In the Matter of the Complaint Against:

TERRANCE H. HALL
d/b/a PIONEER DEVELOPMENT SERVICES

and

PIONEER SERVICES UNLIMITED,
P.O. Box 133 at
Danville, IL 61832-0133

P.S. Docket No. 29/172

Mason, Randolph D.; Administrative Law Judge

APPEARANCES FOR COMPLAINANT:
H. Richard Hefner, Esq.;
Thomas P. Kuczwara, Esq.,
Consumer Protection Division,
U.S. Postal Service,
Law Department,
Washington, DC 20260-1144

APPEARANCE FOR RESPONDENT:
Mark D. Stuaan, Esq.,
Leiter, Brady & Associates,
309-A Main Street,
Peoria, IL 61602-1313

INITIAL DECISION

This proceeding was initiated on March 14, 1988, when the Postal Service filed a Complaint alleging that Respondent Terrance H. Hall d/b/a Pioneer Development Services and Pioneer Services Unlimited, is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations in violation of 39 U.S.C. 3005. Specifically, the Complaint alleges in paragraph 6 that Respondent falsely represents, directly or indirectly, in substance and effect, whether by affirmative statement, implication or omission, that:

(a) Respondent will issue to applicant a Visa, and/or Mastercard credit card at the advertised rate;

(b) Respondent will issue a signature loan-by-mail to applicant in an amount ranging from $500 to $25,000;

(c) Respondent is authorized to represent the financial institution named in its notification letter to applicant (Exhibit 5);

(d) The aforementioned financial institution will issue credit in the form of a card(s) and/or loan to applicant.

In his Answer, Respondent denies that he makes the above false representations or that he violates the statute.

A hearing was held by the undersigned Administrative Law Judge on May 17, 1988, in Champaign, IL. Both parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Complainant presented the testimony of Postal Inspector Marian K. W. Day, Kenneth Berjer, Francine Webb, Penny Morman, and expert witness Dr. David Gardner. Respondent presented documentary evidence. After the hearing, the parties filed proposed findings of fact and conclusions of law which have been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. Respondent Terrance H. Hall is an individual using the names Pioneer Development Services and Pioneer Services Unlimited to solicit money or property through the mail to P.O. Box 133, Danville, IL 61832-0133 (Ans. 2, Tr. 10).

2. He solicits customers for his promotion by placing a classified advertisement similar to the following in national and local publications of general circulation:

"10% VISA] Loans by mail. Unsecured. Turned down? Bankrupt? No problem. Guaranteed. First Simmons. Free information: Pioneer Development Services, P. O. Box 133, Danville, IL 61832. Call toll free 24 hours/7 days: (800) 444-5952." CX-6-10

Another version adds: "Instant Approval]" (CX-8).

These ads are aimed at people in a lower socio-economic demographic category with credit problems; such people are more easily deceived than those in other categories (Tr. 88).

3. A prospective customer calling the toll free number is only asked his name and address, whether he has a source of income, and whether he had filed for bankruptcy in the past three months. Then, after being put on hold for a few seconds, is told that he or she has been "approved" or "preliminarily approved" for a credit card or loan by mail (Tr. 12-13, 39, 51-53).

4. Thereafter, the consumer receives a window envelope in the mail from Pioneer Development Services with "APPROVED" stamped on the outside. The envelope contains: a letter indicating "Preliminary Approval for your Visa and MasterCard Credit Cards]]" (CX-1); a credit card information sheet (CX-2) and/or loan by mail information sheet (CX-2A); an application form (CX-3); and a business reply envelope to Respondent's "Credit Processing Division" (CX-4). Some also contain a bonus coupon and a business card from "J. R. Hall, Account Executive" (Tr. 13).

5. The application is similar to other credit card applications. After sending in the application and remitting $30, the consumer receives another mailing envelope from Respondent stamped "APPROVED CONFIRMATION ENCLOSED" and a letter which reads:

"We have notified the institutions that service your area and offer the type of credit cards that you have requested. Upon receipt of final application and approval your card will be issued by: Mercantile Bank. You will shortly be receiving (by mail) the final application from the bank." CX-5

6. Respondent does not issue credit cards or loans to his customers, but merely acts as a referral service. In most cases Respondent simply requests that a bank such as the Mercantile Trust Company, with whom he has no affiliation, send an application for a credit card or loan directly to Respondent's customer (Tr. 28-30). (The Mercantile Bank charges 19.8% interest on the first $1,000 loaned, and 10% on the balance (Tr. 28)). Since all of these requests were sent from the same Danville, IL Post Office, and contained the same handwriting, the bank became suspicious and did not send the requested applications (Tr. 29-30, 32).

