The U.S. Circuit Court of Appeals for the Sixth Circuit on Wednesday upheld a district court ruling that several defendants based in the U.S. and Canada deceived consumers through a telemarketing scheme selling them phony mortgage assistance and debt relief programs.

The district court fined the defendants $5.7 million to be used for consumer redress and permanently banned them from working in the debt relief or mortgage assistance industries.

The FTC filed a complaint in 2012 against E.M.A. Nationwide Inc. and several other defendants alleging that since at least mid-2010 they operated a call center in Montreal that cold-called thousands of U.S. consumers, including those whose numbers were registered on the Do Not Call Registry. The callers pitched programs that would supposedly help consumers pay, reduce or restructure credit card debts, mortgage loans, student loans and car payments. The defendants charged an upfront fee of $2,200 to $10,000 that they claimed would be used to pay off debts, according to the complaint.

The defendants allegedly claimed that their relationships with lenders and their ability to negotiate on behalf of large groups of consumers made it possible to reduce their payments.

The FTC charged the defendants with violating the FTC Act, the Telemarketing Sales Rule and the Mortgage Assistance Relief Services Rule, which prohibits mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they deem acceptable.

The defendants allegedly used a series of websites that lured consumers to call them. After the initial pitch on the phone, the defendants would send brochures and financial documents to consumers by email, asking for an authorization to withdraw funds from their checking accounts.  

The appellate court upheld the district court's ruling that the defendants' telephone conversations soliciting consumers consisted almost entirely of material misrepresentations that created a deceptive "overall net impression" to induce consumers to incur high costs for virtually worthless services. 

The court rejected the defendants' argument that the district court needed to conduct additional fact-finding proceedings before determining that those misrepresentations were not offset or "cured" by fine-print disclaimers and clarifications in the contracts and other written materials that consumers received only after agreeing to enroll in the defendants' programs.

"[The court's decision] is a major win for consumers nationwide," said Jessica Rich, director of the FTC’s Bureau of Consumer Protection. "It affirms that marketers can't get away with using misleading sales pitches and then burying 'disclaimers' in lengthy documents given to consumers later."

The appellate court summarized, "A court need not look past the first contact with a consumer to determine the net impression from that contact, and a court may consider individual advertisements or messages to determine the net impression. Defendants cannot make considerable material misrepresentations to consumers and then bury corrections and disclaimers in subsequent communications. Therefore, the district court did not err in granting summary judgment."

The full complaint names as defendants: E.M.A. Nationwide, also doing business as EMA and Expense Management America; New Life Financial Solutions Inc., also d/b/a New Life Financial, and New Life Financial Services; 1UC Inc., also d/b/a 1st United Consultants, and First United Consultants; 7242701 Canada Inc.;  7242697 Canada Inc.; 7246293 Canada Inc., 7246421 Canada Inc.; James Benhaim; Daniel Michaels; Phillip Hee Min Kwon; Joseph Shamolian; and Nissim N. Ohayon.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.