 4 3 1 3 1088 2420 127 38 96.487968 selling5 1 4 3 1 4 1242 2418 257 39 95.869049 memberships5 1 4 3 1 5 1529 2418 36 31 95.869049 in5 1 4 3 1 6 1594 2415 247 41 96.373871 respondents’5 1 4 3 1 7 1872 2423 167 31 96.605789 program4 1 4 3 2 0 720 2464 1321 44 -1 5 1 4 3 2 1 720 2470 89 32 96.304649 have5 1 4 3 2 2 827 2472 63 30 96.692108 not5 1 4 3 2 3 908 2470 159 32 96.245918 received5 1 4 3 2 4 1087 2469 185 39 96.771080 profitable5 1 4 3 2 5 1292 2469 168 38 95.675842 earnings5 1 4 3 2 6 1480 2468 96 32 95.443184 from5 1 4 3 2 7 1595 2467 60 32 95.443184 thes 1 4 3 2 8 1676 2467 73 32 96.343246 sales 1 4 3 2 9 1769 2466 41 32 96.343246 of5 1 4 3 2 10 1828 2467 71 30 96.404701 two5 1 4 3 2 11 1918 2466 37 30 96.727394 to5 1 4 3 2 12 1975 2464 66 30 96.673660 five UNIVERSAL CREDIT ACCEPLANULD Uv. oe -- 570 Complaint memberships per week, and have not remained active franchisees selling memberships for many years. A substantial number of franchisees do not achieve either a return of their original in- - ~vestment or even one year longevity as franchisees actively pursuing sales*efforts.

Further, respondents fail to disclose to prospective franchiseés relevant information, which would assist such prospects in evaluating the probabilities of their success and chances of achieving longevity as franchisees, and which would lessen the potential for deception, including: the median and mean earnings from the sale of memberships by franchisees associated with respondents during the previous calendar or fiscal year; the median and mean length of time that said franchisees pursued membership sales efforts; the median and mean period of time that members associated with respondents’ program during the previous calendar or fiscal year submitted payment vouchers for credit charges using respondents’ program; the number of such members submitting said payment vouchers each month; the rate or degree of recoursing such credit charges back to members during the previous calendar or fiscal year; and, the full number and nature of reasons for which respondents recourse charges to members.

2. Respondents’ program has not been and cannot be sold with ease to retail merchants. ;

8. Solicited prospective franchisees do risk losing the money they expend for air fare in coming to Burlingame, California for an interview. Respondents authorize the reimbursement of prospects’ air fare expenses only upon the payment of the funds required to accompany applications.

4, Solicited prospective franchisees do risk losing their deposits or downpayments submitted with applications for franchises and such deposits or downpayments are not refundable if the appliecants withdraw or otherwise do not consummate the franchise agreements.

5. In a substantial number of instances, the geographical areas offered to prospective franchisees have been previously franchised and were not profitable for the prior franchisees. 6. Respondents do not limit the number of sales franchises offered.

7. There is no “Regional Manager” of respondents who is interviewing other franchise applicants in each area, but rather all persons responding to respondents’ invitation for inquiries receive Complaint 82 F.T.C.

the same form letter stating that said ‘“Regional Manager” is interviewing other interested persons for the same franchise area. In few, if any, instances need-prospective franchisees act immediately to be considered for a franchise.

8. Franchise holders do not receive substantial benefits from renewals of memberships, or from annual bonuses based on a percentage of net credit charges submitted by members in each franchisee’s territory.

9. Franchise holders do risk losing their investment. Respondents do not repurchase the franchise, and in those instances where respondents do aid in its resale, they retain at least half of the amount for which it is resold. The franchise is not a vested property right which may be sold, assigned, transferred or testated. If a franchise holder does not produce the sales quota set forth in his franchise agreement, the franchise may be terminated by respondents.

B. With respect to the representations directed to both prospective franchisees and prospective members: 1. Respondents’ program has not received national acceptance. 2. There are not thousands of members honoring all credit cards under respondents’ program each-and every month. 3. Not all credit charges submitted under respondents’ program are guaranteed payable without recourse. Respondents do not assume all risk of non-payment by the members’ customers. A substantial number of members have been neither successful nor satisfied with the program’s performance. A substantial number of members have not continued using respondents’ pregram for even one year, and have not renewed their contracts after the expiration of two years.

Further, respondents fail to disclose to prospective members relevant information, which would assist such prospects in evaluating the probabilities of their success and chances of achieving longevity as members, and which would lessen the potential for their deception, including: the median and mean period of time that members associated with respondents’ program during the previous calendar or fiscal year submitted payment vouchers for credit charges using the program; the number of such members submitting said payment vouchers each month; the rate or degree of recoursing credit charges back to members during the previous calendar or fiscal year; and, the full number and nature of reasons for which respondents recourse charges. UNIVERSAL UCNBULL AGUBP LANCE CUKY., Hi AL. diy 570 Complaint 4. Articles used to solicit sales of franchises and memberships are not unsolicited and impartial accounts about respondents’ program. Such accounts, for the most part, are prepared and placed _by representatives of respondents.

5, In many instances, letters and payment checks used to attest to the success of respondents’ program are unrepresentative and atypical, and are from franchisees and/or members who are no longer active with the program. Many of such letters and checks do not reflect an unbiased evaluation of respondents’ program. Furthermore, respondents fail to disclose that many testimonial letters have been prepared by representatives of respondents and many are from persons who received remuneration or other heneficial consideration from respondents, so as to mislead and deceive prospective franchisees and members with respect thereto. 6. Respondents’ program does not cost members little or nothing at all. The program does not cost members half as much as trading stamps. Taking into account the initial membership fee, the monthly dues, the discount rate, the total amount of charges recoursed, and the 6 percent discount fee paid even on recoursed charges, the program costs the members a substantial amount. 7. The forms which members must complete to process credit charges are not simple and are burdensome to fill out in practice. Members do not receive payment for each credit charge submitted to respondents in 30 days.

8. Respondents are not the largest credit ecard clearing house in America. There are other credit card operations with larger retail memberships and with larger amounts of financial resources than respondents’ business.

9. Respondents’ program has not been approved or endorsed by the individual issuers of the credit cards accepted by ree spondents.

10. Respondents’ authorized capitalization of $3,000,000 is not liquid and available to provide financial resources and ability to service members. It is merely the amount selected by respondents as the sum on which the fee to be paid to the California Corporations Commissioner was determined. Further, respondents fail to disclose the relevant information that their net working capital is a deficit, so as to mislead and deceive prospective franchisees and prospective members with regard to respondents’ financial condition. ° .

11. In most instances, members have not realized a minimum 10 percent increase in business within the first 12 months using Complaint 82 F.T.C.

respondents’ program, and have not received a waiver of membership dues the second year. . -. - 12. Respondents are not members of an independent organization by the name of the Fair Trade Bureau. The Fair Trade Bureau is a division of respondents, having no members or function at present, other than its use as a reference in the materials disseminated by respondents. The Better Business Bureau report evaluating respondents’ business is not an uncensored, objective document.

C. With respect to the representations directed to members: 1. Every credit charge submitted by members is not subject to the most intensive collection procedure in the credit industry, consisting of billing, outside collection and legal action. Respondents’ collection efforts are not uniformly intensive, but are determined by the dollar amount of each individual charge. Respondents do not in practice institute legal action against delinquent customers. Further, respondents fail to disclose to members and to debtor-customers, at any time, that North American Collections, the agency to which delinquent accounts are turned © over, is not an outside agency,.but. rather an affiliated division of respondents.

2. Respondents have not instituted legal action against inactive members whose accounts respondents have determined are in arrears.

Therefore, the statements and representations, as set forth in Paragraphs Four and Five hereof, were and are-false, misleading and deceptive.

Par. 7. Furthermore, it was and is an unfair practice and a false, misleading and deceptive act and practice for respondents to seek to sell their franchises, memberships and credit card services in the manner set forth in Paragraphs Four and Five hereof, while they knew or, as reasonably prudent businessmen, should have known, that their “Honor All Credit Card” program would not operate and produce results as represented. Moreover, it was and is an unfair practice and a false, misleading and deceptive act and practice for respondents to seek to sell franchises in the manner aforesaid when respondents knew or, as reasonably prudent businessmen, should have known that the realization of profit by franchisees contemplates, and is necessarily predicated upon, the exploitation of member VAN AV adaweeds Cave eh LRU Add ALAN UUEMe ey asd dane FUL r 570 Complaint retailers who must be induced to participate in respondents’ program by misrepresentations.

At no time did respondents notify any persons who expended money in reliance upon respondents’ statements and representa- ~ Hons that-their money would_be refunded-if respondents knew , as reasonably prudent businessmen, should have known that respondents’ program would not operate and produce results as represented, and if in fact such persons found in practice that the program did not operate and produce results as represented. Meanwhile, the operations and practices of respondents alleged herein were and are perpetuated for an indeterminate period of time with the monies obtained from such persons who expended sums in reliance upon respondents’ statements and representations. .

Therefore, the aforesaid failure of respondents to notify and refund to persons who acted in reliance upon said statements and representations set forth in Paragraphs Four and Five hereof, all monies expended by such persons, was and is inherently and unconscionably unfair and deceptive. Par. 8. In the course and conduct of their aforesaid business, and at. all times mentioned herein, respondents International Credit Card Corporation, also trading as National Credit Service, has been, and respondents Universal Credit Acceptance Corporation, Continental Credit Card. Corporation, Heater and Gingold have been, and now are, in substantial competition, in commerce, with corporations, firms and individuals in the sale of franchises or distributorships to persons interested in establishing their own businesses, and with corporations, firms and individuals in the sale of credit card services. Par. 9. The use by respondents of the aforesaid unfair acts and ~ false, misleading and deceptive statements, representations and practices, has had and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into investing substantial sums of money in becoming franchisees to sell respondents’ services, and into investing substantial sums of money in becoming members of respondents’ program for the use of respondents’ services, and into the payment of substantial sums of money by reason of said erroneous and mistaken belief.

Par. 10. The aforesaid acts and practices of respondents, including their failure to refund all monies expended by persons who Initial Decision 82 F.T.C.

acted in reliance upon respondents’ statements and representations, as.herein alleged, were and are all to‘the prejudice and injury of the public and of respondents’ competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act. Mr. Alfred Lindeman, William A. Arbitman, and William T. Mitchell supporting the complaint.

Young and Gush, San Mateo, Ca., by Mr. Alfred L. Young, counsel for respondents.

INITIAL DECISION By Raymond J. LYNCH, HEARING EXAMINER FEBRUARY 29, 1972 PRELIMINARY STATEMENT The complaint in this proceeding was issued on October 6, 1970, charging the corporate and individual respondents with violations of Section 5 of the Federal Trade Commission Act through the use of unfair or deceptive acts and practices and unfair methods of competition in commerce in the sale of “franchises” and “memberships” in their “Honor All Credit Card” program. Respondents filed an answer to the complaint on December 17, 1970. A prehearing conference was held on February 10, 1971 in San Francisco, California, at which time the examiner set the matter for formal hearings on May 18, 1971. Subsequent thereto on April 19, 1971, counsel supporting the complaint filed a motion to amend the complaint which was denied by the Commission on ° — July 21, 1971.

The matter finally came on for hearing before the undersigned examiner on November 2, 1971, and concluded on November 11, 1971. Pursuant to an order issued by the Commission granting the respondents an extension of time in which to file proposed findings, they were filed on January 17, 1972. Respective counsel were afforded full opportunity to be heard, to examine and cross-examine all witnesses and to introduce such evidence as.is provided for under Section 3.43(b). of the Commission’s Rules of Practice for Adjudicative Proceedings. Proposed findings of fact and conclusions submitted and not adopted in substance or form as herein found and concluded are hereby rejected. After carefully reviewing the entire record in this proceeding and based on such record and the observation of the witnesses testify- UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. DSS 570 Initial Decision ing herein, the following Findings of Fact and Conclusions therefrom are made, and the following Order issued. Nature of Respondents’ Business and Business Methods Respondents in this proceeding are promoting an “Honor All Credit Card” program. The primary basis of the program is the sale by respondents of franchises to individuals which permits them to act as salesmen for memberships in respondents’ program. Member merchants can extend credit to holders of selected credit cards (including the cards issued by the major banks, oil companies and other issuers such as American Express, Diner’s Club, and Carte Blanche) and send the charge tickets to respondents who bill the customer and remit payments to the merchant. Advertised and promoted as a nonrecourse program, 1.e., the merchant gets paid by respondents whether or not the latter collect, and one under which the merchant is guaranteed payment in 30 days, it has great surface appeal. It opens up a vast market of customers to whom merchants can ostensibly extend credit without risk of loss and without the administrative problems connected with handling accounts receivable. Furthermore, since respondents portray themselves as a large, well-respected financial institution ($3,000,000), any concern about their reliability and financial dependability is dispelled.

Beneath the surface of this program, however, lies something entirely different. After having paid, or obligated themselves to pay, a $240 membership fee, $240 in dues, and a 6 percent discount fee on all charges submitted, members soon discover that respondents avoid paying charges which they can’t collect by citing one or more of at least 18 different reasons why they are not obligated to pay. Members also discover that, rather than receiving payment ~ for charges within 30 days from the date they are submitted, payment is not received until anywhere from 45 to 75 days later. As a result of this treatment and despite the fact that they signed a two-year contract, member merchants give up in despair and, Swallowing their losses, stop using the program after about seven to eight months on the average. Typically, in addition to having paid what is not an insignificant sum for a service that was never delivered, members have, in fact, risked and lost money for charges recoursed: by respondents.

Since the program as administered has no merit and results in financial loss and aggravation to merchants, franchisees who Initial Decision 82 F.T.C.

purchase the rights to sell it are also destined to fail and have failed miserably. @ “What the record establishes is that these respondents have perpetrated a scheme fraught with misrepresentations from which they try to insulate themselves by using devious contractual language, not intended or likely to be read and not clearly understandable, even if actually read. Respondents have cleverly calculated the program to enrich only themselves at the expense of ‘innocent small businessmen lured into it as members and franchisees.

FINDINGS OF FACT ; - 1. Respondent Universal Credit Acceptance Corporation is a corporation organized, existing, and doing business under and by virtue of the laws of the State of California,’ with its principal office and place of business located at 218 California Drive, Burlingame, California (deemed admitted by respondents’ Answer). 2. Respondent Continental Credit Card Corporation is a corporation organized, existing and doing business under and by virtue of the laws of the State of California, with its principal office and -place of business. located at 218 California Drive,’ Burlingame, California (deemed admitted by respondents’ Answer; see also CX 6 A-D).

3. Respondent International Credit Card Corporation, also trading as National Credit Service, is a corporation organized, existing, and formerly doing business under and by virtue of the laws of the State of California,* with its principal office and place of. business formerly located at 2305 South EI Catnino Real, San Mateo, California (deemed admitted by respondents’ Answer; see also CX 1 A-L). Said corporation, though dormant, has never been dissolved (Heater, Tr. 765).

4. Respondent John Clifford Heater is an individual and an officer of Universal Credit Acceptance Corporation and International Credit Card Corporation. His business address is the same as the corporate respondent Universal Credit Acceptance Corporation. Respondent Howard P. Gingold is an individual and 1 Universal Credit Acceptance Corporation has apparently also been incorporated in the State of Nevada on March 1, 1971 (Cerino, Tr. 680-682). 2 Although the address used on letterheads by Continental Credit Card Corporation is 216 California Drive, Burlingame, California, there is ample evidence in the record to the effect that both 216 and 218 California Drive are in fact the same entrance to the same building (Fish, Tr. 172; MacDonald, Tr. 540).

3 International Credit Card Corporation was apparently also incorporated in the State of Nevada (Heater, Tr. 763).

Va a vate ees Vaves ee AAU asd 2d RL TA Uuaveey asa saase wee 570 Initial Decision is an officer of Continental Credit Card Corporation, and his business address is the same as said corporate respondent (deemed admitted by respondents’ Answer).

5. Respondents’ “Honor All Credit Card” program entitles mer- -~ehant members to sell their respective products and services to customers presenting any one of a large number of credit cards approved by respondents, and to submit such credit charges to respondents. Respondents collect the charges from customers of members and remit payment to the members (deemed admitted by respondents’ Answer). Members are initially sold by home office membership salesmen or by franchisees. The membership contracts are between the retail merchant and Continental Credit Card Corporation (CX 136 A-B, CX 179 Z-88, CX 181 A-B, CX 218 A-B). There is then a paper transfer of the contracts to Universal Credit Acceptance Corporation (Fish, Tr. 84; Cérino, Tr. 692). Universal Credit Acceptance Corporation handles the collections from customers of members as well as all subsequent payments and dealings with the members themselves after the membership is sold (CX 45 H, CX 46 H).

6. Respondent Heater has been and is primarily responsible for establishing, supervising, directing and controlling the acts and practices of each of said corporate respondents. The “Honor All Credit Cards” program and concept was started by him in 1953 (CX 45 B-C). During the time period pertinent to this complaint, respondent Heater or his family held all issued stock and respondent Heater himself was the responsible official of all the respondent corporation.’ He was an incorporator and director of International Credit Card Corporation (CX 1 A-L); he and his father were the only stockholders; and respondent Heater was its president (Heater, Tr. 764-65). Respondent Heater also hired and trained salesmen for National Credit Service and International Credit Card Corporation (Heater, Tr. 766). Respondent Heater has owned all of the outstanding stock of Universal Credit Acceptance Corporation throughout the period pertinent to this proceeding (Heater, Tr. 759).

7. Respondent Heater has been president and the controlling, directing and dominating influence of Universal Credit Acceptance Corporation throughout the period pertinent to this proceeding (CX 45 D~E). Respondent Heater is similarly the primary individual responsible for establishing, supervising, directing and ‘The nominal president of Continental describes his title as ‘ceremonial’ (Gingold, ‘Tr. 703-04, 784).

Initial Decision 82 F.T.C.

controlling the acts and practices of Continential Credit Card Corporation during the period pertinent to this proceeding (Heater, Tr. 753, 771). Recent ex-employees identified him as the functioning, operating head of both Universal Credit Acceptance Corporation and Continental Credit Card Corporation (Fish, Tr. 78; O’Flaherty, Tr. 411-12; MacDonald, Tr. 541). Also, respondent Heater admitted his role in providing sales instructions to Continental Credit Card Corporation’s franchise salesmen (Heater, Tr. 895). Although Heater has nominally stepped down as president of Universal Credit Acceptance Corporation as of June 1971, he, the new president, Lawrence Cerino, and the president of Continental Credit Card Corporation all acknowledge Heater’s clear responsibility prior to June 1971 (Heater, Tr. 758— 59; Cerino, Tr. 683-84; Gingold, Tr. 704). 8. Respondent Gingold, in addition to his functions as president of respondent Continental Credit Card Corporation, also acts and has acted as a salesman of franchises for said corporation (deemed . admitted by respondents’ Answer; Gingold, Tr. 703). In addition, respondent Gingold is in part personally responsible for many of the advertising claims that are the subject of the instant complaint (Gingold, Tr. 705-06; O’Flaherty, Tr. 478), although the approval of the copy for same came from John Heater (Gingold, Tr. 707). 9. United Credit Card Corporation, although not named as a respondent in this proceeding, was incorporated in both the State of California and Nevada in February and March of 1971 (CX 7 A-C, CX 8 E).

A representative of the State of California Corporations Commissioner’s Office appeared as a witness and testified-that in March of 1971, an application was filed under the California Franchise Investment Law in behalf of United Credit Card Corporation, a California corporation, intending to operate an “Honor All Credit Cards” business. Under the applicable procedures, information was received regarding the address, officers and salesmen of United Credit Card Corporation, as well as samples of the franchise agreements and advertising to be used. This information indicates that United Credit Card Corporation was to operate at the identical address as the respondents herein, and that while the officers were to be different than the named officers of the corporate respondents during the time period pertinent to this complaint, the franchise salesmen included John Kadwell and Howard Gingold, both of whose participation in the operation of the corporate respondents is fully documented in the record UNIVERSAL CREDIT ACCEPTANGH Uuni., aa sane 570 Initial Decision (Davidson, Tr. 290-94; Winstead, Tr. 360-62; Tronca, Tr. 663-— 66). The shareholders to whom stock is to be issued in United Credit Card Corporation include Mae Heater, the wife of respon- ~—dent John. Heater. The franchise agreements to be used by United Credit Card Corporation are identical in-every respect, except for the corporate name, to those of the respondents, and the direct mail advertisements to be used by United Credit Card Corporation are similarly identical to those of the respondents (Olcomendy, Tr. 902-04; CX 20 A~B, CX 21 A-B, CX 22, CX 127, CX 128, CX 129 A-B, CX 237-89).

United Credit Card Corporation was formed after the complaint was filed in this proceeding.

10. Despite many name changes occurring since the inception of the “Honor All Credit Cards” program, the operation has remained essentially a continuation of the concept begun by respondent Heater in 1953. It was operated under the name National Credit Service from 1953 until 1959, when International Credit Card Corporation was formed (CX 1 A-L); the operation thereafter was conducted under the name National Credit Service, a division of International Credit Card Corporation (Heater, Tr. 764-65). International Credit Card Corporation sold memberships in the “Honor All Credit Cards” program throughout the United States and Canada, employing from 10 to 20 salesmen (Heater, Tr. 766-67). Universal Credit Acceptance Corporation was incorporated in 1964 (CX 5 A-F) and Continental Credit Card Corporation in 1965 (CX 6 A-~D). Whereas previously memberships in the program were sold only by company salesmen, in 1963 respondent Heater began to sell franchises to individuals who would in turn sell memberships in the program to merchants in their respective areas (Heater, Tr. 767). Eventually, Continental , Credit Card Corporation took over the function of the sale of franchises and memberships from International Credit Card Corporation, operating as a “sales affiliate” of Universal Credit Acceptance Corporation (Heater, Tr. 770-71). Respondent Heater © admitted that International Credit Card Corporation was “essentially the same business of (sic) Continental Credit Card Corporation” (Heater, Tr. 765).

11. For all intents and purposes Universal Credit Acceptance Corporation and Continental Credit Card Corporation constitute one operation.

Raleigh Fish, who was respondents’ director of member rela- Initial Decision 82 F.T.C.

tions for 18 months from August 28, 1969 to February 20, 1971, testified that:

Continental Credit Card Corporation is the sales arm of Universal Credit Acceptance Corporation. They sell the document and make whatever other initial contacts are made to the prospective member merchants. Upon receiving a signature on the document, it is forwarded to the offices which in this case happen to be the same, and it is then accepted by Universal Credit Acceptance Corporation, which, I guess, is the signee (Fish, Tr. 84). Joseph N. O’Flaherty who was sales promotion manager and head of the franchise relations department, employed by respondents from February 1969 until August 1971, testified as follows: A. I worked for Continental Credit Card Corporation, and Universal Credit Acceptance Corporation.

Q. You worked for both corporations? A. Technically, yes.

Q. What do you mean by technically? THE WITNESS: I was paid, actually by Universal Credit Acceptance Corporation, however, I worked with franchisees, which was Continental Credit Card Corporation. So, since there was no definitive separation, I actually worked for both companies. I suppose one could argue it, as to which one I was working for, I really don’t know. I was paid by Universal, I worked for Continental (O’Flaherty, ‘Tr.- 411-12). Brian MacDonald, who was technically employed by Universal Credit Acceptance Corporation, testified that he had daily contact with people who worked for Continental Credit Card Corporation, namely the franchise sales force; and although Universal and Continental did not have the same street address, in reality both addresses were actually the same entrance to the same building, in which there were no separate offices designated for Universal and Continental (MacDonald, Tr. 539-40). 12. Respondent John Clifford Heater made a disingenuous effort to remove himself from his position of responsibility as of March 1971.

On March 1, 1971, Lawrence Cerino was made president of Universal Credit Acceptance Corporation (Cerino, Tr. 677, 680). Although Cerino was also named president of United Credit Card Corporation, it is apparent that respondent Heater is still in a sub rosa position of control and responsibility (Oleomendy, Tr. 902-03). The agent for service of process for the corporation in Nevada is his wife, Mae Heater (CX 8 B), and she is to be a stockholder of the California corporation using joint funds for & UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 38g 570 Initial Decision ‘this investment (Oleomendy, Tr. 903-04; Heater, Tr. 785). In any event, respondent Heater acknowledged that he gave approval for having the new corporation organized (Heater, Tr. 783), and he was knowledgeable about the current operations at the time of ~~ the-hearing (Heater, Tr. 798) .- soe Respondent Heater is still in ‘control of the corporate respondents. When Mr. O’Flaherty left the company, respondent Heater remained active in the day-to-day operations of the company without having diminished his activities in any respect, even though the presidency of Universal had been transferred to Lawrence Cerino (O’Flaherty, Tr. 444). Heater is paid a higher salary than Cerino (Cerino, Tr. 688), who does not even know who owns the stock in Universal (Cerino, Tr. 687), or in fact whether he is president of the California or the Nevada corporations (Cerino, Tr. 680-83).

18. Respondent International Credit Card Corporation, also trading as National Credit Service, was, and respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, John Clifford Heater, and Howard P. Gingold were, and are now, engaged in the advertising and offering for sale and sale of franchises which authorize the franchisees to sell retail mer-. chants memberships in respondents’ “Honor All Credit Cards” program (hereinafter referred to as respondents’ program), for the use of respondents’ credit card services,-and in the advertising and offering for sale, and sale of such services to retail merchants (deemed admitted by respondents’ Answer). 14. Respondents sell franchises to persons who invest a substantial sum of money as a condition to being granted exclusive rights to sell memberships in respondents’ program. An investigation of respondents’ records resulted in. atabulation ._. of all franchises sold by Continental Credit Card Corporation from January 1, 1967 to October 1969 (CX 190 A-Q). Said exhibit discloses that 172 franchises were sold and the total amount actually paid or invested for such franchises was $1,291,703.90 or an average of $7,509.91 per franchise. Respondents’ consolidated income statements for the years ending June 1969, 1968 and 1967 reflect income from “franchise rights” in the amounts of $475,632, $570,552, and $149,286 respectively (CXs 122-124). 15. Directly and through franchisees, respondents sell their credit card clearing services to retail merchants (hereinafter referred to as members) (deemed admitted by respondents’ Answer).

Initial Decision 82 F.T.C.

16. Retail merchants purchasing respondents’ program invest substantial sums of money as fees,-dues and service discounts on credit sales (CXs 122-124):

Year Ended Year Ended Year Ended June 30, 1969 June 30, 1968 June 30, 1967 Member Fees $257,633 $353,028 $226,509 Member Dues 301,900 235,976 131,190 Discounts 135,693 105,371 99,485 Totals $695,226 $694,375 $457,184 17. Respondents’ total annual volume of business for the years ended June 30, 1969 and June 30, 1968, was in excess of $1.25 million (CXs 122-28).

18. In the course and conduct of their business as aforesaid, respondent International Credit Card Corporation, also trading as National Credit Service, has caused, and respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, Heater and Gingold were, and are now, causing their advertising matter to be published in newspapers of interstate circulation and their promotional materials to be mailed or otherwise conveyed to various persons residing outside the State of California, in each and every State of the United States and in foreign countries (CXs 23-44). Advertising matter, applications,. contracts, franchise agreements, letters, checks and other communications have been sent and have been received between the respondents at their places of business located in California, and persons in various other States of the United States and in foreign countries (deemed admitted by respondents’ Answer; see also Krieger, Tr. 179-81; Davidson, Tr. 252—53, 255; Winstead, Tr. 328; Clay, Tr. 564-65; Lynema, Tr. 589-90). .

The franchises sold by respondents and the members sold by said franchisees (members actually contract with respondents) are located throughout the United States and Canada, the vast majority of which are located outside the State of California (CX 190 A-Q; see also CX 193 A-E, CX 194 A-E). 19. As. a result of said interstate advertising and promotion and as a result of said transmission and receipt of said written instruments and communications, respondents have maintained a substantial course of trade in said franchises and credit card services in commerce, as “commerce” is defined in the Federal Trade Commission Act.

UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. oY 570 Initial Decision 20. In the course and conduct of their business, respondents now engage in, and/or have engaged in, a continuing program of recruiting franchisees to sell respondents’ services and of selling memberships in respondents’ program (CX 45 B, CX 46 B). 21. Respondents solicit the sale of their franchises in the following manner and by the following means. Respondents publish, or cause to be published, in magazines and newspapers of regional and national circulation and disseminate through the mails advertisements inviting inquiries from persons interested in becoming franchisees (CXs 24-27, CX 48, CX 44; MacDonald Tr. 541-46, 549). To persons who respond to such invitations, respondents send through the mail advertising and promotional material containing many statements and representations regarding respondents’ services and the financial and other benefits to be enjoyed by persons who become franchisees of respondents (CX 45, CX 46, CXs 47-59). Persons who express further interest receive a telephone sales presentation by one of respondents’ sales representatives and, in most instances, are invited to visit respondents’ place of business, now in Burlingame, California (Gingold, Tr. 715-718, 723-728; see also Davidson, Tr. 252-58, 255; Winstead, Tr. 328-335; Krieger, Tr. 179-81; Clay, Tr. 564-65; Lynema, Tr. 589-90; England, CX 234 at pp. 2~8; McKinnon, CX 234 at pp. 3-4; Smith, CX 234 at p. 5; Hawkins, CX 234 at p. 6). 22. Respondents also disseminate said ‘advertisements, statements and representations through existing franchisees for the purpose of soliciting the sale of subfranchises, new franchises, and the resale of franchises. Respondents have a policy of attempting to elicit sales of additional franchises and subfranchises through their existing franchisees (Lynema, Tr. 617-21; Heater, Tr. 883-85). om 23. Typical and illustrative of said representations and statement to prospective franchisees appearing in advertising and promotional material, but not all inclusive thereof, are the following:

FULL OR PART TIME BUSINESS You can have a SECURE FUTURE as a business partner with America’s leading credit organization. Our unique service allows retail business firms to honor over 200 million credit cards now in use, including most major oil company cards * * * with guaranteed payment from us. Opportunity for EXCEPTIONALLY HIGH EARNINGS. $10,000 investment required. Partial financing considered. Renewals and bonuses insure Initial Decision 82 F.T.C.

permanent security and income. No age limit. For personal interview, write Universal Credit Acceptance Corp., Box 593, Burlingame, California 94010. WRITE TODAY, while your area is still available. DID YOU NOTICE THIS AD IN THE BUSINESS OPPORTUNITIES SECTION OF YOUR NEWSPAPER? ARE YOU LOOKING—for a profitable addition to your present income or business? Why not diversify with a non-competitive service that offers immediate profits and a virtually unlimited opportunity for future business expansion.

NOW—YOU CAN OBTAIN THE SALES RIGHTS for the “HONOR ALL CREDIT CARDS” program in your area. Through our program, any merchant, large or small, can make instant credit sales to more than 100 million credit card customers * * * with guaranteed payment. It is the most appealing business and sales promotion program on the market today! FIND OUT FOR YOURSELF! Ask any merchant if he would like to be able to accept the 3 leading all-purpose credit cards plus those issued by over 50 different oil companies—over 100 million potential customers— without risking his own money.

YOUR PROFITS ARE IMMEDIATE—THEY ARE SUBSTANTIAL— THEY ARE CONTINUOUS! This-.is the opportunity you’ve been waiting for * * * the chance to own a secure, profitable full or part-time business. Complete details can be yours at once. Simply fill out the attached card and MAIL TODAY (CX:.24 A-B; CX 25 A-B; CX 26 A-B; CX 46 A-L). 24. Respondents solicit the sale of their credit card services to members in the following manner and by the following means. Respondents disseminate through the mails to retail merchants _ advertisements and promotional material containing many statements and representations regarding respondents’ services and the financial benefits to be enjoyed by persons who become members (CXs 28-41). Leads resulting from responses to said mailings are forwarded to respondents’ franchise holders who also make such statements and respresentations directly with the aid of sales kits, and other material supplied to them by respondents (CX 45 I, CX 16 A, CX 17 A, CX 18 A, and CX 179 A-Z88). 25. Typical and illustrative of said representations and statements to prospective members, but not all inclusive thereof, is the following:

UNIVERSAL CREDIT ACCEPTANCE CORP., the nation’s largest credit eard clearing house, is your answer to increased business. You fill out just ONE simple form for any credit sale. You receive ONE BIG CHECK for all credit sales every month. It’s fast! It’s easy! It’s PROFITABLE! Pay- Wad AV Asawe nas Wave he SAU Edd ASRANUEY UUAVL oy SUL Dbde JUV 570 Initial Decision ment is guaranteed, non-resource (CX 88 B, copyright 1965; CX 39 B, copyright 1969).

26. By and through the above-quoted statements and representations, and others similar thereto but not expressly set out “hefein, amd in the course of oral salés presentations, respondents, their agents, representatives and employees, for the purpose of inducing the sale of franchises, memberships and credit card services, represent, and have represented, directly or by implication to prospective franchisees, that franchisees selling memberships in respondents’ program can expect to receive profitable earnings (from the sale of two to five memberships per week), and can expect to remain active franchisees selling memberships for many years. _ The earnings projection sheets used by respondents (CXs 47- 59) project income on a year-by-year basis over a four-year period based upon from two to five membership sales per week, showing total annual earnings mushrooming upward. These sheets also claim in footnotes that “changes of ownership among member firms and new businesses starting, as well as other economic factors, make market saturation impossible into the indefinite future.”

The advertisements employed by respondents refer to such things as a “secure future,” “exceptionally high earnings,” “renewals and’ bonuses insure permanent Security and income,” “profitable addition to your present income or business” (on a full or part-time basis), “immediate profits,” “your profits are immediate—they are substantial—they are continuous!,” “secure, profitable full or part-time business” (CX 24 A and CX 25 A); “expand your present earnings,” “guarantee your future,” “your profits are immediate * * * they are substantial * *'* and they are continous * * * on a full or part-time basis,” “a highly profitable business” (CX 26 A-B); and “financial success,” “opportunity,” “secure future” (CX 27 A).

The ‘Franchise Proposal” of respondents refers to “a franchise opportunity without parallel!,” “immediate income,” “residual earnings,” “participation in credit sales volume,” “insure immediate success,” “unlimited opportunity to expand the scope of his sales activities and income,” “security with a promising future,” “you can expect immediate and continuing success,” “no experience necessary,” “you can become successful * * * on a full or part-time basis,” “virtually insure an exceptional income » 66 Initial Decision 82 F.T.C.

for you,” “vested renewal will create an evergrowing fund of residual profit for you” (CX 45 A-L, CX 46 A-L). - Fn addition to the written: representations enumerated above, numerous witnesses testified as to the specific earnings representations made to them. Arnold Krieger was told that there was a “great deal” of money to be made from his franchise, in the neighborhood of $50,000 to $75,000 a year (Krieger, Tr. 181), that there was no failure rate among existing franchisees (Krieger, Tr. 182-83), and that there was no risk involved in his investing in a franchise, since his franchise was worth an estimated $25,000 (Krieger, Tr. 191). Respondent Howard Gingold told Clayton Davidson that his present $12,000 to $15,000 salary as a manager of a Stuckeys store in Las Vegas would be “peanuts” (Davidson, Tr. 299-300).

An ex-employee who had worked for respondents in franchising processing and. control testified that he frequently witnessed respondent Gingold making telephone presentations to franchise prospects in which he would mention that there were franchisees earning up to and including $80,000 per year (MacDonald, Tr. 548). The earnings claims attributed to Gingold by Davidson and MacDonald were not denied by Gingold at the hearing. Harold’ Jerome Winstead was told that “eight out of nine franchisees got rich’ and that within five years as a franchisee he would be a millionnaire, even working on a part-time basis (Winstead, Tr. 330-32). Richard Colfels testified that the sales pitch he received led him to think he could generate the same income he had been earning at General Motors, namely $30,000 a year (Colfels, Tr. 507-08, 511). Joe Clay, who.in fact failed to-. consummate a franchise agreement, testified that the sales presentation given to him indicated that he could make a “ton of money” as a franchisee (Clay, Tr. 566-67). Leonard Lynema was convinced by the earnings projection sheets indicating the amount he could make as a master franchisee based on five sales per week, 7.e.,.$32,130 to $48,295 a year (Lynema, Tr. 604; CX 47). Neil G. Labrum, who was sold an International Credit Card Corporation franchise, was told that he could earn $1,200 per month (CX 234, at pp. 1-2). Mahlon J. England received the earnings projection sheets (CXs 47-59) as well as representations that he could expect to earn at least $20,000 a year and that there was no limit to what he could earn as a franchisee (CX 234, at p. 2). Roy S. McKinnon received a document entitled “An Opportunity Without Parallel” (CX 188 A~B), the predecessor to wc nee Se te See ey a tte wee 570 Initial Decision the “Franchise Proposal” brochure (CX 45 A-L), and earnings projection sheets, as well as representations that he could earn $25,000 per year, even on a part-time basis (CX 234, at pp. 3-4). Mark Smith received the “Franchise Proposal” (CX 45 A-L), . ...the earnings projection sheets (CXs 47-59) and oral representations that’ he could reasonably expect to earn from $14,000 to $28,000 per year operating a franchise on a part-time basis (CX 234, at p. 5). Sam A. Hawkins was sold a franchise on the basis of the “Franchise Proposal” (CX 45 A-L), and the oral representations of the large amounts of money he could expect to make operating a franchise even on a part-time basis (CX 234, at p. 6). Albert G. Peek, after responding to an advertisement of respondents i. the March 1966 TV Guide, was sold by a representative of respondents who used earnings projection sheets and verbally represented that Peek would “make a million” (CX 234, at p. 6). 27. In truth and in fact, franchisees selling memberships in respondents’ program have not received profitable earnings from the sale of two to five memberships per week, and have not remained active franchisees selling memberships for many years. The overwhelming majority of franchisees do not achieve either a return of their original investment or even one year longevity as franchisees actively pursuing sales efforts. The substantial lack of earnings and of longevity of franchisees is clearly demonstrated from the tabulation of all franchises sold by Continental Credit Card Corporation from January 1, 1967 to October 1969 (CX 190 A-Q). This evidence demonstrates that . only 5 out of 172 franchisees earned even a return of their initial investment. That is, 97 percent failed to earn back their initial investment; 100 percent failed to earn the amounts projected in respondents’ earnings projection sheets (CXs 47-59). The fol- — lowing is a summary of the results of the 172 franchises * referred to:

Total franchise fees _.. 0.0 2. 1. . .. . --$1,898,879.70 Average franchise fee . oe 11,010.93 Total amounts paid oe 1,291,703.90 Average amount paid 7,509.91 Total earnings 249,211.66 It is noted that some of the 172 franchises actually operated under more than one franchise contract. The tabulation shows that the 172 franchises actually operated under a total of 206 franchise contracts.

Initial Decision 82 F.T.C.

Average earnings ____.________._.__.. wee ee 1,448.91 Average percentage of investment lost .... 81% ‘Average elapsed time from agreement date to ~ date of last earnings statement ° 8.61 months An examination of the number of the foregoing franchisees whose total earnings from selling memberships fell into various categories also reveals a clear pattern of failure: Number of Franchisees Who Attained Such Earnings Earnings $0 to $999 1038 $1,000 to $4,999 60 $5,000 to $9,999 6 $10,000 to $19,999 2 $20,000 or more ~ 1 It is noted that these earnings were not even necessarily attained in one year. For instance, the one franchisee who earned $20,099.80 took 23 months to do so (CX 190 A,.#2), and the two franchisees who earned between $10,000 and $20,000 needed 43 months and 21 months, respectively, to do so (CX 190 D, #47; CX 190 E, #59).