7. Complainant's expert witness, David Gardner, Ph.D., is an expert in consumer psychology and consumer behavior (Tr. 67). His testimony was forthright and credible, and corroborates the findings of the Administrative Law Judge in the instant decision.

The Alleged False Representations

Representations (a) and (b)

"(a) Respondent will issue to applicant a Visa, and/or MasterCard credit card at the advertised rate;" and,

"(b) Respondent will issue a signature loan-by-mail to applicant in an amount ranging from $500 to $25,000."

8. Representations (a) and (b) are made in Respondent's classified advertisements (CX-6-10), telephone conversations (Tr. 12-13, 39, 51-53), and first mailing (CX-1-4, CX-11). This finding is corroborated by the opinion of Complainant's expert, Dr. Gardner (Tr. 69-70), and the testimony of consumer witnesses (Tr. 41, 49, 55, 59). The portions of Respondent's solicitations which make representations (a) and (b) are as follows:

The classified ad states:

"10% VISA] loans by mail. Unsecured. Turned down? Bankrupt? No problem. Guaranteed. Respondent's name and address and 800 telephone number .

Consumers who call the 800 number are told that they have been "approved" or "preliminarily approved." Consumers think that they are being approved for a loan or credit card (Tr. 12-13, 39, 51-53). Some consumers did not call, but sent written requests for information. Although the latter did not receive these telephonic impressions, they still would have interpreted the written solicitations as making representations (a) and (b) (Tr. 77).

Thereafter, the consumer receives Respondent's mailing, which is prominently stamped "APPROVED" (CX-11). The letter states:

"PRELIMINARY APPROVAL *** PLEASE REMIT PAYMENT
WITHIN: 30 days
AMOUNT NOW DUE --------------- $30.00

RE:**Preliminary approval for Your Visa and
MasterCard Credit Cards]]
***Immediate Response Requested***

Congratulations] You have already been enrolled
as a Preferred Applicant to our Visa and
MasterCard Program. We want to advise you that
you have already received preliminary approval
based upon the information given to our
telephone representative.

We are specialists in serving the financial
needs of individuals throughout the United
States. We are the largest company of our kind
and our banking contacts represent some of the
largest and most prestigious financial
institutions in the country.

When using our system even if you have
previously been turned down, filed bankruptcy,
have no credit, or excellent credit you can
qualify. Approval is guaranteed or your money
back. DON'T BE LEFT OUT]]]

All you need to do now is read the enclosed
material, complete the Request for Service, sign
the Agreement and return it in the enclosed
envelope along with the one time service fee.
We will process your Request within 48 hours]]

Remember: Approval is guaranteed or your money
back]"

The information sheet (CX-2) states:

"Thank you for your recent request for a credit card. . . Once you apply, a credit card can be sent to you by mail within a few short days....

NOW AVAILABLE

10 1/2% VISA

HOW TO GET YOUR CREDIT CARD]

We are specialists in serving the financial needs of individuals throughout the United States. Our banking contacts represent some of the largest and most prestigious financial institutions in the country. . . 99% of all applicants are approved regardless of previous credit history, even bankruptcy."

The loan-by-mail information sheet is substantially the same but refers to loans instead of credit cards (CX-2a).

The disclaimer "All cards issued or all loans made by major financial institutions nationwide" appears in a listing of information describing the cards. On CX-2 it appears adjacent to "NOW AVAILABLE 10 1/2% VISA", which is in large print. The disclaimer would not be noticed by many ordinary readers of the solicitation.

The information sheet then lists the steps to obtain a credit card or on CX-2a a loan . After signing the Agreement and remitting $30 to Respondent, it indicates that the consumer will receive a list of institutions and additional, presently unexplained, instructions and forms "to enhance the immediate approval of the loan". In light of all of the previous information, this would not put the ordinary reader on notice that Respondent would not be issuing a credit card or loan.

