In the Matter of the Complaint Against:

 CONTINENTAL
 P.O. Box 908,
 "CREDIT"-7, P.O. Box 908

 and

 ARROW, all at
 Niceville, Florida 32578

 P.S. Docket No. 2/169

 03/25/74

 Sobernheim, Rudolf, Administrative Law Judge

 APPEARANCES:
 Lee H. Harter, Esq.,
 Thomas A. Ziebarth, Esq.,
 Consumer Protection Office,
 U.S. Postal Service,
 Washington, D.C. 20260 for Complainant 

 Sumner H. Woodrow, Esq.,
 Balliro and Woodrow,
 44 School Street,
 Boston, Massachusetts 02108

This is a proceeding by Complainant against Respondents under 39 U.S.C. 3005 which authorizes action against Respondents upon evidence satisfactory to the Postal Service that Respondents are "engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations."

Complainant alleges that Respondents are engaged in such scheme in the promotion of a pamphlet, entitled "HOW TO HAVE 'TRIPLE-A' CREDIT WITHIN 30-DAYS", by Art Fox. Specifically, Complainant alleges that by the use of advertising material Respondents, directly or indirectly, whether by affirmative statements, omissions or implication, in substance and effect represent:

"(a) That a recent bankrupt or welfare recipient can, by following Respondent's methods, obtain credit fast and easily; (i.e., that little or no initial working capital is required);

(b) That the Respondent's product contains 'instructions and methods [that] are 100% legal';

(c) That the Respondent's product contains information on 'how new laws help [a person] in credit and collection';

(d) That Respondent's product contains information on how to obtain 'the best possible credit reference in the United States'; and,

(e) That Respondent's product contains information on how to obtain credit cards without a credit investigation."

A copy of the advertisement, alleged to have been used by Respondents, was attached to the complaint as Exhibit "A" and a copy of the circular, alleged to have been sent to those responding to the advertisement (Compl., Ex. A), was attached to the complaint as Exhibit "B".

Respondents admit the use of the advertisement (Compl., Ex. A) but allege that the circular sent by them to those responding to its advertisement differs from that attached to the complaint as Exhibit "B". A copy of this circular is attached to the answer as Exhibit "A". Comparison of the two circulars shows that the body of the text has remained the same and that they differ only in the mail order stub portion of the circular. The one submitted by Respondents (Answ., Ex. A) asks the purchaser of the pamphlet to allow enough time for his check to clear and offers a 10-day free trial with return of the purchase price if the purchaser is dissatisfied. Respondents admit that by means of this material they obtain through the mails money or other property, representing the purchase price for the Art Fox pamphlet.

However, they deny that they make false representations and allege that the circular accurately describes the pamphlet which Respondents sell, and that the pamphlet does contain information:

"(a) That a recent bankrupt or welfare recipient may receive credit;

(b) That the manual contains instructions and methods that are 100% legal;

(c) That the manual contains information on how new laws help in credit and collection;

(d) That the manual contains information on how to obtain 'The Best Possible Credit Reference in The United States'; and

(e) That the manual contains information on how to obtain a credit card without a credit investigation."

A hearing was held on 7 January 1974 at which both parties presented witnesses and at which Complainant introduced documentary evidence, including advertisements published by Respondents since the proceeding was begun (Ex. CX-4A). After the hearing briefs were filed by both parties.

1. Linda Girvin, a resident of Hampton, New Hampshire, and the lessee of P.O. Box 908 at Niceville, Florida 32578, is ostensibly doing business under the names of CONTINENTAL, ARROW and "CREDIT"-7, Respondents herein.

2. Under said names she is engaged in the mail order sale of the pamphlet "HOW TO HAVE 'TRIPLE-A' CREDIT WITHIN 30-DAYS", receiving through the mails money or other property representing the purchase price of the copies sold.

3. The advertisements (Compl., Ex. A; Ex. CX-4A) used by Respondents to attract inquiries emphasize the desirability or easy availability of credit cards and promise to instruct inquirers on how to obtain new credit without any investigation.

