In the Matter of the Complaint Against REGENCY PRESS at 11848 Vose Street and 10523 Burbank Boulevard, Suite 103 at North Hollywood, California 91605 P.S. Docket No. 3/62December 3, 1974
Rudolf Sobernheim Administrative Law Judge
APPEARANCES: Lee H. Harter, Esq. Consumer Protection Office Law Department U.S. Postal Service Washington, D. C. 20260 for Complainant J. Howard Sturman, Esq. Balter and Sturman 1134 Travelers Building 3600 Wilshire Boulevard Los Angeles, California 90005 for Respondent
This is a proceeding by Complainant against Respondent under 39 U.S.C. 3005 which authorizes action against Respondent upon evidence satisfactory to the Postal Service that Respondent is "engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations."
Complainant alleges that Respondent is engaged in such scheme in the promotion of a pamphlet, entitled "Get Triple 'A' Credit Without Investigation", published by Respondent. Specifically, Complainant in the complaint, as amended, alleges that by the use of advertisements Respondent in substance and effect represents:
(a) "That Respondent will provide a method or information necessary to enable the average purchaser to get 'Triple 'A' Credit Without Investigation';"
(b) "That the method or information to be provided [by Respondent] will enable a person to obtain 'Triple 'A' Credit Without Investigation' in one week." and that such representations are false (Amendment to Complaint, Par. IV, V).
A copy of the advertisement, alleged to have been used by Respondent, was attached to the complaint as a first (see also Compl. Ex. 1) and a copy of the pamphlet sent to those responding to the advertisement as a second exhibit (see also Compl. Ex. 4).
In its answer to the complaint and the amendment to its answer responding to the complaint, as amended, Respondent admitted that it was engaged in selling the cited pamphlet by means of the cited advertisement but denied that either the advertisement or the pamphlet made false representations and that a follower of the method outlined by Respondent in the pamphlet could "obtain an excellent credit rating in as little as thirty days" (Am. Answer, par. 2, in fine ). As affirmative defenses Respondent pleads that its activity, called in issue by the complaint, was protected by the First Amendment to the Constitution of the United States and that it communicated more valid and important information than the booklet protected in United States v. Pellegrino , 467 F2d 41 (9th Cir., 1972).
Bot in its answer and in the amendment thereto Respondent asked that the matter be heard and determined on Complainant's proof (39 CFR 952.11). A hearing was accordingly held at which Respondent did not appear. Complainant presented thereat, in addition to the testimony of a Postal Inspector, expert testimony as to bank loan practices. On its motion the part of the record in Continental , Credit-7 and Arrow , P.S. Docket No. 2/169(1974), relating to International Express and its card, was admitted in evidence (T 35). At the end of the hearing Complainant's counsel stated his answer to Respondent's affirmative constitutional defenses on the record.
1. Respondent, using addresses at 10523 Burbank Boulevard and 11848 Vose Street in North Hollywood, California 91605, is engaged in selling through the mails a fifteen-page pamphlet entitled "Get Triple 'A' Credit Without Investigation".
2. The advertisement in evidence here reads as follows:
Get Triple "A" Credit Without Investigation] Now get those national credit cards and loans. Pay off those old debts. Stop harassment by creditors. But that home, car or appliance you have always wanted. Learn the secrets closely guarded by credit bureaus and banks. Send just $3.98 to REGENCY PRESS, Dept. 12-A, 11848 Vose Street, No. Hollywood, CA 91605. GET RESULTS in one week or your money back]
3. In its advertisement Respondent promised to furnish to purchasers a means of getting triple "A" credit without investigation, national credit cards and loans and learning the secrets closely guarded by banks and credit bureaus. The word "secrets" is emphasized by heavy print. Results, plainly related to the foregoing, were promised in one week.
4. In its advertisement Respondent asked interested persons to send to it at its Vose Street address the sum of $3.98. In return the sender was to receive Respondent's pamphlet.
5. The pamphlet (Att'mt to Compl., Compl. Ex. 4) is stated to be based on material gathered through the research facilities of Respondent and was copyrighted by it in 1973. In consists of fifteen standard size numbered pages on which the text appears in double-spaced reproduction from a typewritten master. The main scheme of how to get the desired credit rating and consequent benefits resembles closely that of the pamphlet by Art Fox, involved in the Continental case, supra , where an order under 39 U.S.C. 3005 was issued, and the similar pamphlet in issue in Vernon Torrey , P.S. Docket No. 3/86 (1974), where Respondents executed a compromise agreement acceptable to Complainant.
6. (a) As similar pamphlets, Respondent's begins with a description of methods by which the purchaser of the pamphlet may be able to settle or compromise his debts (Compl. Ex. 4, pp. 1-5).
(b) The pamphlet then goes on to the subject of credit ratings.
