Psychic network loses future, fortune
Compiled from Times wires
MIAMI -- The future has darkened for the operators of Miss Cleo's psychic hotline, accused of overbilling consumers hoping for a few minutes of insight into matters of love and wealth.
Without admitting guilt, two Ford Lauderdale companies, Access Resource Services and Psychic Readers Network, agreed to cancel $500-million in customer bills to settle charges brought by the Federal Trade Commission. They also must pay a $5-million fine.
"I'm no psychic but I can foresee this: If you make deceptive claims, there is an FTC action in your future," said Howard Beales, director of the FTC's consumer protection bureau.
Beales said that during three years of operation the service charged people about $1-billion and collected half of it. The callers did include many satisfied customers, he said, but the FTC also received nearly 3,000 complaints from consumers.
The total financial redress is larger than the $215-million settlement the agency reached two months ago with Citigroup Inc. to resolve charges that one of its subsidiaries had engaged in widespread deceptive and abusive lending practices. But while Citigroup had to pay refunds to affected consumers, the settlement with the psychic network only requires it to forgive uncollected bills. No consumer who has already paid a bill will receive a refund.
The companies -- owned by Steven Feder and Peter Stolz -- heavily promoted a national network of "psychic readers" on television and the Internet. The star was a self-described Jamaican mystic named Miss Cleo.
The settlement with federal regulators also required the companies to stop using 900-, or pay-per-call, numbers to sell their services. But the two firms aren't out of the psychic business entirely.
Sean Moynihan, a lawyer with Klein Zelman Rothermel and Dichter in New York, who represents the companies, said ARS and PRN were still providing their psychic services to customers on a prepaid subscription basis.
But the business is much reduced, said Moynihan, explaining that the 900-number service was the "vast majority" of the companies' operations. He said they wound down that business in July and began the settlement talks with the FTC charges in September.
In a lawsuit filed in Miami in February, the FTC said the psychic service promised a free reading, but consumers calling a toll-free number were directed to a 900-number charging $4.99 per minute. The agency said nearly 6-million people made such calls and were charged an average of about $60.
The government said operators made the calls last as long as possible by telling callers they would not be charged while on hold. A telephone bill running into the hundreds of dollars was the first sign for many callers that they were being charged.
The settlement with the FTC requires these companies to cancel outstanding charges and return uncashed checks to consumers within 20 days.
Robert Schoshinski with the FTC's Bureau of Consumer Protection said the agency never found evidence that ARS or PRN carried out threats to report unpaid bills to credit bureaus or take consumers to court to collect overdue charges.
Regulators alleged intimidation was more their style.
Thomas Scott, 37, of Tallahassee said he and his wife were verbally abused by operators when they called to dispute an $80 phone charge.
"It was one of the most unbelievable experiences of my life," Scott said. "I am elated that the FTC has shut them down. Next they'll be hearing from my attorney."
The FTC also accused the psychic service of violating telemarketing rules by harassing people and making calls to those who asked to be on a "do not call" list. The agency said many consumers received up to 10 calls a day, usually automated messages telling them that "Miss Cleo had a dream about them and they should call back."
Schoshinski said the companies now have an obligation to monitor their employees and contractors to be sure they are acting within the terms of the settlement. The FTC will also continue monitoring consumer complaints.
Miss Cleo, whose real name is Youree Dell Harris, wasn't named as a defendant in the FTC lawsuit.
Florida's state attorney general has a civil case pending against Harris, accusing her of deceptive advertising.
During a deposition in June, Harris repeatedly invoked her Fifth Amendment right against self-incrimination, refusing to discuss a birth certificate showing she was born in Los Angeles to American parents.
In separate actions, the two Florida companies agreed in October to forgive $1.9-million in bills to Connecticut residents to settle charges of deceptive practices.
Similar settlements also have been reached in Arkansas, Illinois, Indiana, Kansas, Oklahoma, Pennsylvania and Wisconsin, Moynihan said.
Also in October, a Missouri court sentenced Feder and Stolz to probation and fines, resolving criminal charges of unlawful merchandising practices.
-- Information from the Miami Herald, Associated Press and Washington Post was used in this report.
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