The application contains the following:

REQUEST FOR SERVICE

VISA/MASTERCARD AND LOAN BY MAIL ACCEPTANCE

Emphasis added

To the extent "Request for Service" is a disclaimer, this is counterbalanced by the second line and the overall appearance of the page as an application for credit.

After the standard credit application form appears the following:

ACT NOW] Please complete this short form and mail with your one time service fee of $30 each to Pioneer Development Services . . . .

. . . I the undersigned give permission to obtain any and all credit information that may be required for the purpose of effecting a credit transaction.

SIGNATURES MUST BE INCLUDED TO COMPLETE APPLICATION

Emphasis added

The application also contains the following disclaimer in small print at the bottom of the page:

I understand that if I am denied credit requested my processing fees will be promptly refunded - so I risk nothing] I agree to send denial letters to PDS.

This would not be noticed by the ordinary reader and would not dispel the overall impression created by the remainder of the solicitation.

The cover of the application contains a picture of a VISA card together with "Your Invitation..." and Respondent's name, all of which further contributes to representations (a) and (b) (Tr.74).

9. Representations (a) and (b) are materially false.

Representations (c) and (d)

"(c) Respondent is authorized to represent the financial institution named in its notification letter to applicant (Exhibit 5); and

"(d) The aforementioned financial institution will issue credit in the form of a card(s) and/or loan to applicant.

10. These representations are made in the Respondent's second mailing (CX-5). This finding is corroborated by Complainant's expert witness (Tr. 75-77). It is clear that such representations are false. However, the second mailing is sent after the consumer has remitted his $30 in response to the first mailing.

11. Representations (c) and (d) are not material because they do not tend to induce consumers to remit money to Respondent. These representations are made after the money has already been remitted (Tr. 78).

CONCLUSIONS OF LAW

1. (a) Each of Respondent's advertisements must be considered as a whole and the meaning is to be determined in light of the probable impact of this material on a person of ordinary mind. Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948); Peak Laboratories, Inc. v. U.S. Postal Serv., 556 F.2d 1387, 1389 (5th Cir. 1977). The statute is intended to protect the gullible, naive, and less critical reader, as well as the more sophisticated, wary reader. Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F. Supp. 1180, 1184 (E.D.N.Y. 1978); Gottlieb v. Schaffer, 141 F. Supp. 7 (S.D.N.Y. 1956); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986). Express misrepresentations are not required. It is the net impression which the advertisement is likely to make upon individuals to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it, the false representation statute is applicable. G.J. Howard Co. v. Cassidy, 162 F. Supp. 568 (E.D.N.Y. 1958); See also, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).

(b) Where an advertisement is ambiguous or capable of more than one meaning, if one of those meanings is false, the advertisement will be held to be misleading. Rhodes Pharmacal Co. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); Ralph J. Galliano, P.S. Docket No. 19/15 (P.S.D. May 2, 1985 at p. 9).

(c) An inconspicuous disclaimer is not sufficient to dispel the effect of false representations. Leo Daboub, supra; Gottlieb v. Schaffer, supra.

(d) The Administrative Law Judge can determine whether the representations are made, their effect on the ordinary mind, and materiality without the assistance of lay or expert testimony. Standard Research Labs, P.S. Docket No. 7/78 (P.S.D. Oct. 27, 1980); The Robertson-Taylor Company, P.S. Docket Nos. 16/98-102, 16/120-121, (P.S.D. March 31, 1986 at page 29); Vibra-Brush v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2nd Cir. 1958).

2. Applying the foregoing standards, I find that Respondent's advertisements and telephone conversations make the representations alleged in 6(a)-(b) of the Complaint. The language contained in the solicitations, when read in context, which directly or impliedly makes these representations is set forth in the findings of fact.

3. As set forth in the findings of fact, the representations set forth in paragraph 6(a) and (b) of the Complaint are materially false.

4. Representations (a) and (b) are material because they have a tendency to persuade readers to order and pay for Respondent's product.

5. Representations (c) and (d) are also made by Respondent and are false. However, they are not material because they do not tend to persuade readers to remit money. These latter representations are made after the money has already been remitted by customers. Accordingly, allegations 6(c) and (d) of the Complaint are dismissed.

6. With respect to allegations 6(a) and (b), Complainant has established its case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978).

7. It is concluded that Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of materially false representations in violation of 39 U.S.C. 3005.

8. Accordingly, the attached False Representation Order and Cease and Desist Order should be issued.