(i) The purchaser of the pamphlet is told first how to make himself appear credit worthy ( id ., pp. 5-8). He is advised to get a telephone number listed in his name and, if he has none, to persuade a friend to let him be listed with the friend's number. He is advised further that homeowners are preferred to renters, that he should have lived at his place of residence for at least five years and, if a tenant, was renting unfurnished. It is suggested that he get his landlord to back up these assertions even if untrue ( id ., p. 6, par. 4). He is similarly advised to say that he has worked for 10 years or more in his present job, apparently again without regard to truth if the employer will back up the falsehood ( id ., par. 6).
(ii) The purchaser of the pamphlet is also told that he is more likely to get credit if he is married and has dependents and his wife is employed ( id ., p. 6). He is advised to claim that his wife is part-time self-employed and to admit to his own self-employment only as supplement to a full-time job - apparently again with scant regard to truth ( id ., p. 8).
(iii) He is advised to avoid stating that he is employed in a number of types of jobs, such as musician, taxi driver, bartender, etc. ( id ., pp. 7-8).
(c) Respondent next sets forth the suggested plan for getting triple "A" credit ( id ., pp. 8-10). It consists of borrowing or otherwise raising $400.00 and opening a savings account at "a large reputable bank". Two days later the purchaser of the pamphlet, following Respondent's plan, is to borrow $400.00 (repayable in 12 monthly installments) from this bank against the security of his savings account, giving a seemingly fictitious reason for wanting to borrow ( id ., p. 8, in fine ). The loan is said to be easily obtainable since the savings account in the same bank is the best possible security ( id ., p. 9). This process is to be repeated twice more at other large banks at two days' interval. There is said to be little likelihood of checking up on the loan applicant since his savings account provides adequate security. The money from the third loan is then to be used to make weekly payments on each loan and after the third payment the follower of the method in Respondent's pamphlet is assured by Respondent of an excellent credit rating as "pays once each week, and is now pre-paid four months ahead" ( id ., p. 9). Moreover, since each bank account is within a classification range of from $400 to $799 and information thereon is coded by range rather than amount (T 27-28), it may appear that the follower of Respondent's method has close to $2,400 to his credit rather than the actual $1,200.
(d) The purchaser of Respondent's pamphlet is now said to be ready to obtain credit cards ( id ., pp. 10-11). He is advised that "there is a credit card that [he] can obtain with no prior work and without investigation", to wit: the card issued by International Express, Inc. of Scottsdale, Arizona, said to be "accepted by many service stations, restaurants, and merchants." ( id ., p. 9). The relevant part of the record in Continental , supra , made part of the record herein and the Findings of Fact Nos. 6(b), 7, 10(d), 15 and 16(e) and Conclusion of Law No. 8 of the Initial Decision in Continental , supra , affirmed by the Judicial Officer of the U.S. Postal Service, show that the so-called International Express card is not a credit card in the accepted business and legal sense of that term. Neither the purchaser of Respondent's pamphlet nor the purchaser of the pamphlet sold by Continental , obtains a credit car when he purchases the International Express card.
(e) The balance of Respondent's pamphlet ( id ., pp. 11-15) has no relevance or materiality.
7. Complainant called the vice-president for consumer credit of the American Security & Trust Company, the second-largest bank in the District of Columbia, who showed broad experience and familiarity with banking practice in his field, as its expert witness. He testified that under current banking practices, especially of large banks, the method outlined in Respondent's pamphlet was not likely to lead to the desired result of a high credit rating. He gave these details:
(a) Applications for bank loans generally are directed to elicit information on the borrower's stability and ability to repay (T 12) and require disclosure of all obligations then outstanding (T 13). He considered the suggestion that the current job should be held for 10 years "overkill" but that one year at the same place would indicate stability (T 21). He made the same comment on the suggestion that five years at the same address would help but pointed out that no inquiry was made on such loans as to whether the prospective borrower was a renter or home owner (T 23). Marriage was considered a sign of stability and a wife's earnings a means of insuring repayment but dependents might be a drain on the borrower's finances and cause doubt of his ability to repay (T 24). The comments in the pamphlet on jobs raised questions of prohibited discrimination and were questionable (T 26). The real question was the borrower's steady, ascertainable income which would insure greater likelihood of repayment than income from tips the amount of which was hard to verify (T 27).
(b) Small loans of $400, secured by a savings bank book, were not profitable to banks and would generally only be made to accommodate a well-known customer or in cases of special hardship.
(c) The operations of large banks are computerized and computers do not furnish such subjective ratings as that the borrower is ahead in repayments. An account or accounts, such as Respondent counsels be established, would not be rated at all (T 17). Moreover, computerization creates a time lag which Respondent's scheme fails to take into account (T 18).