4. (a) Those who "bite" receive a two-page circular (Compl., Ex. B; Answ., Ex. A) telling them that they have "just taken the first step . . . toward excellent credit" and in "thirty days" can have "EXCELLENT CREDIT, ANYWHERE" even if they have been recently bankrupt, are welfare recipients, have poor, slow or no credit, or are new in town. The writer of the circular, speaking in the first person, states that he knows what is kept on credit records and what is necessary to establish good credit, i.e. what companies look for in granting credit or issuing credit cards. He promises to show how such new credit can be obtained in less than 30 days without investigation.

(b) The writer of the circular promises not only to show how excellent credit is obtained within 30 days but also how to apply for and receive all kinds of credit cards, get credit to buy homes, cars or whatever one wants, to start one's own business or pay off old debts, to control collection tactics and how new laws help one in credit and collection. All methods for establishing a new credit rating, applying for credit cards and other credit are stated to be "100% legal."

(c) The pamphlet of some 30 pages (Ex. CX-4) and other material not in issue here, said to represent "years of experience", is then offered for $9.98 per copy and the inquirer asked to mail the attached ordering "no-risk coupon" to ARROW (Compl., Ex. B) or to CONTINENTAL ADVISOR MANUALS (Answ., Ex. A). One of the circular offers a free trial and money back if the pamphlet fails to satisfy (Answ., Ex. A).

5. (a) The pamphlet sold by Respondents (Ex. CX-4) was published by Art Fox of Continental Advisor Manuals in 1970 and in a revised edition in 1971. Its first section contains suggestions of how to reduce one's debts in various ways, including wage earner settlements under chapter XIII of the Bankruptcy Act (11 U.S.C. 1001 et seq.) and outright bankruptcy (11 U.S.C. 1 et seq.). Section 2 of the pamphlet (Ex. CX-4, pp. 10-18), entitled "YOU ARE ON YOUR WAY TO A TOP CREDIT RATING]", contains the methods by which recent bankrupts, welfare recipients and others lacking credit can allegedly obtain "TRIPLE 'A' CREDIT in thirty days with a minimum of work involved" (Ex. CX-4, p. 10).

(b) Prospective borrowers are advised of the manner in which residence, job experience, and family status are supposedly rated by lenders (id., pp. 10-11) and how to present such items, e.g. to show a telephone even if it is merely an (undisclosed) second listing of a number in the name of another (id., p. 11); or to say "always" that one has lived for at least two years at one's present address and to get the landlord to confirm this - apparently without regard to the truth of the statement (id., pp. 11-12); or to persuade the landlord to rent an apartment as unfurnished, when in fact it is furnished by the landlord, to give "the appearance" of being stable (id., p. 12); or with the help of the employer convey the impression of long-term employment at one's present highest salary and to show a second income from part-time self-employment "making fifty dollars a week", saying that one does anything one prefers (id., p. 12) -- again strongly intimating that in the interest of obtaining credit one may take some liberty with the truth. The pamphlet does, however, caution against the use of "obvious lies" (ibid.).

(c) With this introduction the seeker after credit is advised that he needs four hundred dollars ($400) for thirty days to carry out the plan which the pamphlet proposes (id., p. 13).

(d) This plan contemplates the opening of a regular savings account of four hundred ($400) dollars (Ex. CX-4, p. 14). The seeker after credit is advised to return three days later to apply for a one-year loan of $400.00 with the savings account as collateral (ibid.). The borrower is advised that the loan will be granted without credit check because it is secured by the savings account and that he may explain the need for the loan (apparently without regard for the truth) by stating that he wishes to pay off debts which bear an interest rate higher than the loan rate (ibid.).

(e) The follower of the pamphlet's plan is then advised to repeat this process at two more banks within fourteen days from the time when the initial savings account was opened (Ex. CX-4, pp. 14, 15). The credit-seeking follower of the pamphlet's plan is specifically advised to mention in his loan applications at the second and third banks all his savings accounts and is warned:

"Do not mention other collateral loans, however. That is not necessary." (id., p. 14)

(f) The follower of the plan is now advised to use the four hundred dollars to open a checking account in one of the banks. He is told that a credit report would now show him having three savings accounts with a total balance of over $1,200 and a net worth of $1,600 (Ex. CX-4, p. 15, col. 1). He is also told that the figure of $400.00 was selected to give him a "M-3" rating which "could" mean a balance of as much as $790 (ibid.).

