Arlen Realty & Development Corp

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I" THE MATTER OF ARLEN REALTY & DEVELOPIVEKTCORP. , T1cADIJ\G AS KORVETTES , ET AL.

CONSE"T ORDER , ETC.. 1:\ REGARD TO THE: ALLEGED VIOLATION OJ. THE FEDERAL TRADE CmOIISSIOX AND THE TRCTH 1:­ LENDING ACTS Docket C-iU83. Compluint, April 18 , 1.97J-J)ecisio)/ , Api" ills, 1973. Consent order requiring" a Ne\v YOl"k City operator of fJ) department stores in numerous states and its subsidiary located in Baltimore, Maryland, whose charge plate is honored by approximately 4 000 merchants in the D. Baltimore area, among other things to cease issuing cl'odit cards without a prior request or application for tJlCm. COMPLAINT Pursuant to the provisions of the Truth in Lending Act, as amended, and the implementing regulation promulgated there­ under, and the Federal Trade Commission Act, and by virtue of the authority vested in it by said Acts, the Federal Trade ARLF:N REALTY & DEVELOPME:\T CORP., ET AL. 1235 1234 Complaint Commission, having reason to believe that Arlen Realty & Developn1ent Corp. , a corporation, also doing business as Kor­ vettes, a division, and NAC Credit Corporation, a corporation hereinafter sometimes refened to as respondents, have violated the provisions of said Acts and implementing regulation, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its com­ plaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent Arlen Realty & Development Corp. is a corporation organized, existing and doing business under and by virtue of the laws of the State of New York, with its offce and principal place of business Jocated at 888 Seventh Avenue, I'ew York, J\ew York. Respondent Arlen Realty & Development Corp. formulates, controls, and directs the policies acts and practices, including those hereinafter set forth, of its division, Korvettes, and of its wholly-owned subsidiary, :tT Credit Corporation.

PAR, 2, Korvettes is an operating division ofrcsponclent Arlen Realty & Development Corp. with its main office and principal place of business located at 450 West 3:Jrd Street, )Jew York Ne\v York. Through this division, said respondent is now, and for some time in the past has been, engaged in the advertising, offering for sale, sale and distribution of general merchandise through over fifty (50) Korvcttes retail stores located in numer­ ous states.

PAR. 3. Respondent )JAC Credit Corporation is a corpuration organized, existing and doing business under and by virtue of the Jaws of the State of Maryland, with its office and principal place of business located at 200 West Baltimore Street, Bal­ timore, Maryland. Respondent J\AC Credit Corporation hereinafter sometimes referred to as NAC , is a wholly-owned subsidiary of respondent Arlen Realty & Development Corp. PAR. 4. In the ordinary Course and conduct of its business as aforesaid, respondent Arlen Realty & Development Corp. doing business as Korvettes, subsequent to October 26 , 1970 regularly issued credit cards, as " credit card" is defined in Regu­ lation Z, the implementing regulation of the Truth in Lending Act, duly prom ulgated by the Board of Governors of the Federal Reserve System.

PAn.. 5. In the ordinary course and conduct of its business as aforesaid, respondent Arlen Realty & Development Corp. doing business as Korvettcs, in connection ''with its credit sales as " credit sale" is defined in Regulation Z, has caused and is causing a substantial number of its customers to execute retail 1236 FEDF:RAL TRAm: COMMISSIOK DECISIONS Complaint H2 F.

installment sales contracts. Within the test of these retail installment sales contracts is a sentence to the effect that one or more credit cards are requested by the consumer. Typical of such language, but not all inclusive theJ'eof, are the following: 1. I hereby request a Korvettes Charg"e Plate. 2. I request a Charg( Plate from Korvettes or any of its parent or S11 bsidiary companies.

3. I hereby request a charge plate from Korvettes, Arlen Realty & Develop­ ment Corp. or any of its affiliated or subsidiary companies. Pursuant to the above-quoted language and the consumer signature on the retail installment sales contract, said respon­ dent issued a substantial number of credit cards to cust0111ers who were unaware of the existence of such language and who had not intended to request or apply for such credit cards. PAR. 6. By and through the use of said practice described in Paragraph Five hereof, said respondent issued Korvettes credit cards without responding to a "request or applkation for such credit cards, as required by the Truth in Lending Act. Further, such cards were not issued in renewal of or in substitu­ tion for an accepted credit card, as "accepted credit card" is defined in Regulation Z, in violation of Seciion 132 of the Truth in Lending Act and Section 226.13(b) of Regulation Z. PAIL 7. In the ordinary course and conduct of their business respondents Arlen Realty & Development Corp. and NAC Credit Corporation are now, and for some time in the past have been engaged in the advertising for, solicitation and acceptance of open end credit accounts with COnSUTI1ers, doing business as :\AC Charge Plan.