CX 190 (A-Q) demonstrates the length of time franchisees actually operated their franchisees compared to the various periods of time used by respondents in their earnings projection sheets . (CXs 47-59):

Number of franchise operations with longevity of one, tivo, three, and four years 0 to 12 months 140 13 to 24 months 27 25 to 86 months, a 3 37 to 48 months . 2 ; ~172 By definition, CX 190 A—Q is limited to the period January 1, 1967 through December 31, 1970, which would therefore only * Elansed time was measured by rounding off to the nearest whole month. 570 Initial Decision allow for a maximum longevity of four years. However, respondents’ “flow chart” of all franchisees active as of October 1969 ‘shows that there was absolutely no franchisee whose franchise predated January 1, 1967 (CX 189 A-C).

oe Most franchisees were able to_sell very few memberships and some coiildn’t or didn’t sell any (CX 190 A-Q).’ With respect to the franchisees who were at first able to sell any significant number of memberships, it was not long before the fruits of their labors came back to haunt them. For instance, Harold Jerome Winstead testified that only four of the 64 memberships he sold were still active when he checked back with them at a later date; their use of the program averaged about 3 to 6 months, and their average loss was $400 to $500 (Winstead, Tr. 354-55). After buying his franchise upon the representation he would be a rich man in five years, he poignantly summarized his nine months’ experience as follows:

Q. Why did you stop trying to sell the program? A. * * * I guess the main one was I had a wife and three kids I was trying to feed and I went broke. * * * (Winstead, Tr. 355). * * * * * * * Q. What do you figure your participation in this whole franchise cost you personally? A. It cost me a life’s savings and about 35 years’ work. I lost two businesses. I had one of them paid for and the other one partly paid for. I had 10 years paid on my home at 4% per cent interést. I lost both of those businesses, I lost my home. I sold it for what I had in it with no profit. I sold the station at a losss to make a fast turnover because it looked like I had a real deal here. I put everything I had in one basket and that basket just didn’t go (Winstead, Tr. 363). Arnold Krieger testified that after selling ten memberships, the complaints he received from members caused him-.to..quit the program (Krieger, Tr. 200, 206-08). Richard Colfels testified that after giving up his $30,000 a year job he had with General Motors, he sold about 30 to 40 memberships, but the aggravation and complaints he and his wife received from these members, including one murder threat, not only made him give up the project but also caused him a severe medical problem (Colfels, Tr. 518, 520-21, 522).

Clayton Davidson testified that after giving up a job as a manager of a local store and selling 32 or 33 memberships, the 7'The normal commission to a master territory franchisee for the sale of each membership is $108.00.

Initial Decision 82 F.T.C.

resulting feedback, problems and dissatisfaction of members caused him to lose his investment (he earned between $2,300 and $2°500 after investing $6,000; (Davidson, Tr. 296, 300). Furthermore, the experience literally forced Davidson to move out of Las Vegas, where his reputation had been so injured that he was unable to find work (Davidson, Tr. 290, 297, 307-08, 316). As he summarized it:

Q. How long a period of time were you making these sales over? A. I was afraid to go out after the first of March. Q. So you started in October. Why were you afraid to go out after the first of March? .

A. You take people in business like in Vegas particularly, it’s a nasty place to live if people don’t like you. Q. Did you fear for your life, sir? A. Certainly, I’m cheating people, I’m dead in Vegas. I can’t get a job in Vegas because they know I’m a crook.

Q. Did you cheat them or were you. aware? A. No, I didn’t cheat them, I had nothing to do with the collection or recourses of this.

Q. Am I to understand that they felt you were cheating them? A. Certainly, I’m the one that they blame, not the company that guaranteed they-collect their money. a Q. How long have you known these people that some of them you began to fear? A. Some of them seven, eight year business associates. Q. Did you sell the program the way you had been taught in the seminar? A. I sure did, that’s the way I believed in it. Q. Did you deviate in any way? A. No (Davidson, Tr. 287-88).

Neil G. Labrum was a franchisee for International Credit Card Corporation, whose testimony includes the following: I and my members had unfavorable experiences with International (see CX 176). I experienced considerable trouble and embarrassment caused me by my association with International, including financial injury and adverse reflection on my honesty and integrity in the community (CX 234, at p. 2). Roy S. McKinnon’s testimony was that:

My subsequent operation of my franchise was unsuccessful and I experienced adverse effects to my business reputation in the community resulting from my association with respondents (CX 284, at p. 4).. Leonard Lynema sold out an interest in an insurance agency in order to invest over $24,000 with respondents, for which he 570 . Initial Decision received about $2,800 in earnings; and after he was used by respondents to bring them $50,000 from selling territorial franchises to others, respondents failed to pay him his commissions (CX 190 N; Lynema, Tr. 626, 629, 648). Albert Peek invested $15,000 for two franchises and lost his retirement income as a “~result of kis association with réspondents (CX 234, at p. 6). The results indicated in CX 190 A-Q were not atypical as compared with other time periods. Joseph O’Flaherty, who was head of respondents’ franchise relations department until the middle of 1971, testified that only 5 or 6 out of a total of 49 to 55 franchisees at any given time were ever actually producing sales of memberships (O’Flaherty, Tr. 418). He testified further that a study he had conducted in March of 1970 covering the sales activity of franchisees for the prior 8 years showed that the average franchisee made a total of 5 membership sales a year; and that the overwhelming majority of franchisees lose their money (O’Flaherty, Tr. 419-20, 421). Brian MacDonald, who worked for respondents in “franchise processing and control,” testified that there were many franchise areas that were turned over and over (MacDonald, Tr. 552), which would tend to indicate a repeated incidence of failure to achieve satisfactory earnings. Finally, in this regard, respondent Heater was able to identify only four “successful” franchisees (Heater, Tr. 860). The earnings from the sale of memberships by three * of those he identified is as follows: “- Schwelling—$ 5,642.68 (CX 190 F) Soli —§$ 2,217.75 (CX 190 D) Rothwell —$138,221.86 (CX 190 D) It is noted that Schwelling, the only franchisee cited by respondent Heater as making $30,000 a year made most of it from selling franchises, not memberships (Heater, Tr. 861-62). It must be emphasized that respondents’ earnings projection sheets (CXs 47-59) and the oral earnings representations discussed, are based exclusively upon earnings from the sale of memberships. Yet, respondent Heater acknowledged that his criterion for “success” was earnings from $10,000 to $30,000; and that the individuals “The record does not indicate the earnings of the fourth franchisee, John Kadwell. He purchased his franchise from another franchisee rather than from Continental Credit Card Corporation. Nevertheless, his business ethics, or lack thereof, is clearly established from the testimony of witnesses (Tronea, Tr. 663-64, 665-66; Davidson, Tr. 290-94; and Winstead, Tr. 360-62).

600 FEDERAL TRADE COMMISSION DECISIONS © Initial Decision 82 F.T.C.

cited received earnings from the sale of subfranchises in addition to earnings from membership sales (Heater, Tr. 860, 862). = _ Respondents’ Failure To Disclose Relevant Information 28, Further, respondents fail to disclose to prospective franchisees relevant information, which would assist such prospects in evaluating the probabilities of their success and chances of achieving longevity as franchisees, and which would lessen the potential for deception, including: the median and mean earnings from the sale of memberships by franchisees associated with respondents during the previous calendar or fiscal year; the median and mean length of time that said franchisees pursued membership sales efforts; the median and mean period of time that members associated with respondents’ program during the previous calendar or fiscal year submitted payment vouchers for credit charges using respondents’ program; the number of such members submitting said payment vouchers each month; the-rate or degree of recoursing such credit charges back to members during the previous calendar or fiscal year; and the full number and nature of reasons for which respondents recourse charges to members. It is-clear from the record that none of respondents’ sales presentations to prospective franchisees make the foregoing disclosures. To the contrary, it is evident that the sales materials contain the capacity to deceive prospects into believing that there are great probabilities of success as franchisees based on the earnings from the sale of memberships, and that the members sold would be satisfied, successful, and long-lasting in respondents’ “non-recourse” program. Moreover, respondent Gingold, who operates mainly as a franchise salesman, testified as to the materials he and the other franchise salesmen use. His testimony indicated that the disclosures referred to herein were not made (Gingold, Tr. 705, 741-48).

29. Respondents represented that their program could be sold with ease to retail merchants but the record is clear that this representation was false. Sam A. Hawkins was told by a franchise salesman that “memberships were easy to sell” (CX 234, at p. 6): Mahlon England was told the program ‘would sell itself” (CX 234, at p. 3); and Arnold Krieger was told “the only thing you hac to do was make your ealls and see people * * * that the demanc was fantastic * * *” (Krieger, Tr. 182). 570 Initial Decision In this regard, respondent Heater’s testimony is as follows: Q. As far as Continental is concerned, are any representations made to franchisees that the program can be sold with ease to merchants? A. It is explained to them if they learned their sales presentation, if they - —.present it properly to the merchant, if they manage their time effectively and if they maké sure when they get through’ with the presentation that the merchant understands the value of the program, the merchant should buy the program, therefore, it should be sold with ease if you know how to present it properly * * * (Heater, Tr. 798-99). 30. In truth and in fact, respondents’ program has not been and cannot be sold with ease to retail merchants. This fact is not only the natural inference to be drawn from the abundant evidence of the failure rate and lack of success of franchisees, but there is also ample direct testimony in the record to this effect. Arnold Krieger testified that he encountered ‘great sales resistance from prospective members who compared respondents’ program unfavorably with bank credit card programs, which did not cost as much and which did not have any limit on the amount which could be charged on a nonrecourse basis (Krieger, Tr. 199-200). Harold Winstead testified that despite working long, hard hours, the program was very difficult to sell, again because prospective members felt it cost too much, and because it compared unfavorably with the credit card programs of BankAmericard and Master Charge. (Winstead, Tr. 352-53). Leonard Lynemia referred to the saleabilify of the program by stating:

* * * it was impossible to sell the program once you got on the road with it because people told us this program had been tried before, and the merchants had been solicited for this kind of thing before and had horrible experience with it and warnings from newspapers on what-it was, that these things had not paid them the charges * * * (Lynema;~Tr. 629A). As a result, the 23 salesmen that he had working for him at one time or another were only able to sell a total of about 20 memberships (Lynema, Tr. 619, 681). The testimony of Sam A. Hawkins ‘indicates that he and his sales organization in New York City had great difficulty in selling the program (CX 234, at p. 6). 31. Respondents’ representation that solicited prospective franchisees do not risk losing any expenditure of money in coming to Burlingame, California, for an interview and that respondents have authorized the reimbursement of the prospects’ air fare expenses for such interviews is false.

602 FEDERAL TRADE COMMISSION DECISIONS : Initial Decision 82 F.T.C.

This representation results from the combined use of a “Personal History Statement and Qualification Form” (CX 60, CX 62 A=B), a series of form-telegrams and letters used by respondents to invite interested prospects for a home office interview in Burlingame, California (CX 80, CXs 92-109), and oral representations made by the franchise salesmen. Of the two versions of the personal history statement referred to, one, bearing a copyright date of 1965, has no statement on the reverse side whatsoever (CX 60), while the other, bearing a 1967 copyright date, has a paragraph on the reverse side describing the interview procedure, without any disclosure that a deposit of any kind must accompany a “bona fide franchise application” in order to qualify for reimbursement of air fare (CX 62 B). The letters and telegrams referred to contain statements that upon receiving a completed personal history statement from the prospect, an attempt will be made to get authorization for an interview “at our expense,” or, after receiving the completed personal history statement from the prospect, the franchise salesman states that he has “received authorization from the franchise committee to reimburse your air fare for home office interview upon your submitting a franchise application, whether or not you are selected.” on In July 1966, after Mr. Roy S. McKinnon received a telegram (CX 168) inviting him to telephone a franchise salesman of respondents, he was invited for an interview at Continental’s expense (his air fare and expenses would be reimbursed) even should he decide not to submit an application for a franchise. Mr. McKinnon did not know before leaving Tacoma; Washington, that a substantial amount was required as a deposit to accompany an application in order to get reimbursement and he would not have come for the interview if the foregoing had been disclosed (CX 234, at pp. 3-4). Mr. Mahlon J. England was invited to come for an interview from Idaho in September 1966 upon the understanding his air fare and expenses would be reimbursed, even if after the interview he were to decide not to submit an application for a franchise: He was not told before he left Idaho to go to Burlingame that a $1,000 deposit was required to accompany his application. He would not have come for the interview had he known this beforehand (CX 234, at pp. 2-3).

In July or August of 1968, Mr. Sam A. Hawkins was promised by Continental’s franchise sales manager that the company would UNIVEKSAL CKEULLE ACCBPITANUB UUnr., WT AL. ovo 570 Initial Decision pay his expenses in flying to Burlingame from New York City for an interview even if he didn’t commit himself to the proposition (CX 234, at p. 6). Mr. Joe Clay testified as follows, relating the proposition made to him by a franchise salesman of Continental in June 1969# a ~ Q. What was the full nature of your call? A. Yes, to come out and look at the program to see what they had to offer me. He said I could make a lot of money, make a ton of money. I think that was his words; and if I didn’t like the program, they would still pay my ticket back and forth and pay my hotel room and what have you, so I agreed to that (Clay, Tr. 566).

This promise was the overriding consideration in getting Mr. Clay to Burlingame, because notwithstanding a telegram confirming that reimbursement would be made “upon your submitting a franchise application whether or not you are selected” (CX 108), and notwithstanding the fact that Mr. Clay had even been directed to bring $1,000 with him, he was reassured he was not risking anything if he didn’t like the program (Clay, Tr. 568). Since Messrs. England, McKinnon, Hawkins and Clay did ultimately submit franchise applications, according to company policy they were entitled to receive air fare “reimbursement,” either by deducting the amount from their deposit or by actual refund. Clearly, the payment of such reimbursement does not cure the deception of having lured those who would not have come for the interviews had they known about the deposit requirement in advance. Moreover, there is evidence that other prospects were not so fortunate. They truly expected they would receive reimbursement whether or not they submitted franchise applications, when such was not the case (MacDonald, Tr. 550). 32. In truth and in fact, solicited prospective franchisees do risk losing the money they expend for air fare in coming to Burlingame, California, for an interview. Respondents authorize the reimbursement of prospects’ air fare expenses only upon the payment of the _funds required to accompany applications (admitted by respondents’ Answer, p. 3).

38. Respondents’ representations that solicited prospective franchisees do not risk losing their deposits or downpayments submitted with applications for franchises and that such deposits or downpayments dre refundable if the applicants withdraw or otherwise do not consummate the franchise agreement are false. In addition to oral representations to this effect (Davidson, Tr. Initial Decision 82 F.T.C.

257; Clay, Tr. 569), the two relevant documents placed before _ prospects at the time.of-the interview have the capacity to deceive with regard to the refundability of deposits, especially if the prospects are only given an opportunity to review the documents in cursory fashion. That such is the case is established from the evidence that there is a high-pressure approach applied by the franchise salesmen,® who are paid on a commission basis (Gingold, © Tr. 704).

Respondents’ Franchise Application (CX 19 and CX 174) states “IN THE EVENT THIS APPLICATION IS REJECTED, THE DOWN PAYMENT ENCLOSED HEREWITH SHALL BE RE- FUNDED” in large boldface type, while in smaller type, there is another statement by which the prospect acknowledges that the downpayment shall be retained as liquidated damages, if he should fail to pay the balance due after acceptance by the company. Respondents’ Franchise Agreements (CX 3, CX 4, CXs 16-18) * state in boldface type at the bottom: “ALL MONEY WILL BE RETURNED IMMEDIATELY, IF APPLICATION IS NOT AC- CEPTED.” What the prospects don’t know is that it is normal procedure for the company to “accept” virtually all applicants, and to do it within a matter of days (MacDonald, Tr. 553-54; Winstead, Tr. 340-41; McKinnon, CX 234, at p. 4; Smith, CX 234, at p. 5). In fact, it is company policy to interview only one prospect at a time for a particular franchise area, so that if one buys, it is not necessary to interview another (MacDonald, Tr. 548-49).

The franchise application not only coritains the forégoing’ ~ statements which have the capacity to deceive, but respondents have relief upon the “liquidated damages” provision to withhold or refuse to refund a deposit, even though language had been added to the application which completely negated the “liquidated damages” statement. For example, the franchise application of Joe Clay (CX 174 contains the following statement under the heading “remarks: ”

Deposit includes $171.66 credit for visit to home office interview, including air transportation and motel bill and cash in the amount of $828.34, making a total deposit of $1,000, as indicated below. If Mrs. Clay doesn’t agree to transaction by 6-11-69 the $828.84 is to be refunded in full. “Clay, Tr. 567-71; Labrum, CX 234, at p. 1; Envland, CX 234, at p. 3; McKinnon, CX 234, at p. 4: Smith, CX 234, at p. 5; Hawkins, CX 234, at p. 6. UNIVERSAL UNEULl AUULFLAINUM UUnr., mi AL. vuv 570 Initial Decision Despite the fact that Mr. Clay understood the added language to constitute confirmation of the oral promises made to him and notwithstanding the fact that Mrs. Clay did not agree to the transaction by June 11, 1969, Mr. Clay had not received a refund ~~ of*the deposit up to, and throtigh,: thé time he testified at the hearing (Clay, Tr. 571-73).

34. In truth and in fact, solicited prospective franchisees do risk losing their deposits or downpayments submitted with applications for franchises and such deposits or downpayments are not refundable if the applicants withdraw or otherwise do not consummate the franchise agr eements (admitted by respondents’ Answer, p. 3).

False Representation Concerning Franchise Sales ~ 35. Representations that geographical areas offered to prospective franchisees have not been previously franchised or that the areas offered have been franchised before and were profitable for the prior franchisee were false.

Arnold Krieger testified that respondents’ franchise salesman orally represented that the area of Rochester, New York, was “just released” by the franchise committee, and that the nearest franchisee to Rochester, New York, was in the State of Virginia | since the entire States of New York, Pennsylvania, and Ohio had never been franchised (Krieger, Tr. 184). He was also told that only 25 percent of the country remained unfranchised (Krieger, Tr. 191). Harold Winstead was told on two occasions, first when he applied for the franchise for the area of Corpus Christi, Texas, and later when he was sold an additional franchise for Houston, Texas, that both areas were “virgin territory,” never before franchised, and that the whole State of Texas had ‘never been franchised (Winstead, Tr. 337 and 350). Leonard Lynema testified that he was told the entire State of Indiana had never been franchised before (Lynema, Tr. 592). Mahlon J. England was told by a representative of respondents that his area was “virgin territory,” never franchised before (England, CX 234, at pp. 2-3). Roy S. McKinnon was told that the area in which he was interested, Tacoma, Washington, was “virgin territory” (Mc- Kinnon, CX 234, at pp. 3-4). Mark Smith, when being interviewed at a later date for a franchise covering the same Tacoma, Washington, area previously held by McKinnon was told that the State of Washington was “virgin territory” (Smith, CX 234, at p. Initial Decision 82 F.T.C.

5). Sam A. Hawkins was told that respondents’ program had -never been sold before-in his area, New York City (Hawkins, CX 234, at p. 6).

The record also demonstrates that respondents represented that some areas offered had been franchised before and were profitable for the prior franchisees (on occasions when it appeared to be advantageous to do so). For instance, when Mahlon England, who had been sold a Continental franchise for the eastern half of the State of Idaho, was attending his seminar, respondent Heater orally represented that there was a franchisee named Labrum in Boise, Idaho, who was “doing great” (England, CX 234, at pp. 2-8). In fact, Labrum had previously been sold a franchise which included the exact area covered by England’s Continental franchise, as well as the western half of Idaho (Labrum, CX 234, at pp. 1-2). Also, when Bruce Tronca was solicited to buy 51 percent stock interest in the franchise of John Kadwel! covering various portions of the State of Wisconsin, Kadwell represented that a prior franchisee had been successful in accumulating a “great” number of very successful and satisfied members in those areas (Tronca, Tr. 657). The sale of stock referred to had to he approved by John Heater (Tronca; Tr. 659). 36. In truth and in fact, in a substantial number of instances, the geographical areas offered to prospective franchisees have been previously franchised and were not profitable for the prior franchisees (respondents’ Answer, p. 3, admits that in “some” instances, the geographical areas offered have been pr eviously franchised and were not profitable). _ The evidence in the record showing the falsity of the “never franchised before” claim is of two kinds. First, specific individuals to whom the representation was made were negotiating for franchises in areas which actually had been franchised before. Such was the case in the State of Washington when Roy S. McKinnon was told that his area had not been franchised before (CX 234, at p. 4), when in fact he later discovered that there had been a prior franchisee in the same town of Tacoma (CX 166 A-B; CX°167). McKinnon was unsuccessful with his franchise. Respondents thereafter sold the same territory to Mark Smith upon the representation that the State of Washington was virgin territory (CX 234, at p. 5), when in fact the specific area Smith was contracting for had been franchised at least twice before. In the case of Mahlon England, the area of his Continental Credit 570 Initial Decision Card Corporation franchise (CX 234, at pp. 2-3) had in fact been previously franchised to Neil G. Labrum under his International Credit Card Corporation franchise (CX 234, at pp. 1-2), and the franchise was not profitable for Labrum. .. Second, ‘there have been instances of flagrant misrepresentation wherein’ franchise prospects were told that whole states had just been released from the “franchise committee” or had never been franchised before, when in fact there were many prior and current franchisees in the respective states, whose lack of success was manifest. Specifically, when Arnold Krieger was sold a franchise for Rochester, New York, in March 1970, he was told that the States of New York, Pennsylvania, and Ohio had never been franchised before. In fact, the following franchisees existed in those respective states prior to March 1970: Franchisees in New York Prior to March 1970 Kaufman, Feldman (CX 190, #29) St. Claire (CX 190 E, #52) Summers (CX 190 E, #54) Hawkins (CX 190 G, #75) Agresti (CX 190 I, #94) Donnelly (CX 190 M, #137) Kunicky (CX 190 M, #146) Schwartz, Barone (CX 190 0, #156) Stratton (CX 190 O, #162) ~~ Franchisees in Pennsylvania Prior to March 1970 Bly, Steigler, Hasso (CX 190 A, #4) Peticca (CX 190 D, #40) Thompson (CX 190 H, #88) Pollock (CX 190 kK, #119) me Peck (CX 190 N, #151) Chern (CX 190 P, #166) Franchisees in Ohio Prior to March 1970 Fleck (CX 190 B, #17) Gajzer (CX 190 B, #20) Handel (CX 190 B, #25) Hubbard (CX 190 C, #27) Lavy. (CX 190 C, #32) Stein (CX 190 E, #53) Travis (CX 190 E, #57) Initial Decision 82 F.T.C.

Youssef (CX 190 E, #63) ; Headley (CX 190 F, #65) oe Myers (CX 190 G; #86) Frizzell (CX 190 H, #91) Bolce (CX 190 L, #1380) Ochs (CX 186 A—B) Similarly, Harold Jerome Winstead was solicited for the purchase of two franchises in the State of Texas in August of 1969, at which time he was told that the State of Texas had never been franchised before. In fact, the following franchisees existed in Texas prior to that time:

Mercer (CX 190 C, #35) Kane (CX 190 G, #76) Jones (CX 190 J, #108) Pattilo (CX 190 K, #126) Tompkins (CX 190 K, #126) Carver (CX 190 L, #133) Landreth, Cree (CX 190 N, #147) Smith, Hatchet (CX 199 O, #160) In addition, the testimony of former employees O’Flaherty and MacDonald confirms the frequent turnover and_resale of franchised areas, making it highly unlikely that any area franchised by respondents in the last several years has not been franchised before (O’F laherty, Tr. 434-35; MacDonald, Tr. 552). Respondents themselves make such a statement in seminar questionnaires, which franchisees must complete and acknowlédge, wherein it is ~~ indicated that there is no place in the United States or Canada that respondents’ program has not been introduced (CX 227, p. 2, #11; see also Heater, Tr. 805-06).

37. Respondents’ representations that they offer only a limited number of sales franchises to qualified individuals and that respondents have a franchise committee which screens the qualifications of franchise applicants were false. Arnold Krieger testified that he was told that there were four other applications for his area, which would have to be weighed by the “franchise committee” before making the choice as to whom the franchise for Rochester, New York, would be sold (Krieger, Tr. 186 and 190). Clayton Davidson testified he was told by respondent Gingold that Davidson and other franchisees would be 570 Initial Decision screened by a “franchise committee” before making the choice of a franchisee for the State of Nevada (Davidson, Tr. 277). Harold Winstead testified that the franchise salesman he dealt with stated two others had already been interviewed for the Houston, Texas, - area, but that respondents always. interviewed three before they. sell a franchise and, therefore, they wanted to get him interviewed before they made up their minds which one of the three they were going to pick (Winstead, Tr. 335).

Neil G. Labrum was told that International Credit Card Corporation definitely limited the number of sales franchises to qualified individuals only, and that his application would have to be submitted to and screened by a “franchise committee” (Labrum, CX 234, at p. 1). Mahlon J. England was told that the company limited the sale of franchises to qualified persons and that his application would have to be examined and approved by the “franchise committee” (England, CX 234, at p. 3). Mark Smith was subjected to high pressure and told there were three or four more applicants for his area (Smith, CX 234, at p. 5). This representation is also made by way of inference from the form letters and oral statements that a “regional manager” is interviewing other people for each area. The effect and purpose of these is obviously to give the impression that respondents check the qualifications of a number of persons before choosing franchisees and that obviously only one ‘will: be. chosen. Furthermore, respondents’ “Franchise Application” even states in part: “* * * the Company, at its expense, must make an extensive investigation of the Applicant * * *” (CX 19).

38. In truth and in fact, respondents do not limit the number of sales franchises offered. Respondents do not have a functioning franchise committee which screens franchise applicants’ .qualifica- ~~» tions.

The testimony of Brian MacDonald, whose function was to process franchise applications for respondents, stated that no applications were ever rejected during the time he performed such duties (MacDonald, Tr. 554). He merely checked the incoming papers “to make sure there was an application, an agreement and a deposit” (MacDonald, Tr. 551). Respondents would not check any of the references called for on the applicant’s “Personal History Statement. and Questionnaire’ form. There were never any meetings by company executives to see if the applicant “qualified” (MacDonald, Tr. 552). Once MacDonald had checked Initial Decision 82 F.T.C.

the franchise applicant’s papers, he would have the application “approved” and a telegram, sent “on the date the salesman requested that the franchise committee was supposed to mee ” (MacDonald, Tr. 553). The fact is that the “franchise committee” was nothing more than a paper creation, a list of names that never met or functioned (MacDonald, Tr. 553). Some of the people named on the list of “franchise committee’ members were not even working for the company any longer (MacDonald, Tr. 559). Mr. MacDonald’s testimony is reinforced by that of Joseph O’Flaherty, former head of respondents’ Franchise Relations Department. The complete files on all franchisees would be sent to him after the franchisees had completed the training session. From these files, he could attest to the fact that there was no report of a “franchise committee” or any attempt to screen out unqualified people before accepting them as franchisees (O’Flaherty, Tr. 430-31, 473, 475, 481). He also testified “there was no actual franchise committee that I ever knew of or met, or was familiar with” (O’Flaherty, Tr. 431), despite the fact that “in two and one half years, with a company of this size you get to know exactly what’s going on” (O’Flaherty, Tr. 468). Stated differently, O’Flaherty also testified: “I knew there was no such thing. But when it came time to terminate the fellow, I told them the franchise committee has decided that you must go” (O’Flaherty, Tr. 481).

39. Respondents’ representation that there is a “Regional Manager” of respondents who is interviewing other franchise applicants for the same area as each franchise-prospect. and. that the prospective franchisees must act immediately to be considered for a franchise is false.

40. In truth and in fact, there was no “Regional Manager” of respondents interviewing other franchise applicants in each area, but rather all persons responding to respondents’ invitation for inquiries received the same form letter stating that said ‘Regional Manager” is interviewing other interested persons for the same franchise area. The record indicates that the “Regional Manager” was nonexistent during the time of Brian MacDonald’s employment from February 24, 1969 to November 1970 (Tr. 539, 546). The president of Continental Credit Card Corporation testified that he did not know who performed the function of ‘Regional Manager” in 1969, 1968, 1967 or 1966 (Gingold, Tr. 711-12). 41. Representations that franchise holders receive substantial 570 Initial Decision benefits from renewals of memberships and from annual bonuses based on a percentage of net credit charges submitted by members in each franchisee’s territory were false. 42. In truth and in fact, franchise holders do not receive ~~ substantiak benefits from renewals of memberships or from annual bonuses based on a percentage of net credit charges submitted by members in each franchisee’s territory. Benefits from renewals of memberships only occur if a member sold by a franchisee lasts for two years and decides to renew his contract hereafter. Accordingly, both the member and the franchisee must still be active at a point in time two years in the future for any franchisee to receive such benefits. The vast majority of franchisees do not last for a period of even one year, let alone two (140 out of 172 franchises lasted one year or less). Moreover, not only do very few members renew their contracts after two years, but the average longevity of _a substantial number of respondents’ members is on the order of 5 months (CX 192 A-C, 193 A-E). Similarly, for a franchisee to receive the benefits of annual bonuses based on the charge volume submitted by his members, both he and the member must still be active at the end of each year, at which time such bonuses are due and owing (see paragraph ’ #10 in respondents’ franchise agreements, CXs 16 A and 18 A). Respondents’ own “flow chart” of all active franchisees as of October 1969 discloses the extraordinary lack of membership sales, which emphatically indicates that no substantial benefits in the form of either renewals or bonuses could possibly occur (CX 189 A-C).

43. Representations by respondents that franchise holders risk losing little or nothing in investing in a franchise; that re- | spondents will repurchase the franchise and/or aid in its resale; and that the franchise is a vested property right which may be sold, assigned, transferred, or testated were false. The representation that respondents will repurchase the franchise was made to witnesses Krieger (Tr. 192) and Lynema (Tr. 621 and 629); and witness Winstead testified that when he attended his training seminar the whole class of franchisees was told respondents would aid in reselling the franchise for any unsuccessful franchisee (Winstead, Tr. 362-63). The representation that the franchise is a vested property right which may be sold, assigned, transferred or testated is clearly made in the “Franchise Proposals: ”

Initial Decision 82 F.T.C.

* * * No one in the world can take the Franchise away from you * * * THIS FRANCHISE MAY _BE SOLD, ASSIGNED OR TRANSFERRED WITH APPROVAL OF THE COMPANY AND INURES TO THE BENE- FIT OF THE ESTATE OR HEIRS OF THE FRANCHISE HOLDER (CX 45 I, #9 and CX 46 I, #9).

The use and effect of this assurance in the “Franchise Proposals’’ is demonstrated by the testimony of Mr. Winstead relating the oral statement made to him by the franchise salesman: ‘When you buy this, you can will it to your family, your kids, it is yours for a lifetime and their lifetime” (Winstead, Tr. 339). 44, In truth and in fact, franchise holders do risk losing their investment. Respondents do not repurchase the franchise, and in those instances where respondents do aid in its resale, they retain at least half of the amount for which it is resold (admitted by respondents’ Answer, p. 4). The franchise is not a vested property right which may be sold, assigned, transferred, or testated. If a franchise holder does not produce the sales quota set forth in his franchise agreement, the franchise may be, and usually is, terminated by respondents (admitted by respondents’ Answer, p. 4). That avast majority of franchises ultimately end in termination is evident from CX 190 A-Q. In essence, the quota requirements so limits and qualifies the right to sell, assign, transfer, or devise the franchise as to render it deceptive and meaningless, where virtually every franchisee cannot and does not meet the quota. . 45. Representations that respondents’ program has received national acceptance are false.

46. In truth and in fact, respondents’ program-has not received national acceptance.

“National acceptance” connotes large numbers of members who have used the program approvingly. Neither the sales of memberships in respondents’ program nor the longevity of members has been such that the program could by any stretch of the imagination be deemed to have achieved “national acceptance.” Joseph O’Flaherty, whose function was to stimulate and oversee the sales of each franchisee, testified that the average franchisee over a period of three years made a total of five sales per year (O’Flaherty, Tr. 419-20). Raleigh Fish, whose function it was to deal with members during their entire association with respondents after their contract was received, testified that there was considerable turnover amongst members, with 30 to 50 quitting each month (Fish, Tr. 122).

UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. ols 570 ; Initial Decision Respondents’ “flow chart” showing the membership sales of all franchisees active as of October 1969 discloses that prospects for memberships were rejecting the program nationally, judging from - -the lack of. sales results indicated therein (CX 189 A-C). This result is Confirmed for the period “from January 1, 1967 through October 1969, during which time 172 franchises were able to achieve membership sales amounting to an average of $1,449 earnings per franchise (CX 190 A-Q).

Significantly, of the 803 members participating in respondents’ program in October of 1969 (CX 191 C), only 24 predated January 1967 (CX 192 A-C).%° The lack of “national acceptance” is not limited to respondents’ program as operated under the more recent names Universal Credit Acceptance Corporation and Continental Credit “Card Corporation. It was also a shoddy program when it was operated under the name National Credit Service (Winstead, Tr. 337-38, 357; Lynema, Tr. 629). , 47. Claims that there are thousands of members honoring all credit cards under respondents’ program each and every month were false.

This representation is made directly in respondents’ “sales presentation” manual: ‘We have members all over the country. Thousands of merchants Honoring All Credit Cards, and increasing their business each and every month” (CX 130, at p. 10) (emphasis added).

There are many examples of oral representations used by franchise salesmen and franchisees regarding the size of respondents’ membership. Arnold Krieger was told there were over 10,000 members in the program (Krieger, Tr. 189). Leland McBride was told that “practically 2/3 of all gas stations in the United States were using the program” (CX 234, at p. 7). Russell Sheldon received the impression that ‘there were thousands and thousands of members using the program (CX 234, at p. 10). William P. Brooks was told that respondents “had thousands of members” (CX 234, at p. 11). Marino Manicucci was told that respondents “had a membership in the thousands” (CX 234, at p. 18).

’ sca ™ Of the 24 members referied to, all but 11 received one or more special considerations, e¢.9., a preferred discount rate of 5 percent as compared with the normal 6 percent rate; no initial membership fee; no monthly dues or $6 monthly dues as compared with the normal $10; a lifetime membership which by definition means that no subsequent membership fee could be charved; at least two of these members were owned by respondent Heater (CX 192 A-C). Initial Decision 82 F.T.C.

48. In truth and in fact, there are not thousands of members honoring all credit cards- under--respondents’ program each and every month.

The number of members in the program can be determined by observing the number of members receiving checks or statements from respondents each month. From January 1968 through October 1969 said sources indicated that the memberships averaged 781 per month, and there was never any month in which there were aS many as even one thousand members (CX 191 A-C). Raleigh Fish testified that there were approximately 1,100 members under contract at any given time, though not all would actually be using the program in terms of submitting charges (Fish, Tr. 121). The foregoing was confirmed by respondent Heater, who reluctantly acknowledged that there are only some 800 active members (Heater, Tr. 816).

Credit Charges 49. Claims that all credit charges submitted under respondents’ program are guaranteed payable without recourse; that respondents assume all risk of nonpayment. by the members’ customers ; that members can expect to be successful and satisfied with the program’s performance; and that members usually continue using respondents’ program for two years and renew their contracts thereafter were false.

That all credit charges submitted under the program are gsuaranteed payable without recourse is respondents’ most widely expressed and fundamentally deceptive claim. The mailers used to attract prospects for both franchises and memberships contain this claim:

Through our program any merchant, large or small, can make instant credit. sales * * * with guaranteed payment (CX 24 A and CX 25 A); Payment is guaranteed, non-recourse (CX 31 A and CX 82 A); * * * receive one check for all credit transactions * * * on a guaranteed non-recourse basis (CX 34 A);

GUARANTEED PAYMENT * * * eliminate bad debts * * * (CX 87 A); * * * ONE BIG CHECK for all credit sales every month * * * payment is guaranteed non-recourse (CX 38 B, copyright 1965; CX 389 B, copyright 1969) ;

GUARANTEED NON-RECOURSE PAYMENT (CX 41 B). 570 Initial Decision Advertisements appearing in magazines have contained this claim:

Our unique service allows retail business firms to honor over 200 million _ __eredit cards—-including major oil company cards—-with guaranteed payment (CX- 43, at p. 90 and CX 44,-at"p. 56). ~~ Also, the Better Business Bureau reports on respondents, which have been used as sales tools, contain the “non-recourse” claim (MacDonald, Tr. 551; Lynema, Tr. 596-97, 600, 602): These charges are accepted on the without recourse basis (CX 120 A and CX 121).

The ‘Franchise Proposal” states:

All valid credit transactions are payable without recourse (CX 45.F and CX 46 F).

The basic sales kit employed by franchise salesmen to sell franchises and ultimately by franchisees (as well as home office membership salesmen) to sell memberships to retail merchants begins with a resume of the respondents’ “Background” and a “Synopsis of Operation.” In the latter paragraph it is stated: “the Members are paid for all properly completed credit charges on a guaranteed non-recourse basis” (CX 23 B, International Credit Card Corporation; CX 132 B, Universal Credit Acceptance Corporation; and CX 179 D, Continental Credit Card Corporation). The sales kit also contains further claims as to the ‘“nonrecourse” feature of the program:

The firm permits its member-merchants to accept any of more than fifty different credit cards with a maximum guaranteed payment. .by Universal . _; (CX 179 R);

Charges are paid on a guaranteed NON-RECOURSE basis (CX 179 Z83); NON-RECOURSE: THE COMPANY AGREES TO PAY MEMBER WITHOUT RECOURSE, except where otherwise provided, for all valid credit charges extended in accordance with the provisions of this agreement * * * (CX 179 Z88).

A “sales presentation” manual with which respondents train their franchisees and home office membership salesmen contains the following references to the alleged nonrecourse feature of the program (copyright 1965 with some 1967 revisions): Initial. Decision 82 F.T.C, This means that a customer can walk into your place of business today and, use * * * credit cards on a.guaranteed non-recourse basis (CX 180 D);” * * * we can bring it to you without recourse—without any risk to you! (CX 180 O, approach No. 3);

Charges are paid on a guaranteed, non-recourse basis (CX 180 Z13, #5). Another “sales presentation” manual, dated February 10, 1969, includes the following representations: We guarantee those charges up to $150 per transaction, whether we collect from the customer or not (CX 130, at p. 8); Besides, you’re issuing credit cards with guaranteed payment back to you — on a non-recourse basis (CX 180, at p. 22); Because, we’re going to guarantee the charges to you and pay you whether we collect from the customer or not, you realize of course, there is a cost and a risk involved and we’re taking that risk (CX 130, at p. 25); I want to go over this membership application in detail * * * it says the maximum credit charge here is $150 per transaction * * * and of course, it’s non-recourse to you (CX 130, at p. 26). The foregoing include not only the representation that respondents’ program is “guaranteed non-recourse,” but also the claim that respondents assume the risk of nonpayment by the members’ customers. For example, the older “sales presentation” manual (CX 180 O, approach No. 8) clearly states: “we can bring it to you without recourse—without any risk to you!” (emphasis added). The current “sales presentation” manual also clearly states: “‘* that risk” (CX 180, at p. 25) (emphasis added). In addition, the sales kit also contains what purports to be a newspaper article about respondent Heater, the contents of which describes the program by stating: “The firm assumes the risk of collecting payment. It, in turn, pays the merchant” (CX 179 R) (emphasis added).