(g) The follower of the pamphlet's plan is next advised that three payments on a loan establish a payment pattern and, hence, a Triple-A credit rating and that he can obtain this rating by making pre-payments of the first three installments on each of the three loans on the 14th, 21st and 28th day after the first savings account has been opened (Ex. CX-4, p. 15, col. 2). "By making the payments exactly as instructed", he is informed, "the appearance is given that you pay your bills once a week (to lenders it appears to be your pay day)." Because of these pre-payments the follower of the pamphlet's plan is now deemed to receive from each bank the rating: "PAYS COMPLETE PAYMENTS - ONCE A WEEK - PRE-PAID FOUR MONTHS" and a credit rating of "EXCELLENT", together with the credit confidence which the existence of bank loans is said to inspire (Ex. CX-4, pp. 15-16).

6. (a) The follower of the pamphlet's plan is next advised to obtain as many credit cards as possible and to obtain national credit cards, the "trick" being to use them at the beginning "just a little ($40) and make full payments on time" (id., p. 16) so as to get the card renewed for higher limits. This will allow the follower of the pamphlet method, so he is informed, to "buy most anything" he wants "on credit" (ibid.).

(b) Section Three of the pamphlet continues the credit card theme under the heading "HOW TO GET A CREDIT CARD WITHOUT ANY INVESTIGATION" (Ex. CX-4, unnumbered page following p. 18) and advises the followers of the pamphlet method as follows:

"At least one firm exists which will issue you a credit card without investigating you at all. INTERNATIONAL EXPRESS, INC., is the name of the company. The Vice-President of the firm, Mr. H.E. Watkins has informed me that International Express would be most happy to issue a credit card to any of my readers and/or their families WITHOUT ANY INVESTIGATION] Mr. Watkins states that International Express credit cards have been accepted at hundreds of service stations and restaurants. He further states that when cashing a check many merchants require additional identification and an International Express credit card is invaluable for that purpose. Though the company requires NO CREDIT INFORMATION they do have a small service fee. That doesn't seem too much to ask for an INSTANT CREDIT CARD. For further information on how to receive your International Express credit card, drop a line to:

INTERNATIONAL EXPRESS, INC.

P. O. Box 3577

SCOTTSDALE, ARIZONA 85257

State that Art Fox of Continental Advisor Manuals told you to request a credit card application. Once you receive the complete information you may decide for yourself if you want to apply."

7. (a) Applicants for an International Express "credit card" receive a letter from National Express, of the same address, describing the card to be issued as a National Express card. The letter (Ex. CX-5) describes the card as "[u]nlike conventional credit cards" in that the firm extending credit to the holder must bill him and collect from him directly and that National Express does not in any way guarantee to, or in fact does, pay the bill incurred by the holder and collect the amount thereof from him, as under the conventional credit card arrangement. The card is further described (Ex. CX-5, 3d par.) as "primarily an excellent piece of identification as opposed to a credit card" although it is alleged to have been honored by many businesses throughout the United States for charging purposes. On the back of the letter is an application form (Ex. CX-6) which seeks some personal information about the applicant, including monthly income, and in which National Express reserves the right to request return of the card when it is misused. The holder of the card does not, however, obligate himself to return it.

(b) The card itself (Ex. CX-9) states on the reverse that charges incurred through use of the card should be billed to the holder (whose name and address are shown on the obverse) and that National Express assumes no liability whatsoever for the payment of any such charges.

(c) The card, when received by the applicant, is accompanied by a flyer (Ex. CX-10) which advises the holder that his National Express card is "primarily an excellent means of identification and will usually be accepted by itself as adequate means of identification for cashing checks etc." The holder is further advised that, if his card is accepted as a charge card, he will be billed direct but that National Express has no agreement with any business anywhere to honor the card. The holder is advised that some holders use the card almost daily for charge purposes while others were never able to do so and that National Express from personal experience can only state that some independent oil companies, advertising acceptance of all credit cards, have in fact accepted the National Express card.

