Wachovia to Pay $33M for Aiding Giant Rip-Off | Courthouse News Service
Saturday, December 2, 2023
Courthouse News Service
Saturday, December 2, 2023 | Back issues
Courthouse News Service Courthouse News Service

Wachovia to Pay $33M for Aiding Giant Rip-Off

TAMPA (CN) - Wachovia Bank agreed to pay $33 million for processing controversial demand drafts that allowed telemarketers to write checks in the name of thousands of consumers after offering prizes in exchange for bank account information. "The combination of negative option telemarketing and demand drafts is a significant problem," said Todd Kossow, lead FTC counsel in the matter.

In total, Wachovia along with a group of telemarketers agreed to pay almost $50 million for the scam, where telemarketers sold various products without expressed consent and directly drew from consumers bank accounts using demand drafts issued by Wachovia. The scam affected almost a million consumers, said the FTC, and deprived them of approximately $172 million.

Demand drafts are still legal and amount to writing yourself a check from another person's checkbook. They are commonly used with automatic monthly bills and when placing orders over the phone. Oral consent is needed from the person who pays, as well as the bank account number and routing number.

Wachovia Bank processed these demand drafts despite knowledge of their abnormally high return rate of between 40-50%, said Kossow with the FTC. Return rates for demand drafts typically fall between 1 and 2%.

"A number of states actually advocated that the Federal Reserve do away with demand drafts because they tend to be used a lot by deceptive telemarketers" said Kossow.

Negative option billing happens when a purchase is automatic and the buyer must either reject the purchase before they are billed, or pay. This often happens when initially free trials for services run out and billing begins automatically.

Negative option billing is also legal, but telemarketing sales rules require that telemarketers clearly represent the conditions of the sale before asking for payment, including the amount charged, the dates of billing, and specific steps the consumer can take to avoid the charges.

For demand drafts, the law asks for clear and recorded authorization from the consumer.

Between 1999 and 2007, Suntasia Marketing used both negative option billing and demand drafts, but made misrepresentations so that consumers weren't fully informed, said the FTC.

Telemarketers pretended to be associated with the consumer's bank, advertising either a $100 gas voucher or a $400 airline voucher as a reward for being a good customer, but asked that the consumer "confirm" his account information to determine his eligibility for the gift, according to Kossow.

If the consumer wanted the gift, he had to agree to enter a travel club program or buyers club program, which included a 14 day free-trial period, Kossow added. Once the 14 days were up, participants were charged an initial fee of $59.95, and subsequently a fee of $19.95 a month.

Participants were told their 14-day trial period would begin once they received an informational brochure in the mail, but the trial period often began the day of the telemarketing call. Also, the FTC's lead counsel said that Suntasia employees purposefully miscopied consumer addresses, keeping many participants from receiving the brochure.

In many instances, Suntasia got return mail but charged participants anyway, he said. Many who received their mail and tried to cancel were denied.

The phone number to dial for cancellation was included in the brochure but was not given out over the phone, said the lead counsel. Without the brochure, cancellation was difficult.

Those who did win their vouchers received instead a limited rebate, Kossow note. The $100 gas voucher turned out to be a gas rebate of $10 for 10 months.

The FTC submitted its complaint in July of 2007, after it received over 5000 former complaints about Suntasia, a near-record number. The company itself had collected thousands of complaints and refund requests.

Suntasia, its 7 partner companies, and 6 individuals, will pay $16.9 million of the $171.9 million judgment, in addition to company assets such as a corporate yacht and two telemarketing facilities currently valued at a combined $3.1 million. This still leaves consumers almost $152 million short.

In addition to the financial penalty, Suntasia telemarketers must record their entire pitch as opposed to just recording the authorization.

Wachovia Bank must pay $33 million to fully compensate those affected by the demand drafts it authorized.

Despite there being 14 defendants of which 8 were companies, all were deemed by the FTC to be a common enterprise under the control of Suntasia Marketing. The company is based in Largo, Florida and employed over 1000 people to run the scheme.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.