Court Upholds Sanctions Against EDebit-Pay

(CN) - An online marketing company's fine print duped thousands of consumers out of more than $3 million, the 9th Circuit ruled Tuesday.

The federal appeals court in Pasadena upheld a contempt order against Dale Cleveland and William Wilson, owners of EDebit-Pay LLC. The company paid $2.2 million in 2008 to settle charges brought by the Federal Trade Commission that it deceptively marketed prepaid debit cards and short-term loans online. The settlement barred the company from engaging in such practices again, but Cleveland and Wilson were at it again a day before signing the order, the ruling states.

This time they offered the Century Platinum card, which at first sight appeared to be a credit card with a $10,000 credit limit. It was actually an "online shopping club membership."

"At the bottom of the e-mails, and in very small font, defendants disclosed to consumers that the credit line could only be used at Insite's online store," the ruling states.

Later, the defendants offered the "NetSpend No Cost prepaid debit card," which actually cost at least $9.95 a month. To learn that, customers had to venture into the terms and conditions section, a 4,720-word document buried the references to various fees.

The FTC moved to hold the company in contempt of the 2008 settlement order. A federal judge did so and levied a $3.7 million fine - the full amount lost by consumers.

A three-judge panel of the 9th Circuit affirmed Tuesday.

"The plain language of subsections I.B and I.E clearly and explicitly enjoins misrepresentations on, and failure to disclose material information about, 'any product or service offered by any defendant,'" Judge Barry Silverman wrote for the court.

The panel also agreed with the lower court's award of full restitution over the defense-requested disgorgement of profits.

"Defendants disregarded the core provisions of the Final Order to not mislead consumers about the products they advertised," Silverman wrote. "The District Court also found that consumers lost far more than defendants gained. The record supports the District Court's determination that defendants took advantage of thousands of consumers, who lost over $3 million because of defendants' acts."

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