8. (a) The closing part of Section Two of the pamphlet sold by Respondents states in a subsection, entitled "TIPS ON HANDLING COLLECTION PROBLEMS", that (Ex. CX-4, p. 18):

"AFTER JULY 1st, 1970, YOU HAVE A RIGHT TO VISIT THE CREDIT BUREAU AND REVIEW YOUR FILE. THEY HAVE TO SHOW IT TO YOU. ALSO, IF SOMEONE TURNS YOU DOWN FOR CREDIT, THEY HAVE TO TELL YOU WHY YOU WERE TURNED DOWN AND/OR WHO GAVE YOU A BAD RECOMMENDATION."

(b) The foregoing is presumably a reference to the Fair Credit Reporting Act, enacted 26 October 1970 (P.L. 91-508; 84 Stat. 1127; 15 U.S.C. 1681 - 1681t) as a new title VI to the Consumers Credit Protection Act (P.L. 90-321; 82 Stat. 146; 15 U.S.C. 1601 et seq.). Section 609 of the statute (15 USC 1681g) does not, however, give the borrower direct access to his credit bureau file and section 615 of the statute (15 USC 1681m) entitles the rejected borrower only to disclosure of the name and address of a consumer credit agency or of the nature of other information, relied upon by the prospective lender in rejecting a loan application.

9. At the hearing expert evidence was adduced by both parties to show that personal loans, collateralized by a savings account in the same bank, could (or could not) be obtained without further inquiry; that three pre-payments of installments to fall due in repayment of the loan would (or would not) result in a Triple-A credit rating regardless of the circumstances; and that the National Express card was (or was not) a credit card.

10. Complainant called as its witness the vice-president of the American Security and Trust Company in charge of the bank's consumer credit division who had also served in the same capacity with the former Mount Vernon National Bank in suburban Virginia, and as a loan officer of American Security and Trust (T 12-13). American Security and Trust Company is the second-largest bank in the District of Columbia.

(a) It was the gist of the testimony of this witness that in making personal loans to customers the major criterion was the customer's ability to repay, i.e. his job and income (T 20, 21, 46, 48, 56). In consequence, a credit application would have to be filed, even where the loan might be secured by a savings account as collateral (T 15, 18) and this practice would apply also to small personal loans made to persons, such as welfare recipients, by branches of the bank located in poor neighborhoods (T 48). Normally, loans would not be made to such applicants because they lack the income from which to repay (T 55).

(b) The loan application used by American Security and Trust Company requests disclosure of the applicant's debts (T 14-15, 27) and this would require disclosure of liabilities owed to other banks (see T 27), such as those suggested to be incurred in the pamphlet sold by Respondents.

(c) While the degree to which a credit application is checked may depend on circumstances (T 18, 20, 22) and, hence, false or misleading statements of an applicant may not be uncovered, loans to applicants with poor credit rating elsewhere should be avoided even if a savings account in the lending bank is tendered as security (T 24). How far quick inquiries would result in accurate and detailed disclosure of an applicant's indebtedness and credit elsewhere was left uncertain (cf. T 18, 22, 24) but the witness' testimony is clear that two or three pre-payments on a loan would only establish a credit rating as a "No Experience Account" (T 23, 54). If the status of such an account were checked in the American Security and Trust central reference computer, the computer would state the facts and not a subjective rating (T 53).

(d) Credit card applications are checked but the investigations may not always be thorough (T 34). Be that as it may, the National Express Card (Ex. CX-9) was not claimed to be a "credit card" by the accompanying flyer (Ex. CX-10) and, hence, should not be considered as such (T 33). The documents (Ex. CX-9, -10) make it clear that the merchant extending credit to the card holder is not backed up by the issuer of the card which merely on its fact identifies the holder (T 49 et seq.).