The effect of the written materials containing the deceptive description: of respondents’ program as “non-recourse,” with the risk to be borne by respondents, is evident from the testimony. Virtually every franchisee and member prospect regarded said Footnotes 1 11 1 1 2 883 2476 26 18 93.901627 at5 1 11 1 1 3 933 2475 89 21 91.800522 bottom5 1 11 1 1 4 1048 2476 25 20 96.461578 of5 1 11 1 1 5 1100 2477 75 20 0.740692 ‘sales5 1 11 1 1 6 1201 2478 179 22 95.023331 presentation”5 1 11 1 1 7 1408 2480 93 19 96.637177 manuals 1 11 1 1 8 1529 2486 60 16 69.612358 pare5 1 11 1 1 9 1614 2482 83 18 96.209053 states:5 1 11 1 1 10 1726 2480 97 20 45.074921 ‘Please5 1 11 1 1 11 1852 2481 158 20 76.525116 note--Those4 1 11 1 2 0 689 2509 1320 29 -1 5 1 11 1 2 1 689 2513 97 16 96.603607 persons5 1 11 1 2 2 801 2509 126 21 96.466408 attending5 1 11 1 2 3 940 2510 40 19 96.130882 thes 1 11 1 2 4 994 2510 68 20 93.297585 homes 1 11 1 2 5 1076 2512 66 18 92.472382 oftice5 1 11 1 2 6 1157 2512 158 22 96.085632 Memberships 1 11 1 2 7 1331 2513 63 19 96.490883 Sales5 1 11 1 2 8 1409 2514 117 21 96.166824 Training5 1 11 1 2 9 1541 2515 108 18 96.526527 Seminars 1 11 1 2 10 1665 2521 41 14 96.536201 ares 1 11 1 2 11 1721 2515 108 23 89.219711 required5 1 11 1 2 12 1846 2518 23 17 96.129997 to5 1 11 1 2 13 1885 2516 124 20 95.935287 memorize4 1 11 1 3 0 688 2541 320 22 -1 5 1 11 1 3 1 688 2541 37 19 96.690765 thes 1 11 1 3 2 737 2542 74 19 96.097168 above5 1 11 1 3 3 823 2543 185 20 95.954292 introduction.”2 1 12 0 0 0 991 1815 1098 42 -1 3 1 12 1 0 0 912 1814 1177 43 -1 4 1 12 1 1 0 991 1815 1098 42 -1 5 1 12 1 1 1 912 1814 15 16 91.127281 *5 1 12 1 1 2 958 1814 15 16 85.111443 *5 1 12 1 1 3 991 1815 100 31 95.985672 there5 1 12 1 1 4 1108 1815 28 31 96.605751 is5 1 12 1 1 5 1153 1826 21 20 96.903412 a5 1 12 1 1 6 1189 1818 74 29 96.810112 costs 1 12 1 1 7 1278 1816 68 32 96.793953 ands 1 12 1 1 8 1364 1827 21 21 96.469841 a5 1 12 1 1 9 1399 1817 75 31 93.284027 risks 1 12 1 1 10 1490 1818 261 37 80.531013 involved,-ands 1 12 1 1 11 1768 1819 101 32 77.885788 we’re5 1 12 1 1 12 1885 1818 120 39 59.037739 taking5 1 12 1 1 13 2025 1837 2 2 24.780922 ©5 1 12 1 1 14 2042 1830 13 6 25.665878 ~5 1 12 1 1 15 2084 1831 5 2 68.252747 - 570 Initial Decision representations as constituting the essence of the service to be provided by respondents.”

The representation that members can expect to be successful and satisfied with the program’s performance and that members usually continue using respondents’ program fortwo years and renew their contracts thereafter is made indirectly to franchisees and prospective franchisees from the earnings projection sheets (CXs 47-59). Said projections infer that 50 percent of the memberships sold can be expected to renew their contracts after the initial two-year contracts expire. Further, these representations are made directly in the reprints of articles included in the sales kits of franchise salesmen and franchisees. One such article in Business Digest, entitled “The Credit Card Revolution,” contains the statement: “Mr. Heater’s plan has become so successful and requests for membership so numerous, he says, that it has been necessary to restrict membership * * *” (CX 179 P and CX 110 C).

The deceptive effect of the aforesaid articles and the accompanying representations made by franchisees and home office membership salesmen is apparent from the testimony of members. Russell Sheldon, a member in Reno, Nevada, understood that the “thousands and thousands of members using the program * * * were extremely happy and renewed their contracts repeatedly” (CX 234, at p. 10); William P. Brooks, a member.in Napa, California, believed that it was normal for members to renew their contracts repeatedly due to their extreme satisfaction with the program (CX 284, at p. 11); and another member from Nevada, Marino Manicucci, believed that respondents’ members were all successfully using the program and renewing their contracts after their first two year contracts expired (CX 284, at p.18).0 7" , In addition, respondents’ “sales presentation” manuals instruct both franchisees and membership salesmen to show prospects appropriate testimonial letters and payment checks as an indicator of the success of the program, and many of such success letters and checks bear dates extending back substantially more than two “ Krieger, Tr. 188, 204, 248-44; Davidson, Tr. 261-62, 271, 281; Winstead, Tr. 338, 342: Lynema, Tr. 609-11, 616; ‘Tronca, Tr. 655; Clay, Tr. 574-75; Labrum, CX 234, at p. 2: England, CX 234, at p. 3; McKinnon, CX 234, at p. 4; Smith, CX 234, at p. 5; Hawkins, CX 234, at p. 6; McBride, CX 234, at p. 7; Ferre, CX 234, at p. 8; Dee, CX 234, at p. 8; Sheldon, CX 234, at p. 10; Brooks, CX 234, at p.11; Padgett, CX 234, at p. 11; Kiefert, CX 234, at p. 12; Manicucci, CX 234, at p. 18; Dorigo, CX 234, at p. 13; Liebowitz, CX 234, at p. 14. Initial Decision 82 F.T.C.

years (CX 180 F and G; Lynema, Tr. (612- 18; CX 179 Z7-87, CX 179, Z41-65). _ 50. In truth and in fact, not all credit charges submitted under respondents’ program are guaranteed payable without recourse. Respondents do not assume all risk of nonpayment by the members’ customers. A substantial number of members have been neither successful nor satisfied with the program’s performance. Most members have not continued using respondents’ program for even one year, and have not renewed their contracts after the expiration of two years.

Respondents’ contract obligates them to pay-only “valid” charges on a nonrecourse basis. However, there are at least 18 reasons for which respondents consider a charge “invalid” and therefore subject to recourse. The disclosure of the fact that there are 18 reasons for recoursing is not made to either franchisees or members until a point in time after they have paid their money for a franchise or a membership. Eighteen of the reasons for recoursing are set forth on the back of a document called a “Debit / Credit/Memo” (CX 139 B). No franchisees saw such document or knew the full nature and number of reasons for recoursing until’ well into the operation of their franchise when members they had sold would tell them that recourses had occurred for one of the reasons enumerated on the back of said “Debit/Credit / Memo.” # It is evident that in view of the respondents’ failure to apprise franchisees and home office salesmen of the full number and nature of reasons for recoursing, members commonly “experienced unexpected recoursing for a multitude of reasons (Clay, Tr. 575-76, 580, 581-83; McBride, CX 234, at p. 7; Ferre, CX 234, at pp. 7-8; Dee, CX 234, at pp. 8-9; Leeper, CX 234, at pp. 9-10; Sheldon, CX 234, at p. 10; Brooks CX 234, at p. 11; Padgett, CX 234, at pp. 11-12; Kiefert, CX 234, at p. 12; Manicucci, CX 234, at pp. 12-13; Dorigo, CX 234, at pp. 13-14; Liebowitz, CX 234, at pp. 14-15). Members complained at a rate of 20 to 30 per week for 3 weeks of each month (Fish, Tr. 97-98). Recoursing was one of the two major reasons for such complaints. In actual practice, the only valid credit charge is one that has been paid by the customer 5 1 4 1 1 2 727 2459 107 23 86.013077 Krieger,5 1 4 1 1 3 853 2461 39 20 94.307434 Tr.5 1 4 1 1 4 913 2463 91 22 93.339035 193-95,5 1 4 1 1 5 1024 2464 47 21 96.393257 197,5 1 4 1 1 6 1090 2465 55 21 96.385826 212;5 1 4 1 1 7 1164 2465 125 23 95.917328 Davidson,5 1 4 1 1 8 1309 2466 38 20 92.821823 Tr.5 1 4 1 1 9 1366 2468 92 22 96.149033 258-59,5 1 4 1 1 10 1478 2469 48 21 96.761436 271,5 1 4 1 1 11 1546 2469 93 22 92.772362 282-83,5 1 4 1 1 12 1658 2471 56 20 96.870514 323;5 1 4 1 1 13 1735 2469 130 22 96.134384 Winstead,5 1 4 1 1 14 1886 2471 38 19 95.253754 Tr.5 1 4 1 1 15 1944 2472 49 20 95.253754 343,4 1 4 1 2 0 670 2494 1321 33 -1 5 1 4 1 2 1 670 2494 55 20 93.289093 344;5 1 4 1 2 2 744 2494 111 23 92.732559 Lynema,5 1 4 1 2 3 873 2496 38 19 95.677078 Tr.5 1 4 1 2 4 929 2497 48 22 95.631943 612,5 1 4 1 2 5 994 2498 49 21 95.631943 614,5 1 4 1 2 6 1060 2498 55 22 93.298813 616;5 1 4 1 2 7 1132 2498 92 23 92.195129 Colfels,5 1 4 1 2 8 1242 2500 38 19 96.397652 Tr.5 1 4 1 2 9 1297 2502 56 20 92.915977 513;5 1 4 1 2 10 1371 2501 109 23 91.296082 Labrum,5 1 4 1 2 11 1499 2503 38 19 95.206863 CX5 1 4 1 2 12 1555 2504 49 20 95.935158 234,5 1 4 1 2 13 1622 2506 25 17 93.226387 at5 1 4 1 2 14 1665 2511 23 15 91.373032 p.5 1 4 1 2 15 1707 2506 25 18 80.132706 1;5 1 4 1 2 16 1750 2504 117 23 96.159019 England,5 1 4 1 2 17 1885 2506 40 18 95.410400 CX5 1 4 1 2 18 1943 2506 48 21 96.228462 234,4 1 4 1 3 0 670 2528 808 29 -1 5 1 4 1 3 1 670 2530 25 16 90.216507 at5 1 4 1 3 2 709 2533 20 16 77.735947 p.5 1 4 1 3 3 745 2529 26 19 72.884064 3;5 1 4 1 3 4 785 2528 143 24 73.097488 McKinnon,5 1 4 1 3 5 942 2530 38 20 96.111275 CX5 1 4 1 3 6 994 2533 49 21 96.111275 234,5 1 4 1 3 7 1058 2534 26 17 93.113205 at5 1 4 1 3 8 1096 2539 22 15 91.673462 p.5 1 4 1 3 9 1132 2534 26 20 96.316505 4;5 1 4 1 3 10 1172 2533 83 22 96.482422 Smith,5 1 4 1 3 11 1269 2534 38 20 96.655701 CX5 1 4 1 3 12 1322 2536 48 21 94.450104 234,5 1 4 1 3 13 1384 2537 26 18 93.305275 at5 1 4 1 3 14 1422 2542 23 15 91.747696 p.5 1 4 1 3 15 1459 2537 19 18 96.328781 5. UNIVERSAL CREDIT ACCKPTANCH CURY., WL AL. ulz 570 Initial Decision (Fish, Tr. 102). This completely contravenes the nature of the bargain that members and franchisees thought they made. The incidence or the frequency of recoursing has been such that . __the program cannot be considered “‘non-recourse.” By a simple mathematiéal computation using the ‘information in CX 125 and respondents’ income statements covering the same periods of time (CXs 122-124), it is possible to determine the net percentage of total charges that were recoursed:

July 1968 through June 1969 6% credit charge discount income $ 135,693 Total credit charges submitted ** 2,261,650 Net recourses 211,100 Recourse rate as percentage of total charges 9% submitted .

July 1967 through June 1968 6% credit charge discount income $ 105,371 Total credit charges submitted 1,756,183 Net recourses 283,960 Recourse rate as percentage of total charges 13% submitted July 1966 through June 1967 6% credit charge discount income $ 99,485 Total credit charges submitted 1,658,083 Net recourses 339,178 Recourse rate as percentage of total charges” submitted DO 56. Respondents’ respresentations that the program costs mem- — bers little or nothing at all and that the program costs members half as much as trading stamps were false. The representation that the program costs little or nothing at all is made in respondents’ direct mailers(CX 29 A, CX 30 B, CX 34 A, CX 41 A, CX 42 B), “Franchise Proposal” (CX 45 F and CX . 46 F), and in various sales presentation manuals employed: % Respondent Heater confirmed that the credit charyze discount income figures represented in CXs 122 through 124 do in fact constitute 6 percent of the total credit charges submitted in the respective years indicated, so that by performing the mathematical computation, the total credit charges submitted can be ascertained (Heater, Tr. 774). Initial Decision 82 F.T.C.

(Higher unit sales eliminates all cost.) (CX: 180 G, #14); This fact alone eliminates” the complete cost of our program (CX 180 J); * * * Since credit customers spend some 539% to 200% more than cash customers, the extra profit you make on these larger sales more than eliminates any cost of Honoring All Credit Cards (CX 180 Z32); So, this in itself, eliminates any cost to the All Credit Card program (CX 180, at p. 6);

In fact, once you join us, it’s very painless. From then on, we’ll be sending you money and the program is going to pay for itself and pay for everything else (CX 130, at p. 28); and Tell him that, within 30 days he can pay for the service and pay himself a profit beside, and pay his bills with the money we send him (CX 180, at p. 36-37).

Another instructional document, entitled “Membership Sales Presentation—Subject: Positive Statements (Command Phrases that Sell) ,” includes the following statements: You will pay for the program and pay yourself a profit besides in less than 80 days (CX 131 A, #4);

It doesn’t cost you money; it will make you money! (CX 131 A, #13); and The profit you make on the higher. unit sales more than eliminates any cost of the program (CX 131 B, #20).

Such “command phrases” do reach prospects (Kiefert, CX 234, at p. 2; Sheldon, CX 234, at p. 10).

That respondents’ program costs members half as much as trading stamps is a claim that is made directly in direct mailers (CX 29 A, CX 80 B, and CX 42 A), as well as in the list of “Positive Statements (Command Phrases that Sell), ” “Which includes: “Honoring All Credit Cards costs less than half the cost of green stamps because we only charge you for the extra business we bring you” (CX 131 B, #30).

57. In truth and in fact, respondents’ program does not cost members little or nothing at all. The program does not cost members half as much as trading stamps. Taking into account the initial membership fee, the monthly dues, the discount rate, the total amount of charges recoursed, and the 6 percent discount fee paid even on recoursed charges, the program costs the members a substantial amount.

The falsity of this claim is obvious. Raleigh Fish, former director of member relations, testified that the claim that the cost of the program is 7 percent is based upon the assumption that the member submits $1,000 credit charges each month and receives no UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 621 570 Initial Decision recourses. The computation is as follows: the $240 membership fee prorated over a 24-month period would be $10 per month. The member dues are an additional $10 per month. The 6 percent - —-discount rate on $1,000 worth of charges is reduced so that it is 5 percent, or $50. The total of $50 discount, plus $10 dues, plus $10 membership fee would be $70 per month as the cost to produce $1,000 worth of business, or 7 percent (Fish, Tr. 127-28). However, in actual practice the average member at best lasts about 8 months and sends in only $200 per month in charges. This means that the cost involved to produce that $200 in charges is a fantastically high percentage. The $240 membership fee prorated over only 8 months of program usage would be $30 per month. Similarly, the monthly dues, which must be paid regardless of whether or not the program is used after the 8 months, would be $30 per month on a prorated basis. And the 6 percent discount rate on his $200 volume would be $12. Accordingly, the total cost for the average member would be $30 membership fee, plus $30 dues, plus $12 discount for a total of $72, or 36 percent (Fish, Tr. 128-29). In addition, the average member can expect to be recoursed at a rate of from 12 percent to 15 percent of the total amount of the charges he submits (CX 125). For the average member, therefore, the cost of the pr ogr am rapidly approaches 50 percent. . : oD 61. Claims that respondents are the largest credit card clearing house in America were false.

Respondents state that they are “the largest credit card clearing house in the world” (CX 29 B, CX 34 A, CX 28 B, CX 42 B, CX 45 B and G, CX 46 B and G, CX 186 A). The deception is evident from the testimony of persons who believed such claims. indicated the respondents were “bigger than American Express” (Lynema, Tr. 602), persons who were led to believe that respondents’ financial resources were such that they had $3 million in the bank (Krieger, Tr. 187; Winstead, Tr. 334), as well as from persons who merely accepted the representations at face value, thereby believing respondents’ size was comparable to that of the large, well-known credit card operations (Manicucci, CX 234, at p. 13; Brooks, CX 234, at p. 11).

By definition, a “clearing house” is “an institution or establishment for carrying on the business of clearing,” which in turn is defined as:

Initial Decision 82 F.T.C.

a method adopted by banks and bankers for, making an exchange of checks, etc.y held by each against the others; and settling differences of accounts with each other (Webster’s New International Dictionary, 2nd edition, pp. 499-500).

Literally, therefore, respondents’ representation has the tendency to imply a relationship with all of the individual credit card issuers, whose cards respondents “approve.” In truth and in fact, respondents act merely as a collection agency. 62. In truth and in fact, respondents are not the largest credit card clearing house in America. There are other credit card operations with larger retail memberships and with larger amounts of financial resources than respondents’ business. The representation is clearly false under the literal interpretation of “clearing house,” because as even respondent Heater admitted, respondents do not really clear anything with any other credit card companies (Heater, Tr. 872). Furthermore, respondents’ size.as compared with the size of other credit card issuers makes the claim false.

Respondents’ total active membership during the period January 1968 through October 1969 averaged 781 (CX 191 A-—D), with about 1,100 members under contract (Fish, Tr. 121). The Bank- Americard system had contracts with some 509,000 merchants in the United States as of December 31, 1970, which merchants had approximately 680,000 outlets (CX 216). The Master Charge system had contracts with some 628,000 merchants representing a total of some 840,000 outlets as of December 31, 1970 (CX 217). Respondents’ total revenues produced from their-program was in the neighborhood of $1 million a year from July 1966 through June 1969 (CXs 123-125). And respondents’ net working capital as of January 1969 was actually a deficit of almost $26,000 (CX 126 A-B). It is clear, therefore, that other credit card programs, particularly those backed by banking institutions, have substantially larger retail memberships and larger amounts of financial resources than do respondents.

63. Representations that respondents’ program is approved or endorsed by the individual issuers of the credit cards accepted by respondents were false.

This representation results from the publication and dissemination by respondents of a direct mailer (CX 42 B) and sales kits (CX 179 L), containing a list of the individual credit cards which are acceptable references under respondents’ program. Said lists are entitled “Approved Credit Card List.” Following the title there UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 623 570 Initial Decision is a list of some 90 individual credit cards. Although respondents footnote or asterisk reference the list with a disclosure that “credit cards are accepted as a credit reference only, customers are billed ~ direct by Universal Credit Acceptance Corporation,” such disclosure does not prevent readers from believing that the issuers of the credit cards listed somehow have knowledge of and approve of the use of their cards in respondents’ program (Sheldon, CX 234, at p. 10; Brooks, CX 234, at p. 11; Kiefert, CX 234, at p. 12; and Manicucci, CX 234, at p. 18).

64. In truth and in fact, respondents’ program has not been approved or endorsed by the individual issuers of the credit cards accepted by respondents (admitted by respondents’ Answer). 65. Representations by respondents that authorized capitalization of $3,000,00 is liquid and available to provide financial resources and ability to service members were false. The resume containing the background and synopsis of respondents’ operation includes the statement that: “The contractual obligations with member firms are backed by the resources of Universal Credit Acceptance Corporation, with an authorized capitalization of 3 million dollars’ (CX 179 D). The same statement was made in the resume of the background and synopsis of operation of International Credit Card Corporation (CX 23 B). The “Franchise Proposals’ (CX 45 B and €X 46 B) state that Universal Credit Acceptance Corporation is “a multi-million dollar national firm doing business from border to border and overseas, employing a large staff of general office, accounting, sales and executive personnel.” The Better Business Bureau report on Universal Credit Acceptance Corporation (CX 121) repeats that Universal has “an authorized capitalization of. $3,000,000,” and said report often was used by respondents for sales soliciting purposes (Winstead, Tr. 333; MacDonald, Tr. 551; Lynema, Tr. 596-97, 600, 602). The foregoing language taken alone or accompanied by oral representations has led both franchise and member-prospects to believe that the amounts represented reflected the amount of money respondents actually had on hand at any given time to honor their commitments (Sheldon, CX 234, at p. 10; Brooks, CX 234, at p. 11; Krieger, Tr. 187, 189; Lynema, Tr. 602-04; Winstead, Tr. 334; MacDonald, Tr. 548; Tronca, Tr. 655). 66. In truth and in fact, respondents’ authorized capitalization of $3,000,000 is not liquid and available to provide financial resources and ability to service members. It is merely the amount Initial Decision 82 F.T.C.

selected by respondents as the sum‘on which the fee to be paid ‘to the California Corporations Commissioner was determined. Further, respondents fail to disclose the relevant information that their net working capital is a deficit, so as to mislead and deceive prospective franchisees and prospective members with regard to respondents’ financial condition.

During the period pertinent to this proceeding, the only bank accounts maintained by respondents were those at the local branches of the Bank of America and the Hibernia Bank (Cerino, Tr. 690-91). By stipulation, respondents admitted that the total amounts on deposit in said banks during the time ‘period January 1, 1965 to November 1971 ranged from $10,000 to $99,000 (Tr. 697).

Moreover, according to the Dun and Bradstreet reports written on respondents from a financial statement submitted by respondent Heater, respondents had a net working capital deficit of $25,619 as of January 1969 (CX 128 A~B, CX 235 A-B). The testimony of all franchisees and member witnesses reveals that the. sales solicitation made to: them failed to disclose that fact, which is very material since respondents_are obligated to pay charges submitted by members.

67. Claims and representations that members are assured a minimum 10 percent increase in business within the first 12 months using respondents’ program and that, in the event such increase does not materialize, membership dues will be waived for the second year were false.

These claims are made in direct mailers (CX 29 A, rope 30 B, CX 41 B and CX 42 A), in respondents’ sales kit (CX 179 Z86), in their “Sales Presentation” manuals (CX 1380, at pp. 7 and 26; CX 180 G, #17; CX 180 L; CX 180 Y; CX 180 Z12, Z30, Z33), and in respondents’ list of ‘Positive Statements (Command Phrases that Sell)” (CX 131 B, #18).

68. In truth and in fact, in most instances, members have not realized a minimum 10 percent increase in business within the first 12 months using respondents’ program and have not received a waiver of membership dues the second year (respondents’ Answer, p. 4, admits “some” members failed to realize a minimum 10 percent increase in business within the first 12 months using respondents’ program).

CX 193 A-E discloses that a sampling of 101 members terminated the program in approximately 5 months’ time. The UANEV aw UAV bh AUVs LHAVUL VY 9 ws fila Vw 570 Initial Decision reasonable inference to be drawn from this lack of longevity is that said members failed to receive the represented benefits from it, notably a 10 percent increase in business. In addition, Mr. Fish __ noted that the so-called guarantee is deceptive because the guarantee énly permits the member to’ continue using the program (Fish, Tr. 130). In other words, the member would have to send in more charges and chance more recoursing to receive the “benefits” of this guarantee, when he was already fed up with the program. The testimony of respondents’ members was specific in this regard. Joe Clay did not receive any increase in business from using respondents’ program (Clay, Tr. 575). Similarly, members McBride (CX 234, at p. 7), Ferre (CX 284, at p. 8), Sheldon (CX 234, at p. 10), Brooks (CX 234, at p. 11), Kiefert (CX 234, at p. 12), Manicucci (CX 234, at p. 13), and Dorigo (CX 234, at pp. 13-14), all indicated that they failed to experience the assured results. Likewise, the testimony of franchisee witnesses Lynema, Colfels, Krieger, Tronca, Davidson and Winstead demonstrates that the members they sold the program to failed to receive the benefits contracted for, and therefore dropped it in a short period of time (Lynema, Tr. 631; Colfels, Tr. 520-21; Krieger, Tr. 198, 200, 206-07, 208, 225-26; Tronca, Tr. 663-66; Davidson, Tr. 286-~87, 295; Winstead, Tr. 354-55).

69. Representations that respondents..are members in good standing of an independent organization by the name of the Fair Trade Bureau and that the Better Business Bureau has written an uncensored, objective report on respondents’ business were false. 70. In truth and in fact, respondents are not members of an independent organization by the name of the Fair Trade Bureau. The Fair Trade Bureau is a division of respondents,.having no members or function other than its use as a reference in the materials disseminated by. respondents. Respodent Heater indicated that the Fair Trade Bureau is part of a corporation called “National Professional and Businessmens Association,” of which he is president; there are no stockholders; and Universal and Continental are the only “members” of the Association after five or six years of “operation” (Heater, Tr. 774-78). ‘ 71. In truth and ‘in fact, the Better Business Bureau reports evaluating respondents’ businesses are not uncensored, objective documents.

Initial Decision . 82 F.T.C.

_By letter dated February 26, 1969, the Better Business Bureau -of*San Mateo County,-In¢., advised respondent Heater: Dear John:

I an enclosing reports the Bureau is sending out on your organization. These reports are dated September 1967 and I was wondering whether there should be any additions or deletions to make the report current. If you feel it necessary to redo the reports, I would appreciate having approximately 500 copies for distribution to Bureaus and inquirers. If no changes are necessary, I would appreciate being so informed (CX 196, CX 120, CX 121).

In addition to the foregoing opportunity to censor the Better Business Bureau reports, the reports themselves, CX 120 and CX 121, reveal that the contents are taken almost in toto from respondents’ literature. In view of this, the reports are more subjective accounts, repeating respondents’ own advertising claims. The reports are later used by respondents as sales aids which have a new aura of respectability by virtue of the Better Business Bureau name accompanying them. Consequently, they serve to thwart even the most diligent attempts of both able businessmen and less experienced members of the public to ascertain the legitimacy of respondents’ program befére investing in it (Lynema, Tr. 588-606).

72. Every credit charge submitted by members is subject to the most intensive collection procedure in the credit industry, consisting of billing, outside collection, and legal action (CX 179 Z82) is a false representation.

Members (and franchisees) are led to beliévé respondents use | such effective collection procedures that virtually all charges are collected, thereby minimizing the incidence of recoursing. 73. In truth and in fact, every credit charge submitted by members is not subject to the most intensive collection procedure in the credit industry, consisting of billing, outside collection, and legal action.

Little effort is made by respondents to collect certain charges, namely the smaller charges, whereas there is more attention given to collecting the larger ones. The collection supervisor had accounts over six months’ old which hadn’t even been worked on (Fish, Tr. 136). Respondents’ collection efforts are not uniformly intensive but are determined by the dollar amount of each individual charge (admitted by respondents’ Answer, p. 4; see also CX 179 Z82). Respondents do not in practice institute legal action o UNIVERSAL CREDIT ACCEPTANCE CUKP., KT AL. Oat 570 Initial Decision against delinquent customers (see respondents’ Answer, p. 5), and they fail to disclose to members and to debtor-customers, at any time, that North American Collections, the agency to which - delinquent, accounts are turned over, is not _an outside agency, but rather an affiliated division of “respondents. Respondent Heater testified that ‘North American Collections is designed to accelerate collections by an apparent change of name so people will think we are getting serious and want to collect these charges.”’ He also admitted North American Collections does not collect bills for any company other than Universal, of which it is a part (Heater, Tr. 778-79; CX 144, CX 145, CX 146 A-B). 78. In truth and in fact, respondents have not instituted legal action against inactive members whose accounts respondents have determined are in arrears (admitted by respondents’ Answer, p. 5; see also testimony of witness Fish to this effect, Tr. 126). Respondents Knew Their Program Was A Failure But Continued To Victimize The Franchisees Regardless Joseph O’Flaherty testified directly about respondents’ knowledge that the program was a failure:

Q. Are you saying that the company knew that the franchisees would fall flat on their face going out and selling the Program if they knew? A. I would say so, yes.

HEARING EXAMINER LYNCH: What do you base that belief on? THE WITNESS: In the first place, one has to assume that the company knew how the program worked. The history of the fatality rate of members and the procedures with regards to recoursing. Quite obviously, the company knew that. Therefore, if you know that, you know exactly what’s going to happen out in the field, and there is only two ways the. program can be... sold. You’re either going to lie about it, or you’re not going to sell it at all. This is just plain, common sense * * * (O’Flaherty, Tr. 426-27). Another indication of respondents’ knowledge and expectation that franchisees would fail is the steps taken in advance to attempt to insulate respondents from accountability. In this connection, Mr. O’F laherty testified:

Q. Were the franchisees required to take a test at the conclusion of the seminar? A. Yes.

Q. Why was the test given? * ca % * * * A. It was-given to eliminate problems in the future when it came time Initial Decision 82 F.T.C.

to terminate the franchise. It was designed to get him acknowledge facts -sé@ that when we came around to terminate him, we could always relate to this test and say on so and so date, you acknowledged the fact that this was so, and therefore, you didn’t have much to stand on (O’Flaherty, Tr. 429-30). That respondent Heater was aware of the actual sales, or rather the lack of sales, of franchisees is manifest from the testimony of Mr. O’Flaherty. His department conducted a study which was submitted to Heater in March of 1970, covering the period of the preceding three years. It covered the average number of sales per franchise, the general life expectancy of franchisees. The results were that franchisees were able to produce an ave¥age of only five sales each per year (O’Flaherty, Tr. 419-20). When O’Flaherty was questioned as to whether or not he brought this knowledge of franchisees’ failure to the attention of Heater, he testified as follows:

A. Verbally. I think we would have discussed it periodically, but, quite obviously, that was unnecessary.

Q. What were the nature of your discussions with Mr. Heater concerning inability of franchisees to make money on their franchises? A. Mr. Heater had indicated to rie, had many conversations with me, regarding the franchisee and his ability to produce sales, etc. And, of course, he did stress in conversations, that it was an ability franchise. And, quite obviously, it rested on the franchisee to make sales on his investment. He also indicated that they didn’t have to make money on their investments, they were getting an education basically, and they would never invest again in any of this manner after they got through this experience. That it was an education for them. * * * And if we had not taken the money, someone. else would (O’Flaherty, Tr. 421-22). oO * * * * x . * * Q. Did Mr. Heater ever relate to you his opinion about the qualifications and abilities of a franchisee of the company? A. Mr. Heater talked to me many times about the franchisees. He took exception to the fact, as far as I was concerned, that I was attempting to relate to them on an “intelligent basis.” And, his feeling was that they should not be related to as intelligent people, they were, basically, children. For instance, as an example, Mr. Heater indicated to me in many cases, that the word “pursuant” would not be understood by 90%. of the franchisees, and therefore I should talk to them in simple language. Q. Did the company have a fixed procedure for canceling franchisees who did not produce membership sales? * * % * * * * A. Yes, we did. This fluctuated from time to time depending how we were going as far as franchise sales were concerned. But, on several occasions, 570 Initial Decision Mr. Heater indicated to me that 120 days should be the magic number. That is to say, if a franchisee was not producing sales within 120 days, he should be in and out. He should be terminated within that period of time, if he was not producing sales. The situation fluctuated as far as the __termination of franchisees. At times, it would go -full blast, and at other ~~ tinfes it wotild ease off. If we were having‘a lét of legal problems, generally, we would ease off. At other times, I got the word that I was to accelerate the terminations because we were running out of areas to sell (O’Flaherty, Tr. 482-33).

Mr. O’F laherty’s testimony about respondents’ policy of employing form letters whenever possible reveals respondents’ cynicism and consciousness with regard to the ultimate failure of their victims: , Q. Did you receive any instructions from anybody as to what -manner you were to respond to franchisee problems and questions? A. There was an elaborate system of form letters used within the company. It was company policy, as related by Mr. Heater, that these form letters and form paragraphs for insertion in form letters were to be used whenever possible. And it was told to me on several occcasions that we should try to avoid directly answering problems and questions if a franchisee had a particular question, why don’t you do this, this is happening to me, you don’t answer them. You send them out a form letter and ask them a question, so that you put him on the defense (O’Flaherty, Tr. 414-15). ok * * * * Ld * A. The form letters consist of the statement of Mr. Heater to me was, the purpose of form letters is to drive the franchisee into apathy. By continually sending a flow of form letters, he would stop communicating with you (O’FJaherty, Tr. 453).

Furthermore, Mr. O’Flaherty referred to a certain form letter questionnaire entitled “Activity Report and Summary” (CX 214) as follows: we ate :

Q. What was the purpose of sending that form to franchisees? A. There were two purposes. The intended purpose, really, was—again, all of our forms, quite frankly, were designed with the purpose of eventually entrapping the franchisee. Making statements that would commit him. * bd * * * * * THE WITNESS: The purpose of the form is to find out what he is doing with regards to his franchise. That is to say, how many hours he is spending in the operation ‘of his franchise, how many sales calls he is making, total number of hours he is spending on his franchise, how many leads he’s received, how many he’s worked, and this type of thing. BY MR. ARBITMAN:

630 ‘FEDERAL TRADE COMMISSION DECISIONS Initial Decision 82 F.T.C.

Q. Why did the company want that information? * * 7 # ‘ * * a * A. Normally, what we do, we would review the form and look for glaring areas of omission on his part generally speaking. For instance, question #6 asks the question “How many hours would you estimate you have spent making membership presentations?” Well, if he only indicated that he spent two hours, and he wasn’t making any sales, generally, he was complaining to us in previous letters that I can’t sell, because the program’s no good. Then, we would simply write back, the reason you’re not selling is you’re not making calls, and it’s just a question of making calls. We follow the company procedure on that. It should be understood that in my work with the department, at all times, I followed basically what I was supposed to be doing as per instructions from Mr. Heater. So, if he said send out form letters and ask these questions, that’s exactly what I did (O’Flaherty, Tr. 439-42).

In this connection, Mr. O’Flaherty testified further: Q. Did you try to truthfully answer them [franchisees] to the best of your ability? A. I would. Well, no, that’s not accurately correct. That’s not the truth. You’re asking me for an honest evaluation of the thing, I did not answer them truthfully. - Q. You did not answer them truthfully? A. I would have to say no. That is to say, I followed company policy. If I were to answer them truthfully, I couldn’t answer them, so I followed company policy.

Q. Did you try and solve their problems? ee le A. I many times did, because my conscience got the better of me, and if it weren’t for my conscience, just purely business ethics, if one writes in and asks a question with regards to a subject, one normally expects an answer on it. Now, I realize of course, full well, that the use of form letters is in vogue and has been for some time by large corporate corporations. But we weren’t that large, and we could, I think, have afforded the luxury of replying individually to people, but we generally did not. Now, I many times, did reply, and attempted to keep the answer at least somewhat in the same area that he was asking the question. But they generally reflected company policy and company statements (O’Flaherty, Tr. 461-62). As a result of his experiences, Mr. O’Flaherty submitted an 88-page proposal to Heater containing suggestions and recommendations, which O’Flaherty characterized as “everything conceivable that a normal company would use in its sales promotion activities.” As was the case with Mr. Fish’s recommendations, 570 ; Initial Decision Heater never responded to or acted upon any of his proposals (O’F laherty, Tr. 422-23). :

When Brian MacDonald, who worked in respondents’ franchise processing and control department, realized the nature of the - ~~deceptive ‘practices being conducted, -he -decided: he ‘“‘couldn’t stomach” what he saw (MacDonald, Tr. 555). He brought to Heateyr’s attention the fact that the company’s operation was quite different that what he was told when he was hired. Mr. MacDonald received the following response: “I was told, that one time, not to ask what we could do for the franchisees but to see what they could do for us” (MacDonald, Tr. 556). Heater never denied having made the statements attributed to him by Fish, O’Flaherty, and MacDonald.

79. In the regular course of their business, respondents ambiguously utilize terms and phrases, material to a determination of the nature and value of the program, which ordinarily convey a’ meaning to potential franchisees and members that is contrary to fact.

Respondent Heater admitted some of said terms and phrases do in fact rely upon technicalities and semantics and that. “largest credit card clearing house” is used in a misleading fashion (Heater, Tr. 828, 830, 872). He acknowledged that respondents’ “earnings projections” were really only “hypotheticals” (Heater, Tr. 796, CXs 47-59): and that representations of “profitable earnings” and urgings to franchise prospects to “act immediately” were in fact made by indirection rather than directly (Heater, Tr. 796, 798, 810).

80. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondent International Credit Card Corporation, also trading as National Credit Service, has been, and respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, Heater and Gingold have been, and now are, in substantial competition, in commerce, with corporations, firms, and individuals in the sale of franchises or distributorships to persons interested in establishing their own businesses, and with corporations, firms, and individuals in the sale of credit card services.

Under an expansive definition of “competition” respondents compete with other*businesses engaged in the sale of franchises or distributorships to persons interested in establishing their own businesses. The May/June 1969 issue of Franchise Journal lists Initial Decision 82 F.T.C.

81 other advertisers in addition to Continental Credit Card Corporation (CX 43,..p; 76), and the, July/August 1969 issue of Franchise Journal lists 91 other advertisers in addition to Continental Credit Card Corporation (CX 44, p. 92). More specifically, the testimony of both franchisees and members indicates that respondents are in competition with other credit card operations, such as those of banks (BankAmericard and Master Charge) and other credit operations (American Express, Diner’s Club, and Carte Blanche) (Lynema, Tr. 602; Winstead, Tr. 352-53; Krieger, Tr. 200, 225, 226; Tronca, Tr. 655; Labrum, CX 234, at p. 2; Dee, CX 234, at p. 9; Brooks, CX 234, at p. 11; Dorigo, CX 234, at p. 14).

81. The use by respondents of the aforesaid unfair acts and false, misleading and deceptive statements, representations and practices, has had and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true, and into investing substantial sums of money in becoming franchisees to sell respondents’ services, and into investing substantial sums of money in becoming members of respondents’ program for the use of respondents’ services, and into the payment of substantial sums of money by reason of said erroneous and mistaken belief.

