Operators of Bogus Discount Clubs Took Millions of Dollars From Consumers’ Bank Accounts without Consent

consumers were targeted with websites and telemarketing calls that purported to offer payday or cash advance loans

Operators of Bogus Discount Clubs Took Millions of Dollars From Consumers’ Bank Accounts without Consent
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August 17, 2017

The Federal Trade Commission (FTC) has charged a group of marketers with debiting more than $40 million from consumers' bank accounts for membership in three online discount clubs that they enrolled consumers in without their authorization.

The scheme

According to the FTC, the defendants targeted consumers with websites and telemarketing calls that purported to offer payday or cash advance loans. Thinking they were applying for loans, consumers provided their bank account information, which the defendants then used to enroll them in an online coupon service with monthly fees.

The FTC alleges that the defendants used electronic remotely created checks (RCCs) to withdraw an initial fee from consumers' bank accounts ranging from $49.89 to $99.49, and recurring monthly fees of $14 to $19.95.

The Commission says that hundreds of thousands of consumers called the defendants to cancel their memberships and request refunds, and thousands of people informed their banks about the unauthorized debits.

Throughout the operation of the discount clubs, banks rejected more than 75 percent of the attempts to debit consumers' accounts. More than 99.5 percent of those who supposedly enrolled in the scheme never accessed any of the discount clubs' coupons.

IN operation since 2010

According to the FTC's complaint, the alleged scheme began in 2010, when EDebitPay LLC (EDP), Dale Paul Cleveland, and William R. Wilson launched the Saving Pays Club. At the time, they were facing contempt charges for violating a 2008 settlement order with the FTC in another deceptive debiting scam.

In 2012, the FTC says that EDP launched a new version of the discount club, Money Plus Saver. In 2013, EDP sold its assets, including the discount clubs, to Hornbeam. Hornbeam then launched a third version of the same discount club, calling it Saving Makes Money, and continued to charge consumers enrolled in the Saving Pays Club and Money Plus Saver.

iStream Financial Services, Inc. processed all the payments for the discount clubs from November 2010 through April 2016. The FTC alleges that iStream consistently disregarded the high return rates generated by the discount club transactions, as well as other fraud indicators highlighted by its chief risk officer, outside compliance auditors, and the president of its own sister bank.

In late 2014, iStream allegedly enabled Hornbeam to artificially reduce its high discount club return rate by allowing it to send thousands of small RCCs to itself.

The Defendants

The defendants in this case are EDP; Dale Paul Cleveland; William Wilson; Keith Merrill; clickXchange Media LLC; Platinum Online Group LLC, doing business as Premier Membership Clubs; Hornbeam; Cardinal Points Holding LLC; Cardinal Points Management LLC, doing business as Clear Compass Digital Group; Gyroscope Management Holdings LLC; Jerry L. Robinson; Earl G. Robinson; James McCarter; Mark Ward; iStream Financial Services Inc.; Kris Axberg; Richard Joachim; and Chet Andrews.

The FTC has charged all the defendants with violating the FTC Act. All the defendants, with the exception of Mark Ward, have also been charged with violating the Telemarketing Sales Rule. Finally, the EDP and Hornbeam defendants have been charged with violating the Restore Online Shoppers' Confidence Act.