11. (a) Respondents' expert witness was a banker and financial specialist who between 1964 and 1969 had been engaged in bank management in two relatively small banks in Athol and Everett, Massachusetts (T 59-60). He is presently a financial advisor to business firms and to a mutual fund (T 62). He acted as a loan officer of the banks referred to (T 63) and his experience involved mainly small loans (T 64-65), including loans secured by savings accounts in the bank (T 66), which he considered easy and profitable (T 67). Some of these loans might be made to applicants upon personal appearance and identification for special reasons, such as to provide funds just prior to the quarterly interest payment date to avoid loss of interest (T 68), and such quick loans never to his knowledge resulted in foreclosure of collateral (T 69).

(b) As to personal loans on a longer repayment basis, the witness testified that personal knowledge of the persons applying for credit was important (T 83) and that, even with security, some check-up, especially on income stability (T 82), would be made. Prospective borrowers on unsecured loans would be checked out through the Boston Merchants Reporting Service and banks, if any, named in the loan application would be called (T 70). He stated that he had found responses from other banks regarding a borrower's repayment record to be brief and without disclosure of details (T 84) but he also agreed that he would place no reliance on an applicant's early repayment record if he knew it to be contrived (T 73). Nevertheless, the witness believed (T 75) that a good credit rating could be achieved by following the advice in the pamphlet sold by Respondents (Ex. CX-4).

(c) The witness defined as a credit card any card which induces one party to give credit to another either through third party or direct billing (T 75) and, hence, viewed the National Express card as a credit card (T 77). He pointed out, on the basis of personal experience, that a credit card may induce on occasion the granting of credit to its holder through postponed direct billing even though the party extending the credit did not participate in the charging arrangement represented by that card.

12. An applicant for a loan of $400, secured by a savings account in the lending bank, is likely to be required to submit a complete loan application in which he would be asked to list indebtedness to other banks, if any. Exceptions might occur where the loan is to be repaid in full in a few days or where the prospective borrower is well known personally and is known to have stable income enabling her or him to repay on time.

13. Pre-payment of three loan installments within approximately 14 days would not per se be likely to establish Triple-A credit and certainly not whenever the contrived nature of such pre-payments as the pamphlet sold by Respondents advises comes to the attention of the lending bank.

14. A loan, such as the pamphlet's author suggests, is not fully secured by the savings account since the interest paid thereon to the borrower is less than that paid to the lending bank on the borrower's loan (see Ex. CX-4, p. 14, col. 2).

15. A credit card, in common speech and understanding, is a small card identifying a person as being entitled or authorized to charge goods or services on credit or have them billed on charge account. WEBSTER'S THIRD INTERNATIONAL DICTIONARY OF THE ENGLISH LANGUAGE (1961), s.v. credit card; RANDOM HOUSE DICTIONARY OF THE ENGLISH LANGUAGE (1966), s.v. credit card. Credit card service, which affords virtually automatic authorization of purchases on a charge-account basis is provided either by the vendor or for the vendor by outside specialist organizations when he is unable to provide his own service because of technical or financial problems or both. ACCOUNTANTS' HANDBOOK (5th ed., 1970), p. 6.13. See also MANDELL, CREDIT CARD USE IN THE UNITED STATES (U. of Mich. 1972), c. 1.

16. Based on the foregoing findings of fact and on the entire record I find that the representations made by Respondents in its advertisements, circulars and the pamphlet sold by it and alleged to be false in the complaint are false in fact:

(a) That a recent bankrupt or welfare recipient can, by following the methods set forth in the pamphlet sold by Respondents, obtain credit fast and easily, whereas Respondents' method in fact requires four hundred dollars ($400) in capital and loans, such as the method advocated in the pamphlet sold by Respondents involves, will not be readily granted to a recent bankrupt or welfare recipient (Findings 10(a), 14; cf. Finding 11(b)).

(b) That Respondents' product contains instructions and methods which are 100% legal, whereas the pamphlet sold by Respondents counsels concealment of debts, contrived repayment records and suggests dubious, if not outright dishonest, answers to questions on loan applications (Ex. CX-4 and Finding 5(b), (d), (e), (g)).

(c) That Respondents' product contains information how new laws help one in credit and collection whereas the content of such laws is erroneously summarized (Finding 8(b)).

(d) That the pamphlet sold by Respondents contains information on how to obtain the best possible credit reference (meaning a bank reference) whereas the plan proposed therein does not assure such reference (Findings 10(d), 13).

