CPA Network Swish Marketing Ordered To Pay $4.8 Million In Fines, Changes Name
After many complaints, followed by a full investigation, the FTC announced last month the final court order involving allegations of deceptive marketing by Swish Marketing and its officers: Mark Benning, Matthew Patterson, and Jason Strober. In large part damned by their own words via email and IM, this trio must pay $4.8 million in fines to right the financial harm the FTC believes Swish did to consumers.
In April 2010, the FTC filed an amended complaint against Swish Marketing, a cost-per-acquisition (CPA) network specializing in payday loans. Court documents claim that Swish Marketing collected consumersâ€™ personal information, including bank accounts, when consumers applied for payday loans. In addition to selling the collected consumer data to payday lenders, Swish Marketing used deceptive marketing practices and sold the consumersâ€™ data to third parties, which led to unexpected fees for consumers.
The FTC alleges that consumers who submitted a loan application automatically had their bank accounts debited for a zero-balance, prepaid charge card provided by VirtualWorks, LLC, without proper consent. Hundreds of thousands of consumers were charged anywhere from $39.95 to $54.95. Additionally, many consumers experienced bank overdraft fees due to the unexpected withdrawal from their accounts.
VirtualWorks paid Swish Marketing a $13-$15 commission per debit card. Thousands of consumers filed complaints with Swish Marketing, VirtualWorks, law enforcement, the Better Business Bureau, payday lenders, and banks with only a small portion of the consumers ever activating the debit card. Swish Marketing stated that the sale of consumer data to VirtualWorks accounted for the largest portion of their profit margins.
The Deceptive Advertising
Swish Marketing operated numerous payday loan web sites. The homepages of these sites were typical landing pages containing an online application form. The home page displayed no statement or reference of any fees associated with the payday loan application or fees for other services.
Upon submitting the application, consumers were taken to a co-registration page for four offers unrelated to the payday loans. This co-registration page indicated the consumer could bypass any of the offers without penalties to their loan application. At the bottom of this page, consumers had to click a second submit button to complete the application process.
The debit card offer was preselected to â€œyes.â€ Below the â€œyes/noâ€ radio button for the debit card offer Swish placed a multi-line disclaimer in small print for the debit card. The disclaimer did contain information regarding the cost of the debit card. However, the disclaimer was not conspicuous and prominent enough to meet FTC guidelines.
On other websites, Swish promoted the debit cards as a â€œbonusâ€ in large type above the payday loan application form. The submit button for the payday loan application was tied to receiving the â€œbonusâ€ debit card. In order to see any disclosures regarding the debit card, the consumer had to scroll down to below the submit button. The disclosure was again in small print and did not mention any fees associated with the debit card until the second paragraph. While some disclaimers were present on the websites, Swish again failed to meet FTC guidelines regarding the prominent and conspicuous display of disclosures.
In addition to the deceptive advertising practices, the FTC provided several examples of communications, such as emails and IMs, showing that Benning, Patterson, and Strober were aware of the massive consumer complaints, reports to law enforcement, and payday lenders expressing their concerns Swish Marketingâ€™s collection of payday loan leads. At one point, Benning described Swishâ€™s own practice of defaulting to â€œyesâ€ as â€œfraud and identity theft.â€Â In another discussion regarding whether Swish Marketing should change their tactics in light of the consumer complaints, Strober stated:
[I]f we immediately switch this to â€no,â€ it will be tantamount to shutting down the company. All of the margin currently comes from this product. We are essentially break even on the other products. Turning this off will require us to fire half the company and basically restart. I donâ€™t believe this is a prudent move.
The Court Order
The final court order requires the defendants to pay $4.8 million to the FTC within 10 days to redress the financial losses of consumers.
Swish Marketing cannot use or benefit from any of the consumer information obtained in connection with the VirtualWorks debit card offer. Additionally, they must dispose of all such consumer data.
Several of the judgments in the court order apply not only to Swish Marketing but to their marketing affiliates, too. The court order defines marketing affiliates as â€œthose who receive commissions from Swish Marketing for advertising and those who pay Swish Marketing commissions.â€ The second part of that definition also includes advertisers of Swish Marketing and could possibly include situations where Swish Marketing acted as an affiliate themselves (e.g. sub-affiliate). Swish Marketing must also provide all affiliates with a copy of the court order along with obtaining a signed and dated confirmation of receipt of the order. Swish Marketing must also immediately terminate any affiliate found in violation of the order.
With regards to their marketing practices, Swish Marketing and their affiliates are prohibited from engaging in the following:
- Using or assisting others in using a negative option feature in their advertising and marketing
- Misrepresenting or assisting others in misrepresenting a product or service as a bonus, free or a gift; the cost; the consequences of submitting an application; and method in which the consumer will be charged or billed
- Representing a product of service as a bonus, free or a gift without disclosing clearly and conspicuously in close proximity to the representation all of the terms and conditions which apply to the offer
Swish Marketing and their affiliates must obtain express, informed consent from the consumer prior to the use of any of the consumerâ€™s billing information. In addition, they must also obtain express, informed consent from the consumer prior to the use of co-registration marketing.
The FTC indicated that it may monitor the compliance of this order for up to five years.
The Name Game
As is common with these types of FTC settlements, the defendants, including the individual officers named in the suit, must inform the FTC of any changes in the business entity such as dissolution or incorporation. This is to prohibit individuals from starting a new corporation in order to avoid compliance within FTC settlement.
The Swish Marketing home page is currently just a splash page with the companyâ€™s contact information. It would appear that the Swish Marketing network is no longer in existence. However, internal web pages of the Swish Marketing website appear to be for a CPA network called Tressel Group.
The Tressel Group website is the same as seen on the internal pages of Swish Marketing site.
While both sites use Whois Privacy, the IP location for tresselgroup.com is registered to Swish Marketing.
Additionally, the address provided on the Swish Marketing home page is the same as the address on the bottom of the Tressel Groupâ€™s Acceptable Usage Policy.
It would appear that Swish Marketing now plans to operate its network under the new name of Tressel Group. Any affiliates or advertisers now partnering with Tressel Group should familiarize themselves with this recent court order to avoid running afoul of the FTC.