CONCLUSIONS 1. The Federal Trade Commission ‘has...jurisdiction -of the . subject matter of this proceeding and of the respondents. 2. Respondent International Credit Card Corporation, also trading as National Credit Service, has been, and respondents - Universal Credit Acceptance Corporation, Continental Credit Card Corporation, Heater and Gingold have been, at all times relevant hereto, engaged in interstate commerce within the intent and meaning of Section 5 of the Federal Trade Commission Act. 3. The failure of respondents to notify and refund to persons who acted in reliance upon the statements and misrepresentations, as herein found, all monies expended by such persons, was and is, inherently and unconscionably unfair and deceptive. 4. The retention of funds obtained pursuant to the unlawful scheme disclosed by this record itself constitutes a violation of Section 5 of the Federal Trade Commission Act. 570 Initial Decision 5. The aforesaid acts and practices of respondents, as herein found, including their failure to refund all monies expended by persons who acted in reliance upon respondents’ statements and representations, as herein found, were, and are, all to the prejudice ’ “andsinjurys of the public, and -of respondents’ competitors, and constituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act. PROPOSED ORDER Counsel supporting the complaint’s proposed order differs from the order issued with the complaint in certain respects, but is within the scope of the original order. The respondents in .their proposed findings and order have recommended that in the event the examiner finds the respondents in violation of Section 5 of the Federal Trade Commission Act, that he issue an order in most respects following that proposed by the Commission when it issued the complaint. However, the respondents contend, and submit a lengthy brief in support of their position, that the Commission lacks the power and authority under Section 5 of the Federal Trade Commission Act to issue an order that would direct the payment of, in effect, a money judgment against the respondents. While the respondents are unable to cite. any cases to substantiate their position, they attempt to construe counsel supporting the complaint’s legal justification in a manner contrary to the position taken by the Commission in Curtis Publishing Company, Docket No. 8800, decided June 30, 1971 [78 F.T.C. 1472], wherein the Commission outlined some of the circumstances which could lead to the conclusion that retention by a seller of funds secured through misrepresentation constitutes an unfair act or practice within the meaning of the Act:

An order granting restitutionary relief could also operate prospectively if it were issued on the basis of a finding by the Commission that a seller’s retention of its customers’ money or property was an unfair trade practice in and of itself. Such a situation could conceivably oceur, for example, where * * * the consumer, as a result of deception or fraud on the part of the seller, pays for a product or service but receives nothing of value in return or receives something that is either worthless or of only token value. In such instances the retention of the money or property of consumers may be deemed to be a continuing violation of Section 5, separate and apart from any misrepresentation or deceptive sales scheme which may be utilized by the seller. And to terminate such a practice an order would of necessity Initial Decision 82 F.T.C.

require restitution of the money or property unjustly held by the seller. Curtis Publishing Company, F.T.C. _Dkt. No. 8800, decided June 30, 1971 (emphasis added). [78 F.T.C. 1472, 1516] The examiner has difficulty interpreting the Federal Trade Commission Act to be broad enough to permit an order requiring restitution by a respondent where the circumstances are such that there are no procedures of any kind provided for by the Act for the adjudication of just or unjust claims. However, the Commission has stated very broadly in Curtis that they have the power to issue this type of order. Therefore, the examiner feels compelled to follow the policy established by the Commission in Curtis as a precedent governing the disposition of this proceeding. ORDER It is ordered, That respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, International Credit Card Corporation, also trading as National Credit Service, corporations, and their officers, and John Clifford Heater, individually and as an officer of Universal Credit Acceptance Corporation and International Credit Card Corporation, and Howard P. Gingold, individually and as an officer of Continental Credit Card Corporation, and respondents’ franchisees, agents, representatives, employees, successors and assigns, directly or through any corporate or other device, in connection with the advertising, offering for sale or sale of franchises or credit card services, or any other products or services, or in the operation of any credit card service or other business in commerce, as “commerce” is -defined in the - Federal Trade Commission Act, do forthwith cease and desist from directly or by implication:

1. (A) Representing that franchisees will earn or can reasonably expect to earn or receive any stated or gross or net amount of earnings or profits; or representing, in any manner, the past earnings of franchisees unless in fact the past earnings represented are those of a substantial number of franchisees in the geographical area about which such representations are made and accurately reflect the average earnings of said franchisees under circumstances similar to those of the person to whom the representation is made. (B) Representing that franchisees can expect to remain active franchisees for many years; or representing, in any manner, the longevity or tenure of past or existing fran- Cavey UiVhd MULE LAINUG UU. Bl AL. VdV0 Initial Decision chisees unless in fact the periods of time represented are those for which a substantial number of franchisees actively pursued membership sales efforts.

(C) Selling, or offering franchises for sale, in any manner, without disclosing clearly and conspicuously in writing at or before the time of the first oral sales presentation, or in the event no oral sales presentation is made, reasonably prior to the execution of a franchise application, agreement or contract:

(i) the median and mean gross earnings from the sale of memberships in respondents’ program by franchisees in the most recent calendar year (who were active for the entire year) preceding the year in which such sale or offer is made; * (ii) the total number of franchisees in the most recent calendar year preceding the year in which the sale or offer is made;

(iii) the total number of franchisees in subparagraph (ii) above who had earnings from the sale of memberships during the designated year in the following dollar amounts:

a. $1,000 or less b. over $1,000 but not-over $5,000 ¢. over $5,000 but not over $10,000 d. over $10,000 but not over $20,000 e. over $20,000 (iv) the number of franchisees referred to in subparagraph (ii) above who sold memberships for the following periods of time:

a. 1 year or less b. over 1 year but not over 2 years c. over 2 years but not over 8 years d. over 3 years but not over 4 years e. over 4 years (v) the total number of members submitting credit charges in respondents’ program during the most recent calendar year preceding the year in which the sale or offer is made;

(vi) the number of members referred to in subparagraph (v) above who submitted credit charges under respondents’ program for the following periods of time: Initial Decision 82 F.T.C.

1 year or less over 1-year but not over 2-years over 2 years but not over 3 years over 3 years but not over 4 years -e. over 4 years (vii) the percentage of credit charges recoursed to — members during the most recent calendar year and the full number and nature of reasons for which respondents may recourse charges;

(viii) the name and current address of each of respondents’ franchisees in the most recent calendar year preceding the year in which such sale or offer is made; (ix) a financial statement reflecting respondents’ assets and liabilities (stating separately fixed assets and. liquid assets) for the most recent calendar year; (D) Selling, or offering memberships for sale, in any manner, without disclosing clearly and conspicuously in writing at or before the time of the first oral sales presentation, or in the event no oral sales presentation is made, reasonably prior to the execution of any application, agreement or contract: ~- (i) the percentage of credit charges recoursed to members during the most recent calendar year preceding the year in which the sale or offer is made and the ful] number and nature of reasons for which respondents may recourse charges;

(ii) the total number of members: submitting: credit charges in respondents’ program during the most recent calendar year preceding the year in which the sale or offer is made;

(iii) the number of members referred to in sub-paragraph (ii) above who participated for the following periods of time:

a. 1 year or less b. over 1 year but not over 2 years c. over 2 years but not over 3 years d. over 3:years but not over 4 years e. over 4 years (iv) a financial statement reflecting respondents’ assets and liabilities (stating separately fixed assets and liquid assets) for the most recent calendar year. Bop 570 Initial Decision Provided, however, That in the event respondents operated or used any corporate or trade name for a period of less than five years, the disclosures called for in this paragraph shall reflect the operations of the last preceding business entity used by respond- ~—~ents.to sell and administer franchises and-membérships. 2. Selling, or offering franchises for sale, in any manner, without furnishing to each prospective purchaser reasonably prior to the execution of a franchise application or agreement, a copy of the Federal Trade Commission Consumer Bulletin No. 4, “ADVICE FOR PERSONS WHO ARE CONSIDER- ING AN INVESTMENT IN A FRANCHISE BUSINESS.” 3. (A) Representing that persons do not risk any loss of money in coming to respondents’ offices, or any other place, for a franchise interview, or that respondents authorize the reimbursement of air fare expenses for such interviews, without disclosing clearly and conspicuously in writing prior to the expenditure of any funds by such persons, all conditions which must be met to receive reimbursement, including the exact amount of any deposit or downpayment required. (B) Failing to reimburse travel expenses to any person respondents have promised such reimbursement. 4. Representing that persons do not risk losing the deposits or downpayments submitted with applications for franchises ; or that such deposits or downpayments are refundable when such deposits or downpayments may be forfeited if the applicants withdraw or fail to pay the balance due after acceptance of their applications by respondents, or for any other reason;

Provided, however, That respondents may make such representations if they do in fact refund such deposits: *~ ~~ 5. Misrepresenting that any geographical area offered as a franchise has not been previously franchised by respondents or misrepresenting that such area has been franchised before by respondents and was profitable for the prior franchise holder.

6. Misrepresenting that respondents have a franchise committee which actually checks the qualifications of prospective franchisees, or misrepresenting, in any manner, that respondents check, or have checked the qualifications of a prospective franchisee.

7. Misrepresenting that respondents have a regional man- Initial Decision 82 F.T.C.

ager who will interview, or has interviewed, prospective franchisees for -a~particular geographical area; or that respondents have applications pending for a particular area; or that any person must act immediately to be considered for a franchise; or misrepresenting, in any manner, the nature and extent of interest of others in any particular franchise, or franchises in general.

8. Representing that franchise holders receive substantial benefits from renewals of memberships or from annual bonuses based on a percentage of net credit charges submitted by members; or representing, in any manner, benefits to franchisees which are dependent upon the actions of members, unless the benefits represented are those received by a substantial number of franchise holders.

9. (A) Representing that persons risk losing little or nothing in investing in a franchise; or that respondents will repurchase any franchise.

(B) Representing that respondents will aid or assist in the resale of franchises without contemporaneously, clearly and conspicuously disclosing the nature of such assistance and the “amount of the resale purchase price which respondents will retain.

(C) Representing that respondents’ franchises are vested property rights which may be sold, assigned, transferted or testated, without contemporaneously, clearly and conspicuously disclosing that franchises are subject to termination by respondents if a franchise holder doés not produce a pre: scribed sales quota.

10. Representing, in any manner, that respondents’ program has received national acceptance, or that respondents’ program can be sold with ease; or misrepresenting in any manner, the salability or degree of acceptance or approval of respondents’ program.

11. (A) Representing that credit charges submitted under respondents’ program are guaranteed payable or are payable without recourse; or that respondents assume the risk of nonpayment by members’ customers in any manner including, but not limited to, using the terms “we honor all approved major credit cards,” “honor all credit cards,” “non-recourse,” “without recourse” or any other terms or words of similar import or meaning.

570 Initial Decision (B) Representing that all members can expect to be successful or satisfied with the performance of respondents’ program; or that members usually continue using respondents’ program for two years and renew their contracts -—--..., thereafter. De 12. Using or disseminating any article written or prepared by respondents and published substantially verbatim in any newspaper, magazine, or other publication. 18. Using any letter, payment check, or other materials which purport to represent the satisfaction or success of any franchisee or member unless, (A) such franchisee or member is actively selling or using respondents’ program. or service at the time such letter, payment check, or other materials are used; (B) the full name and current address of the franchisee or member and the existence of any remuneration are disclosed clearly and conspicuously in conjunction with the use of such letter, payment check or other materials;

Provided, however, That respondents shall not obtain or use any such letter, payment check or other material relating to any franchisee or member who has not sold or participated in respondents’ program or service for-at least six (6) months. 14. Representing that respondents’ program costs members little or nothing at all; or that the program costs members half as much as trading stamps; or misrepresenting, in any manner, the cost of respondents’ program to members. 15. Representing that members complete just one simple form for all credit charges; or misrepresenting, in any ..... manner, the procedures necessary to process credit charges and receive payment therefor; or failing to disclose contemporaneously, clearly and conspicuously any and all reasons which will preclude receipt of full payment of credit charges submitted by members.

16. Representing that members receive payment for each credit charge submitted to respondents in 30 days; or misrepresenting, in any manner, the period of time in which members will receive payment for credit charges submitted to respondents.

17. Failing to disclose clearly and conspicuously that re- Initial Decision 82 F.T.C.

spondents’ program or service is not approved or endorsed by the individual issuers of the “credit cards approved by respondents. 7 ‘ - 18. Representing that members are assured or can achieve a minimum 10 percent or any other percentage or amount of increase in business using respondents’ program, without disclosing the number of members who have actually received said increase and offering to identify such members on request, and without maintaining verified statements from said members that they have received said increases. 19. (A) Using the name Fair Trade Bureau or any other name which represents that respondents’ operations and activities have been endorsed by any independent or governmental organization.

(B) Writing, preparing, or disseminating any Better Business Bureau reports concerning respondents’ business. 20. (A) Representing that every credit charge submitted by members is subject to the most intensive collection procedure in the credit industry; or misrepresenting, in any manner, the intensity or nature of respondents’ collection activities. oe (B) Using the name North American Collections or any other trade name or collection agency similarly related to respondents without disclosing contemporaneously, clearly and conspicuously that such name or agency is owned, operated or controlled by respondents.

21. Representing that respondents will instittite legal action against inactive members whose accounts respondents claim are in arrears, unless respondents do intend to pursue such remedies and have in practice pursued such remedies against substantial numbers of members.

22. Furnishing, or otherwise placing in the hands of others, the means or instrumentalities by or through which the public may be misled or deceived in the manner or as to the things prohibited by this order.

It is further ordered, That respondents incident to selling their franchises and credit card services:

a. Inform orally all persons to whom solicitations are made and provide in writing in all applications and contracts in at least ten-point bold type that the application or contract may - Initial Decision.

be cancelled for any reason by notification to respondents in writing within seven days from the date of execution. b. Refund immediately all monies to (1) all persons who have requested cancellation of the application or contract “within seven days from the exécution thereof, and (2) all persons who paid any monies for franchise fees, deposits or downpayments on franchises, air fare or other expenses for a home office interview, and for membership fees, membership dues and discount fees, who show that any of respondents’ solicitations, applications, contracts or performance were attended by or involved any violation of any of the provisions of this order.

It is further ordered, That respondents herein shall within 30 days of the effective date of this order: a. Mail or deliver a confirmed, return receipt requested copy of this order to cease and desist to all persons from whom respondents obtained any monies for the actual or prospective sale of any franchise or membership and all persons who incurred travel expenses pursuant to respondents’ solications from January 1, 1967, until the effective date of this order. Furthermore, respondents shall send with each aforementioned copy of this order a letter or other written statement which effectively. notifies such persons of their rights and obligations under section (b) of this paragraph.

b. Refund immediately to all persons described in section (a) of this paragraph filing a written and documented claim therefor with respondents within 30 days of their receipt of this order as set forth in section (a) of this. paragraph, who. . show that respondents’ solicitations, applications, agreements, contracts or performance were attended by or involved any of the practices, including, but not limited to, deceptive nondisclosure, which are now prohibited by this order, all monies paid: (1) for air fare or other expenses for a home office interview; (2) for a deposit or down payment on a franchise; (3) for a franchise fee (with any monies earned by franchisees from commissions on the sale of memberships to be deducted:after respondents refund to any members sold by such franchisees all monies as set forth in part (4) of this section) ; and (4) for membership fees, membership dues, and members’ discount fees.

Opinion 82 F.T.C.

It is further ordered, That the respondents shall forthwith deliver a copy of this order to cease and desist to all present and future salesmen and franchisees or other persons engaged in the sale of respondents’ franchises and services, and secure from each such salesmen, franchisee or person a signed statement acknowledging receipt of said order.

It is further ordered, That the respondent corporations shall forthwith distribute a copy of this order to each of their operating divisions.

It is further ordered, That the respondents notify. the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order. It is further ordered, That the respondents herein shall, within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have compiled with this order. OPINION OF THE COMMISSION By JONES, Commissioner:

I.

In a complaint issued on October 6, 1970 ' resporidents Universal Credit Acceptance Corporation (Universal), Continental Credit Card Corporation (Continental), International Credit Card Corporation (International) ,? also trading as National Credit Service (National), John Clifford Heater, individually and as an officer of Universal and International and Howard P. Gingold, individu- ‘For the purposes of this opinion the following abbreviated citations will be used: Transcript of Hearing Tr.

Complaint Counsel’s Exhibits Cx.

Respondents’ Hearing Brief R.H.B.

Initial Decision ILD.

Appeal Brief of Counsel Supporting the Complaint C.C.B. Appeal Brief of Counsel Opposing the Complaint R.B. Addendum to Appeal Brief of Counsel Opposing the Complaint R.Ad.B. Answering Brief of Counsel Supporting the Complaint C.C.A.B. Transcript of Oral Argument T.O.

? Universal, Continental and International are each incorporated under the laws of the State of California. (I.D. 1-3 {p. 582 herein]). 570 Opinion ally and as an officer of Continental, were charged with violating Section 5 of the Federal Trade Commission Act. The complaint charged respondents with having engaged in unfair methods of competition and unfair and deceptive acts and 5 1 2 2 3 2 494 542 277 37 27.246872 “~practices.in5 1 2 2 3 3 800 542 60 32 95.528450 thes 1 2 2 3 4 886 542 205 38 96.670158 marketing5 1 2 2 3 5 1117 543 69 32 25.261292 ands 1 2 2 3 6 1201 543 197 38 25.261292 -operations 1 2 2 3 7 1414 539 53 35 37.989410 -of5 1 2 2 3 8 1493 542 94 32 96.691757 theirs 1 2 2 3 9 1617 543 146 31 95.166550 “Honors 1 2 2 3 10 1793 542 55 36 96.244843 All4 1 2 2 4 0 535 593 1262 39 -1 5 1 2 2 4 1 535 593 123 31 96.638084 Credits 1 2 2 4 2 671 593 115 32 94.722313 Card”5 1 2 2 4 3 800 603 179 29 96.144783 program.3 1 2 3 0 0 529 644 1320 845 -1 4 1 2 3 1 0 579 644 1268 39 -1 5 1 2 3 1 1 579 644 73 31 96.589981 Thes 1 2 3 1 2 677 644 288 32 96.650360 administrative5 1 2 3 1 3 992 645 66 31 95.512985 laws 1 2 3 1 4 1084 645 109 38 96.804153 judges 1 2 3 1 5 1220 646 111 31 96.275429 found5 1 2 3 1 6 1358 645 81 32 96.668900 that5 1 2 3 1 7 1467 645 233 38 92.968567 respondents5 1 2 3 1 8 1729 655 118 28 92.968567 repre-4 1 2 3 2 0 533 695 1316 39 -1 5 1 2 3 2 1 533 695 123 31 96.809097 sented5 1 2 3 2 2 673 695 83 37 96.503616 they5 1 2 3 2 3 772 695 114 32 96.070915 would5 1 2 3 2 4 904 695 113 31 96.070915 honors 1 2 3 2 5 1033 695 45 32 95.920784 all5 1 2 3 2 6 1097 695 113 33 89.546638 credits 1 2 3 2 7 1227 696 103 32 96.693016 cards5 1 2 3 2 8 1349 696 84 32 96.630150 used5 1 2 3 2 9 1453 696 45 38 96.572769 by5 1 2 3 2 10 1515 695 60 33 96.532227 thes 1 2 3 2 11 1594 696 196 31 96.265450 customers5 1 2 3 2 12 1809 695 40 32 96.910698 of4 1 2 3 3 0 532 745 1315 40 -1 5 1 2 3 3 1 532 745 95 31 96.656235 theirs 1 2 3 3 2 651 746 101 31 95.907715 retails 1 2 3 3 3 777 746 185 31 95.907715 merchants 1 2 3 3 4 986 756 168 29 96.335480 programs 1 2 3 3 5 1178 747 175 32 96.658081 members5 1 2 3 3 6 1381 747 65 31 86.836548 “on5 1 2 3 3 7 1472 758 21 21 95.692528 a5 1 2 3 3 8 1517 746 219 39 92.765678 guaranteed5 1 2 3 3 9 1762 756 85 22 92.337189 non-4 1 2 3 4 0 534 796 1313 40 -1 5 1 2 3 4 1 534 806 164 22 96.491592 recourse5 1 2 3 4 2 710 796 117 32 95.794403 basis”5 1 2 3 4 3 842 797 69 31 96.177910 ands 1 2 3 4 4 925 796 79 32 96.817932 that5 1 2 3 4 5 1018 797 174 31 96.748253 members5 1 2 3 4 6 1207 797 114 32 96.667206 would5 1 2 3 4 7 1336 798 42 31 95.236977 be5 1 2 3 4 8 1392 797 83 39 95.236977 paid5 1 2 3 4 9 1489 797 125 32 96.081017 within5 1 2 3 4 10 1629 797 116 38 96.174156 thirty5 1 2 3 4 11 1760 798 87 37 96.882423 days4 1 2 3 5 0 533 845 1315 41 -1 5 1 2 3 5 1 533 845 159 33 96.133446 whether5 1 2 3 5 2 712 857 40 21 96.133446 or5 1 2 3 5 3 771 848 62 30 95.841362 not5 1 2 3 5 4 851 846 60 32 95.841362 thes 1 2 3 5 5 931 848 195 31 96.380608 customers5 1 2 3 5 6 1147 848 82 37 91.506287 paid5 1 2 3 5 7 1252 848 258 38 61.067390 respondents.*5 1 2 3 5 8 1534 848 39 31 96.219658 In5 1 2 3 5 9 1594 848 86 37 93.117996 fact,5 1 2 3 5 10 1704 857 144 29 91.327751 respon-4 1 2 3 6 0 534 896 1312 40 -1 5 1 2 3 6 1 534 896 113 32 96.033638 dents’5 1 2 3 6 2 679 907 167 28 96.266281 programs 1 2 3 6 3 878 907 73 22 96.908966 was5 1 2 3 6 4 983 897 91 39 92.852036 fully5 1 2 3 6 5 1106 899 222 31 92.464706 recoursable5 1 2 3 6 6 1361 899 69 31 96.350639 ands 1 2 3 6 7 1464 898 244 38 96.350639 respondents’5 1 2 3 6 8 1743 898 103 32 96.365326 retail4 1 2 3 7 0 532 947 1313 40 -1 5 1 2 3 7 1 532 947 174 31 96.811325 members5 1 2 3 7 2 733 957 92 22 96.941673 were5 1 2 3 7 3 852 949 62 30 96.671822 not5 1 2 3 7 4 940 948 82 38 96.671822 paid5 1 2 3 7 5 1051 948 89 32 96.380615 until5 1 2 3 7 6 1170 949 68 32 96.380615 ands 1 2 3 7 7 1267 949 118 32 96.890099 unless5 1 2 3 7 8 1414 949 95 32 96.436272 theirs 1 2 3 7 9 1537 950 196 31 96.357735 customers5 1 2 3 7 10 1762 948 83 39 96.357735 paid4 1 2 3 8 0 533 997 1313 47 -1 5 1 2 3 8 1 533 997 232 38 96.343689 respondents5 1 2 3 8 2 779 998 69 31 96.379372 ands 1 2 3 8 3 861 998 83 31 96.380287 then5 1 2 3 8 4 959 998 82 38 96.225891 only5 1 2 3 8 5 1054 998 96 33 96.542229 after5 1 2 3 8 6 1163 1000 43 31 96.542229 455 1 2 3 8 7 1221 1000 86 44 96.888969 days5 1 2 3 8 8 1321 999 69 32 96.800453 ands 1 2 3 8 9 1405 999 201 32 96.469360 sometimes5 1 2 3 8 10 1621 1001 62 30 96.429771 not5 1 2 3 8 11 1696 999 92 36 96.533432 until5 1 2 3 8 12 1803 1000 43 31 96.533432 754 1 2 3 9 0 532 1048 1313 41 -1 5 1 2 3 9 1 532 1048 86 37 93.212273 days5 1 2 3 9 2 643 1048 113 32 85.600952 later.*5 1 2 3 9 3 781 1048 253 38 96.486977 Additionally,5 1 2 3 9 4 1060 1049 58 32 96.936295 thes 1 2 3 9 5 1144 1050 67 32 96.418694 laws 1 2 3 9 6 1234 1050 109 39 96.650322 judges 1 2 3 9 7 1369 1050 112 37 96.621407 found5 1 2 3 9 8 1506 1049 79 32 96.559280 that5 1 2 3 9 9 1610 1049 235 39 96.287697 respondents4 1 2 3 10 0 532 1099 1312 39 -1 5 1 2 3 10 1 532 1099 217 37 96.589203 guaranteed5 1 2 3 10 2 763 1099 94 32 96.599632 theirs 1 2 3 10 3 871 1100 175 31 96.342094 members5 1 2 3 10 4 1061 1110 21 21 94.538231 a5 1 2 3 10 5 1098 1100 40 31 94.538231 105 1 2 3 10 6 1153 1102 145 36 95.947281 percent5 1 2 3 10 7 1313 1101 160 31 95.947281 increases 1 2 3 10 8 1488 1101 36 30 96.091911 in5 1 2 3 10 9 1540 1100 163 31 96.645683 business5 1 2 3 10 10 1717 1100 127 31 96.135475 within4 1 2 3 11 0 534 1148 1310 41 -1 5 1 2 3 11 1 534 1149 39 30 96.312370 125 1 2 3 11 2 589 1148 142 32 96.688446 months5 1 2 3 11 3 746 1149 39 32 96.520905 of5 1 2 3 11 4 799 1149 185 39 96.670967 becoming5 1 2 3 11 5 1000 1161 19 21 96.063248 a5 1 2 3 11 6 1035 1151 166 31 93.300217 member.5 1 2 3 11 7 1226 1151 90 37 88.030144 (I.D.5 1 2 3 11 8 1335 1152 43 30 93.290558 675 1 2 3 11 9 1402 1151 48 38 93.075569 [p.5 1 2 3 11 10 1468 1151 65 31 95.608948 6245 1 2 3 11 11 1550 1151 164 37 31.511024 herein]5 1 2 3 11 12 1706 1144 21 49 31.511024 )5 1 2 3 11 13 1741 1151 103 31 92.701988 How-4 1 2 3 12 0 531 1199 1313 41 -1 5 1 2 3 12 1 531 1208 91 28 96.788353 ever,5 1 2 3 12 2 644 1199 71 41 96.484032 this5 1 2 3 12 3 736 1201 194 36 96.172180 guarantees 1 2 3 12 4 950 1201 129 31 96.234985 turned5 1 2 3 12 5 1101 1203 61 30 96.234985 outs 1 2 3 12 6 1182 1203 37 30 96.686440 to5 1 2 3 12 7 1240 1202 42 31 96.759178 be5 1 2 3 12 8 1303 1202 129 37 96.449646 simply5 1 2 3 12 9 1454 1211 20 22 96.403519 a5 1 2 3 12 10 1496 1201 155 38 96.339943 promises 1 2 3 12 11 1672 1203 37 30 97.006439 to5 1 2 3 12 12 1731 1201 113 38 95.074440 waive4 1 2 3 13 0 530 1249 1314 41 -1 5 1 2 3 13 1 530 1249 237 39 96.474899 memberships 1 2 3 13 2 796 1250 85 31 96.724792 dues5 1 2 3 13 3 910 1250 58 31 95.881126 for5 1 2 3 13 4 996 1250 61 32 96.591415 thes 1 2 3 13 5 1086 1252 126 31 96.454277 seconds 1 2 3 13 6 1243 1262 94 28 93.112137 year.5 1 2 3 13 7 1376 1252 90 37 56.165680 (1.D.5 1 2 3 13 8 1497 1251 60 38 95.868347 67)5 1 2 3 13 9 1594 1252 41 31 96.294380 In5 1 2 3 13 10 1667 1252 85 37 95.551582 fact,5 1 2 3 13 11 1784 1251 60 32 95.875679 thea 1 2 3 14 0 529 1301 1315 42 -1 5 1 2 3 14 1 529 1309 153 29 96.429504 averages 1 2 3 14 2 706 1301 157 31 93.295319 members 1 2 3 14 3 888 1301 181 32 96.579826 remained5 1 2 3 14 4 1096 1302 114 32 96.515350 active5 1 2 3 14 5 1237 1303 34 31 96.553818 in5 1 2 3 14 6 1299 1302 60 41 96.093285 thes 1 2 3 14 7 1386 1312 170 29 96.022957 programs 1 2 3 14 8 1582 1302 58 32 96.022957 for5 1 2 3 14 9 1668 1302 82 38 96.652733 only5 1 2 3 14 10 1777 1303 67 31 94.526665 7-84 1 2 3 15 0 530 1349 1313 42 -1 5 1 2 3 15 1 530 1349 141 32 95.834412 months5 1 2 3 15 2 687 1350 135 39 96.588890 despite5 1 2 3 15 3 837 1351 59 32 96.447174 thes 1 2 3 15 4 912 1351 76 32 96.291252 facts 1 2 3 15 5 1001 1352 81 31 96.841034 that5 1 2 3 15 6 1096 1352 83 38 96.658699 they5 1 2 3 15 7 1195 1352 68 32 96.413841 had5 1 2 3 15 8 1280 1353 83 38 96.413841 paid5 1 2 3 15 9 1379 1363 21 22 96.568306 a5 1 2 3 15 10 1415 1355 172 36 96.356720 two-years 1 2 3 15 11 1603 1352 240 39 96.583572 membership4 1 2 3 16 0 529 1400 1313 41 -1 5 1 2 3 16 1 529 1400 67 31 93.216896 fee.5 1 2 3 16 2 627 1401 88 36 57.605152 (I.D.5 1 2 3 16 3 739 1410 32 29 92.184937 p.5 1 2 3 16 4 795 1402 19 30 84.650208 35 1 2 3 16 5 844 1401 48 38 92.673409 [p.5 1 2 3 16 6 917 1402 64 31 94.907326 5835 1 2 3 16 7 1006 1401 155 39 93.294189 herein],5 1 2 3 16 8 1186 1404 70 30 92.091522 I.D.5 1 2 3 16 9 1282 1404 43 31 90.976089 575 1 2 3 16 10 1355 1404 49 37 90.976089 [p.5 1 2 3 16 11 1429 1404 66 30 96.582825 6205 1 2 3 16 12 1519 1403 157 37 93.110611 herein],5 1 2 3 16 13 1702 1404 71 30 89.785522 I.D.5 1 2 3 16 14 1801 1404 41 30 96.431969 684 1 2 3 17 0 537 1449 337 40 -1 5 1 2 3 17 1 537 1449 47 38 77.389389 [p.5 1 2 3 17 2 609 1452 64 30 90.768135 6245 1 2 3 17 3 694 1451 180 38 89.757736 herein]).3 1 2 4 0 0 523 1500 1318 600 -1 4 1 2 4 1 0 574 1500 1266 42 -1 5 1 2 4 1 1 574 1500 243 39 96.207985 Respondents5 1 2 4 1 2 837 1503 74 30 95.698227 also5 1 2 4 1 3 931 1504 226 37 96.629631 represented5 1 2 4 1 4 1177 1504 80 32 87.663200 that5 1 2 4 1 5 1275 1504 96 32 87.663200 theirs 1 2 4 1 6 1390 1514 168 28 96.525726 programs 1 2 4 1 7 1579 1515 73 21 95.311501 was5 1 2 4 1 8 1673 1504 167 38 95.311501 operated4 1 2 4 2 0 526 1551 1313 42 -1 5 1 2 4 2 1 526 1551 46 37 96.869164 by5 1 2 4 2 2 591 1551 211 33 96.162621 substantial5 1 2 4 2 3 823 1553 243 31 96.292976 businessmen5 1 2 4 2 4 1086 1554 78 32 96.948936 who5 1 2 4 2 5 1183 1555 100 31 96.865601 could5 1 2 4 2 6 1304 1555 75 38 96.159355 rely5 1 2 4 2 7 1399 1565 44 21 96.127754 on5 1 2 4 2 8 1463 1557 186 36 95.975220 corporate5 1 2 4 2 9 1669 1557 115 30 95.975220 assets5 1 2 4 2 10 1805 1555 34 31 96.997826 in4 1 2 4 3 0 526 1602 1315 41 -1 5 1 2 4 3 1 526 1611 120 22 96.526817 excess5 1 2 4 3 2 666 1602 38 31 96.526817 of5 1 2 4 3 3 723 1602 100 33 96.029976 three5 1 2 4 3 4 842 1603 134 32 96.029976 millions 1 2 4 3 5 997 1605 141 37 96.304138 dollars,5 1 2 4 3 6 1159 1605 80 32 96.081291 that5 1 2 4 3 7 1259 1605 29 32 96.451057 it5 1 2 4 3 8 1308 1615 74 22 96.146370 was5 1 2 4 3 9 1402 1605 133 32 96.146370 backed5 1 2 4 3 10 1557 1605 44 38 96.794991 by5 1 2 4 3 11 1623 1616 44 21 95.676071 an5 1 2 4 3 12 1690 1605 151 32 95.676071 efficient4 1 2 4 4 0 526 1652 1312 42 -1 5 1 2 4 4 1 526 1652 68 31 96.924309 ands 1 2 4 4 2 610 1652 174 32 96.476105 intensive5 1 2 4 4 3 799 1654 180 31 95.575165 collections 1 2 4 4 4 995 1665 133 27 96.617401 agency5 1 2 4 4 5 1143 1656 68 30 96.537659 ands 1 2 4 4 6 1226 1656 80 31 96.242683 that5 1 2 4 4 7 1319 1656 29 30 96.837883 it5 1 2 4 4 8 1363 1666 73 21 96.695427 was5 1 2 4 4 9 1453 1656 194 37 96.338043 nationally5 1 2 4 4 10 1663 1656 175 38 96.357849 accepted.4 1 2 4 5 0 534 1702 1306 43 -1 5 1 2 4 5 1 534 1702 88 35 85.708183 (1.D.5 1 2 4 5 2 642 1704 42 30 92.655624 455 1 2 4 5 3 710 1703 48 38 92.655624 [p.5 1 2 4 5 4 780 1705 65 30 96.428383 6125 1 2 4 5 5 863 1704 156 39 93.294113 herein],5 1 2 4 5 6 1042 1706 70 31 90.175804 I.D.5 1 2 4 5 7 1134 1707 41 30 93.261017 655 1 2 4 5 8 1203 1706 48 38 92.248848 [p.5 1 2 4 5 9 1273 1707 65 30 93.513557 6235 1 2 4 5 10 1360 1707 155 37 93.283073 herein],5 1 2 4 5 11 1540 1707 70 31 90.559448 I.D.5 1 2 4 5 12 1631 1708 43 30 93.293182 725 1 2 4 5 13 1702 1707 49 38 92.864655 [p.5 1 2 4 5 14 1774 1707 66 30 96.950966 6264 1 2 4 6 0 525 1752 1316 43 -1 5 1 2 4 6 1 525 1752 161 39 88.911896 herein])5 1 2 4 6 2 727 1754 72 33 96.827057 Thes 1 2 4 6 3 832 1755 286 33 96.300880 administrative5 1 2 4 6 4 1152 1758 67 30 96.518555 laws 1 2 4 6 5 1250 1758 111 37 96.765747 judges 1 2 4 6 6 1394 1757 122 38 95.501236 found,5 1 2 4 6 7 1552 1757 173 37 96.836647 however,5 1 2 4 6 8 1761 1757 80 31 96.886147 that4 1 2 4 7 0 526 1803 1312 42 -1 5 1 2 4 7 1 526 1803 242 38 96.302422 respondents’5 1 2 4 7 2 786 1805 180 31 95.955971 collections 1 2 4 7 3 985 1807 211 37 96.635147 procedures5 1 2 4 7 4 1214 1818 92 21 96.330856 were5 1 2 4 7 5 1324 1809 37 30 96.277885 at5 1 2 4 7 6 1378 1808 77 31 96.277885 best5 1 2 4 7 7 1471 1807 314 38 96.325539 haphazard,5 1 2 4 7 8 1705 1799 76 50 96.325539 that5 1 2 4 7 9 1804 1808 34 30 96.913658 in4 1 2 4 8 0 525 1854 1315 42 -1 5 1 2 4 8 1 525 1854 160 38 96.321014 January5 1 2 4 8 2 712 1857 86 30 96.528481 19695 1 2 4 8 3 826 1857 232 36 96.490036 respondents5 1 2 4 8 4 1084 1857 69 32 96.516075 had5 1 2 4 8 5 1180 1868 20 22 96.771423 a5 1 2 4 8 6 1226 1860 60 30 95.997246 nets 1 2 4 8 7 1311 1858 164 38 96.788490 workings 1 2 4 8 8 1501 1858 128 38 96.057137 capital5 1 2 4 8 9 1658 1858 118 32 96.814102 deficit5 1 2 4 8 10 1802 1858 38 32 96.632721 of4 1 2 4 9 0 524 1905 1314 42 -1 5 1 2 4 9 1 524 1914 96 22 96.507042 more5 1 2 4 9 2 638 1905 85 32 96.064560 than5 1 2 4 9 3 743 1907 144 37 96.729225 $25,0005 1 2 4 9 4 907 1908 68 31 96.805702 ands 1 2 4 9 5 994 1907 79 32 96.972534 that5 1 2 4 9 6 1092 1909 243 38 95.906120 respondents’5 1 2 4 9 7 1354 1909 95 32 96.876236 banks 1 2 4 9 8 1468 1911 166 30 96.170708 accounts5 1 2 4 9 9 1655 1919 108 22 93.287300 never5 1 2 4 9 10 1783 1920 55 20 91.963783 ex-4 1 2 4 10 0 523 1956 1314 42 -1 5 1 2 4 10 1 523 1956 124 31 96.527603 ceeded5 1 2 4 10 2 670 1957 144 37 95.939972 $99,0005 1 2 4 10 3 835 1958 156 31 96.408768 between5 1 2 4 10 4 1013 1959 161 37 96.507240 January5 1 2 4 10 5 1197 1961 86 30 96.597755 19655 1 2 4 10 6 1305 1960 69 31 96.640457 ands 1 2 4 10 7 1397 1959 200 32 96.420776 November5 1 2 4 10 8 1620 1962 97 30 90.853279 1971.5 1 2 4 10 9 1749 1960 88 38 66.737358 (I.D.4 1 2 4 11 0 526 2006 1313 44 -1 5 1 2 4 11 1 526 2007 41 31 93.262581 665 1 2 4 11 2 589 2006 49 39 93.232712 [p.5 1 2 4 11 3 655 2007 64 31 95.758194 6235 1 2 4 11 4 735 2007 155 39 93.253334 herein],5 1 2 4 11 5 907 2008 71 33 92.179604 I.D.5 1 2 4 11 6 996 2010 41 31 93.299347 735 1 2 4 11 7 1061 2009 48 39 91.777596 [p.5 1 2 4 11 8 1126 2011 65 30 93.258865 6265 1 2 4 11 9 1208 2010 164 39 91.247986 herein])5 1 2 4 11 10 1397 2011 72 32 96.622246 Thes 1 2 4 11 11 1486 2011 67 32 96.330383 laws 1 2 4 11 12 1568 2010 110 40 96.575470 judges 1 2 4 11 13 1694 2011 145 32 96.556915 further4 1 2 4 12 0 524 2055 1315 45 -1 5 1 2 4 12 1 524 2057 110 32 96.579735 found5 1 2 4 12 2 651 2057 79 32 96.484764 that5 1 2 4 12 3 745 2058 100 32 96.529556 there5 1 2 4 12 4 856 2055 77 35 96.016533 was5 1 2 4 12 5 949 2069 45 22 96.672264 no5 1 2 4 12 6 1010 2060 156 32 96.384560 national5 1 2 4 12 7 1184 2063 210 36 96.604645 acceptances 1 2 4 12 8 1411 2062 58 31 95.783791 for5 1 2 4 12 9 1485 2061 60 33 96.842804 thes 1 2 4 12 10 1561 2071 181 29 96.234047 program,5 1 2 4 12 11 1759 2061 80 33 96.495285 that2 1 3 0 0 0 520 2148 1318 266 -1 3 1 3 1 0 0 520 2148 1318 231 -1 4 1 3 1 1 0 551 2148 1286 28 -1 5 1 3 1 1 1 551 2148 65 20 46.454811 ‘LD.5 1 3 1 1 2 632 2151 27 17 88.868446 495 1 3 1 1 3 679 2149 32 22 87.428734 [p.5 1 3 1 1 4 729 2151 38 18 96.359726 6145 1 3 1 1 5 785 2150 92 22 95.473869 herein]5 1 3 1 1 6 896 2151 46 19 93.219818 ands 1 3 1 1 7 959 2151 47 19 91.111557 I.D.5 1 3 1 1 8 1023 2158 23 16 90.194458 p.5 1 3 1 1 9 1062 2153 11 18 92.990883 35 1 3 1 1 10 1096 2153 31 22 84.630470 [p.5 1 3 1 1 11 1145 2154 40 18 95.352715 5835 1 3 1 1 12 1204 2153 102 21 46.595459 herein}.5 1 3 1 1 13 1324 2154 33 19 96.114197 At5 1 3 1 1 14 1373 2160 61 16 96.463791 pages 1 3 1 1 15 1450 2155 12 18 95.295868 35 1 3 1 1 16 1480 2154 24 19 96.575577 of5 1 3 1 1 17 1522 2154 34 19 96.377075 his5 1 3 1 1 18 1574 2154 77 19 90.444572 initials 1 3 1 1 19 1669 2154 110 21 96.633682 decision,5 1 3 1 1 20 1798 2154 39 19 96.731255 thea 1 3 1 2 0 520 2182 1316 27 -1 5 1 3 1 2 1 520 2182 191 21 95.595520 administrative5 1 3 1 2 2 732 2184 43 19 95.595520 laws 1 3 1 2 3 797 2184 71 22 18.095238 judges 1 3 1 2 4 889 2185 106 19 95.080238 included5 1 3 1 2 5 1017 2192 13 13 95.080238 a5 1 3 1 2 6 1052 2187 88 19 95.745407 sections 1 3 1 2 7 1162 2187 98 19 95.964966 entitled5 1 3 1 2 8 1285 2187 107 20 78.506058 “Nature5 1 3 1 2 9 1414 2188 25 18 96.688774 of5 1 3 1 2 10 1461 2188 171 21 96.145340 Respondents’5 1 3 1 2 11 1658 2188 109 19 94.253677 Business5 1 3 1 2 12 1791 2189 45 18 96.611053 anda 1 3 1 3 0 523 2216 1313 29 -1 5 1 3 1 3 1 523 2216 109 20 96.258377 Business5 1 3 1 3 2 655 2217 129 21 0.000000 Methods.”5 1 3 1 3 3 808 2218 73 20 93.640388 While5 1 3 1 3 4 903 2219 28 19 95.398628 he5 1 3 1 3 5 952 2220 38 19 95.975586 did5 1 3 1 3 6 1012 2222 40 17 93.149689 not5 1 3 1 3 7 1074 2220 149 21 92.866737 denominate5 1 3 1 3 8 1246 2221 47 20 96.415276 this5 1 3 1 3 9 1314 2222 89 19 96.428459 sections 1 3 1 3 10 1426 2221 142 23 96.428459 specifically5 1 3 1 3 11 1590 2229 26 12 96.126526 as5 1 3 1 3 12 1639 2229 12 13 96.508942 a5 1 3 1 3 13 1676 2224 55 21 95.946114 parts 1 3 1 3 14 1753 2223 25 19 94.379265 of5 1 3 1 3 15 1802 2223 34 18 94.379265 his4 1 3 1 4 0 522 2250 1312 28 -1 5 1 3 1 4 1 522 2250 103 22 89.730713 findings5 1 3 1 4 2 639 2251 25 19 96.372803 of5 1 3 1 4 3 678 2252 58 21 96.869125 fact,5 1 3 1 4 4 752 2253 164 22 96.540138 nevertheless;5 1 3 1 4 5 931 2253 40 19 96.514793 thes 1 3 1 4 6 985 2254 62 19 96.518028 facts5 1 3 1 4 7 1063 2255 85 19 96.209106 recited5 1 3 1 4 8 1165 2256 23 18 96.902878 in5 1 3 1 4 9 1204 2256 47 19 95.953873 this5 1 3 1 4 10 1267 2256 89 19 96.363297 sections 1 3 1 4 11 1372 2262 41 13 96.811279 ares 1 3 1 4 12 1427 2256 59 22 96.471832 fully5 1 3 1 4 13 1501 2256 130 22 96.497757 supported5 1 3 1 4 14 1648 2256 27 22 96.645905 by5 1 3 1 4 15 1692 2256 40 20 96.779633 thes 1 3 1 4 16 1747 2256 87 20 96.061775 record.4 1 3 1 5 0 525 2284 1313 28 -1 5 1 3 1 5 1 525 2284 66 20 96.587173 Some5 1 3 1 5 2 609 2286 24 19 96.342773 of5 1 3 1 5 3 651 2286 40 19 96.342773 thes 1 3 1 5 4 706 2286 64 19 96.295815 facts5 1 3 1 5 5 788 2287 85 19 95.519165 recited5 1 3 1 5 6 891 2287 30 22 96.666542 by5 1 3 1 5 7 938 2287 41 20 96.890320 thes 1 3 1 5 8 996 2288 44 19 96.403900 laws 1 3 1 5 9 1058 2288 72 23 96.403900 judges 1 3 1 5 10 1147 2289 25 19 96.417023 in5 1 3 1 5 11 1190 2289 48 20 96.860771 this5 1 3 1 5 12 1256 2290 90 19 96.459549 sections 1 3 1 5 13 1365 2296 41 14 96.368828 ares 1 3 1 5 14 1425 2290 127 20 95.925186 reiterated5 1 3 1 5 15 1571 2291 23 19 94.149628 in5 1 3 1 5 16 1616 2290 35 20 95.867271 his5 1 3 1 5 17 1670 2291 104 21 81.990845 findings5 1 3 1 5 18 1792 2291 46 19 96.816780 anda 1 3 1 6 0 520 2319 1315 27 -1 5 1 3 1 6 1 520 2319 80 20 96.330139 others5 1 3 1 6 2 614 2325 41 14 96.739761 ares 1 3 1 6 3 669 2320 152 20 96.152832 documented5 1 3 1 6 4 835 2322 24 18 96.346397 in5 1 3 1 6 5 874 2322 129 22 93.245003 complaints 1 3 1 6 6 1018 2322 113 20 91.890396 counsel’s5 1 3 1 6 7 1147 2324 115 22 93.285118 proposed5 1 3 1 6 8 1279 2325 103 20 86.550018 findines5 1 3 1 6 9 1398 2324 74 20 96.006546 which5 1 3 1 6 10 1488 2331 35 12 96.488594 we5 1 3 1 6 11 1539 2331 40 13 96.805885 ares 1 3 1 6 12 1594 2325 88 20 87.308777 adding5 1 3 1 6 13 1696 2327 25 17 96.938782 to5 1 3 1 6 14 1736 2325 41 19 96.737099 thes 1 3 1 6 15 1791 2325 44 19 62.152149 Jaw4 1 3 1 7 0 520 2353 737 26 -1 5 1 3 1 7 1 520 2353 92 21 23.617340 judge's5 1 3 1 7 2 624 2354 109 21 95.828339 findings.5 1 3 1 7 3 748 2355 49 22 96.158348 See,5 1 3 1 7 4 811 2355 72 22 93.086433 infra,5 1 3 1 7 5 898 2361 21 16 89.645340 p.5 1 3 1 7 6 941 2357 5 17 93.788795 75 1 3 1 7 7 960 2358 55 17 95.504250 notes 1 3 1 7 8 1026 2358 11 17 93.111404 75 1 3 1 7 9 1056 2356 32 23 92.377853 [p.5 1 3 1 7 10 1102 2357 40 19 96.559242 6465 1 3 1 7 11 1156 2357 101 22 95.551605 herein].3 1 3 2 0 0 549 2387 746 27 -1 4 1 3 2 1 0 549 2387 746 27 -1 5 1 3 2 1 1 549 2387 64 20 47.984634 ‘TD,5 1 3 2 1 2 627 2388 26 19 90.680893 505 1 3 2 1 3 670 2388 31 22 87.564140 [p.5 1 3 2 1 4 716 2389 39 19 96.738640 6185 1 3 2 1 5 769 2388 92 22 86.046455 herein]5 1 3 2 1 6 877 2390 46 19 93.136192 ands 1 3 2 1 7 937 2389 46 20 82.127914 I.D.5 1 3 2 1 8 998 2395 21 17 91.453201 p.5 1 3 2 1 9 1033 2391 26 20 96.780510 3;5 1 3 2 1 10 1072 2397 38 13 96.317314 sees 1 3 2 1 11 1123 2394 55 16 96.354080 notes 1 3 2 1 12 1189 2392 12 18 85.069748 35 1 3 2 1 13 1214 2397 81 17 94.290375 supra. Opinion 82 F.T.C.