PAR. 8. In the ordinary course and conduct of their business as aforesaid, subsequent to October 26 , 1970, respondents Arlen Realty & Development Corp. and NAC Credit Corporation reg­ ularly issued credit cards, as "credit card" is defined in Regulation Z, the implementing regulation of the Truth in Lending Act, duly promulgated by thc Board of Governors of the Federal Reserve System.

PAR. 9. In the ordinary course and conduct of their business said respondents contract with retailers of goods and services to accept their " NAC Charge Plate " credit card in lieu of cash. Respondents supply special forn1s, sometimes referred to as sales drafts " to be used when a cardholder charges a purchase against his" AC charge account.

On the sales draft, in addition to the information applicable to the particular sale, is language of which the following is typi­ ARLE:- REALTY & DEn:LOP:Ir:NT CORP., ET AL. 1237 1234 Complaint cal and illustrative, but not all inclusive: " I hereby request an :"AC Charge Card.

When a consumer makes a purchase, the sales draft is com­ pleted by the retailer, identifying the merchandise purchased and the consumer s credit card imprint is embossed thereon. The consumer then signs the sales draft for the purpose of authorizing the credit sale, PAR. 10. In a substantial number of instances, a consumer uses a major credit card other than an NAC Charge Plate to purchase goods or services from various retail outlets, and the sales draft supplied by KAC is used by the retailer in the same manner as described in Paragraph Nine hereof. Pursuant to the language appearing on the sales draft and such consumer s signature thereon, said respondents issued a substantial number ofNAC credit cards to Consu111ers who were unaware of the existence of such language and who had not intended to request or apply for such :"AC Charge Plate. PAR. 11. By and through the use of said practice described in Paragraphs Nine and Ten hereof, respondents issued NAC credit cards \vithout responding to a " request or application for such credit cards, as required by the Truth in Lending Act. Further, such cards were not issued in renewal afar in substitu­ tion for an accepted credit card, as " accepted credit card" is defined in Regulation Z, in violation of Section 132 of the Truth in Lending Act and Section 226. 13(b) of Regulation Z. PAR. 12. Pursuant to Section 103(q) of the Truth in Lending Act, respondents' aforesaid failures to comply with that Act and Section 226. 13 of Icegulation Z constitute violations of that Act and, pursuant to Section 108 thereof, respondents have vio­ lated the Federal Trade Commission Act. DISSE:-TI:'G STATE:VlENT OF COMMISSIONER Mally GARDI:-Ell JONES I dissent to the Commission s prelin1inary acceptance of this consent order because in my judgment it fails to adequately protect the public interest.

The notice order required respondent to issue credit cards only on the basis of a written req uest. The consent order permits respondent to issue credit cards on the basis of oral solicitation primarily on the rational that the statute is silent as to whether the required request should be oral or in writing and that to require written requests would constitute an unreasonable or unnecessary burden on the respondent. Since this order seeks to rectify a violation of this law, the statute clearly does not 1238 FEDERAL TRADE COMyIISSIO DECISIO:\S Dissenting Statement H2 F. control the type of relief which may be required in order to prevent future violations. With respect to the argument based on burdensomeness, it is clear that relief should not unduly burden a respondent. But it is also clear that claimed burdensameness should not stand in the way of necessary relief. In the instant case, requiring written requests would clearly be the most effective relief for a respondent which was charged with so burying the request within its retail installment con­ tracts that consumers signing these contracts could hardly be said to have made a conscious deliberate request for a credit card. In respondent s future conduct, the objective is to make sure they do not try to secure the same result by different means. Oral solicitations are highly vulnerable to similar concealment in part because they will be difficult to supervise and partly because consumers will not have very specific recalls of oral conversations and the Commission will inevitably be confronted with disputes as to what was said. Accordingly, if oral solicita­ tions are to permitted the order should surround them with essential safeguards.