(d) Hence, in the circumstances outlined by Respondent's pamphlet loans might well be declined in the first place and no rating would be given if the scheme were followed through (T 18-19).
(e) Finally, Respondent's scheme overemphasizes the importance of security. Loans are made on the basis of an expectation of repayment not foreclosure of security (T 29). This expectation is justified by the honesty of the borrower and, hence, Respondent's repeated suggestion to shade the facts is bad advice (T 29).
8. The testimony of Complainant's expert witness is not contradicted, is not internally inconsistent or inherently improbable and is accepted as correctly reflecting the current practices of large banks with whom the purchaser of Respondent's pamphlet is advised to deal.
9. Based on the detailed Findings of Fact made herein-above and the record as a whole I find that the representations made by Respondent in its advertisement and the pamphlet sold by it and alleged to be false in Paragraph IV A of the complaint, as amended, are false in fact:
(a) The method advised by Respondent in its pamphlet will not provide for the average purchaser of the pamphlet a triple "A" credit rating.
(b) The average purchaser of the pamphlet is nt likely under current operational practices of large banks to obtain the loans suggested in the pamphlet or to obtain them without some degree of investigation and he will not obtain a positive rating on the basis of Respondent's early repayment plan.
(c) Respondent's pamphlet sets forth no closely guarded secrets. The information given by Respondent is not only in some respects false or misleading (see Findings 6(b)(i), (ii), 7(a)) but is available from many sources. See Continental , supra ; Vernon Torrey , supra . Moreover, Respondent's advise might lead the purchaser of its pamphlet to deceive prospective lenders in violation of federal criminal law (see 18 U.S.C. 1014).
(d) Respondent in its pamphlet falsely represents that the International Express card, obtainable without investigation, is a credit card obtainable as a result of the triple "A" credit achieved on the basis of its advice.
10. It is arguable whether Respondent falsely represents that the purchaser of its pamphlet gets results in one week. But in the light of the advice given by Respondent in its pamphlet such a misrepresentation, if made, would not be a material one.
1. Respondent is engaged in conducting 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. Its advertisement makes the false representation charged in paragraph IV A of the amendment to the complaint herein and will be so understood by the ordinary reader. See Donaldson v. Read Magazine , 333 U.S. 178, 189 (1948). For a similar conclusion see A-1 Credit Advisers, Inc. , P.S. Docket No. 2/168(1974); Continental , supra . This false representation will mislead purchasers contrary to the intent of 39 U.S.C. 3005.
3. Respondent's scheme also violates 39 U.S.C. 3005 to the extent that Respondent receives 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 F2d 1277 (1st Cir., 1973). That Respondent's scheme contemplates or accepts this result is evident on the record of this proceeding.
4. The fact that Respondent offers to return the purchase price if the purchaser does not get results within one week does not affect its liability under 39 U.S.C. 3005. Parker Publishing Co . P.S. Docket No. 1/84 (1974).
5. Respondent argues as an affirmative defense that its sale of the pamphlet is protected by the First Amendment to the Constitution, citing in support of its contention court decisions upholding the sale of printed materials attacked on the ground of obscenity. It directs our attention in particular to United States v. Pellegrino , 467 F2d 41 (9th Cir., 1972). That case involved a criminal prosecution under 18 U.S.C. 1461 for depositing envelopes containing obscene matter in the mails. The Court of Appeals there held that the advertisements for certain books were not obscene though displaying female genitalia in color. The decision in no way involves a claim of false representation, e . g . that the books did not furnish what the advertisements promised, and expressly distinguishes the cases dealing with regulation of commercial advertising as inapplicable to the obscenity field. Loc . cit ., supra , at p. 45. Conversely, the decisions in obscenity cases have no application here.
6. It is fully established that the First Amendment does not protect so-called "commercial speech" when used by way of false representations to induce prospective purchasers of goods to part with their money. Valentine v. Chrestensen , 316 U.S. 52 (1942); Lynch v. Blount , 330 F. Supp. 689 (S.D.N.Y. 1971), aff'd mem., 404 U.S. 1007 (1972); United States v. Beamish , 466 F2d 804 (3d Cir., 1973); United States v. Outpost Development Corp ., dba Lydia Feldman Methods , U.S.D.C. C.D. Cal. Civil No. 73-16-FW, unreported , aff'd mem. 414 U.S. 1105 (1973).
7. Respondent here is engaged in selling a pamphlet which false represents an allegedly practical course of action to attain a desirable goal as a method capable in fact of attaining it. Such activity is not protected by the First Amendment and is subject to the restrain of 39 U.S.C. 3005. See Sharon Woodman Associates , P.S. Docket No. 1/202 (1973); Brentwood Research , P.S. Docket No. 1/173 (1973).
8. Accordingly, an order in the form attached, as provided in 39 U.S.C. 3005, should be issued.