the members failed to remain active incthe program for the period *~ covéred by their contracts and that the bulk of respondents’ substantiating data purporting to prove the worth of the program were in fact written by respondents and merely repeated respondents’ advertising claims. (I.D. 46 [p. 612 herein], I.D. 70 [p. 625 herein], I.D. 71 [p. 625 herein]).

Representations made by respondents to prospective franchisees, in addition to those about the operation and benefits of the program, were found by the administrative law judge to be equally false. (I.D. 21 [p. 591 herein], I.D. 23 [p. 591 herein], I.D. 81 [p. 632 herein]). The administrative law judge found that prospective franchisees were induced to visit respondents’ California headquarters to review the program on the belief their air fare expenses would be reimbursed whether or not they decided to submit a franchise application. (1.D. 31 [p. 601 herein] ). Further, he found that air fare reimbursement was in fact contingent upon submitting a franchise application and that franchisees were otherwise pressured into submitting franchise applications quickly for consideration by respondents’ franchise committee together with their deposit of $1,000 on the belief their deposit was refundable. (I.D. 32, I.D. 83 [pp. 603-05 herein], I.D. 37, I.D. 39 [pp. 608, 610 herein]). In fact, the administrative law judge found that respondents only bound themselves to refund deposits if applications were rejected, that respondents did not have an operating franchise committee, that no franchise application was ever rejected and consequently no deposits were ever refunded. (I.D. 31-34 [pp. 601-05 herein], I.D. 38 [pp. 609-10 herein]). Franchisees were further led to believe that the program was easy to sell, that they could earn as much as $80,000 a year and that each would receive either an exclusive and wholly-unworked territory or one which had been profitable for a prior franchisee. (1.D. 26 [p. 593 herein], I.D. 35 [p. 605 herein]). In fact respondents’ records establish that no franchisee earned the amounts indicated on the earning projection sheets shown to prospective franchisees and that the same franchise territories were often resold to as many as 8 franchisees. (1.D. 27 [p. 595 herein], I.D. 35, I.D. 36 [pp. 605-08 herein]).

On the basis of these findings, the administrative law judge concluded that each of the respondents was liable for the deceptions as alleged and that the deceptions constituted unfair methods. of competition and unfair and deceptive acts and practices in violai) UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 645 570 Opinion tion of Section 5 of the Federal Trade Commission Act. He also concluded that the deceptions prejudice and injured the public and respondents’ competitors and that respondents’ retention of - ~funds gained through their deceptions,and misrepresentations also constituted a violation of Section 5 of the Federal Trade Commission Act. The administrative law judge entered an order prohibiting each of the respondents from engaging in specified deceptive acts and practices in the future, requiring respondents in the future to provide each of their franchisees and members with a seven-day cooling-off period within which to cancel any franchise application or membership contract, requiring respondents in the future to refund monies obtained as a result of a violation of the order and directing respondents to refund all monies paid to respondents by its franchisees and retail merchant members for franchisee fees, downpayments or travel expenses incurred in connection with franchise applications and membership fees, dues and discount fees during the period from January 1, 1967, to the effective date of this order.

Both complaint counsel and respondents have appealed from the initial decision. Complaint counsel appeal from the law judge’s failure to make certain findings which complaint counsel contend were necessary to support his proposed order.® Respondents’ appeal was limited to the single issue-of. the propriety of the provisions of the law judge’s order which required a refund of monies which they retained.® * These additional proposed findings are to be found at pp. 6-25 of complaint counsel's initial appeal brief. Requested findings numbered 1 through 9 relate to the failure of the respondents to disclose to their members certain material facts which were essential in order to evaluate respondents’ representations about the worth of the program and to understand the procedures for submitting credit charges, the deceptiveness of respondents’ purportedly-. abjective and unbiased items of promotional material such as articles and payment checks, respondents’ misrepresentations of the length of time in which members would be paid and respondents’ indiscriminate threats of real action against members whose accounts were in arrears. The other findinys (Nos. 10-15) are designed to make explicit facts which are implicit in the law judge's opinion; that respondents were responsible for the acts of their franchisees whom they exploited to further their own devious purposes, that respondents were fully aware of the deceptive nature of the representations made about their worthless program and indeed framed their membership contracts and franchise agreements deliberately to mislead and deceive and that respondents have never refunded any monies obtained through their deceptions. * Respondents’ appeal as outlined in their' appeal brief was confined to two arzuments in support of their contention as to the propriety of the refund provision, namely that the Commission lacks the power to order refunds and that it would be inappropriate to order the individuals to make refunds as they received no income in their individual capacities. At the oral argument respondents raised new contentions, not discussed in their appeal briefs or raised below before the law judge, that the order was inappropriate because of pending: court proceedings which rendered the relief moot and unnecessary because of respondent Heater’s alleged psychological incapacitation. The Commission eranted respondents permission to file certified copies of pertinent papers to support the various factual assertions they were making Opinion 82 F.T.C.

_ We have carefully reviewed the record in this case which is not contested by the respondents on this appeal.’ We conclude that the administrative law judge’s findings and conclusions on the substantive liability of each of the respondents is fully supported by the evidence. We also conclude that the 15 additional findings contended for by complaint counsel, and also not contested by respondents on their appeal, are supported by substantial evidence, provide further support for the proposed order and_ should, therefore, be added to the findings already made by the law judge.‘ We agree with the provisions of the law judge’s order prohibiting respondents from engaging in future deceptions or misrepresentations with respect to the program, requiring respondents to provide members and franchisees with a cooling-off period and requiring respondents in the future to refund monies obtained in violation of the order. These order provisions are not challenged by respondents and we agree with the law judge that they are essential relief to ensure that the unfair and deceptive acts and practices of respondents are to be terminated effectively. The sole issue for discussion on this appeal concerns respondents” contentions that’an -erder requiring respondents to refund the monies which the law judge found. they had illegally retained in violation of Section 5 is beyond the power of the Commission to order, rendered moot because of intervening court proceedings seeking relief against the same activities and the adjudgment of bankruptcy against the corporate respondents and unnecessary and unjust as respects the individual respondents. We will consider these arguments seriatim. on oral argument. Respondents filed such papers towether with an additional brief to support their contentions and complaint counsel filed a response. For the purposes of this opinion these post oral argument materials will be referred to in the followiny manner: Respondents’ Post Argument Filings RF.

Response tu Respondents’ Filings . C.C.R. Response to Counsel for Federal Trade Commission Response RA. * The brief which respondents submitted to the administrative law judge stated that argument was “limited to the issue of refunds or restitution only, as respondents are now and always have been, ready, willing and anxious to correct any written or oral statement which may tend to mislead a prospective franchisee or member.” (R.H.B. p. 17) Similarly, argument in respondents’ appellate briefs were limited to the provisions of the order requiring a refund of monies responderits retain. During oral argument respondents’ counsel stated: “Now, I don’t want to concede the other issues but that [restitution] is the only one I want to address myself to.” (T.O. p. 14) No statement was made challenging any other provision of the law judge's order nor was there any challenye to any of the findinys of fact made by the law judye or any of the additional findings of fact proposed by complaint counsel. Beyond the issue raised by respondents’ retention of certain funds, respondents have failed to indicate any ‘‘other issues” which are before us on this appeal.

“Counsel supporting the complaint contended these factual findings provide additional support for paragraphs 1(D) (i-iii), 12, 18, 15, 16 and 21 of the law judge’s proposed order. (C.C.B. pp. 6-25) WANA V AUAUSA Es VaVen de 22a Ae ee Uva oy ae tee wee 570 Opinion Il.

The Need For Restitutionary Relief Central. to the propriety of the restitutionary relief being challenged here is the law judge’ s findings and conclusions—which respondents did not challenge—that respondents’ retention of the monies procured from the victims of their fraudulent credit card program constituted a violation of Section 5 of the Federal Trade Commission Act. \(I.D. pp. 55-56 [pp. 632-33 herein]) In his discussion of the propriety of the refund relief which he ordered, the law judge summarized his views of respondents’ program in these words:

What the record establishes is that these respondents have perpetrated a scheme fraught with misrepresentations from which they try to insulate themselves by using devious contractual language, not intended or likely to be read and not clearly understandable, even if actually read. Respondents have cleverly calculated the program to enrich only themselves at the expense of innocent small businessmen lured into it as members and franchisees. (1.D. p. 3 [p. 584 herein]) Discussing the fraudulent and worthless nature of the services which the program purportedly offered its members and franchisees, the law judge pointed out that instead of being protected from the risk of-loss and avoiding the administrative problems connected with handling the accounts receivable of their credit card customers as represented, Members soon discover that respondents avoid paying charges which they can’t collect by citing one or more of at least 18 different reasons why they are not obligated to pay. Members also discover that, rather than receiving payment for charges within 30 days from the: date. they are sub-.... mitted, payment is not received until anywhere from 45 to 75 days later. As a result of this treatment and despite the fact that they signed a twoyear contract, member merchants give up in despair and, swallowing their losses, stop using the program after about seven or eight months on the average. Typically, in addition to having paid what is not an insignificant sum for a service that was never delivered members have, in fact, risked and lost money for charges recoursed by respondents. (Emphasis in original) (1.D. p. 3[p. 583 herein]) The law judge concluded that respondents’ failure to refund all monies expended by such members and franchisees was “inherently and unconscionably unfair and deceptive” and together with respondents’ retention of such monies violated Section 5 of the Federal Trade Commission Act. (I.D. pp. 55-56 [pp. 632 a Opinion 82 F.T.C.

88 herein]) His proposed order directed respondents, among other things, to refund-monies thus illegally received and retained. We have no doubt as to the correctness of the law judge’s conclusion that the respondents’ retention of the monies secured through their unconscionable practices and misrepresentations and their failure to refund these monies constituted violations of Section 5 of the Federal Trade Commission Act. A fundamental and centrally important feature of the Federal Trade Commission Act is the broad power which Congress intentionally conferred on the Commission to define the specified trade practices which were to be prohibited under its generalized proscription against unfair and deceptive acts and practices.® The courts have consistently recognized and approved the intentional design of Congress to delegate to the Commission broad powers to develop the term “unfair” rather than define itself “the many and variable unfair practices which prevail in commerce * * * .” 1° The Supreme Court has described the nature of this broad Congressional mandate in these words: Neither the language nor the history of the [Federal Trade Commission] Act suggests that Congress intended to confine the forbidden methods to fixed and unyielding categories. - Congress, in defining the powers of the Commission, thus advisedly adopted a phrase [unfair methods of competition] which, as this Court has said, does not “admit of precise definition but the meaning and application of which must be arrived at by what this Court elsewhere has called the ‘gradual process of judicial inclusion and exclusion’.” 2 1 7 0 0 0 692 1803 1320 144 -1 3 1 7 1 0 0 692 1803 1320 144 -1 4 1 7 1 1 0 693 1803 1319 42 -1 5 1 7 1 1 1 693 1806 39 30 96.719643 In5 1 7 1 1 2 763 1816 21 20 96.244926 a5 1 7 1 1 3 814 1806 90 32 96.244926 later5 1 7 1 1 4 932 1817 78 21 95.729958 cases 1 7 1 1 5 1040 1807 60 31 96.403404 thes 1 7 1 1 6 1132 1807 170 38 96.680466 Supreme5 1 7 1 1 7 1333 1806 111 32 93.293808 Courts 1 7 1 1 8 1473 1804 322 40 49.421329 again.-observed:5 1 7 1 1 9 1836 1804 68 35 65.766136 “In5 1 7 1 1 10 1924 1803 88 34 36.571114 thus4 1 7 1 2 0 692 1854 1318 41 -1 5 1 7 1 2 1 692 1856 163 39 96.931221 divining5 1 7 1 2 2 880 1857 78 32 96.162865 that5 1 7 1 2 3 983 1858 100 31 96.162865 there5 1 7 1 2 4 1110 1858 30 31 96.832588 is5 1 7 1 2 5 1168 1868 44 21 96.826263 no5 1 7 1 2 6 1238 1857 92 31 96.364548 limits 1 7 1 2 7 1357 1859 35 29 96.881432 to5 1 7 1 2 8 1419 1857 163 31 96.441872 business5 1 7 1 2 9 1610 1856 187 38 96.556335 ingenuity5 1 7 1 2 10 1825 1855 68 32 96.245850 ands 1 7 1 2 11 1924 1854 86 38 96.126740 legal4 1 7 1 3 0 692 1906 1135 41 -1 5 1 7 1 3 1 692 1908 230 37 95.574036 gymnastics,5 1 7 1 3 2 947 1908 59 31 96.488441 thes 1 7 1 3 3 1033 1908 177 39 96.323189 Congress5 1 7 1 3 4 1237 1908 181 38 96.077446 displayed5 1 7 1 3 5 1445 1908 103 31 96.289528 much5 1 7 1 3 6 1575 1906 212 39 92.563347 foresight.”5 1 7 1 3 7 1806 1910 21 14 0.000000 '”2 1 8 0 0 0 687 1982 1341 611 -1 3 1 8 1 0 0 692 1982 1336 231 -1 4 1 8 1 1 0 721 1982 1291 25 -1 5 1 8 1 1 1 721 1983 67 19 21.047089 °Thes 1 8 1 1 2 806 1983 79 21 96.870613 Houses 1 8 1 1 3 902 1984 90 23 96.385727 Reports 1 8 1 1 4 1010 1985 192 21 95.793747 recommending5 1 8 1 1 5 1221 1984 38 20 96.888275 thes 1 8 1 1 6 1278 1986 137 18 96.682289 enactment5 1 8 1 1 7 1432 1984 26 19 96.470490 of5 1 8 1 1 8 1477 1983 40 20 96.520241 thes 1 8 1 1 9 1534 1983 103 22 96.492676 originals 1 8 1 1 10 1658 1983 57 19 96.911736 FTC5 1 8 1 1 11 1735 1983 46 19 96.917229 Acts 1 8 1 1 12 1801 1989 47 13 95.678131 was5 1 8 1 1 13 1867 1982 98 22 95.678131 explicit5 1 8 1 1 14 1984 1989 28 12 96.475845 on4 1 8 1 2 0 693 2017 506 24 -1 5 1 8 1 2 1 693 2017 46 20 96.573830 this5 1 8 1 2 2 754 2018 73 22 95.915421 point.5 1 8 1 2 3 841 2019 33 19 96.336189 As5 1 8 1 2 4 886 2018 40 20 96.605904 thes 1 8 1 2 5 937 2019 91 22 96.058044 Reports 1 8 1 2 6 1041 2019 96 22 96.659195 pointed5 1 8 1 2 7 1150 2021 49 17 96.720329 out:4 1 8 1 3 0 694 2051 1318 23 -1 5 1 8 1 3 1 694 2052 38 19 92.161392 “It5 1 8 1 3 2 748 2052 19 19 95.945465 is5 1 8 1 3 3 784 2052 136 22 96.247925 impossible5 1 8 1 3 4 935 2055 24 18 96.673065 to5 1 8 1 3 5 974 2052 79 20 96.430618 frames 1 8 1 3 6 1069 2053 136 20 94.638145 definitions5 1 8 1 3 7 1223 2052 75 20 96.738449 which5 1 8 1 3 8 1315 2052 107 20 96.643204 embraces 1 8 1 3 9 1439 2052 30 20 95.640152 all5 1 8 1 3 10 1488 2052 82 20 96.517891 unfair5 1 8 1 3 11 1589 2052 123 22 96.421478 practices.5 1 8 1 3 12 1731 2052 76 19 95.683350 There5 1 8 1 3 13 1825 2052 19 19 95.801109 is5 1 8 1 3 14 1863 2058 29 12 95.803986 no5 1 8 1 3 15 1910 2051 61 19 96.615845 limits 1 8 1 3 16 1988 2053 24 17 96.140160 to4 1 8 1 4 0 693 2085 1319 23 -1 5 1 8 1 4 1 693 2085 86 20 96.320671 humans 1 8 1 4 2 798 2086 173 20 95.610916 inventiveness5 1 8 1 4 3 989 2087 23 20 95.615364 in5 1 8 1 4 4 1030 2087 48 20 95.889427 this5 1 8 1 4 5 1096 2087 58 20 95.016724 field.5 1 8 1 4 6 1174 2087 64 19 96.087250 Even5 1 8 1 4 7 1255 2087 19 19 96.106842 if5 1 8 1 4 8 1292 2087 29 19 96.168030 all5 1 8 1 4 9 1341 2087 84 19 96.870667 known5 1 8 1 4 10 1444 2086 83 20 95.557350 unfair5 1 8 1 4 11 1546 2086 116 22 96.297890 practices5 1 8 1 4 12 1681 2092 61 13 96.800163 were5 1 8 1 4 13 1760 2085 143 23 95.321342 specifically5 1 8 1 4 14 1921 2085 91 19 95.321342 defined4 1 8 1 5 0 692 2119 1322 24 -1 5 1 8 1 5 1 692 2120 46 19 96.289139 ands 1 8 1 5 2 756 2120 140 23 96.198456 prohibited,5 1 8 1 5 3 913 2121 18 19 95.669235 it5 1 8 1 5 4 947 2121 75 19 95.669235 would5 1 8 1 5 5 1039 2121 28 19 95.632729 be5 1 8 1 5 6 1083 2123 26 17 96.634857 at5 1 8 1 5 7 1125 2127 58 13 96.683723 once5 1 8 1 5 8 1199 2127 125 16 95.735710 necessary5 1 8 1 5 9 1342 2123 23 17 78.267807 to5 1 8 1 5 10 1383 2120 69 23 96.589775 begins 1 8 1 5 11 1470 2127 56 13 96.896652 overs 1 8 1 5 12 1542 2121 80 22 95.948105 again.5 1 8 1 5 13 1642 2120 23 20 95.948105 If5 1 8 1 5 14 1682 2121 119 22 95.943573 Congress5 1 8 1 5 15 1819 2126 61 14 96.685684 were5 1 8 1 5 16 1897 2121 25 18 95.890152 to5 1 8 1 5 17 1939 2119 75 23 96.747276 adopt4 1 8 1 6 0 693 2154 1319 24 -1 5 1 8 1 6 1 693 2155 39 19 96.889297 thes 1 8 1 6 2 751 2156 93 19 96.432556 methods 1 8 1 6 3 864 2156 26 19 96.491753 of5 1 8 1 6 4 908 2156 130 22 96.374985 definition,5 1 8 1 6 5 1059 2156 20 20 95.469711 it5 1 8 1 6 6 1097 2156 75 20 96.109962 would5 1 8 1 6 7 1193 2156 27 20 96.156960 be5 1 8 1 6 8 1238 2163 30 13 76.217232 an.5 1 8 1 6 9 1289 2156 91 20 95.835236 endless5 1 8 1 6 10 1400 2156 78 20 0.000000 task.’5 1 8 1 6 11 1501 2155 58 20 96.698662 H.R.5 1 8 1 6 12 1581 2156 58 22 94.911377 Rep.5 1 8 1 6 13 1661 2156 44 19 96.031937 No.5 1 8 1 6 14 1728 2156 62 21 96.693695 1142,5 1 8 1 6 15 1813 2155 55 20 94.142799 68rd5 1 8 1 6 16 1889 2155 72 22 94.142799 Cong.5 1 8 1 6 17 1984 2154 28 20 95.539101 2d4 1 8 1 7 0 692 2184 1336 29 -1 5 1 8 1 7 1 692 2190 59 19 95.667374 Sess.5 1 8 1 7 2 767 2191 69 19 96.320587 18-195 1 8 1 7 3 853 2191 76 22 96.932281 (1914)5 1 8 1 7 4 2026 2184 2 2 0.000000 ,3 1 8 2 0 0 687 2224 1324 260 -1 4 1 8 2 1 0 720 2224 1291 24 -1 5 1 8 2 1 1 720 2224 17 12 70.303024 ”5 1 8 2 1 2 746 2224 106 21 93.223343 Atlantic5 1 8 2 1 3 868 2225 56 23 91.476509 Rfg.5 1 8 2 1 4 940 2225 47 22 92.114235 Co.,5 1 8 2 1 5 1003 2227 40 19 95.833824 3815 1 8 2 1 6 1062 2226 53 20 95.118942 U.S.5 1 8 2 1 7 1132 2227 49 21 96.384018 357,5 1 8 2 1 8 1198 2226 40 20 96.577393 3675 1 8 2 1 9 1259 2226 77 22 96.570480 (1965)5 1 8 2 1 10 1360 2226 122 21 96.277107 (citations5 1 8 2 1 11 1498 2226 120 21 96.135277 omitted).5 1 8 2 1 12 1637 2227 41 19 96.135277 Sees 1 8 2 1 13 1694 2226 57 21 96.470032 also,5 1 8 2 1 14 1768 2225 79 21 92.467796 Scars,5 1 8 2 1 15 1864 2225 108 20 92.934631 Roebuck5 1 8 2 1 16 1990 2225 21 20 80.445908 &4 1 8 2 2 0 691 2256 1320 27 -1 5 1 8 2 2 1 691 2259 39 19 87.875305 Co.5 1 8 2 2 2 746 2265 21 13 86.724976 v.5 1 8 2 2 3 785 2259 90 22 83.712769 F.T.C.,5 1 8 2 2 4 893 2256 39 24 96.556808 2585 1 8 2 2 5 950 2260 53 20 89.773849 Fed.5 1 8 2 2 6 1021 2261 49 21 96.550385 307,5 1 8 2 2 7 1087 2262 37 18 91.727417 3115 1 8 2 2 8 1150 2261 77 22 96.019241 (1919)5 1 8 2 2 9 1248 2261 23 19 95.954292 in5 1 8 2 2 10 1288 2260 76 20 96.008728 which5 1 8 2 2 11 1383 2260 38 19 96.008728 thes 1 8 2 2 12 1440 2260 102 20 96.732704 Seventh5 1 8 2 2 13 1560 2260 92 20 96.182167 Circuits 1 8 2 2 14 1667 2260 66 22 96.359230 early5 1 8 2 2 15 1750 2259 112 20 96.367607 observed5 1 8 2 2 16 1881 2259 72 20 96.478180 about5 1 8 2 2 17 1969 2259 42 20 96.906815 thea 1 8 2 3 0 692 2293 418 21 -1 5 1 8 2 3 1 692 2293 95 20 96.545227 Federal5 1 8 2 3 2 801 2294 75 20 93.287064 Trades 1 8 2 3 3 889 2294 154 20 85.333733 Cémmission5 1 8 2 3 4 1058 2295 52 19 96.925804 Act:4 1 8 2 4 0 691 2328 1318 23 -1 5 1 8 2 4 1 691 2328 72 19 95.299492 “This5 1 8 2 4 2 780 2330 91 18 95.405373 statutes 1 8 2 4 3 889 2329 18 19 96.380081 is5 1 8 2 4 4 926 2329 117 22 95.883186 remedial,5 1 8 2 4 5 1061 2329 46 20 96.105759 ands 1 8 2 4 6 1126 2330 80 19 95.932648 orders5 1 8 2 4 7 1225 2331 23 18 95.704803 to5 1 8 2 4 8 1265 2336 67 13 95.704803 ceases 1 8 2 4 9 1350 2329 44 19 96.095741 ands 1 8 2 4 10 1414 2330 73 19 95.817719 desist5 1 8 2 4 11 1504 2336 41 13 95.817719 ares 1 8 2 4 12 1563 2329 68 20 96.183495 civil;5 1 8 2 4 13 1651 2329 41 20 96.224266 but5 1 8 2 4 14 1709 2335 57 14 96.224266 even5 1 8 2 4 15 1786 2329 23 19 96.539131 in5 1 8 2 4 16 1830 2329 108 19 95.564835 criminal5 1 8 2 4 17 1957 2328 52 21 82.540833 law,4 1 8 2 5 0 689 2362 1321 24 -1 5 1 8 2 5 1 689 2362 146 20 96.296837 convictions5 1 8 2 5 2 853 2369 41 13 96.597145 ares 1 8 2 5 3 912 2363 83 23 96.343834 upheld5 1 8 2 5 4 1014 2370 29 13 95.368423 on5 1 8 2 5 5 1063 2365 121 20 95.879814 statutory5 1 8 2 5 6 1203 2363 158 23 96.039871 prohibitions5 1 8 2 5 7 1379 2364 26 19 96.270462 of5 1 8 2 5 8 1424 2364 100 19 96.306717 ‘rebates5 1 8 2 5 9 1543 2370 26 13 96.659988 or5 1 8 2 5 10 1588 2364 156 19 95.972031 concessions’5 1 8 2 5 11 1765 2370 26 13 95.777390 or5 1 8 2 5 12 1810 2364 25 19 96.307503 of5 1 8 2 5 13 1855 2363 111 20 95.066162 ‘schemes5 1 8 2 5 14 1986 2366 24 17 95.066162 to4 1 8 2 6 0 691 2396 1320 25 -1 5 1 8 2 6 1 691 2396 108 20 95.320229 defraud’5 1 8 2 6 2 818 2397 99 19 96.416626 without5 1 8 2 6 3 933 2404 47 16 96.409790 any5 1 8 2 6 4 996 2397 108 20 95.826309 schedules 1 8 2 6 5 1120 2398 26 19 95.826309 of5 1 8 2 6 6 1163 2400 51 17 96.691406 acts5 1 8 2 6 7 1231 2404 25 13 96.528625 or5 1 8 2 6 8 1273 2398 94 22 92.025826 specifics 1 8 2 6 9 1384 2398 122 19 96.366913 definitions 1 8 2 6 10 1525 2398 24 20 96.366913 of5 1 8 2 6 11 1569 2397 131 24 96.068367 prohibited5 1 8 2 6 12 1719 2397 107 22 95.712234 conduct,5 1 8 2 6 13 1845 2397 55 20 95.656013 thus5 1 8 2 6 14 1918 2397 93 22 51.513626 leaving4 1 8 2 7 0 689 2430 1321 24 -1 5 1 8 2 7 1 689 2430 39 19 96.713776 thes 1 8 2 7 2 742 2433 79 18 96.543274 courts5 1 8 2 7 3 835 2431 52 20 93.272041 free5 1 8 2 7 4 899 2432 151 19 90.790924 to‘condemns 1 8 2 7 5 1066 2438 50 13 96.586502 news 1 8 2 7 6 1132 2433 46 19 96.746506 ands 1 8 2 7 7 1195 2433 123 20 96.135895 ingenious5 1 8 2 7 8 1333 2438 64 16 95.851189 ways5 1 8 2 7 9 1411 2432 55 20 96.540901 that5 1 8 2 7 10 1479 2438 62 14 96.708565 were5 1 8 2 7 11 1555 2432 120 20 96.102547 unknown5 1 8 2 7 12 1691 2432 68 20 96.359680 when5 1 8 2 7 13 1775 2432 41 20 96.161957 thes 1 8 2 7 14 1831 2434 101 18 95.939056 statutes5 1 8 2 7 15 1948 2438 62 12 96.991180 were4 1 8 2 8 0 687 2465 122 19 -1 5 1 8 2 8 1 687 2465 122 19 4.478233 enacted.”3 1 8 3 0 0 717 2499 1089 29 -1 4 1 8 3 1 0 717 2499 1089 29 -1 5 1 8 3 1 1 717 2499 107 20 57.146931 UF.T.C.5 1 8 3 1 2 839 2507 21 21 72.955284 v.5 1 8 3 1 3 873 2500 89 23 79.521469 Keppel5 1 8 3 1 4 976 2500 20 20 92.535004 &5 1 8 3 1 5 1009 2500 74 22 82.191162 Bros.,5 1 8 3 1 6 1097 2502 40 19 95.980843 2915 1 8 3 1 7 1152 2501 54 20 95.342911 U.S.5 1 8 3 1 8 1220 2502 48 20 95.342911 304,5 1 8 3 1 9 1282 2501 99 20 87.370079 310-3125 1 8 3 1 10 1398 2502 87 21 94.898285 (1934).5 1 8 3 1 11 1804 2525 2 2 0.000000 .3 1 8 4 0 0 688 2533 1321 60 -1 4 1 8 4 1 0 719 2533 1290 25 -1 5 1 8 4 1 1 719 2533 15 12 26.516861 ®5 1 8 4 1 2 745 2533 107 21 93.095428 Atlantic5 1 8 4 1 3 870 2535 55 22 92.027916 Rfg.5 1 8 4 1 4 943 2535 47 22 89.793488 Co.,5 1 8 4 1 5 1008 2542 82 16 95.971840 supra,5 1 8 4 1 6 1109 2536 38 19 95.971840 3815 1 8 4 1 7 1168 2536 55 19 94.195320 U.S.5 1 8 4 1 8 1243 2537 25 18 96.009041 at5 1 8 4 1 9 1286 2536 49 21 67.829849 367;5 1 8 4 1 10 1354 2542 38 13 96.125763 sees 1 8 4 1 11 1411 2536 57 22 93.294357 also,5 1 8 4 1 12 1487 2536 82 18 43.527100 F.7.C.5 1 8 4 1 13 1589 2542 21 13 91.373947 v.5 1 8 4 1 14 1630 2536 91 19 96.624817 Motions 1 8 4 1 15 1739 2536 97 19 95.421814 Pictures 1 8 4 1 16 1855 2535 154 22 96.091156 Advertising4 1 8 4 2 0 688 2568 568 25 -1 5 1 8 4 2 1 688 2568 94 20 93.134811 Services 1 8 4 2 2 795 2569 46 21 89.615807 Co.,5 1 8 4 2 3 856 2569 56 22 87.575912 Inc.,5 1 8 4 2 4 926 2571 39 19 83.979568 3445 1 8 4 2 5 980 2570 53 20 95.288467 U.S.5 1 8 4 2 6 1048 2572 48 21 94.877083 392,5 1 8 4 2 7 1111 2572 40 18 94.632271 3945 1 8 4 2 8 1169 2571 87 21 90.911201 (1953). 570 Opinion Most recently, the Supreme Court has again underscored this essential feature of the Commission’s powers with respect to unfair or deceptive practices. Thus in F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233 (1972), the Supreme Court observed that: legislative and judicial authorities “alike convince us that the Federal Trade Commission does not arrogate excessive power to itself if, in measuring a practice against the elusive, but congressionally mandated standard of fairness, it, like a court of equity, considers public values beyond simply — those enshrined in the letter or encompassed in the spirit of the antitrust laws. 405 U.S. at 244."