I believe the order should have required that where oral solici­ tations are inade in person, the request for the credit card must be in writing since it will be a simple matter for the respondent to present a form request for signature. hen the request is made by telephone, where written confirmation might be diffi­ cult, respondent should be required to confine his telephone solicitation to the single point of seeking a request for a credit card. Ifrespondent is permitted to include a credit card solicita­ tion among other solicitations or as part of a surveyor what other matters which respondent may chance to talk about dur­ ing the course of a telephone solicitation, the Commission staff will be unable to verify whether in fact the customer so solicited freely and consciously gave his consent to receiving a credit card. Respondent will claim the customer was fully informed the customer may not believe so, yet the respondent will still be able to claim compliance with the order. With the safeguard of being limited in a telephone solicitation to inquiring about the consumer s interest in receiving a credit card, disparities of recollection can be minimized and the Com­ mission can be assured that a fast talking salesman \\Till not again bury the request in the midst of other points being talked about and thc consumer s consent, if given, will be equally clearly directed to the receipt of the credit card and not to some other questions which may have been put to hi1'n or her. ARLEN REALTY & DEVELOPMENT CORP., ET AL. 1239 1234 Decision and Order DECISION A:'D ORDER The Commission having heretofore determined to issue its complaint charging the respondents named in the caption hereto with violation of the Truth in Lending Act and the Federal Trade C011m ission Act, and the respondents having been served with notice of said determination and with a copy of the com­ plaint the Commission intended to issue, together with a prop­ osed form of order; and The respondents and counsel for the Commission having-there­ after executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the complaint to issue herein, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s rules; and The Commission having considered the agreement and having provisionally accepted same, and the agreement containing con­ sent order having thereupon been placed on the public record for a period of thirty (30) days, and having duly considered the comments filed pursuant to Section 2. 34(b) of its rules, now in further confornlity with the procedure prescribed in Section 34(b) of its rules, the Commission hereby issues its complaint in the form contenlplated by said agreement, makes the follow­ ing jurisdictional findings, and enters the following order: 1. nespondent Arlen Realty & Development Corp. is a corpora­ tion organized, existing and doing business under and by virtue ofthe laws of the State of New York, with its offce and principal place of business located at 888 Seventh Avenue, Kew York New York.

Korvettes is an operating division of respondent Arlen Realty & Development Corp. with its main office and principal place of business located at 450 West 33rd Street, ='ew York, New Y or k.

Respondent NAC Credit COJ' poration is a corporation organized, existing and doing business under and by virtue of the laws of the State of Maryland, with its offce and principal place of business located at 200 West Baltimore Street, Bal­ timore, Maryland.

2. The Federal Trade Commission has jurisdiction of the sub­ ject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

1240 FEDERAL TRADE COMMISSIOK DECISIO:\S Dccision and Order 82 F. ORDER It is ordered That respondent Arlen Realty & Development Corp., a corporation, also doing business as Korvcttes, a division or under any other name or trade style, and respondent NAC Credit Corporation, a corporation, their successors and assigns and respondents ' officers, agents, representatives and employees, directly or through any corporate OJ' other device in connection with the issuance of credit cards, as "credit card" is defined in Regulation Z (12 C. 226) ofthc Truth in Lend­ ing Act, as amended, (Pub. L. 90-821 , 15 U. C. 1601 et seq. shall forthwith cease and desist from:

Issuing any credit card, other than a credit card issued in renewal of or in substitution for an accepted credit card, as accepted credit card" is defined in Section 226.18(a) of Regula­ tion Z, unless:

1. In response to the recipient' s separate, signed, affir­ mative and specific written request or written application therefor. 01' 2. In response to the recipient' s specific oral request ob­ tained pursuant to oral solicitation, provided that the fol­ lowing procedures are employed:

A. The person making the oral solicitation must state the following, or words of similar meaning and import, at the very outset of the conversation with the person being solicited:

The purpose of this telephone call lor conv€l'sationJ is to find out if you would like to have a Korvettes lor XAC or other specific name, as applicabJeJ credit card. and B. A detailed log of all oral solicitations is maintained for a period of at least two years, such logto include: (J) The name ofthe individual who made the oral solicitation;

(2) The name of the person with whom the solici­ tor spoke;

(3) The time and date of the solicitation; and (4) Whether or not acredit card was req uested. It is.r uther ordered, That respondents shall forthwith deliver a copy of this order to cease and desist to al1 persons engaged in the issuance of respondents' credit cards, whether or not em­ ployed by respondents, and that respondents secure a signed statement acknowledging receipt of said order from each such person.

MARK HOME FUJU\TflJRE CO. , ET AL. 1241 Complaint ftis .I1.Irther ordered That respondents notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents, such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the crea­ tion or dissolution of subsidiaries or any other change in the cor­ poration which may affect compliance obligations arising out of the order.

It is .I1/'/'tl1 CI' o/'dered That the respondents herein shall within sixty (60) days after service upon them ofthis order, file with the Commission a report, in writing, setting forth in detail the manner and f01'11 in which they have complied with this order. Commissioner Jones dissenting