(e) That Respondents' product contains information on how to obtain credit cards without a credit investigation whereas the card cited under that heading in Section Three of the pamphlet sold by Respondents is only an identification card (Findings 6(b), 7, 15).

1. Respondents are engaged in a scheme or device for obtaining money or property through the mails by means of false representations within the meaning of 39 U.S.C. 3005.

2. Respondents' advertisements make the false representations charged in the Postal Service complaint and will be so understood by the ordinary reader. See Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948).

3. All of Respondents' representations could properly be made only with such substantial qualification as to render the representations actually made by Respondents in effect false. For a similar conclusion see A-1 Credit Advisers, Inc., P.S. Docket No. 2/168 (1974). These false representations will mislead purchasers contrary to the intent of 39 U.S.C. 3005.

4. In reaching the foregoing conclusion I have weighed the testimony of the expert witnesses called by the parties. To a large extent their testimony is not actually in conflict and supports Complainant's position. The ultimate conclusion of fact to which Respondents' expert witness testified in support of Respondents' contentions are, however, undermined by his own more detailed testimony and, even where that is not the case, are in conflict with so much other evidence in the record that they must be rejected as against the weight of the evidence. Complainant's evidence, supported in part by Respondents', establishes the facts which Complainant has alleged.

5. Of Complainant's allegations that contained in paragraph 3(c) of the complaint, while found to be false, is found not to be materially so. See Lynch v. Blount, 330 F. Supp. 689 (S.D.N.Y.), aff'd. w.o. op. 404 U.S. 1007 (1972). While the description of the rights of consumers under the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.) is in error that statute does assist borrowers, even if less broadly than Respondents assert. Nor is such misrepresentation the operative element in these Respondents' scheme.

6. Contrary to Respondents' assertion that the plan proposed in the pamphlet sold by them is 100% legal, those who follow it may well be led into making false statements to federally insured banks in order to obtain from them favorable action and thereby to violate the provisions of the U.S. Criminal Code (18 U.S.C. 1014).

7. Moreover, Respondents' scheme would also violate 39 U.S.C. 3005 to the extent that Respondents receive money or other property through the mails from purchasers of the pamphlet who have been induced and assisted by the pamphlet in making false representations to banks in order to obtain credit from them. See United States v. International Term Papers, Inc., 477 F.2d 1277 (1st Cir., 1973). That Respondents' scheme either contemplates or accepts this result is patent on the record of this proceeding.

8. The National Express card (Findings of Fact 6(b), 7) is not a credit card by legal definition. For that card neither certifies the holder as a good credit risk nor guarantees that the issuer will pay to the holder's vendors the amount of purchases charged by the holder to the card. Williams v. United States, 192 F. Supp. 97 (S.D. Cal. 1061); Tillman v. State, 13 Md. App. 570, 284 A.2d 259 (1971); State v. Perrigoue, 81 Wash. 2d 640, 503 P.2d 1063 (1972); compare United States v. Fordyce, 192 F. Supp. 93 (S.D. Cal. 1961). Without an established charging privilege a card is not properly a credit card. Hence, the representation made in the pamphlet sold by Respondents that a person ordering a National Express card receives a credit card without investigation is materially false. The falsity of the representation lies in the misrepresentation by Respondents of what National Express provides. Respondents are not being held responsible for National Express' actions.

9. The fact that Respondents currently offer the pamphlet on 10-day free trial with a money back guaranty does not affect their liability under 39 U.S.C. 3005. Parker Publishing Co., P.S. Docket No. 1/84 (1974).

10. Neither party refers to any First Amendment issue and we find none to exist. Respondents, in selling the Art Fox pamphlet, are selling a scheme for action and are not propagating ideas. Hence, their activity is subject to the restraint of 39 U.S.C. 3005. See Sharon Woodman Associates, P.S. Docket No. 2/122 (1974); Lydia Feldman, P.S. Docket No. 1/202(1973); Brentwood Research, P.S. Docket No. 1/173(1973).

11. Accordingly, an order in the form attached, as provided in 39 U.S.C. 3005, should be issued.