In the instant case, respondents’ program which was entirely fraudulent in every aspect and which was competitive with the credit card issuance business generally, has been systematically promoted since 1958. (I.D. 7 [p. 585 herein] )** Minimally some 600 franchisees '* and 6500 retail member merchants '* were victimized by respondents’ program. Each of these franchisees paid approximately $7500 for the franchise and the retail merchant program members each paid $240 for a two year membership in addition to monthly dues of $10 and a 6 percent discount to respondents on sales made under the program. (1.D. 14 [p. 589 herein], 57 [p. 620 herein]) For the fiscal years ending June, 1967, 1968 and 1969 alone respondents: received some $3,042,255 from their franchisees and members while the overwhelming PTC.5 1 5 1 1 2 686 1708 21 14 74.396896 v.5 1 5 1 1 3 724 1701 235 23 90.506500 Colgate-Palmolive5 1 5 1 1 4 976 1704 47 21 91.603256 Co.,5 1 5 1 1 5 1042 1705 40 19 96.385963 3805 1 5 1 1 6 1101 1704 52 20 96.473801 U.S.5 1 5 1 1 7 1173 1706 48 20 96.416336 374,5 1 5 1 1 8 1240 1705 40 19 95.730011 3855 1 5 1 1 9 1303 1705 94 20 93.241776 (1965);5 1 5 1 1 10 1416 1704 80 19 86.719727 F.T.C.5 1 5 1 1 11 1514 1711 21 13 88.090752 v.5 1 5 1 1 12 1555 1704 87 18 96.407288 Brown5 1 5 1 1 13 1660 1704 60 20 93.097115 Shoes 1 5 1 1 14 1738 1704 46 21 91.687683 Co.,5 1 5 1 1 15 1804 1705 39 18 96.996643 3844 1 5 1 2 0 533 1740 979 24 -1 5 1 5 1 2 1 533 1740 51 19 83.520111 U.S.5 1 5 1 2 2 601 1741 48 20 96.550293 316,5 1 5 1 2 3 666 1741 82 19 89.517906 320-215 1 5 1 2 4 769 1741 76 22 80.605240 (1966)5 1 5 1 2 5 859 1747 4 16 80.605240 ;5 1 5 1 2 6 879 1741 80 20 40.911865 F.T.C.5 1 5 1 2 7 974 1748 21 13 90.563736 v.5 1 5 1 2 8 1012 1743 97 21 93.081245 Texaco,5 1 5 1 2 9 1126 1743 41 19 75.641327 3985 1 5 1 2 10 1183 1743 56 19 95.258514 U.S.5 1 5 1 2 11 1255 1743 49 21 65.150780 223,5 1 5 1 2 12 1321 1743 84 19 95.701447 225-265 1 5 1 2 13 1425 1743 87 21 95.553314 (1968).2 1 6 0 0 0 527 1786 1319 618 -1 3 1 6 1 0 0 530 1786 1316 296 -1 4 1 6 1 1 0 560 1786 1285 26 -1 5 1 6 1 1 1 560 1786 75 20 64.702332 “Thes 1 6 1 1 2 652 1788 190 19 96.225777 administrative5 1 6 1 1 3 860 1788 45 19 96.329002 laws 1 6 1 1 4 923 1788 72 22 87.716103 judges 1 6 1 1 5 1012 1789 74 20 96.676285 found5 1 6 1 1 6 1105 1789 53 20 96.676285 that5 1 6 1 1 7 1175 1790 40 19 96.649178 thes 1 6 1 1 8 1234 1790 127 22 96.055489 testimony5 1 6 1 1 9 1379 1790 24 19 96.055489 of5 1 6 1 1 10 1422 1790 56 19 96.998764 both5 1 6 1 1 11 1496 1790 147 19 96.510880 franchisees5 1 6 1 1 12 1663 1791 47 18 96.302628 ands 1 6 1 1 13 1730 1791 115 18 96.302628 members4 1 6 1 2 0 532 1814 1314 41 -1 5 1 6 1 2 1 532 1825 115 20 96.501602 indicated5 1 6 1 2 2 664 1825 52 20 96.767189 that5 1 6 1 2 3 733 1827 154 21 96.510979 respondents5 1 6 1 2 4 902 1833 62 13 96.632378 were5 1 6 1 2 5 980 1828 23 18 95.870758 in5 1 6 1 2 6 1020 1828 154 22 96.229355 competitions 1 6 1 2 7 1191 1829 56 19 96.487663 with5 1 6 1 2 8 1264 1828 67 20 96.150047 others 1 6 1 2 9 1347 1829 75 19 87.396011 credits 1 6 1 2 10 1437 1829 54 19 95.600563 cards 1 6 1 2 11 1507 1814 140 41 96.304291 operations5 1 6 1 2 12 1662 1829 56 19 21.825493 such5 1 6 1 2 13 1735 1836 27 12 21.825493 as5 1 6 1 2 14 1779 1829 67 19 95.547371 those4 1 6 1 3 0 532 1863 1312 26 -1 5 1 6 1 3 1 532 1863 25 19 95.849846 of5 1 6 1 3 2 572 1863 75 20 95.849846 banks5 1 6 1 3 3 662 1865 47 19 96.642372 ands 1 6 1 3 4 724 1865 67 19 95.193161 others 1 6 1 3 5 806 1865 75 19 96.368996 credits 1 6 1 3 6 896 1866 144 22 83.384773 operations.5 1 6 1 3 7 1062 1866 56 21 41.370537 (1.D,5 1 6 1 3 8 1135 1867 27 19 95.558113 805 1 6 1 3 9 1182 1867 32 22 50.053268 |p.5 1 6 1 3 10 1233 1867 38 19 92.707359 6315 1 6 1 3 11 1291 1866 104 23 91.354347 herein])5 1 6 1 3 12 1416 1866 35 20 96.363571 He5 1 6 1 3 13 1467 1867 49 19 96.032791 also5 1 6 1 3 14 1531 1867 74 20 96.632126 found5 1 6 1 3 15 1623 1867 53 20 96.313248 that5 1 6 1 3 16 1693 1868 151 19 96.941093 Continental4 1 6 1 4 0 532 1903 1314 26 -1 5 1 6 1 4 1 532 1903 133 20 96.693123 advertised5 1 6 1 4 2 683 1903 24 19 59.754593 in.5 1 6 1 4 3 726 1910 14 13 59.754593 a5 1 6 1 4 4 758 1905 123 21 96.538727 magazines 1 6 1 4 5 900 1904 97 20 96.110321 entitled5 1 6 1 4 6 1017 1905 130 20 96.122353 Franchises 1 6 1 4 7 1165 1905 100 20 96.246353 Journals 1 6 1 4 8 1286 1906 23 19 96.538803 in5 1 6 1 4 9 1329 1912 29 13 94.959961 an5 1 6 1 4 10 1379 1906 71 19 96.360817 efforts 1 6 1 4 11 1469 1908 22 17 96.270226 to5 1 6 1 4 12 1511 1908 92 18 95.610825 attracts 1 6 1 4 13 1621 1907 141 20 93.167763 franchises.5 1 6 1 4 14 1788 1906 58 23 46.146946 (1I.D.4 1 6 1 5 0 531 1942 1315 27 -1 5 1 6 1 5 1 531 1942 36 21 96.695465 80)5 1 6 1 5 2 582 1943 174 22 0.000000 Additionally,5 1 6 1 5 3 773 1944 39 19 96.882164 thes 1 6 1 5 4 829 1944 43 19 96.452927 laws 1 6 1 5 5 890 1944 72 22 96.452927 judges 1 6 1 5 6 978 1945 74 19 96.165321 found5 1 6 1 5 7 1068 1945 53 19 96.919312 that5 1 6 1 5 8 1138 1946 61 19 95.790298 from5 1 6 1 5 9 1218 1946 109 22 96.172729 January5 1 6 1 5 10 1346 1947 18 21 96.781578 1,5 1 6 1 5 11 1384 1947 52 18 95.889992 19675 1 6 1 5 12 1455 1948 23 17 95.889992 to5 1 6 1 5 13 1496 1947 102 19 95.889359 October5 1 6 1 5 14 1617 1947 53 19 96.497536 19695 1 6 1 5 15 1690 1947 156 22 96.186592 respondents4 1 6 1 6 0 531 1980 1314 28 -1 5 1 6 1 6 1 531 1980 103 20 85.253693 received5 1 6 1 6 2 658 1982 166 22 85.253693 $1,291,703.905 1 6 1 6 3 849 1983 38 19 96.744896 for5 1 6 1 6 4 910 1983 40 19 96.894356 thes 1 6 1 6 5 974 1983 49 19 96.405312 sales 1 6 1 6 6 1046 1984 25 19 95.022217 of5 1 6 1 6 7 1096 1984 140 20 93.143372 franchises.5 1 6 1 6 8 1266 1984 57 22 40.908417 (I.D.5 1 6 1 6 9 1350 1986 26 18 90.987671 275 1 6 1 6 10 1405 1985 31 22 90.301445 {p.5 1 6 1 6 11 1464 1986 39 18 92.779579 5955 1 6 1 6 12 1529 1985 105 23 88.701424 herein])5 1 6 1 6 13 1665 1985 92 20 96.179993 Incomes 1 6 1 6 14 1783 1986 62 19 96.263916 from4 1 6 1 7 0 530 2019 1313 27 -1 5 1 6 1 7 1 530 2019 157 24 96.671425 memberships 1 6 1 7 2 703 2020 57 22 96.259865 fees,5 1 6 1 7 3 776 2021 54 20 96.538780 dues5 1 6 1 7 4 847 2022 46 19 96.224922 ands 1 6 1 7 5 908 2020 123 21 92.882339 members’5 1 6 1 7 6 1048 2022 119 20 96.193291 discounts5 1 6 1 7 7 1183 2023 61 20 96.674477 from5 1 6 1 7 8 1262 2024 63 19 96.662552 June5 1 6 1 7 9 1342 2024 53 19 96.662552 19665 1 6 1 7 10 1412 2025 23 18 96.524902 to5 1 6 1 7 11 1450 2024 64 19 96.544975 June5 1 6 1 7 12 1531 2025 53 19 96.273872 1969.5 1 6 1 7 13 1602 2025 86 19 96.460365 totaled5 1 6 1 7 14 1705 2025 138 21 95.004761 $1,846,785.4 1 6 1 8 0 532 2058 319 24 -1 5 1 6 1 8 1 532 2058 57 20 62.977898 (1.D.5 1 6 1 8 2 604 2059 24 18 93.585785 165 1 6 1 8 3 646 2059 33 22 93.903038 |p.5 1 6 1 8 4 693 2060 40 19 93.275642 5905 1 6 1 8 5 747 2059 104 23 88.048965 herein])3 1 6 2 0 0 529 2104 1317 70 -1 4 1 6 2 1 0 561 2104 1285 27 -1 5 1 6 2 1 1 561 2105 14 11 49.722370 ®5 1 6 2 1 2 586 2104 48 22 94.698112 See,5 1 6 2 1 3 653 2106 103 22 93.133263 Headley5 1 6 2 1 4 770 2112 21 13 88.735245 v.5 1 6 2 1 5 808 2106 159 22 96.577667 Continental,5 1 6 2 1 6 985 2108 42 20 78.731720 No,5 1 6 2 1 7 1045 2109 118 19 89.317673 C-70-4575 1 6 2 1 8 1180 2109 45 19 92.954277 SW5 1 6 2 1 9 1245 2109 69 22 91.269478 (N.D.5 1 6 2 1 10 1333 2109 46 20 95.376175 Cal.5 1 6 2 1 11 1396 2110 94 21 96.471771 August5 1 6 2 1 12 1508 2111 75 20 96.471771 1972),5 1 6 2 1 13 1601 2110 118 20 96.205444 discussed5 1 6 2 1 14 1737 2110 65 21 95.705940 infra5 1 6 2 1 15 1820 2112 26 17 94.583809 at4 1 6 2 2 0 529 2144 889 30 -1 5 1 6 2 2 1 529 2150 19 15 92.828354 p.5 1 6 2 2 2 562 2144 27 19 77.469635 305 1 6 2 2 3 607 2144 34 22 83.949135 |p.5 1 6 2 2 4 655 2145 40 19 96.496933 6595 1 6 2 2 5 709 2145 100 22 93.012299 herein],5 1 6 2 2 6 824 2152 21 13 89.765091 n.5 1 6 2 2 7 860 2147 33 18 95.866104 29.5 1 6 2 2 8 1415 2172 3 2 49.964188 .3 1 6 3 0 0 527 2190 1318 214 -1 4 1 6 3 1 0 559 2190 1285 30 -1 5 1 6 3 1 1 559 2190 16 11 58.615334 *5 1 6 3 1 2 586 2190 106 20 93.250168 Between5 1 6 3 1 3 710 2193 93 20 29.294502 Aucust5 1 6 3 1 4 820 2193 53 19 96.449890 19695 1 6 3 1 5 889 2193 46 19 96.449890 ands 1 6 3 1 6 952 2193 121 24 95.984444 February5 1 6 3 1 7 1090 2196 49 18 95.163773 19715 1 6 3 1 8 1159 2195 67 25 96.581436 there5 1 6 3 1 9 1241 2201 62 13 96.459633 were5 1 6 3 1 10 1318 2197 26 18 95.224518 at5 1 6 3 1 11 1358 2196 60 19 95.224518 least5 1 6 3 1 12 1435 2196 61 21 95.967155 1,1005 1 6 3 1 13 1513 2196 115 19 96.691177 members5 1 6 3 1 14 1645 2196 74 19 96.276413 under5 1 6 3 1 15 1735 2198 109 17 96.666702 contract4 1 6 3 2 0 529 2230 1314 33 -1 5 1 6 3 2 1 529 2231 25 17 95.892708 at5 1 6 3 2 2 568 2236 14 12 95.862541 a5 1 6 3 2 3 599 2230 69 21 95.927216 given5 1 6 3 2 4 685 2230 70 22 95.997238 time;5 1 6 3 2 5 772 2231 65 20 96.297813 there5 1 6 3 2 6 853 2238 48 13 96.534996 was5 1 6 3 2 7 910 2238 19 25 91.063507 a5 1 6 3 2 8 947 2233 157 23 30.594597 membhership5 1 6 3 2 9 1122 2236 112 18 96.200203 turnover5 1 6 3 2 10 1250 2234 87 21 96.129356 during5 1 6 3 2 11 1352 2234 47 20 96.625069 this5 1 6 3 2 12 1416 2235 79 22 96.316666 periods 1 6 3 2 13 1512 2235 25 19 96.458809 of5 1 6 3 2 14 1554 2237 25 17 96.662888 at5 1 6 3 2 15 1595 2235 60 19 96.086388 least5 1 6 3 2 16 1672 2235 26 19 95.571548 305 1 6 3 2 17 1716 2242 13 12 95.571548 a5 1 6 3 2 18 1747 2235 96 19 96.193466 month:4 1 6 3 3 0 527 2268 1316 35 -1 5 1 6 3 3 1 527 2268 45 19 95.293991 ands 1 6 3 3 2 593 2268 39 19 95.474960 thes 1 6 3 3 3 653 2275 110 16 95.085876 programs 1 6 3 3 4 784 2270 41 20 95.085876 has5 1 6 3 3 5 844 2271 112 32 96.584297 operated5 1 6 3 3 6 977 2271 23 19 96.805222 in5 1 6 3 3 7 1020 2271 167 23 96.187286 substantially5 1 6 3 3 8 1207 2273 40 19 96.619316 thes 1 6 3 3 9 1266 2279 65 13 96.011627 same5 1 6 3 3 10 1350 2273 62 19 94.899239 forms 1 6 3 3 11 1433 2274 45 19 95.819298 ands 1 6 3 3 12 1499 2280 101 13 96.595116 manners 1 6 3 3 13 1619 2274 65 19 96.061600 since5 1 6 3 3 14 1706 2274 60 19 95.864510 1953.5 1 6 3 3 15 1793 2274 50 22 95.426674 (Tr.4 1 6 3 4 0 530 2307 1315 28 -1 5 1 6 3 4 1 530 2307 103 22 84.065720 121-122,5 1 6 3 4 2 654 2307 45 20 22.929848 I.D.5 1 6 3 4 3 721 2308 10 19 93.231567 65 1 6 3 4 4 755 2308 33 22 72.011665 [p.5 1 6 3 4 5 808 2310 40 19 92.579712 5855 1 6 3 4 6 869 2309 105 23 89.663033 herein])5 1 6 3 4 7 997 2311 19 18 95.634926 A5 1 6 3 4 8 1037 2311 74 21 95.634926 rough5 1 6 3 4 9 1131 2312 163 22 94.783501 computations 1 6 3 4 10 1316 2313 69 18 94.709373 based5 1 6 3 4 11 1405 2319 28 12 96.164719 on5 1 6 3 4 12 1454 2313 65 19 96.639969 these5 1 6 3 4 13 1538 2313 63 19 96.320618 facts5 1 6 3 4 14 1623 2313 73 19 96.060730 would5 1 6 3 4 15 1719 2313 65 22 96.060730 places 1 6 3 4 16 1804 2313 41 19 96.345039 thea 1 6 3 5 0 529 2346 1315 28 -1 5 1 6 3 5 1 529 2346 55 19 94.722069 totals 1 6 3 5 2 610 2346 99 19 94.722069 numbers 1 6 3 5 3 733 2347 25 19 95.560631 of5 1 6 3 5 4 783 2349 114 19 95.859276 members5 1 6 3 5 5 922 2349 64 19 95.859276 since5 1 6 3 5 6 1012 2350 52 19 96.503326 19535 1 6 3 5 7 1090 2350 59 19 93.234596 until5 1 6 3 5 8 1175 2350 40 20 96.503357 thes 1 6 3 5 9 1239 2351 109 19 95.903778 issuance5 1 6 3 5 10 1372 2351 25 19 96.577171 of5 1 6 3 5 11 1422 2351 40 19 96.971504 thes 1 6 3 5 12 1486 2352 129 22 94.825020 complaints 1 6 3 5 13 1641 2354 26 17 95.992981 at5 1 6 3 5 14 1692 2352 72 19 95.992981 about5 1 6 3 5 15 1789 2352 55 19 96.209297 65004 1 6 3 6 0 527 2384 140 20 -1 5 1 6 3 6 1 527 2384 140 20 95.551865 merchants. a Opinion 82 F.T.C.

majority of these franchisees 7 and members '* suffered substantial. losses by reason of their participation’ in the program. (CXs 122-124) As the law judge put it:

* * * Respondents have cleverly calculated the program to enrich only themselves at the expense of innocent small businessmen lured into it as members and franchisees. (I.D. p. 3 [p. 584 herein]) Respondents here are not in the situation where they were engaged in the business of offering a service or product of some intrinsic value but which they were promoting through unfair or deceptive means. The essence of the unfairness and deception which they perpetrated inheres in the program which they offered. To take monies under false pretenses and to retain these monies under color of law, while casting the fraud in the form of a legitimate business operation purporting to offer the participants an opportunity to make money or to improve their own business opportunities is the height of unfairness and deception. To offer a virtually worthless service to small businessmen and individuals desiring to go into business, however, is to adopt a cloak of legitimacy designed to take advantage of the free enterprise culture and create an impression on the part of their victims that that which they lost was simply 4 normal business risk or the 'T A yeview of respondents’ business records from January 1, 1967 to October 1969, (CX 190 A-Q) indicates that-.there were 172 franchisees during these months and that they remained active in the proeram for 8 to 9 months. (Activity was measured from the date of the franchise agreement to the date of the last earnings statement submitted to respondents). The average amount paid for the franchise was $7,509.91 while the averare earninus of each franchisee was $1,448.91. Thus, franchisees lost approximately 81 percent of their earnings. (I.D. 27 |p. 595 herein]) Additionally, 97 percent of these franchisees failed “to. earn -back their “initial investment and no franchisee earned the amounts shown on respondents’ franchisee earnins projection sheets. (I.D. 27 [p. 595 herein]) Only 3 out of these 172 franchisees made any profit at all. (CK 190E #59, CX 190D #47, CX 190A #2) In contrast, for the fiscal years ending June, 1967, 1968 and 1969 respondents earned from the sale of franchise rights $149,286, $570,572 and $475,632 respectively. (CXs 122-124) 1S Members remained active in the program approximately 8 months although each had paid for a two-year membership. (Tr. 127-128) Between July of 1966 and June 1969 the small independent retailers who were members sustained recourses on sales made under the program of approxirnately 14 percent. Thus, for very $100 in sales made under the program, the member would suffer an outright loss of $14. (CXs 122-125) This same retailer would simultaneously have to pay respondents a 6 percent discount on all sales made under the program and $10 monthly dues beyond the $240 already paid for a two-year membership. (I.D. 57 [p. 620 herein]) Accordingly, over 40 percent of the members who received either checks or financial statements from respondents between January 1968 and October 1969 were informed that they were indebted to respondents. (CX 191) During the hearing, one franchisee testified that in a written survey of the retailers to whom he had sold memberships 58 answered a question as to how much money they had lost; their responses totaled $26,126.30. (Tr. 666) One other franchisee testified that of the 64 memberships he had sold, retailers, on the average, lost $400 to $500. (Tr. 353-855) In contrast for the fiscal years endinyz June, 1967, 1968 and 1969 respondents earned by way of membership dues, fees and members discounts $457,184, $694,375 and $695,226 respectively. (CXs 122-124) G - UINIVERDAL UNDVLL AUULLr LAINUL UUNS., Dt ALA Ue 570 ; Opinion product of their own ineptitude or lack of astuteness rather than the consequences of a fraud against which they might have had a cause of action.

We agree with the law judge, therefore; that respondents’ retention’ df these monies which they had obtained solely as a result of their offering of a virtually worthless service and their failure to refund the monies which they took from their members and franchisees is a substantive violation of Section 5. We believe that the law judge was entirely correct in ordering respondents to refund these monies and that indeed such remedy is essential if adequate relief is to be secured here to protect the public from possible continuation or recurrence of the perpetration of such frauds on the public by any of these respondents. In our opinion in Curtis Publishing Co., 3 CCH Trade Regulation Reporter 719,719 (June 30, 1971) [78 F.T.C. 1472, we described the circumstances under which an order requiring restitution would be required by Section 5. We noted that: [i]t may well be that in some situations injury to competition resulting from the deceptive practice cannot be adequately remedied by an order which merely enjoins the practice. In such a case refunding of the money obtained by illegal means may be the only effective method of restoring the competitive status quo which was disrupted by the deceptive practices. (3 CCH T.R.R. at page 21, 758 [78 F.T.C. 1472, 1515]) Additionally, we stated that:

a seller’s retention of its customers’ money or property * * * [may be] an unfair trade practice in and of itself. Such a situation could conceivably occur * * * where the consumer, as a result of deception or fraud on the part of the seller, pays for a product or service but receives nothing of value in return or receives something that is either worthless or--of.. only. token value. In such instances the retention of the money or property of consumers may be deemed to be a continuing violation of Section 5, separate and apart from any misrepresentation or deceptive sales scheme which may be utilized by the seller. (8 CCH T.R.R. at page 21,758 [78 F.T.C. 1472, 1516]) The law judge found that respondents’ credit card program competed with those firms engaged in the business of issuing credit cards. There is little doubt that a service purporting in effect to guarantee all er ‘edit cards is essentially competitive with the service offered by credit card issuers themselves. Thus credit card issuers compete among themselves for the merchants’ business through the service fees charged, the speed with which they pay Opinion 82 F.T.C.

the merchant, their recourse provisions and other like provisions. Obviously any company Offering to put itself, in effect, in the place of the card issuer vis-a-vis the merchant is competing with the card issuers themselves. Any: differences in services offered by different credit card issuers which would otherwise be of competitive significance are nullified and cancelled out by a program which purports to honor all credit cards on a non-recourse basis, make immediate payments to the merchants and perform all necessary collection services as well.

It is a universally recognized principle of relief in restraint of trade cases to require the respondent wherever possible to restore the competitive balance which existed prior to his illegal practices. Thus companies which make illegal acquisitions are typically required to divest themselves of the illegally acquired assets. See, e.g., L. G. Balfour v. F.T.C., 442 F.2d, 1 (7th Cir. 1971); F.T.C. v. Procter & Gamble Co., 386 U.S. 568 (1967). That basic thrust of relief is just as applicable to distortions of competitive balance which result from the type of deceptive or unfair practice involved in the instant case as it is to similar competitive imbalances resulting from more traditional restraints of trade activities. If the businessman who has engaged in the deceptive or unfair practices has been so successful as to significantly disrupt the balance of competition, an order which merely prohibited future deceptions or misrepresentations would permit him the use of funds to further his fraudulently obtained competitive advantage. Similarly, if the businessman is permitted to retain substantial funds obtained as a result of deception or fraud, the consuming public will have been deprived of the opportunity to place these funds in legitimate competitive activities and the businessman will be able to utilize these funds for further ventures. Thus a mere order to ‘“‘sin no more” would be as ineffective in the circumstances of the types of deceptions found here as it would in the case of an illegal acquisition. It is therefore evident that under these circumstances restitution is the singularly appropriate—and essential—_remedy to vindicate the public injury which is the direct consequence of respondents’ violation of Section 5. , The instant case, however, provides additional grounds for ordering restitutionary relief against these respondents. The record in this case is replete with evidence of the consistent and conscious efforts which respondents made to clothe their program with an apparent legitimacy and truthfulness while at the same UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 653 570 Opinion time building into the program all of the escape hatches necessary to enable respondents to avoid performing on their promises. Thus respondent Heater carefully instructed his salesman that: The best way to handle most of the “sticky” phrases in our membership agreements, is to tell the prospect that normally they are not important and are only designed to protect us against members or their employees who sometimes try to take advantage of us. Tell them: “Certainly, our contract or even our all credit card program is not perfect in all respects. However, lets not be looking at the hole in the doughnut.” (CX 186A) (Emphasis in original) It is difficult to conceive that an order which simply prohibited respondents from engaging in similar frauds in the future could have any real effect on preventing respondents from devising another illegal business venture to bilk another group of unsuspecting members of the public. If the presence of the Act was not sufficient to prevent respondents from engaging in these blatant violations on this occasion, we can have very little certainty that simply repeating the Act’s prohibitions against fraud and deception is slightly more specific language will have any greater restraining effect on respondents’ conduct in the future. If, on the other hand, respondents know that they cannot retain the sums of monies which they receive as a result of their violations, they are far less likely in the future to onte again flaunt these law’s proscriptions in the planning of their next business venture. At common law equitable remedies for fraud attempted to go to the root of the injury to prevent the defrauder from retaining the fruits of his illegal conduct. (3 Pomeroy’s Equity Jurisprudence, 419-20 (5th Ed. Symons, 1941) ) The FTC’s remedial powers have frequently been.likened to those of a court of equity '* and indeed the administrative process in general is designed to ensure a more flexible approach to law enforcement both as to matters of substantive law definition as well as to matters of devising remedy.?* The courts have made it abundantly clear that the Commission is duty bound to devise an appropriate and reasonable remedy to “19 Cf., Pan American World Airways v. United States, 371 U.S. 296, 312 n. 17 (1963); F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972). °° It is an established principle of equity jurisdiction that: “In the administration of remedies, an equity court is not bound by the strict or rigid rules of the common law; on the contrary, the court adapts its relief and molds its decrees to satisfy the requirements of the case * * * It is said that equity has always preserved the elements of flexibility and expensiveness so that the new remedies may be invented or old ones modified * * * to satisfy the needs of a progressive social condition.” 27 Am. Jour. 2d—Equity, at 624-25 (1966) a Opinion 82 F.T.C.

cure violations found to exist and to prevent their recurrence. The ceritral purpose of relief is “to prevent violations of the Act, the threat of which is indicated by past conduct of the petitioners” Feitler v. F.T.C., 201 F.2d 790, 794 (9th Cir.), cert. den., 346 U.S. 814 (1953) Moreover, the Commission through its order “cannot be required toe confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.” F.T.C. v. Ruberoid, 343 U.S. 470, 473 (1952), F.T.C. v. National Lead Co., 352 U.S. 419, 431 (1957). Once a violation is found the Commission must “frame its order broadly enough to prevent respondents from engaging in similarly illegal practices in [the] future * * * .” F.T.C. v. Colgate Palmolive Co., 380 U.S. 3874, 395 (1965); Atlantic Rfg. Co. v. F.T.C., 381 U.S. 357, 367 (1965); F.7.C. v. Henry Broch & Co., 368 U.S. 360, 364 (1962). Through these orders the Commission is required “to develop that enforcement policy best calculated to achieve the ends contemplated by Congress. * * * ” Moog Industries, Inc. v. F.T.C., 355 U.S. 411, 413 (1958). We conclude, therefore, that restitutionary relief is essential in this case in order to redress the competitive balance disrupted by respondents’ fraudulent program and prevent repetition of these practices in the future.

We turn now to the specific contentions raised by respondents that this form of relief is beyond the power of the Commission to order and in any event inappropriate and unnecessary. il.

Respondents’ Contentions With Respect To The Propriety of a Refund Order A. The Commission’s Power to Order Refunds Respondents argue that whatever may be the need for a refund order, it is beyond the Commission’s power to order because such a relief provision is essentially compensatory in nature, operates to redress private rather than public wrongs and is in fact an award of money damages which is generally conceded to be beyond the Commission’s power to issue.

We have already discussed at length in our opinion in Curtis, supra, the legal basis for the Commission’s power to order restitutionary relief. Respondents’ contentions with respect to the UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 655 570 Opinion impropriety of this relief do not in any way cast any doubt on the legal and factual bases for our conclusion in Curtis as to. the existence of this power. Respondents argue in their briefs that -—Curtis is. wrong since restitutionary relief redresses private wrongs and constitutes an award of money damages and hence is beyond the reach of the Commission’s remedial jurisdiction. We disagree.

The cases are clear that the remedy of restitution is an appropriate remedy to redress a public wrong and as thus conceived and used will not be regarded either as a penal measure, an adjudication of a mass tort or as redress of private injury. Thus in Virginia Electric Co. v. Board, 319 U.S. 5383 (1948), the Supreme Court sustained an N.L.R.B. order requiring restitution of dues and assessments after its finding that the company had committed an unfair labor practice through its domination of the union. The court held, despite the company’s claim that the union had rendered its members some minimal benefits, that the Board could properly find that the services rendered by the union were, in effect, virtually worthless since a company dominated union was by its nature contrary to the interest of employees and the policies underlying the National Labor Relations Act. Further, the court held that restitution was neither a redress for a private wrong nor penal since the Board was merely -vindicating public policy by ordering the company to return money which it retained in its treasury. 319 U.S. at 548-44.2! Similarly, in Porter v. Warner Co., 328 U.S. 395 (1946), the Supreme Court again sustained an order of restitution as an appropriate remedy to redress a public wrong committed by a landlord who had violated the Emergency Price Control Act of 1942. The thrust of the Supreme Court’s opinion was that the order of restitution, even though it directed repayment of rent to individual tenants, did not constitute an attempt to redress private injury caused by impermissible rent payments and was not an award of penalties for damages suffered. As the Supreme Court noted:

“21 See also, Wirtz v. Malther, Inc., 391 F.2d 1 (9th Cir. 1968), in which the court, in comparing the power of the Secretary of Labor to order employers to pay certain monies due their employees under the Fair Labor Standards Act to the right of the employees to individually recover these funds, stated:

“It must be remembered that restraining appellees from withholding the minimum wages and overtime compensation is méant to vindicate a public rather than a private, right, and that the withholding of the money due is considered a ‘continuing public offense.’ ” (citations omitted) 891 F.2d at page 3.

Cf., McComb v. Frank: Scerbo & Sons, 177 F.2d 137, 138-139 (2d Cir. 1949) ; Walling v. O'Grady, 146 F.2d 422, 423 (2d, Cir. 1944).

Opinion 82 F.T.C.

Restitution, which lies within that equitable jurisdiction [of a federal district court], is consistent with and differs greatly from the damages and. penalties which may be awarded under §205(e). [Citation omittted] When the Administrator seeks restitution under §205(a), he does not request the court to award statutory damages to the purchaser or tenant or to pay to such person part of the penalties which go to the United States Treasury in a suit by the Administrator and §205(e). Rather he asks the court to act in the public interest by restoring the status quo and ordering the return of that which rightfully belongs to the purchaser or tenant. 328 U.S. at 402.”

These cases make clear that an order of restitution, simply because it requires that refunds be made to persons from whom the illegally retained monies were originally secured, does not exceed the Commission’s power as a redress of private injuries or as an award of damages.”* We, therefore, reaffirm our opinion in Curtis that the Commission has full power in an appropriate case to order restitution _ wherever it is clear that such relief is necessary in order to further the public policies which are the foundation of Section 5. The refund order in issue here seeks only to disgorge monies which respondents rezsived and makes no efforts to compensate all persons who may have expended monies in reliance on respondents’ spurious claims respecting the value of the program. The 22 See also, Bowles v. Skaggs, 151 F.2d 817 (6th Cir. 1945) in which the court in discussing the Emergency Price Control Act of 1942 stated: ‘ “An order of restitution is not a judgment for damages or for penalties. It compels compliance and is restoration of the status quo which falls within the recognized power of a court of equity * * *, The Administrator acts in the public interest—the purchaser in his own. The remedies are not irreconcilable. There are undoubtedly many instances:where the relationship of buyer and seller is such that the buyer is deterred from vindicating his own and therefore also the public right. To deny to the Administrator power to act in cases where, as here, restitution rather than a prohibitory injunction is the only practical remedy. would be to subvert the purposes of this Act.’’ 151 F.2d at 821. 23 Respondents also contended in their brief that commissioners and commentators have recognized restitution as beyond the Commission’s power. (R. Ad. B. pp. 11-17) However, it is quite clear from respondents’ citations that those Commissioners and commentators whose views are cited for this proposition were in fact focusing their primary attention on the need for Commission authority to order respondents to pay money damages to the victims of their frauds and to assess civil penalties against respondents and were not in fact talking about restitution powers. Hence their views are not factually relevant to the issue of the Commission's restitutionary -powers to which we are addressing ourselves quite apart from the legal irrelevance of such views to the issue of the Commission’s actual powers. 2“41t should be noted that if the refund provisions of the order were designed to award monetary damages for respondents’ fraud, the order would fall far short of its goal. Thus the order does not zrant to any member or franchisee an award for any incidental damages which were suffered as a direct and reasonably forseeable consequence of respondents’ activities. Similarly, there is no provision for calculation of interest a deceived consumer might be entitled. The order does not seek to render the defrauded franchisee or member ‘‘whole.” Rather the order seeks to redress a violation of Section 5 based on the respondents’ retention of funds obtained as a result of their spurious program. See infra, pp. 36-44 I[pp. 663-68 herein] for a discussion of the refund order provisions to be entered. 570 Opinion exclusively public policy concern of the refund order is further demonstrated by its dual functions here to restore the competitive imbalance resulting where the businessman through deception or fraud retains substantial funds to the detriment of his competitors - and the consuming public and to provide essential assurance that the respondents will not in the future continue their violation. ~ B. Respondents’ Contentions With Respect to Mootness Respondents also contend that the refund provisions of the order would be inappropriate with respect to: both the corporate and individual respondents because they would be unnecessarily duplicative of or inconsistent with court proceedings which transpired subsequent to the filing of the Initial Decision.”® The papers submitted by respondents to support their various. assertions confirm respondents’ contentions that since the entry of* the initial decision each of the corporate respondents has been adjudged bankrupt.”* It would seem clear that as a result of their bankruptcy-—which we assume from the papers reaches all of their assets wherever situated—the corporate respondents named in the instant complaint are no longer retaining any monies secured from their fraudulent program.

We do not believe, therefore, that there is any need to enter a refund order against these corporate respondents. Such an order provision under the circumstances now prevailing would strike us as a vain and futile act. Accordingly, we believe that the corporate respondents must be deleted from any refund order provision to be entered here. The rest of the order proposed by the law judge to be entered against these corporate respondents will remain undisturbed since such relief is obviously essential and we have no information about these respondents which would lead us to conclude that the entry of the balance of the order against. them.is unnecessary.?"

2’ This argument and the facts on which it is based were pr ted to the C ission for the first time during oral argument. With the permission of the Commission, the respondents thereafter submitted certified copies of the papers relevant to the court proceedings and all parties submitted additional briefs on the new issues thus raised. *8 In the Matter of Univeraal, et al., No. 3~72-542 (N.D. Cal., June 9, 1972). On May 25, 1972 an involuntary petition in bankruptcy was filed in a federal district court in California against Universal Credit Acceptance Corporation and Universal Credit Associates, Inc. of California, ‘a corporation, d/b/a Continental Credit Card Corporation. (N.D. Cal., 3-72-542) Thereafter, the corporations named in the petition, in addition to each of the corporate respondents in this action and other named corporations consented to an order in which they were adjudicated bankrupt. (N.D. Cal., 3-72-5642, June 9, 1972) 75 1 4 6 1 2 580 2310 70 20 88.053947 Since5 1 4 6 1 3 664 2316 34 14 96.943024 we5 1 4 6 1 4 712 2311 48 19 96.473816 finds 1 4 6 1 5 775 2310 54 21 96.036087 that5 1 4 6 1 6 841 2311 40 20 96.342102 thes 1 4 6 1 7 895 2314 126 21 96.800987 corporate5 1 4 6 1 8 1035 2313 156 23 96.370140 respondents5 1 4 6 1 9 1205 2313 81 20 96.304672 should5 1 4 6 1 10 1303 2316 41 18 96.395508 not5 1 4 6 1 11 1359 2314 28 20 96.764412 be5 1 4 6 1 12 1401 2314 92 24 96.673073 subjects 1 4 6 1 13 1508 2316 24 18 96.541519 to5 1 4 6 1 14 1547 2314 42 21 96.975876 thes 1 4 6 1 15 1603 2314 88 20 96.188126 refunds 1 4 6 1 16 1708 2314 133 23 96.548264 provisions2 1 5 0 0 0 523 2343 1318 63 -1 3 1 5 1 0 0 523 2343 1318 63 -1 4 1 5 1 1 0 523 2343 1318 28 -1 5 1 5 1 1 1 523 2343 27 20 96.799721 of5 1 5 1 1 2 562 2343 41 20 96.409073 thes 1 5 1 1 3 616 2345 67 19 96.685654 orders 1 5 1 1 4 698 2344 98 21 96.354385 because5 1 5 1 1 5 808 2345 56 23 96.127579 they5 1 5 1 1 6 877 2345 60 20 96.674767 have5 1 5 1 1 7 951 2346 57 20 96.040703 been5 1 5 1 1 8 1022 2347 118 22 95.807518 adjudged5 1 5 1 1 9 1154 2347 123 24 96.291580 bankrupt5 1 5 1 1 10 1291 2354 35 14 96.259224 we5 1 5 1 1 11 1339 2349 29 19 96.730385 do5 1 5 1 1 12 1383 2351 42 17 96.497650 not5 1 5 1 1 13 1440 2349 68 19 96.286629 reach5 1 5 1 1 14 1523 2349 42 19 96.905609 thes 1 5 1 1 15 1579 2349 83 19 96.062660 merits5 1 5 1 1 16 1677 2355 27 13 95.520874 or5 1 5 1 1 17 1719 2348 122 20 96.464600 relevance4 1 5 1 2 0 523 2377 1318 29 -1 5 1 5 1 2 1 523 2377 26 21 95.961227 of5 1 5 1 2 2 568 2379 163 22 96.152687 respondents’5 1 5 1 2 3 749 2379 96 20 96.547813 furthers 1 5 1 2 4 862 2380 137 21 96.593552 contentions 1 5 1 2 5 1018 2380 54 21 96.792206 that5 1 5 1 2 6 1089 2382 40 19 96.510216 thes 1 5 1 2 7 1148 2382 87 19 96.723969 refunds 1 5 1 2 8 1253 2382 134 23 96.726318 provisions5 1 5 1 2 9 1405 2383 25 20 96.459305 of5 1 5 1 2 10 1450 2383 40 20 96.290680 thes 1 5 1 2 11 1507 2383 70 20 96.651123 orders 1 5 1 2 12 1596 2389 42 14 95.585732 ares 1 5 1 2 13 1656 2383 185 23 96.196060 inappropriate2 1 6 0 0 0 1375 1950 358 8 -1 3 1 6 1 0 0 1375 1950 358 8 -1 4 1 6 1 1 0 1375 1950 358 8 -1 5 1 6 1 1 1 1375 1950 358 8 95.000000 Opinion 82 F.T.C.

The situation with respect to the individual respondents, however, is not affected by. the bankruptcy. proceeding. Neither of proceeding nor are either of them apparently affected by the bankruptcy adjudication.

The individual respondents are named as defendants in an action which has been brought against all of these respondents and others by the State of California.?* The present status of that state court proceeding is unknown to us. The papers submitted to us indicate that certain of the relief requested in that action appears similar to the provisions of the order before us. However, we are obviously in no position to know whether the California court’will enter any order against these individual respondents nor, if they do, whether such order will include restitutionary relief or some other type of relief which might render restitutionary relief in the instant proceedings unnecessary. Moreover, we do not agree, either as a matter of fact or as a matter of law, that parallel or similar enforcement action by state or local authorities ousts the Commission’s jurisdiction or otherwise renders relief under the Commission’s proceeding unnecessary or improper. The mere filing of an action in another jurisdiction—or even the securing of relief in such an action—would in no way lessen the need for us to ensure effective relief against future violations of the Federal Trade Commission Act irrespective of the relief sought or obtained tq protect the citizens of the State of California. In any event, there is no evidence before us now that the individual respondents have, in fact, disgorged any of the monies which they received from the program. The mere possibility that such an order might be entered is not a sufficient basis to render the need for such relief a moot issue.

Nor does the class action filed against these respondents and the subsequent consent order agreed to in that action affect the proceedings before us, nor render moot the issue of the propriety and need for a refund order against these respondents. Respondent Gingold was not a party to the action and while respondent Heater because the corporate respondents are subject to a class action settlement in which certain franchisees were awarded $3,937,994.67 in damages. Headley v. Continental Credit Card Corporation, No. C-70-457 SW (N.D. Cal., August 10, 1972) Similarly, we need not consider respondents argument that “falny order of restitution against the corporations would be meaningless as the trustee in bankruptcy has not been made a party to the action and would not be bound by any order that would be made.” (R.A. 1) °8 People v. Continental, No. 28930, Superior Court of the State of California In And For The County of Napa (March 13, 1972).

570 Opinion was named as a defendant together with each of the corporate respondents, the consent order and money judgment which was ultimately agreed to by the parties expressly excluded respondent Heater from its terms.?? Thus, neither individual respondent is - ~~subject to:the consent judgment entered in this private class action and hence it cannot affect the issue of the propriety of such an order provision in the instant action.

We conclude, therefore, that insofar as the corporate respondents have been adjudged to be bankrupt, a refund order would be a vain act. We conclude further that insofar as the two individual respondents, Heater and Gingold, are concerned the collateral state and private actions cited to us by respondents have in no way rendered these proceedings moot with respect to them. The sole issue which remains then is whether the factsin the instant case demonstrate any need for the entry of a refund order against either or both of these individual respondents, Heater and Gingold.

C. Necessity For an Order Against the Individual Respondents Respondents’ primary contention is that it is improper to subject either individual respondent to a refund order because neither received income in his individual capacity. Complaint counsel argue that the record supports the liability of both individuals for the acts and practices here found to have violated Section 5 and that it is as essential that effective relief be secured against the individual respondents as it is against the corporate respondents. Respondents argue that respondent Heater should not be subject to the refund provisions in the order because he received no income from the marketing and operation of the program, and alternatively, that he should be excused from the refund previsions on humanitarian grounds. Neither contention has any merit. The law judge found that respondent Heater was the essential author and promoter of the illegal credit card program. He created the corporations through which the program was implemented. He was the sole stockholder of the corporations which were active 2 The only papers submitted which relate to this proceeding is a stipulated amended judument filed on August 10, 1972 in the United States District Court for the Northern District of California in which certain named franchisees and other members of the class received an award of damages of $3,937,994.67. Headley v. Continental Credit Card Corporation, No. C~70-457 SW (N.D. Cal., Auszust 10, 1972) Notices in this action were sent to 641 members of the class. Of these 125 were returned unreceived and 6 elected to be excluded as members of the class.

660 FEDERAL TRADE COMMISSION DECISIONS | Opinion 82 F.T.C.

during the relevant period,*° served as president of both International and Universal for most ofthe relevant period and was -feund by the law judge to have primary responsibility. for establishing, supervising, directing and controlling all of the acts and practices of these corporate respondents. (I.D. 6-7 [p. 585 herein], I.D. 12 [p. 588 herein]) He was in fact the alter ego of these corporate respondents which had no real existence separate from him.

The law judge’s finding that Heater dominated every aspect of the program is fully supported by the record. All member and franchisee complaints were ultimately brought to his attention and were answered in accordance with his directions. (Tr. 154, Tr. 414-415, Tr. 422-423, Tr. 452-455) He took an active role in the preparation of the program’s promotional material and prepared material was submitted for his approval. (CX 234 p. 14, Tr. 707) Additionally, he often acted as an instructor for the franchisees. (CX 234 pp. 1 and 8) His influence in the origination and implementation of this fraudulent scheme was all pervasive. The evidence in the record also establishes that the control | Heater exercised over the corporate respondents extended to matters beyond those relating to the sale and operation of the program. When he stepped down as president of Universal in March, 1971 he was hired to serve as a credit sales consultant for the program receiving a yearly fee of at least $30,000. (Tr. 757) In contrast the individual who assumed Universal’s presidency in March, 1971 received only $15,600 a year. (Tr. 688) While the record does not indicate just what salary or dividends Heater received from the corporate respondents, it doés indicate that he’ — received at least $35,000-in loans from respondent Universal which have not yet been completely repaid. (Tr. 864)*! His relationship to these corporate respondents as owner and virtual alter ego is clearly demonstrated by his statements to Dun and Bradstreet in response to inquiries about the financial condition of Universal. Mr. Heater wrote:

© The stock .of respondent International which became dormant in 1966 was wholly-owned by respondent Heater and his father. (I.D. 3 [p. 584 herein]; Tr. 764) According to the record, respondent Continental has presently no outstanding stock but does not indicate any further information .about Continental’s original stock ownership. (Tr. 758, 772-73) Respondent Universal, therefore, is the sole corporate respondent with outstanding stock which was active during the 1967-1971 period covered by the complaint. Respondent Heater owns all of the outstanding Universal stock. (I.D. 6 [p. 585 herein]) % According to information submitted by Heater to Dun and Bradstreet in 1968 Universal had $83,405 in outstanding notes from officers. (CX 126 B) 570 . Opinion Should there be any question in your mind regarding our operation, it may be helpful for. you to know that Universal Credit Acceptance Corporation is just one of many investments owned by: the undersigned [J. Clifford Heater] and that there are net assets of over a. million dollars available to meet the operating needs of this firm, should any additional sums of money _be Tequired.. (CX 286 A) .

In our judgment, the entire unconscionable scheme which 1 respondents have been found to have been engaged in was the sole creation of respondent Heater. The corporate respondents were simply the means he created in order to carry out this scheme. Some of the corporate respondents have been inactive for some years. The remaining ones have now been adjudged bankrupt. It is respondent Heater whose future conduct must be the concern of this Commission. It is respondent Heater’s conduct which this relief must be designed to effectively restrain if future law violations are to be prevented. It would be a totally vain act for this Commission to enter a refund order here which did not apply to respondent Heater. He has reaped the benefits of this program and it is he who must be required to disgorge these illegal gains illegally acquired and illegally retained. It is our considered judgment that respondent Heater must be bound by each of the order’s provisions.

The remaining consideration with respect to Mr. Heater is whether there is any merit to respondents’ argument, made in reliance upon the Commission’s opinion in Balfour, et al., Dkt. 8435, July 29, 1968 [74 F.T.C. 345,494], that “the charges against John Heater individually be dismissed on humanitarian grounds” because, according to respondents’ brief, “Mr. Heater has acute problems which are exacerbated by litigation and result. in feelings of persecution.” (R.F. p. 2, T.O. pp. 24-26) Subsequent to oral argument, an unsworn letter from a psychiatrist was submitted in support of respondents’ contentions stating that Mr. Heater had been hospitalized on June 19, 1972 at which time he was diagnosed as “Schizophrenic Reaction, acute exacerbation chronic type” which was based on the observation that Mr. Heater “seemed to be entertaining unrealistic ideas both of a grandiose and persecutory nature, and appeared at times to be hallucinating. He manifested a thinking disorder characterized by his inability to pursue a logical train of thought.” When he left the hospital on Opinion 82 F.T.C.

July 31, 1972, this condition according to the psychiatrist had “slightly improved.” ** - In Balfour, the Commission dismissed a complaint with respect — to an 84 year old respondent who suffered several strokes and a heart attack and had not left his home. for several months. Mr. Balfour had been the president and founder of the Balfour Corporation which together with Mr. Balfour had been found to have violated Section 5 by reason of their monopolization of the class ring market and various other distributional and contractual practices which were found to have restrained trade. There was no suggestion in Balfour that the corporate respondents were sham or simply the alter egos of the individual respondent. In consideration of Mr. Balfour’s age and general physical condition, it seemed unlikely under the circumstances that an order against Mr. Balfour was required in the public interest and accordingly, the complaint against Mr. Balfour was dismissed on humanitarian ‘grounds. No such facts exist in the instant case which would demonstrate the unlikelihood that Mr. Heater will not again engage in business or that the public interest will be adequately protected by an order entered simply against the corporate respondents. On the contrary, the facts in this record demonstrate conclusively that the public interest will be disserved tinless the order proposed here is applied to respondent Heater with full force and effect. We do not find that the respondent Gingold wielded any such all pervasive influence and conduct as respondent Heater did over the corporate respondents. While the record evidence respecting respondent Gingold’s knowledge of the program and his participation in its implementation is more than sufficient to support the © law judge’s conclusion as to his individual liability under Section 5, we do not believe that the record is sufficient to demonstrate a need to bind him to a refund order such as we conclude is essential for respondent Heater. Accordingly, we sustain the law judge’s conclusions respecting respondent Gingold’s violation of law in both his individual and corporate capacity as well as the need to bind him to an order. We believe, however, and so conclude, that the public interest does not require that the refund provisions of the order be applied to this respondent. = The only statement in the letter with respect to the scope of Mr. Heater’s disability or its likely duration was the psychiatrist’s suzgestion that “it would be in Mr. Heater’s interest for the hearings to be continued rather than summarily dismissed * * *.” The letter does not specify which hearings are being referred to althourh Mr. Heater’s attorney indicates, that this reference “was not meant to apply to the Federal Trade Commission proceeding.”” (R. F. p. 2) 570 : Opinion Accordingly, we sustain the law judge’s initial decision in its entirety with the exception of the applicability of the refund provisions of the order which shall be confined under the circumstances of this case to respondent Heater. TO we IV. - oe a ._ 4 The Order The law judge entered.an order against the corporate and individual respondents containing provisions which prohibited their engaging in the specific misrepresentations and deceptions which the law judge found they had practiced, directed them to provide future members and franchisees with a seven-day period within which to cancel any application or contract executed by them and obliged respondents to refund any money obtained in violation of the order. These provisions have not been challenged by repondents.** Thus we are concerned on this appeal solely with those features of the law judge’s proposed order which direct respondents to refund illegally retained monies. The law judge’s proposed order defined the category of persons to whom refunds should be made as embracing all actual or prospective members and franchisees from whom respondents had obtained monies during the period from January 1, 1967 to the effective date of this order. The amount of the refund to be made to these persons was to be made up of the monies which each had paid: (1) for air fare or other expenses for a home office interview; (2) for a deposit or downpayment on a franchise; (8) for a franchise fee (with certain monies earned by franchisees as commissions to be deducted); _and (4) for membership fees, membership dues, and members’ discount fees. Respondents were to be required to make the _ designated refunds to all those persons in the defined ‘catégory “who show that respondents’ solicitations, applications, agreements, contracts or performance were attended by or involved any of the practices, including, but not limited to, deceptive nondisclosure, which are now prohibited by this order * * *.” (I.D. p. 70 [p. 641 herein] ) We believe that the form of the refund provision as proposed by the law judge is in some respects inappropriate and in other respects cumbersome:and difficult of implementation. 39 Statement of respondents’ position limiting their arguments before the administrative law judge and on appeal to the Commission is quoted supra note 7 at p. 7 [p. 646 herein]. Opinion 82 F.T.C.

We agree with the law judge that although respondents’ program has been in efféct for a longer period of time-than that covered by the law judge’s proposed provision, it is entirely proper to adopt some more limited period of time for the purposes of defining the monies which should be disgorged by the respondents.

The record indicates that respondents have records of franchisees and members going back to January 1, 1967. During the hearing complaint counsel introduced, without objection, exhibits based on respondents’ business records which separately specified the exact sums of money which respondents received for franchise rights, membership dues and fees and members’ discount fees for the fiscal years ending June 30, 1967 until June 1969. (CXs 122- 124) A similarly uncontested exhibit was placed in the record which lists the person to whom each franchise was sold from January 1, 1967 to October 1969 and the exact amount each paid for their franchise. (CS 190 A-F) Additionally, while no exhibit specifically names each member who made a payment to respondents subsequent to January 1, 1967, it is evident from numerous exhibits that these members comprise a readily definable class and that the sum each is to receive is readily ascertainable.* In light of these facts and the failure of respondents to present any objection to the January 1, 1967 dete as in any way inappropriate, we find that for the purpose of calculating refunds due under the order which shall issue in this matter, the period selected by the law judge is an appropriate and reasonable time span within which to measure the refund and one which is capable-of ready ascertain- ment and compliance.

However, we do not believe that it is necessary to include within the class of persons whose payments shall measure the amount of the refund during this period, those persons who may have paid monies to respondents in the course of applying for membership of franchisee status but who subsequently did not perfect their ™ One of these exhibits was based on copies of business records which were submitted in accordance with a subpoena which had requested information concerning specifically named members. (CX°197 A-H) The exhibit indicates that respondents’ business records list the payments made by each member from at least January 1, 1967. (CXs 197-207) Another exhibit lists the total number of checks or statements sent to members from January, 1968 through October 1969. (CX 191 A-C) Still another exhibit which was introduced to establish the longevity of membership provides a list of randomly selected members who ceased to remain active during 1968. (CX 193 A-E) Finally, one exhibit which was introduced to show the special considerations some retail merchants were given to remain in the program lists each member who joined the program prior to January 1967 and was still active in the program as of October 1969. (CX 192 A-C) 570 Opinion application. Thus we would exclude from the persons to whom refunds will be paid any persons who did not actually become a member or franchisee. We have no doubt that to the extent such . persons may have paid monies to _respondents in.the form of deposits, downpayments or the like, stich monies would be illegally retained by respondents and could be used to measure the refund amount, However, we find nothing in the record which indicates that respondents’ records contain any listing of such persons nor indeed that such persons constitute any significant subset of persons victimized by respondents’ program. A refund order which is not as self-executing and easily implemented as possible could in fact be self-defeating as embracing too many areas of uncertainty as to compliance. Accordingly, our revision of the law judge’s proposed provision limits the class of persons who‘in fact became members of franchisees within this January 1, 1967 period irrespective of the length of time they remained as such. We also agree with the law judge that the monies to be used as a measure of the refund obligation should cover all franchise fees and membership fees, dues and discount fees paid to respondents by those members and franchisees who are listed as having such status during the defined period. We do not believe it is proper, however, to include within this measurement of the fund to be disgorged any monies expended by these .members and franchisees for expenses incurred by them in connection with any home office interviews they may have undertaken. While such expenses might be part of an individual member’s or franchisee’s own damages which he suffered as a result of respondents’ frauds, they are not monies which respondents received from the program and hence cannot be part of any obligation under this order. which seeks. , only to ensure that respondents do not retain that ‘which they procured through their illegal activities. Accordingly, we have modified the proposed refund order provision of the law judge to confine it simply to the funds received by respondents by virtue of payments made for franchise fees and membership fees and dues and members’ discount fees, which in our judgment are all properly subject to the refund provision of the Commission’s order as having been paid to the respondents and retained by them in violation of Section 5.

The law judge’s order also provided that the refund due a franchisee for the amount of money paid to respondents for the franchise fee should be reduced by the commissions he may have Opinion . 82 F.T.C.

earned through the sale of memberships. We do not believe that this provision is either-necessary or appropriate. ~ It is abundantly clear that it is respondents’ retention of monies that is in violation of Section 5. To the extent any funds are illegally retained, the violation persists. In the instant case, this violation is in no way diminished by the fact that a member or franchisee may have incidentally earned any sum of money through his participation in respondents’ fraudulent scheme. Respondents’ violation of Section 5—and hence this refund order provision—is grounded essentially in the virtual worthlessness of their program and on the need to provide this refund remedy in order to redress the competitive imbalance resulting from this scheme and to ensure that respondents will not continue to violate the law in the future. In the instant case, the record is clear that the great bulk of respondents’ franchisees and members in fact suffered substantial losses through their participation in respondents’ program. Indeed this is the basis for the law judge’s findings and conclusions as to the virtual worthlessness and blatant unconscionability of respondents’ program. Thus the possibility that some few members or franchisees might have earned some benefits from the ‘program is irrelevant to the essential purpose of this relief which is to ensure that respondents not retain the benefits which they procured through their illegal and unconscionable practices. To permit the retention of any portion of a payment made for a franchise because respondents, for a short time, successfully duped a franchisee to become an unwitting tool of the fraud would diminish™the effectivenéss of ° the remedy, fail to redress the competitive balance and leave undisturbed the essential law violation engaged in by respondents. Finally, we do not believe that respondents’ disgorging of the monies received from these designated members and franchisees should or need be conditioned in any way on any showing by these persons that their payment of monies to these respondents was in fact occasioned or covered by respondents’ deceptions. It is unlikely that any member or franchisee could have learned—either directly or indirectly—of the program’s existence except through respondents’ deceptive representations. In any event, since the law judge found that respondents’ deceptions inhered in every facet of its promotion and representations about its program, it is totally unnecessary to require respondents’ members or franchisees to duplicate this showing for the purpose of implementing 570 Opinion respondents’ obligation to disgorge the monies it illegally secured from these members and franchisees. Therefore, we have deleted this requirement as well from the refund order provision which we - —are. entering, here. ‘ The remaining consideration before us is ‘the procedure which should be followed. by respondent to carry out this - refund provision. Here again we believe that the law judge’s proposed procedures for accomplishing this objective are unduly cumbersome and involve unnecessary steps. It is important with respect to any remedy and particularly with respect to refund orders that they be so devised as to render them virtually self-executing. It seems unnecessary, given the circumstances of this record, therefore, to require respondents first, to notify the members and franchisees of their right under the order to refunds and then to require such members and franchisees to file claims together with supporting documentation. Under the order as we have revised it, the members and franchisees to whom the refund is to be made as well as the monies to be refunded to them are clearly identified and known. All that is required, therefore, is that the respondent subject to the refund order first compile a list which notes the name and last known address of each member and franchisee entitled to a refund under the order and the amount each is to receive in accordance with the order,. and _then simply mail the appropriate refund to these members and franchisees. It is clear that while we have sought to make the refund provision of this order as self-executing as possible, some questions may arise as to respondent’s compliance with this provision. All such questions must be handled in the first instance under our compliance procedures. Normally factual disputes arising with © respect to compliance are resolved by Commission staff who are charged with the responsibility of ensuring respondent compliance. They conduct a unilateral investigation, reach a conclusion as to whether or not compliance has been carried out and recommend that the Commission institute a civil penalty proceeding if there is reason to believe that full compliance has not been achieved. We believe that these procedures are entirely appropriate to apply to this refund provision in order to ascertain the facts respecting respondent’s compliance with this provision. However, to ensure a full and fair hearing as to any dispute under these refund provisions, the order which shall issue in this matter provides respondent Heater with certain additional rights in the event . Opinion 82 F.T.C.

that questions are raised with respect to respondent Heater’s compliance with the refiind provision.

If it appears that respondent Heater cannot comply with the refund provisions of this order because of inadequate refunds, we have provided for a special procedure to enable respondent Heater to bring all relevant facts concerning his ability to pay before the Commission so that it can make such modification of its order as may appear appropriate in the circumstances. If on the other hand, questions arise respecting the amount of monies received by respondents during the designated period, or the identity of the members and franchisees whose-payments shall measure the amount of the refund or any other matter involved in respondent Heater’s compliance with this refund provision, which cannot be resolved in the course of compliance, we have provided in our order that before any civil penalty proceedings are instituted, respondent Heater shall be notified of staff’s conclusion that he is not in compliance. The order further provides that 30 days after receiving such notice respondent Heater shall have an opportunity before civil penalty proceedings are instituted to petition the Commission for such modification of the order as he may contend is warranted by the facts together with whatever supporting documentation he may wish to present as to why he is not in violation of the order. The Commission, on receipt of such petition, may modify the order, set the case down for a hearing before itself or a law judge or take such action as may be warranted in the circumstances. Such action by the Commission shall be in the form of an order which will bé reviewable. By these” ~ procedures, the respondents’ rights will be fully protected and the Commission will retain control over the proceedings so that it can make any modifications in the order which unforeseen circumstances may indicate are necessary. CONCLUSION The initial decision and the additional findings of fact proposed by complaint counsel which are to be found in their initial appeal brief (C.C.B. pp. 6-25) are adopted as the decision of the Commission.

The administrative law judge’s order is modified in accordance with the specifications set forth in this opinion. An appropriate order will be entered.

UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. ovuy 570 Final Order FINAL ORDER “This matter having been heard by the Commission upon the appeals from the initial decision of: respondents: and complaint counsel, and upon briefs and oral argument in support thereof and in opposition thereto; and The Commission having concluded that on this record and the facts and circumstances set forth therein that the appeals should be granted in part and denied in part;

It is ordered:

(1) That the initial decision and the additional findings of fact proposed by complaint counsel as set forth in the appeal brief of counsel supporting the complaint at pages 6:through 25 be, and they hereby are, adopted as the decision of Commission in accordance with the accompanying opinion; (2) That the order contained in the initial decision being adopted in part and rejected in part by the Commission as set forth in the accompanying opinion, the following order be, and it hereby is, the order of the Commission: It is ordered, That respondents Universal Credit Acceptance Corporation, Continental Credit Card Corporation, International Credit Card Corporation, also trading-as National Credit Service, corporations, and their officers, and John Clifford Heater, individually and as an officer of Universal Credit Acceptance Corporation and International Credit Card Corporation, and Howard P. Gingold, individually and as an officer of Continental Credit Card Corporation, and respondents’ franchisees, agents, representatives, porate or other device, in connection with the advertising; offering for sale or sale of franchises or credit card services, or any other products or services, or in the operation of any credit card service or other business in commerce, as “commerce” is defined in the Federal Trade Commission Act, do forthwith cease and desist from directly or by implication:

1. (A) Representing that franchisees will earn or can reasonably expect to earn or receive any stated or gross or net amount of earnings or profits; or representing, in any manner, the past earnings of franchisees unless in fact the past earnings represented are those of a substantial number of franchisees in the geographical area about which such representations are made and accurately reflect the average Final Order 82 F.T.C.

earnings of said franchisees under circumstances similar to those of the person to whom the representation is made. (B) Representing that franchisees can expect to remain - *active franchisees for many years; or representing, in any Fy manner, the longevity or tenure of past or existing franchisees unless in fact the periods of time represented are those for which a substantial number of franchisees actively pursued membership sales efforts.

(C) Selling, or offering franchises for sale, in any manner, without disclosing clearly and conspicuously in writing at or before the time of the first oral sales presentation, or in the event no oral sales presentation is made, reasonably prior to the execution of a franchise application, agreement or contract:

(i) the median and mean gross earnings from the sale of memberships in respondents’ program by franchisees in the most recent calendar year (who were active for the entire year) preceding the year in which such sale or offer is made;

(ii) the total number of franchisees in the most recent calendar year preceding the year in which the sale or offer is made;

(iii) the total number of franchisees in subparagraph ’ (ii) above who had earnings from the sale of memberships during the designated year in the following dollar . amounts: See ee a a. $1,000 or less b. over $1,000 but not over $5,000 c. over $5,000 but not over $10,000 d. over $10,000 but not over $20,000 e. over $20,000 (iv) the number of franchisees referred to in subparagraph (ii) above who sold memberships for the following periods of time:

1 year or less over 1 year but not over 2 years over 2 years but not over 3 years over 3 years but not over 4 years over 4 years ora se “570 UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 671 Final Order ~(v) the total number of members ‘submitting credit co aharges i in respondents’ program during the most recent calendar year preceding the year in which the sale or offer is made;

(vi) the number of members referred to in subparagraph. (v). above who submitted . credit charges. under respondents’ program for the following periods of time:

_1 year or less over 1 year but not over 2 years over 2 years but not over 3 years © over 3 years but not over 4 years over 4 years I a Sa _ (vii) the percentage of credit charges recoursed to members during the most recent calendar year and the full number and nature of reasons for which respondents may recourse charges;

(viii) the name and current address of each: of re- . spondents’ franchisees in the most recent calendar year preceding the year in which such sale or offer is made; (ix) a financial statement reflecting respondents’ as- sets and liabilities (stating separately fixed assets and liquid assets) for the most recent calendar year; (D) Selling, or offering memberships for sale, in any manner, without disclosing clearly and conspicuously in writing at or before the time of the first oral sales presenta-tion, or in the event no oral sales presentation is made, reasonably prior to the execution of any application, agreement or contract:

(i) the percentage of credit charges recoursed . to members during the most recent calendar year preceding _ the year in which the sale or offer is made and the full number and nature of reasons for which respondents may recourse charges;

(ii) the total number of members submitting credit charges in respondents’ program during the most recent calendar year preceding the year in which the sale or offer is made;

~ Provided, however, That in the event respondents operated .or cee used any corporate or trade name for a period of less than five oe Final Order RTC.

7 Gil) ‘the ninaber’ of ‘members. referred to. in: ( subpara- : ~. graph (ii) above’ who: Participated for: the: following 8 -periods of timer 1 year or less over 1 year but not over 2-years over 2 years but not over 3 years “over 8 years but not over 4 years e.. over 4 years Bop (iv) a financial statement reflecting respondents’ as-sets and liabilities (stating separately fixed assets and) © liquid assets) for the most recent calendar year. years, the disclosures called for in this paragraph shall reflect. the operations of the last preceding business entity used by respondents to sell and administer franchises and memberships. 2. Selling, or offering franchises for sale, in any manner, without furnishing. to each prospective purchaser reasonably. prior to the execution of a franchise application or agreement, a copy of the Federal Trade Commission Consumer Bulletin No. 4, “ADVICE FOR PERSONS WHO ARE CONSIDER- ING AN INVESTMENT IN A FRANCHISE BUSINESS.” 3. (A) Representing that persons do not risk any loss of money in coming to respondents’ offices, or any other place, for a franchise interview, or that respondents authorize the reimbursement of air fare expenses for such interviews, without disclosing clearly and conspicuously in writing prior the expenditure of any funds by such persons, all conditions which must be met to receive reimbursement, including the . exact amount of any deposit or downpayment required. (B) Failing to reimburse travel expenses to any person respondents have promised such reimbursement. 4. Representing that persons do not risk losing the deposits or downpayments submitted with applications for franchises ; or that such deposits or downpayments are refundable when such deposits or downpayments may be forfeited if the applicants withdraw or fail to pay the balance due after acceptance of their applications by respondents, or for’ any © other reason;

A UNIVERSAL CRLUIT ACULPLANUL CURP., WY AL. Vio Final Order Provided, however, That respondents may make such representations if they do in fact refund such deposits. - 5. Misrepresenting that any geographical area offered as a “franchise has not been préviously franchised by respondents or misrepresenting that such area has been franchised before by respondents and was profitable for the prior franchise holder.

6. Misrepresenting that respondents have a franchise committee which actually checks the qualifications of prospective franchisees, or misrepresenting, in any manner, that respondents check, or have checked the qualifications of a prospective franchisee.

7. Misrepresenting that respondents have a regional manager who will interview, or has interviewed, prospective franchisees for a particular geographical area; or that respondents have applications pending for a particular area; or that any person must act immediately to be considered for a franchise; or misrepresenting, in any manner, the nature and extent of interest of others in any particular franchise, or franchises in general.

8. Representing that franchise holders receive substantial benefits from renewals of memberships or from annual bonuses based on a percentage of net credit charges submitted by members; or representing, in any manner, benefits to franchisees which are dependent upon the actions of members, unless the benefits represented are those received by a substantial number of franchise holders. 9. (A) Representing that persons risk losing ‘little or nothing in investing in a franchise; or that respondents will repurchase any franchise.

(B) Representing that respondents will aid or assist in the resale of franchises without contemporaneously, clearly and conspicuously disclosing the nature of such assistance and the amount of the resale purchase price which respondents will retain.

~(C) Represénting that respondents’ franchises are vested property rights which may be sold, assigned, transferred or testated, without contemporaneously, clearly and conspicuously disclosing that franchises are subject to termination by Final Order 82 F.T.C.

respondents if a franchise-holder does not produce a prescribed sales quota.

10. Representing, in any manner, that respondents’ program has received national acceptance, or that respondents’ program can be sold with ease; or misrepresenting in any manner, the salability or degree of acceptance or approval of respondents’ program.

11. (A) Representing that credit charges submitted under respondents’ program are guaranteed payable or are payable without recourse; or that respondents assume the risk of nonpayment by members’ customers in any manner including, but not limited to, using the terms “we honor all approved major credit cards,” “honor all credit cards,” “non-recourse,” “without recourse” or any other terms or words of similar import or meaning.

(B) Representing that all members can expect to be successful or satisfied with the performance of respondents’ program; or that members usually continue using respondents’ program for two years and-renew their contracts thereafter. 12. Using or disseminating any article written or prepared by respondents and published substantially verbatim in any newspaper, magazine, or other publication. 18. Using any letter, payment check, or other materials which purport to represent the satisfaction or success of, any _ franchisee or member unless, a , (A) such franchisee or member is actively selling or using respondents’ program or service at the time such letter, payment check, or other materials are used: (B) the full name and current address of the franchisee or member and the existence of any remuneration are disclosed clearly and conspicuously in conjunction with the use of such letter, payment check or other materials;

Provided however, That respondents shall not obtain or use any such letter, payment check or other material relating to any franchisee or member who has not sold or participated in respondents’ program or service for at least six (6) months. 14. Representing that respondents’ program costs members little or nothing at all; or that the program costs members UNIVERSAL CREDIT ACCEP'LANUB UCUnr., pa Au. vee Final Order half as much as trading stamps; or misrepresenting, in any ‘manner, the cost of respondents’ program to members. 15. Representing that members complete just one simple form for all credit chargés; or misrepresenting, in any. manner, the procedures necessary to process credit charges and receive payment therefor; or failing to disclose contemporaneously, clearly and conspicuously any and all reasons which will preclude receipt of full payment of credit charges submitted by members.

16. Representing that members receive payment for each credit charge submitted to respondents in 30 days; or misrepresenting, in any manner, the period of time in which members will receive payment for credit charges submitted to respondents.

17. Failing to disclose clearly and conspicuously that respondents’ program or service is not approved or endorsed by the individual issuers of the credit cards approved by respondents.

18. Representing that members are assured or can achieve a minimum 10 percent or any other percentage or amount of increase in business using respondents’ program, without disclosing the number of members who have actually received said increase and offering to identify such members on request, and without maintaining verified statements from said members that they have received said increases. 19. (A) Using the name Fair Trade Bureau or any other name which represents that respondents’. operations and _ activities have been endorsed by any independent or governmental organization.

(B) Writing, preparing, or disseminating any Better Business Bureau reports concerning respondents’ business. 20. (A) Representing that every credit charge submitted by members is subject to the most intensive collection procedure in the credit industry; or misrepresenting, in any manner, the intensity or nature of respondents’ collection activities.

(B) Using the name North American Collections or any other trade name or collection agency similarly related to respondents without disclosing contemporaneously, clearly Final Order 82 F.T.C.

and conspicuously. that. such -name or agency is owned, operated or controlled by respondents.

21. Representing that respondents wil] institute legal action against inactive members whose accounts respondents claim are in arrears, unless respondents do intend to pursue such remedies and have in practice pursued such remedies against substantial number of members.

22. Furnishing, or otherwise placing in the hands of others, the means or instrumentalities by or through which the public may be misled or deceived in the manner or as*to the things prohibited by this order.

It is further ordered, That respondents incident to selling their franchises and credit card services:

a. Inform orally all persons to whom solicitations are made and provide in writing in all applications and contracts in at least ten-point bold type that the application or contract may be cancelled for any reason by notification to respondents in writing within seven days from the date of execution. _b. Refund immediately al menies to (1) all persons who have requested cancellation of the application or contract within seven days from the execution thereof, and (2) all persons who paid any monies for franchise fees, deposits or downpayments on franchises, air fare or other expenses for a home office interview, and for membership fees, membership dues and discount fees, who show that: any .of. respondents’ solicitations, applications, contracts or performance were attended by or involved any violation of any of the provisions of this order.

It is further ordered, That respondent John Clifford Heater shall:

a. Within thirty (30) days from the effective date of this order, compile a list which shall name each franchisee and member from whom respondents obtained any monies during the period from and including January 1, 1967, to the effective date of this order, state the last known address of each such member or franchisee, note the length of time each remained as such member or franchisee and specify all franchisee fees and all membership fees, dues and members’ discount fees paid by each such member or franchisee to any of the respondents named in the complaint.

570 Final Order b. Within 90 days of the effective date of this order, refund by certified check or money order to each franchisee and member listed in accordance with subsection (a) of this order _—>-...,provision all franchise fees and all membership fees and dues and members’ discount fees paid by each such member or franchisee to any of the respondents named in the complaint. Refunds shall be made via registered mail with return receipt requested and shall be accompanied by a brief statement substantially similar to that shown in Appendix A which shall inform the persons receiving refunds of the basis of the payment.

ce. Hold any undelivered refund payments for a period of — 180 days from the date of the first registered letter mailing and if the payment cannot be made to such addressee after due diligence within such period the obligation to refund shall expire.

Provided, however, d. If respondent Heater claims not to have adequate funds to comply with this order provision, he may within 60 days of the effective date of this order petition the Commission to reopen the proceedings to consider his claim. The petition shall set forth the list of members and franchisees to whom refunds are due under this order and the sum of money each such member or franchisee is to receive in accordance with this order, a notarized statement of his assets and liabilities together with the assets and liabilities of all corporations in which he is an officer or stockholder.

Upon receipt of this petition and any response thereto which complaint counsel wishes to make, the Commission. will assign an administrative law judge for the purpose of making findings and recommendations with respect to the claim. The administrative law judge shall furnish petitioner with the Commission’s Statement of Financial Status (F.T.C. Operating Manual Chapter 6, Illustration 20, Paragraph 6.19), shall require its prompt execution and may conduct such interrogations of the petitioner or require the production of such documents as he deems necessary in order to make findings and recommendations as to any modification of this order which may be warranted on the issues raised by petitioner’s claim. The findings and recommendations will be reported to the Commission for a final determination. Final Order 82 F.T.C.

; e. If any dispute arises as to the compliance of respondent - * Heater with the refund provision of this order which cannot be satisfactorily resolved by the parties, notice shall be given to respondent Heater of the extent to which he is regarded not to be in compliance and the facts respecting such alleged non-compliance. Within 30 days after the receipt of such notice of non-compliance, respondent Heater may petition the Commission. for a hearing on such non-compliance or for a modification of the order provision giving rise to the disputed compliance or for such other relief as he believes is warranted and the Commission may set the matter down for hearing before itself or before an administrative law judge or shall either grant or deny such petition by order formally entered in the same manner and form as if it were an original order of this Commission.

It is further ordered, That respondent Heater shall maintain adequate records, to be furnished upon request by the Federal Trade Commission, which disclose the manner and dates members and franchisees entitled to refunds under this order have received refunds or the reasons such members or franchisees have not received refunds.

It is further ordered, That the respondents shall forthwith deliver a copy of this order to cease and desist to all present and future salesmen and franchisees or other persons engaged in the sale of respondents’ franchises and services, and secure from each such salesman, franchisee or person a signed.-statement. acknowledging receipt of said order.

It is further ordered, That the respondent corporations shall forthwith distribute a copy of this order to each of their operating divisions.

It is further ordered, That the respondents notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment or sale resulting inthe emergence of a successor corporation, the creation or dissolution of subsidiaries or any other change in the corporation which may affect compliance obligations arising out of the order.

It is further ordered, That each of the respondents herein shall, within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail 570 Final Order the manner and form in which they have complied with all of the provisions of this order. The report which respondent Heater shall file within sixty (60) days after service upon him of this order - shall include the list he is to compile in accordance with subsection (a) of the provision of this order requiring him to refund certain monies to named members and franchisees. Thereafter, respondent Heater shall, within two hundred ten (210) days after service . upon him of this order, file with the Commission a second report in writing, setting forth in detail the manner and form in which he has complied with this refund order.

Chairman Kirkpatrick not participating. Commissioner Mac- Intyre concurred in the result, including the restitution provision since fraud is found to have been involved here. - APPENDIX A Important Notice By order of the Federal Trade Commission I have been directed to refund any fees or dues or discount fees which you paid to me or to Universal Credit Acceptance Corporation, Continental Credit Card Corporation or International Credit Card Corporation to participate in my Honor All Credit Card-Program. You are entitled toa refund of _. . for (1) Payments for a Franchise; or (2) Payments for membership dues or fees or discount fees. I am enclosing a check for the amount of $__.. — 00 which my records show is the amount you paid to participate in the © * Honor All Credit Card Program.

(signed) ss”

John Clifford Heater FINDINGS OF FACT PROPOSED BY COMPLAINT COUNSEL AS SET FORTH IN THE APPEAL BRIEF OF COUNSEL SUPPORTING THE COMPLAINT AT PAGES 6 THROUGH 25 ADOPTED BY THE COMMISSION IN ACCORDANCE WITH THE OPINION OF THE COMMISSION AND FINAL ORDER Final Order 82 F.T.C.

Ill ~~ ARGUMENT The Hearing Examiner Erred In Failing To Make Several Findings Of Fact Supportive Of Related Order Provisions. 1. The Hearing Examiner Erred In Failing To Find That Respondents Fail To Disclose To Prospective Members Relevant Information, Which Would Assist Such Prospects In Evaluating The Probabilities Of Their Success And Chances of Achieving Longevity As Members, And Which Would Lessen The Potential For Their Deception, Including: The Median And Mean Period Of Time That Members Associated With Respondents’ Program During The Previous Calendar Or Fiscal Year Submitted Payment Vouchers For Credit Charges Using The Program; The Number of Such Members Submitting Said Payment Vouchers Each Month; The Rate Or Degree Of Recoursing Credit Charges Back To Members During The Previous Calendar Or Fiscal Year; And, The Full Number And Nature Of Reasons For Which Respondents Recourse Charges. [CPF, pp. 50-51; see also I.D., p..61 [p. 636 herein], Order provisions (1) (D). (i-iii)]. The hearing examiner did find that the foregoing disclosures were relevant and necessary for purposes of apprising prospective franchisees of material facts (I.D., pp. 20-21 [pp. 600-01 herein] ). The order contains requirements for such disclosures to both franchisees and members (Order provisions 1 [C] [v—viii] and 1 [D] [i-iii]). Clearly, the record warrants the expressed finding upon which the order provision is predicated requiring the relevant disclosures to prospective members. The record contains the full instructions provided by respondents regarding the presentation to be made to potential member prospects by both franchisees and home office membership salesmen, namely the “sales presentation” manuals (CX 130 and CX 180) and the sales kit that contains the testimonial letters, payment checks, and other promotional claims (CX 179A~Z88). These instructions, manuals and kits do not contain the material facts referred to above. .

2. The Hearing Examiner Erred In Failing To Find That Respondents Represented That Articles Used To Solicit Sales Of Franchises And Memberships Are Unsolicited And Impartial Accounts About Respondents’ Program. [CPF, p. 51; see also I.D., p. 65 [p. 689 herein], Order provision (12) ]. 570 Final Order The basic means by which this representation is made is the dissemination both directly and in sales kit form of reproductions or reprints of articles from newspapers, trade journals, and - ~magazines .(CX 110-119; CX 179 N-T, CX 179Z40 and CX 179Z51) . In’ addition to the obvious capacity of purported reprints to connote a normal journalistic work product, the fact that these articles have been received as objective, unsolicited journalistic accounts is confirmed by witnesses (Davidson, Tr. 266-7; Colfels, Tr. 509-510).

3. The Hearing Examiner Erred In Failing To Find That In Truth And In Fact, Articles Used to Solicit Sales Of Franchises And Memberships Are Not Unsolicited And Impartial Accounts About Respondents’ Program; And That Such Accounts, For The Most Part, Are Prepared And Placed By Representativés Of Respondents. [CPF, p. 51; see also I.D., p. 65 [p. 639 herein], Order provision (12) ].

Respondents’ Answer, p. 4, admits that “some” articles are prepared by representatives of respondents. At least ten such “articles” have been used to solicit memberships (CXs 110 through 119). Each of these articles was prepared by Leonard Snyder, who was employed by Universal Credit Acceptance Corporation for approximately 18 months as a public relations man. His testimony is that: “As a public relations man, it was my job to write articles which were partial and I did. Also, at Mr. Heater’s behest, I solicited the publication of these articles in various periodicals, and successfully placed a number of them’’ (CX 234 at p. 14).

The record also indicates that six of the above-mentioned “articles” are contained in the respondents’ sales. kit (CX 179 N-T; CX 179240, CX 179Z51). In the case of CX 179Z51, a reprint of the “Photographic Trade News” contains what appears to be the result of an interview with a.member, Brooks Cameras. It is apparent that what appears in said reprint comes from a so-called testimonial letter from Brooks Cameras also appearing in the sales kit (CX 179Z50). Said letter, according to the stipulated testimony of Joseph Dee of Brooks Cameras, was written for his signature by a representative of respondents, and because of the nature in which it was presented, Mr. Dee felt “constrained’”’ to sign the letter, which was typed on a blank sheet of paper rather than on the stationery bearing the Brooks letterhead as it ultimately appears in the sales kit. The subsequent appearance of a Final Order 82 F.T.C.

said letter with the Brooks letterhead was accomplished without Deé’s knowledge or consent: He was not interviewed by the Photographic Trade News nor did he participate in any way in placing the item (CX 234 at p. 8).

Additional evidence indicating that articles used by respondents are not unsolicited and impartial is revealed by the testimony of Leonard Lynema. As a franchisee, early in his tenure, Lynema. received what purported to be a ‘newspaper article,” including a dateline, in which respondents’ program was praised and in which Mr. Lynema was quoted (CX 164 A-D). Mr. Lynema explained that this article entitled “Credit Cards are a Boon to Insurance” was sent to him by respondent Heater’s representative, requesting that Lynema sign it. In fact, Mr. Lynema refused to sign the article (Lynema, Tr. 623-5). Despite his refusal in September 1968, such an article made its way into print on February 20, 1969 in “Underwriter’s Report,” wherein the quoted statements are those of respondent Heater instead of Leonard Lynema’s (CX 116).

4. The Hearing Examiner Erred In Failing To Find That Respondents Represented That Letters And Payment Checks Used To Attest To The Success Of Respondents’ Program Are Representative, Typical, And Current, And That Such Letters And Checks Reflect An Unbiased Evaluation. [CPF, p. 52; see also I.D., pp. 65-66 [p. 639 herein], Order provision (13) ]. The letters and payment checks referred. to are those appearing in the sales kit used by franchise salesmen to sell franchises and by franchisees and home office membership salesmen to sell memberships (CX 179Z7-37; CX 179Z41-50, CX 179Z52-60, CX 179Z63-65). In the “sales presentation” manuals containing the instructions and sample sales dialogue to be used in conjunction with the sales kit referred to, the following appears: Very shortly I am going to show you testimonial letters from business firms who are affiliated with us * * * (CX 180D and 180V-—Z6) (emphasis added) ;

SECTION Vu: MEMBER SUCCESS LETTERS (RESULTS): (Success letters) ; * * El Rancho Bijou * * * Motel California * * * S & D. Richfield * * * Muffler Sales and Service * * * Midas Muffler * * * Ferre & Sons * * * Brodie & Schwerin * * * Jewel Box * * * Tomahawk Trading Post * * * Mam’selle * * * Misc. Success Letters * * * (CX 130 at pages 11-18).

UNIVERSAL CREDI'T ACCEP’TANCE CORP., E'VT AL. 0d0 570 Final Order The payment checks (CX 17927-18) are preceded by the following notation in bold-face letters: “checks to business firms from coast to coast—both large and small—confirm the profitabil- ~~ itys-and. acceptance of this -business -& sales program!” Said “confirmation” is stated in the present tense. Thus, there is the tendency and capacity to deceive persons into believing that the persons to whom the checks are written are all current users of the program. The section in CX 179 containing the so-called testimonial letters of merchants is preceded by a page containing the statement, ‘“Here’s what both large and small merchants are saying about * * * honoring all credit cards!” Accordingly, the capacity to deceive is again apparent from the statement that merchants “are saying” the statements contained in the-letters that follow at CX 179Z26-~37, CX 179Z41-50, CX 179Z52-60, and CX 179Z63-65, as long as such letters remain in the sales kit. The weight and importance given such statements may vary with the reader, but it is clear that the capacity to deceive exists through these “testimonial” letters, some of which date back to 1959, 1960, and 1961, because said letters appear to be from merchants who were still using the program in 1971, ten to twelve years later. Respondent Gingold confirmed the continuing use of such testimonials in the sales presentations to prospective franchisees as well as prospective members (Gingold, ‘Tr. 742-3). 5. The Hearing Examiner Erred In Failing To Find That In Truth And In Fact, In Many Instances, Letters And Payment Checks Used To Attest To The Success Of Respondents’ Program Are Unrepresentative And Atypical, And Are From Franchisees And/Or Members Who Are No Longer Active With The Program; That Many Of Such Letters And Checks Do Not Reflect “An - Unbiased Evaluation of Respondents’ Program; And That Respondents Fail To Disclose That Many Testimonial Letters Have Been Prepared By Representatives Of Respondents And Many Are _ From Persons Who Received Remuneration Or Other Beneficial Consideration From Respondents, So As To Mislead And Deceive Prospective Franchisees And Members With Respect Thereto. (CPF, p. 54, see also I.D., pp. 65-66 [p. 639 herein], Order provision (13) ].

(a) Testimonial Letter S Many members whose letters appear in respondents’ sales kit (CX 179) discontinued using the program subsequent to writing Final Order 82 F.T.C.

the, testimonial letters, after, discovering that the program had been grossly misrepresented and after becoming totally dissatisfied with it. Joseph Dee, of Brooks Cameras (whose testimonial letter appears at CX 179Z50) stopped participating in the program in May 1968, after signing the letter dated January 18, 1968 (CX 234 at p. 8). Morris Reznik, whose testimonial letter appears at CX 179Z48, dropped the program and has not used it since 1964 (CX 234 at p. 9). Morton Leeper, whose testimonial letter appears at CX 179Z37, stopped using the program after about 6 months, and has not used it since 1961 (CX 234 at p. 9-10). Leland McBride’s testimonial letter (CX 179Z54) was given because ‘he was promised that his $10 per month dues would be waived for the balance of his contract period if: he would.write such a letter. He rescinded his testimonial within about 45 days after submitting it (CX 218-224, CX 234 at p. 7), but that did not give the respondents the slightest compulsion to stop using it. F. G. Ferre, Jr., whose testimonial letter appears at CX 179Z35, signed a letter prepared for him by the franchisee who sold him the program (he did so as a favor because the franchisee’s brother worked for him) (CX 234° at p. 8). Thereafter, in. less than one year, Ferre discontinued the program because of misrepresentations and his dissatisfaction with the program.

All of the foregoing testimonial letters were still in use in respondents’ sales kit issued November 1969, and were still in use as of the time of the hearing (Gingold, Tr. 741-8). Franchisee Leonard Lynema personally contaected-the businésses: - whose names appeared as satisfied users of the program in the company material he was given. He testified that “some claimed that those letters were forged because they did not write them” and “some claimed that they had sent the letter out but were sorry they ever did; but all of them that had any knowledge of the credit card business, every last one, was very, very upset and were perturbed to say the least, and every one of them claimed that they had lost alk kinds of money” (Lynema, Tr. 6294-630). Similarly, a franchise investor in Wisconsin testified that “we * * * contacted some of these people in the state and found that they were only members for a short period of time and were, in fact, not satisfied. In fact, these letters in most cases were written a day or so after they became members, just as a favor to John Cadwell [the prior franchisee]” (Tronea, Tr. 655). UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. bso 570 Final Order It is company policy to obtain success letters early in a member’s tenure (Fish, Tr. 132-3). By definition, “representative” and _ _ “typical” connote the average experience of a large group. Since the average-longevity of respondents’ members is 8 to 9 months at best (Fish, Tr. 123-4; CX 193 A-E), letters obtained from any member soon after he buys a membership and before he learns of its real nature cannot be said. to be representative or typical. Furthermore, any such so-called success letters are unrepresentative and atypical, in view of the frequency of member complaints and turn-over. The norm is dissatisfaction and failure with. the program (Fish, Tr. 92-8, 97~8, 122).

Respondents’ only explanation for the use of outdated testimonials—that they were allegedly valid when written— (Heater, Tr. 875-6), is clearly not legal justification for their continued use once they became obsolete.

(b) Payment Checks Photocopies of 46 payment checks representing payment to members appear in respondents’ sales kit to demonstrate the volume and activity of members using the program (CX 179Z7— 18). Said sales kit was issued in November 1969 and it was still in use up to and including the time of the hearing in November 1971. Yet respondents admit that 42 of said members last submitted credit charges before 1969 (CX 194A-E, CX 197D_F, CX 198B). In fact, 26 of the members last submitted credit charges under respondents’ program as far back as 1965 and 1966 (ibid). (c) Use of Bias and Deceptive Non-disclosures Many letters appear in respondents’ sales kit which have been prepared, written or reviewed by respondents’ salesmen.or.fran- chisees (Ferre, CX 234 at p. 8; Dee, CX 234 at p. 8; McBride, CX 218-224, CX 234 at p. 7). Therefore, the contents of said letters are obviously biased. Also, the many payment checks used do not reflect an unbiased evaluation because such checks are obviously chosen by respondents to reflect large amounts of money being remitted to members. The average amount of the 57 payment checks displayed by respondents is $2,500 (CX 179Z7-18). In fact, the average member actually submits only $200 to $235 per month (Fish, Tr. 126-7; CX 122, CX 191 A-B)!? Therefore, the checks 7 CX 122 reflects that $135,693 is the income from credit charge discounts for the year ended June 1969. Since this represents 6 percent of the total charye volume, the total for the year is $2,261,550: divided by 12, the averave is $188,462.50 per month from all members. a Final Order 82 F.T.C.

used in the sales kit, averaging $2,500 each, do not reflect an accurate picture of members’ charge volume. As for the remuneration or other beneficial consideration to members who wrote testimonial letters, there has already been a reference to McBride, who wrote a testimonial letter so as to benefit from the offer of respondents to waive his monthly dues (CX 234 at p. 7, CX 221, CX 179Z54). Also, Harold Forkas continued to be charged only a 5 percent discount rate under his membership when it was renewed rather than raising the discount rate to 6 percent (CX 179Z59, CX 207 A-C). The Brodie and Schwerin membership was not charged $10 per month dues when its contract was renewed in 1965; it was not charged a $240 membership fee when it renewed again in 1967; and it paid only a 5 percent discount throughout its membership (CX 179Z41, CX 198 A-H).

Respondent Heater characterized the California Motel and/or the Proctor Motel as the longest-lasting members he has had in. his program (Heater, Tr. 853), and the sales kit contains testimonial letters from both (CX 179Z31, CX 179Z29). The member account cards maintained by respondents or the California Motel (CX 203 A-L) reveal that this motel pays no membership fee, only $6 per -month dues and a 5 percent discount on charges submitted, whereas current members pay a $240 membership fee, $10 per month dues and a 6 percent discount rate on charges submitted. Further special considerations are apparently conveyed to this member, judging from the way respondents” staff-is- cautioned to treat the account: “Do Not Send A Statement On This Account At Any Time” (CX 208 I).* The Proctor Motel membership, similarly, pays no membership fees, only $6.00 per month dues, and a 5 percent discount rate, and the member account card bears the notation: “Do Not Send A Statement On This Account At Any Time” (CX 192B).

Respondent Heater admitted that once testimonial letters are obtained and they are built into the “sales presentation” manual (CX 130), they continue to be used notwithstanding the fact that they may subsequently become obsolete (Heater, Tr. 874-6). He CX 191A-B reflects that the average number of members active in terms of receiving checks or statements from respondents each month for the year July 1968-June 1969 was 803. Therefore, $188,462.50 divided by 803 equals $234.70 total charzes per month per member. Ordinarily,5 1 7 2 1 2 889 2534 20 19 95.818687 if5 1 7 2 1 3 925 2541 13 13 91.823807 a5 1 7 2 1 4 955 2536 123 19 64.547211 member’s5 1 7 2 1 5 1095 2536 98 21 6.860130 charsres5 1 7 2 1 6 1210 2543 41 13 96.467224 ares 1 7 2 1 7 1267 2539 40 18 96.540794 not5 1 7 2 1 8 1323 2538 23 18 96.367073 in5 1 7 2 1 9 1364 2544 79 13 96.622948 excess5 1 7 2 1 10 1459 2539 26 18 95.980949 of5 1 7 2 1 11 1501 2539 35 19 95.980949 his5 1 7 2 1 12 1554 2539 105 22 95.693001 monthly5 1 7 2 1 13 1676 2539 57 20 96.368584 dues5 1 7 2 1 14 1751 2540 51 22 96.559792 plus5 1 7 2 1 15 1819 2540 40 19 96.417824 thes 1 7 2 1 16 1876 2541 11 18 96.417824 65 1 7 2 1 17 1906 2542 97 21 96.465019 percent4 1 7 2 2 0 682 2566 1320 29 -1 5 1 7 2 2 1 682 2566 108 21 93.080315 discounts 1 7 2 2 2 807 2568 46 19 96.099739 ands 1 7 2 2 3 871 2575 47 15 95.051437 any5 1 7 2 2 4 937 2575 127 17 96.005302 recourses,5 1 7 2 2 5 1084 2570 28 20 95.643700 he5 1 7 2 2 6 1129 2572 74 18 95.643700 would5 1 7 2 2 7 1221 2578 50 12 93.843880 owes 1 7 2 2 8 1290 2572 155 22 93.843880 respondents5 1 7 2 2 9 1464 2580 90 15 96.718323 money,5 1 7 2 2 10 1574 2574 39 18 96.592583 for5 1 7 2 2 11 1633 2574 75 19 96.142601 which5 1 7 2 2 12 1729 2574 28 19 96.142601 he5 1 7 2 2 13 1776 2575 74 18 93.706963 would5 1 7 2 2 14 1870 2575 28 19 93.582619 be5 1 7 2 2 15 1917 2577 54 17 95.226059 sents 1 7 2 2 16 1989 2582 13 12 95.848808 a4 1 7 2 3 0 682 2602 632 26 -1 5 1 7 2 3 1 682 2602 130 19 96.860725 statements 1 7 2 3 2 824 2602 92 20 96.535835 instead5 1 7 2 3 3 930 2604 25 19 96.512589 of5 1 7 2 3 4 967 2610 13 13 95.680542 a5 1 7 2 3 5 993 2605 71 18 95.680542 checks 1 7 2 3 6 1081 2605 74 22 96.388168 (Fish,5 1 7 2 3 7 1170 2605 38 20 96.249619 Tr.5 1 7 2 3 8 1223 2606 91 22 67.808243 124-5). UNIVERSAL CREDIT ACCEPTANCE CORP., ET AL. 687 570 Final Order further admitted that in addition to failing to remove obsolete testimonial] letters from the sales kit book (which is a loose-leaf - ~binder, easily susceptive to making both additions and deletions), he has seén’ fit to remove the addresses and phone numbers from the letterheads (Heater, Tr. 879-80; Krieger, Tr. 202-3). Thus, the result is that prospective franchisees and members cannot even contact those members to determine whether or not they are accurate “testimonials.” It is evident why Heater has made it impossible for anyone to contact the members. 6. The Hearing Examiner Erred In Failing To Find That Respondents Represented That Members Complete Just One Simple Form For All Credit Charges; And That Respondents Represented Members Receive Payment For Each Credit Charge Submitted To Respondents In 30 Days.‘ (CPF, p. 60; see also I.D., p. 66 [p. 639 herein], Order provisions (15) and (16)]. (a) Simple Charge Form The representation that respondents’ program involves just one simple form for all credit charges is made to prospects in direct mailers (CX 28B, CX 31A, CX 32A, CX 34A, CX 38B, CX 39B, CX 41B, and CX 42A), and in the Franchise Proposals (CX 45B and F; and CX 46B and F). It is also included as an instruction in the “Sales Presentation” manual, wheréin-it is stated: What are the mechanics of the program? Well, as you can see here, with each charge customer, you will fill out a very simple form called the charge ticket (CX 180 at p. 8);

Our program allows you to belong to one program, and receive one check a month for all of your credit charges with one simple form to fill out (CX 1380 at p. 9). Mee we The effect of such statements as to the simplicity of the charge form is to lull members into a false sense of security that there are no hidden traps in the program (Padgett, CX 234 at p. 14; Dorigo, CX 234 at p. 18; Brooks, CX 234 at p. 11; Manicucci, CX 234 at p. 13; Sheldon, CX 234 at p. 10; and Kiefert, CX 234 at p. 12). (b) Payment Policy The representation that members receive payment for each credit charge submitted to respondents in 30 days is made through statements such as “one monthly check” (CX 29B, CX 384A, CX ‘The Examiner actually did make the Jatter finding in his general statement ‘Nature of Respondents’ Business and Business Methods,” without citation to evidence in the record (I.D., pp. 2-8 [pp. 588-84 herein]).

Final Order 82 F.T.C.

38B, CX 39B, and CX 42B); ““*-* * receiving just one check for all credit sales he made during any given month” (CX 45B and CX 46B); and “one monthly check covering all charges” (CX 45F and CX 46F). Also, instructions contained in the “Sales Presentation” manuals include the following:

(Payment Policy) Once a month you will receive a check for these charges back by return mail. Any of these charges in to us by the first of the month will be paid to you by the 15th of the following month (CX 180 at p. 8) (emphasis added) ; .

Charges must be forwarded to us weekly. And the payment to you is every 30 days (CX 130 at p. 26); and How does he get paid: Stress simplicity. Explain mechanics. He mails the first and last copies of all credit charges along with two copies of the payment voucher every week. All charges that are received and processed by the ist are paid by the 15th of the following month (CX 180F, #9). While a technical analysis of the wording of the payment policy—“all charges in by the first of the month are payable on the 15th of the following month”—does indicate a minimum of 45 days or six weeks, this statement not only has the capacity and tendency to deceive, but it actually has misled numerous persons into believing that they would receive payment in two weeks or some other period of time less than the minimum of 45 days (England, CX 234 at p. 3; Smith, CX 234 at p. 5; McBride, CX 234 at p. q; Brooks, CX 234 at p. 11; Padgett, CX 234 at p. 11; Manicucci, CX 234 at p. 13; Dorigo, CX 234 at p. 18. It is obviously calculated to have that deceptive effect.

7. The Hearing Examiner Erred In Failing To Find That In Truth And In Fact, The Forms Which Members Must Complete To Process Credit Charges Are Not Simple And Are Burdensome To Fill Out In Practice. [CPF, p. 61; see also I.D., p. 66 [p. 639 herein], Order provision (15) J.

An examination of respondents’ charge ticket (CX 138) reveals that members must obtain a substantial amount of information. The customér’s name and perhaps his address, his signature, and the name and number of credit card used, is the extent of the information required by most common credit card operations which businessmen are accustomed to, namely BankAmericard, Master Charge, Diner’s Club, or American Express. In addition to that information, however, respondents’ charge ticket requires the merchant to obtain the customer’s employer’s name and address, UNIVERSAL CREDIT ACCEPTANCE CORP., K’'l AL. v0U 570 Final Order the customer’s business phone and home phone, the customer’s driver’s license number and his automobile license plate number. ; It is not difficult to conceive how members operating such retail ~~ “pusinesses as service stations; restaurants, or motels (or any establishment which customarily has more than one customer requiring attention at any given time) would find it extremely burdensome in practice to obtain from the customer all such information. This situation is confirmed by the fact that in actual practice members failed to complete the charge ticket 7m most instances (Fish, Tr. 182). Also, respondents’ former Director of Member Relations received complaints from members that the charge ticket was difficult to complete (Fish, Tr. 1383). When franchisee Krieger found his members were receiving .a high degree of recourses, he telephoned respondents and was told that “this charge ticket was set up in this manner because 9 out of 10 people left something out” (Krieger, Tr. 208). 8. The Hearing Examiner Erred In Failing To Find That In Truth And In Fact, Members Do Not Receive Payment For Each Credit Charge Submitted To Respondents In 30 Days. [CPF, p. 62; see also I.D., p. 66 [p. 689 herein], Order provision (16) ]. A literal understanding of respondents’ payment policy makes it clear that payment is received for -all charges reaching respondents by the first of any given month by the 15th of the following month, which is technically a minimum of 45 days and a maximum of 75 days. Consequently, payment is made on or about the 15th of each month, but that payment is for charges submitted at least 45 days earlier (Fish, Tr. 92-8, 95-6). Obviously, respondents do possess the means to fully explain the payment policy, which is of course a crucial item of information to merchants, espécially small °~ merchants, to whom prompt “non-recourse” payment for their accounts receivable is the service for which they contracted. Respondents do employ a document (CX 170C) which simply and accurately illustrates when members will receive payments. Yet, respondents disseminate this document to members only after they have signed their membership contracts and paid their money, and sometimes considerably after that time. This fact is admitted in a 1966 letter to franchisee Roy S. McKinnon, in which Continental Credit Card Corporation. stated: ‘we have always sent out the explanation of the payment policy with the member welcome letter and we are now also including the payment policy chart in this same letter” (CX 170A—D). It is not surprising that when Final Order 82 F.T.C.

members later learn the real payment policy, they complain in great numbers (Fish, Tr. 92-3).

9. The Hearing Examiner Erred In Failing To Find That Respondents Represented That When A Member Becomes Inactive And Respondents Determine His Account Is In Arrears, Respondents Will Institute Legal Action For The Collection Of Such Monies Unless They Are Remitted By The Member To Respondents Upon Demand. [CPF, p. 69; see also I.D., p. 68 [p. 640 herein], Order provision (21) ].

This representation is made through the use of form letters which state that “this account will be assigned to our attorney for collection within 10 days” and “if you would like to avoid additional expense of court action, attorney fees, interest, etc.” (CX 148, CX 182, and CX 185). Also, follow-up form letters are used, stating:

You have ignored our previous request for payment of the above contractual obligations.

This is our last attempt to collect this account in a friendly way * * * we will be compelled to turn it over to our _attorney for such action as may be necessary. * * * * * * CONSIDER THIS PROPER NOTICE! (CX 184). An even more threatening form letter is used next if a member fails to respond to the above-mentioned letters: This is a business matter, and we would like to Settle it with you in an amicable and business-like fashion. * * * an . : On the other hand, if you make it necessary for us to seek court action, you will have to bear the additional costs, the embarrassment and other consequences of a judgment and seizure by the sheriff (CX 147). Another exhibit in the record indicates a ‘“‘Notice of Extreme Delinquency” is used by respondents’ collection department wherein the following appears: ‘Redeem your credit and avoid—legal action * * *” (CX 149).

10. The. Hearing Examiner Erred In Failing To Find That Respondents Seek To Sell Their Franchises, Memberships And Credit Card Services While They Know That Their “Honor All Credit Card” Program Does Not Operate And Produce Results As Represented. (CPF, p. 70).

The Examiner did find that ‘Respondents Knew Their Program was a Failure But Continued to Victimize the Franchisees we eee en ee Se ee er ey ee eee 570 ; Final Order Regardless” (I.D., pp. 49-54 [pp. 627-31 herein]). Our only challenge to this finding is that it is too narrow, in being applicable only to the franchising aspects of respondents operation. We -—-believe the record substantiates the broader finding set forth above. Whereas the examiner quoted liberally from the record to warrant his finding as to respondents’ knowing victimization of franchisees, the record also contains ample foundation for extending such a finding to include respondents’ knowing deception of members as well.

The testimony of ex-employees intimately acquainted with the internal policies pertaining to both the franchise and membership aspects of respondents’ operations clearly reveals that respondents have knowledge that the “Honor All Credit Card” program does not operate and produce results as represented. After respondents former Director of Member Relations Fish had become aware of the deceptions involved in the operation of the membership side of the program, he spoke with respondent Heater and brought to his attention the complaints that he had received from members, particularly those about recoursing and payment policy (Fish, Tr. 141-2, 155). Not only did Heater fail to take any action to apprise prospective members at an earlier point in time of the many reasons for recoursing and the actual payment policy, but when Mr. Fish expressed that “the members. were not buying what they thought they were buying” (Fish, Tr. 115-6), Heater’s specific answer was:

I’m sure the program may have some faults; but what if you sold a man a tin mine, and he went in and started to dig and found out he had a gold mine, would he complain? (Fish, Tr. 116-7). Mr. Fish’s response to Heater was: ‘Well, he might-not complain, - | but it hardly seems the ethical thing to do to sell him a tin mine in the first place if you don’t know there’s tin there.” Heater’s retort was: “That wouldn’t matter because the man would not complain” (Fish, Tr. 117). Mr. Fish estimated that in the course of 18 months he sent Heater about two dozen memoranda and also verbally recommended changes in the program to eliminate the complaints. During Mr. Fish’s employment, no changes were ever made (Fish, Tr. 187, 154).

Moreover, there,is evidence which indicates that the program had been operated the same way for many years and that respondents must be presumed to have knowledge of its failure. Specifically, franchisee Winstead discovered that his areas in the Final Order » 82 F.T.C.

‘State of Texas had been previously worked under the name National Credit Service. He spoke with an individual who had sold over 4,000 members in respondents’ program in all 48 states and not one of them lasted over 6 months. This individual couldn’t stay at the same place to work over a month at a time because of the bad feedback from members (Winstead, Tr. 337-8, 357). Similarly, when Leonard Lynema began to operate his franchise he learned that National Credit Service had previously operated in his area and had acquired an extremely bad reputation (Lynema, Tr. 629 and 629-A). Finally, CX 186, a letter from National Credit Service, Division of International Credit Card Corporation, signed by J. Clifford Heater, and dated November 23, 1964, advises a franchisee in Ohio:

The best way to handle the “sticky” legal phrases in our membership agreements, is to tell the prospect that normally they are not important and are only designed to protect against members or employees who .sometimes try to take advantage of us. Tell them: “certainly our contract or even our all credit card program is not perfect in all respects. However, let’s not be looking at the hole in the doughnut.” The question is, ‘Will you make money with our program?” * * * Don’t get involved in technicalities with the customer, this will get you nowhere * * * (CX 186A, Tr. 397). If a company were operating in good faith, it would obviously attempt to cure any defects and problems which were known to cause a high failure rate amongst participating franchisees and members. However, the respondents are of a different breed. As previously indicated, well-intentioned employees made numerous suggestions for changes to improve the ‘lifé- expectancy and’ | earnings capabilities of franchisees and members, only to have their recommendations studiously ignored (Fish, Tr. 137, 154: O’F laherty, Tr. 422-3). If respondents were interested in operating a bona fide credit card program, the bulk of their revenues would be derived from the discount fee on charges and monthly membership dues, but consolidated income statements indicate that respondents receive the majority of their revenues from initial franchise: and membership fees. On the other hand, monthly membership dues and the 6 percent discount rate produce a very low proportion of respondents’ income (CX 122-4). Therefore, it is apparent that respondents are making their money from high one-time fees from the initial sale of franchises and memberships. With these fees in their pockets, respondents could not care less for the welfare of their franchisees and members. 570 Final Order 11. The Hearing Examiner Erred In Failing To Find That Respondents Know That The Realization Of Profit By Franchisees Contemplates, And Is Necessarily Predicated Upon, The Exploita- ____ tion Of Member Retailers Who Must Be Induced To Participate In Re&pondents’ Program By Misrepresentations. (CPF, p. 78).-. Not only do respondents initially fail to give franchisees all of the material facts about the program (see the Examiner’s Finding No. 28, I.D., pp. 20-21 [p. 600 herein]), but respondents know that the program itself cannot be sold honestly (O’Flaherty, Tr. 426-7). Consequently, respondents train their franchisees in seminars with materials and dialogue which cause the franchisees to repeat the misrepresentations to member prospects (CX 130, CX 179A-Z88). Respondents’ former Director of Member Relations testified that not only are the seminars deficient in terms of complete omissions of material information, but he also observed erroneous information being disseminated (Fish, Tr. 119-20, 168-9, 170-1). Franchisee Richard Colfels was trained not to show member-prospects the back of the contract until after they had signed it (Colfels, Tr. 527). Franchisee Harold Winstead was trained to go over the contract so fast that member-prospects could not have time to ask questions (Winstead, Tr. 350-1). As one ex-franchisee concluded, the training seminar he had taken “didn’t tell me how to tell the truth about the program,” and in fact “we are told to lie * * *” (Davidson, Tr. 285; 301-8, 328). Moreover, the seminar camouflages this deceit by using a “scientology,” ‘“pep-talk” approach (O’Flaherty, Tr. 424-5, 471). An especially lucid and enlightening analysis of the seminar was related by franchisee Colfels. His testimony vividly demonstrates that the over-all effect of the seminar is to subject the franchisees to a psychological build-up and send them out irto-the field- to --* mouth and repeat the misrepresentations placed in their hands by respondents (Colfels, Tr. 513-18, 5382-8). 12. The Hearing Examiner Erred In Failing To Find That At No Time Did Respondents Notify Any Persons Who Expended Money In Reliance Upon Respondents’ Statements And Representations That Their Money Would Be Refunded If Respondents Knew Or, As Reasonably Prudent Businessmen, Should Have Known That Respondents’ Program Would Not Operate And Produce Results As Represented; And In Failing To Find That Respondents Regularly Retain And Withhold Funds From Franchisees, Franchise Prospects and Members. (CPF, p. 79). 694 : FEDERAL TRADE COMMISSION DECISIONS Final Order 82 F.T.C.

‘This allegation is supported by the statements in the Examiner’s Fifidings Nos. 27 and 50, relating to the continuing financial losses of both franchisees and members. In addition, as of the hearing date (November 1971), respondents still had not satisfied requests by franchisees to buy back franchises as promised (see the Examiner’s Findings Nos. 48 and 44, I.D., pp. 32-33 [pp. 611- 12 herein]), and respondents still owed former franchisees commissions on sales of other franchises and on sales of memberships (Lynema, Tr. 626, 629; Winstead, Tr. 358-9). The record also demonstrates the continuing failure of respondents to pay franchise prospects sums expended for air fares for interviews at respondents’ offices and sums deposited with applications (see the Examiner’s Findings Nos. 31-34, I.D., pp. 22-26 [pp. 601-05 herein] ; MacDonald, Tr. 550, 554; Clay, Tr. 571-3). - Similarly, on the membership side, respondents’ policy is such that refunds are not rendered. When a member quits using the program and has suffered a loss he is offered a “settlement” check for any outstanding monies owing to him after deductions for all dues for the balance of the contract period (Fish, Tr. 124-5). If the member endorses and cashes -said “settlement” check, it constitutes “an acknowledgement of full payment and release of all claims or obligations against the issuer of this check or third parties arising out of the contract” (Clay, Tr. 577). 18. The Hearing Examiner Erred In Failing To Find That Respondents’ Honor All Credit Card Program As Actually Operated Is Essentially Different From The Progéam As Represénted ~ And Has Proven To Be Substantially Worthless To Franchisees And To Members. (CPF, p. 81).

It may be argued that the examiner did actually adopt the complaint counsel’s proposed finding to this effect (see the Examiner’s Finding No. 50, I.D., p. 39 [p. 618 herein]). In. finding “a scheme fraught with misrepresentations,” in stating that “the program as administered has no merit” (J.D., p. 3 [p. 583 herein] ), and in citing the Curtis Publishing Company case for the proposition that restitution may be a proper remedy where the consumer receives something that is “either worthless or of only token value” (I.D., pp. 56-57 [pp. 638-34 herein]), the examiner has implicitly made the desired finding. We feel said finding should be made explicitly.

570 Final Order That the program is basically and essentially misrepresented is clearly supported by the record. The program is advertised and promoted as “non-recourse,” when in fact it amounts to a full __ recourse program (see the Examiner’s Findings Nos. 49 and 50, DE pp: 35-41 [pp. 614-19 herein});"the program is featured as one under which the member will receive his money in a relatively short period of time (é.g., two weeks to 30 days), when in fact he will not receive payment for 45 to 75 days at best (see CPF Nos. 58 and 60, proposed findings 6 and 8, supra); and the respondents are represented as a large, reputable, financial organization, when in fact respondents’ size, reputation and financial condition are significantly different and inferior (see the Examiner’s Findings Nos. 45—48, 61-66, 69-71; I.D., pp. 33-— 35, 43— 48 {pp. 612-14, 621-24, 625-26 herein] ). “ The non-recourse feature is obviously the essence of the bargain offered by respondents and contracted for by both members and franchisees, Why should a merchant pay respondents a $240 membership fee, $10 per month dues, and a 6 percent discount, unless it is to be free of any risks of nonpayment by customers? If the merchant is to bear the risk of loss in any event, he is placed in the same position he would have been in had he accepted a personal check from the customer, or had the merchant allowed the customer to charge the sale and be billed directly by the merchant. In such instances the merchant would be in the same situation he is under respondents’ program, except he would not have paid the respondents the membership fee, dues, and discount. ‘To this extent, therefore, the program proves to be worthless, causing considerable financial loss and economic waste (Winstead, Tr. 355; Tronea, Tr. 665-6; CX .122-124). Furthermore, for a substantial number of members the program ° ~ is in fact worse than worthless. That is, because of the frequency of recoursing, the members not only pay $240 membership fees plus $240 monthly dues plus the 6 percent discount fees for a service they do not receive, but they also lose the value of their own merchandise and services to the extent the credit charges are not paid by their customers (Colfels, Tr. 517). The substantial worthlessness of the program to respondents’ franchisees who attempted to sell it is also manifest (see the Examiner’s Finding No. 27, I.D., pp. 15220 [pp. 595-600 herein] ). 14. The Hearing Examiner Erred In Failing To Find That For At Least The Past Six Years, Respondents, In The Regular Course Final Order 82 F.T.C.

Of Their Business, Have Calculatedly Relied Upon A Literal -Initerpretation Of Forriial Documents (Which They Deceptively Induce Their Victims To Execute) In Order To Evade And Insulate Themselves From Liability For Their Misrepresentations. (CPF, p. 82).

(a) Franchisees See the Examiner’s Findings Nos. 31 and 34 (I.D., pp. 22-24, 26 [pp. 601-03, 605 herein]) for discussions of how literal interpretations of respondents’ franchise application and telegrams are used to evade refunding promised air fares and deposits to franchise prospects. By signing the franchise ‘agreement, the franchisee certifies that “this agreement constitutes the final and complete understanding between the parties hereto and that no other representations or promises, verbally or otherwise, have been made” (CX 16A), when in fact a multitude of other representations, verbal and otherwise, are made (see the Examiner’s Findings Nos. 23, and 26—71, I.D., pp. 11-48 [pp. 591, 593-626 herein]). Further, said franchise agreements ostensibly bind the franchisee to bring any suit that may arise between the parties only in the State of California, even though the franchisee may reside hundreds or even thousands of miles away (CX 16B, CX 17B, CX 18B). In addition, under the terms of respondents’ franchise agreements, franchisees who quit or are terminated before the end of one year fail to receive any of their 1 percent bonuses from the charge volume of their members (CX 4, CX 16 A-B, CX 18 A-B; see also CX 190A-Q and the Examiner’s | Finding No. 27 for evidence that the average franchisee longevity is 8.61 months producing membership sales, I.D., p. 16 [p. 596 herein] ).

Another document used by respondents to entrap franchisees is a “membership sales training questionnaire” which purports to be a final examination completed before franchisees leave the seminar (CX 226, CX 227, CX 233, RX 1, RX 2). The franchisees are actually given the “correct” answers before they take the “test.” As far as respondents are concerned, the real purpose of the “test”’ is not to make sure that the franchisee understands the program, but to trap him into making admissions which can be used against him in the future (O’Flaherty, Tr. 480). Examples of such questions are: “Have any promises been made to you that are not set forth in the above agreement?” and “Do you understand that because your success and the success of our members depends upon UINLVOROAL UNDVIIL AUULS LAINUL UUs, Dl Ala vai 570 Final Order each individual (sic) ‘ability,’ that no representation or guarantee can be made as to the actual income or that any specific income or profit will be made?”

(bx. Members weet .

Members are entrapped in part by means of what the examiner characterized as “devious contractual language, not intended to be read and not clearly understandable, even if actually read” (I.D., p. 8 [p. 584 herein] ; see also CPF pp. 83-84, CX 136 A-B). The record also discloses that respondent Heater acknowledged the use of “sticky” legal phrases in the membership agreements as far back as November 23, 1964 (CX 186 A-B). The charge ticket (CX 188) is an additional document used deceptively to effectively insulate respondents from liability. It calls for a multitude of items of information, much of which is never utilized to effect collection (Fish, Tr. 107-8). Its only purpose is to establish a foundation, an excuse, by which to be able to recourse the charge to the member if the customer does not pay. With respect to members who may see fit to bring a law suit against respondents for the misrepresentations which induced them to sign their contracts, respondents rely upon a membership agreement provision establishing venue in San Mateo, California (CX 136B, CX 137B). Obviously, most small merchants in areas of the country remotely located from California interpret this to mean that they have no remedy at all, since the costs of such litigation would exceed any judgment.

The foregoing, therefore, serves to document in the record what the examiner, without citations, made reference to as respondents’ efforts “‘to insulate themselves” (I.D., p. 3 [p. 584 herein]). 15. The Hearing Examiner Erred In Failing To-Find- That ~ Respondents Are Responsible For The Acts And Practices Of Their Franchisees. [CPF, p. 86; see also I.D., p. 68 [p. 640 herein], Order provision (22) ].

The respondents train the franchisees and subsequently control and supervise their activities. Franchisees receive the same training as respondents’ home office membership salesmen (Fish. Tr. 118). In the training seminar, franchisees are armed with sales materials and then are required to memorize certain sales dialogues (CX 180D, CX 180M). Before “graduating” from the seminar, franchisees take what purports to be a test, which contains a recitation of many representations about the program, including many omissions and half-truths (CX 226, Winstead, Tr. Final Order 82 F.T.C.

345-6; O’Flaherty, Tr. 429-30). Moreover, respondents then “béstow upon franchisees a “certificate of training” (CX 179A), which attests to the successful completion of the prescribed course of training as outlined in the company’s training manual. After the seminar, franchisees return to their areas and utilize the sales materials and dialogues furnished by respondents (CX 180, CX 131A-B, CX 133, CX 179A-Z88, CX 180A~Z33, and CX 187A4-B). Also, franchisees are required to submit daily sales reports as well as any sales agreements they wish to enter into with salesmen (CX 134 and CX 1385).

The essence of the relationship between respondents and their franchisees is revealed in the testimony of respondent Heater: A. We find that they [franchisees] need about as much help as the salesmen and the money they have invested has been a very little factor. Q. How about as much control, do you have to have pretty good tabs on the franchisee? A. That is right.

Q. What kind of control do you try and keep over the franchisee? A. We try to maintain a continuous correspondence with them and phone calls.

Bd * * * * * * A. Phone calls, sometimes personal contact. We would oceasionally go out there, they would come to the home office for retraining perhaps, sometimes we would go out there and conduct a sales training seminar for them and their salesmen to do what we could to make them. successful. sot * * * * * * * Q. Could you tell me what your purpose was for keeping control over who the franchisee might hire? A. It is always a good idea to know who is out there working for you. Sometimes we get phone calls into the office wanting to know does this person represent us and it can be very embarrassing if we can’t say yes (emphasis added) (Heater, Tr. 767-8, 769).

In practice, therefore, respondents’ franchisees are at best glorified salesmen, who have paid respondents $7500 to work for them.* *On these facts, the authorities are clear that respondents are liable for the acts and practices of their franchisees. Parke, -lustin & Lipscomb, Inc. v. FTC, 142 F.2d 437 (2d Cir. 1944) ; Steelco Stainless Steel v. FTC, 187 F.2d 693 (7th Cir. 1951); Standard Distributors v. FTC, 211 F.2d 7 (2d Cir. 1954); Libbey-Owens-ord v. FTC, 352 F.2d 415 (6th Cir. 1965); Goodman v. FTC, 244 F.2d 584 (9th Cir. 1957): Federal Trade Commission v. Standard Education Society, et al., 302 U.S. 112 (1987). , Dissenting Statement