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Ohio AG effort to shut down telemarketing scheme

In this Dec. 5, 2018 file photo, hundreds of Chevrolet Cruze cars sit in a parking lot at General Motors' assembly plant in Lordstown, Ohio. A potential deal to sell the shuttered General Motors plant is still leaving the factory with an uncertain future. In May 2019, GM confirmed that it’s negotiating the sale of the massive assembly plant. (Andrew Rush/Pittsburgh Post-Gazette via AP, File)

KEITH ARNOLD
Special to the Legal News

Published: August 7, 2019

A Texas federal judge earlier this week issued a temporary restraining order against two companies accused of defrauding millions of dollars from Ohioans struggling with credit card debt of hundreds of thousands of dollars.

The court action halted operations of both Educare Centre Services and Madera Merchant Services and froze the companies' assets, according to a press release announcing the development.

Complaints lodged by both Ohio Attorney General Dave Yost and the U.S. Federal Trade Commission alleged the companies worked in tandem to use a deceptive telemarketing scheme to victimize financially destressed individuals nationwide.

"Telemarketers aren't just a pain in the neck, they can also be a pain in your bank account," Yost said in a prepared statement. "We contacted the FTC when we realized this racket extended beyond Ohio's borders and people nationwide were being hurt."

Through millions of robocalls, Educare purports to offer its customers the opportunity to consolidate their credits cards to obtain lower interest rates, but the company appears to provide no legitimate services to consumers, Yost's office found.

Nor is Educare registered with the attorney general's office as a telephone solicitor.

Yost is aware of approximately 450 Ohio residents who were victimized in this scheme resulting in a combined loss of $300,000.

Madera and its owner, Bruce Woods, operate as a third-party payment processor charging consumer checking accounts on behalf of Educare and others, the press release continued. In the last five years, Madera processed more than $18 million in transactions - nearly $12 million for Educare alone, making it Madera's biggest telemarketing client.

The company processes consumer payments using a single method of payment - remotely created checks, also known as demand drafts or RCPOs.

These checks, in turn, are used to withdraw funds from consumers' checking accounts.

The federal Telemarketing Sales Rule, however, prohibits telemarketers from using remotely created checks as payments for goods or services.

The rationale for the prohibition is that fraudulent merchants can use remotely created checks to create unsigned checks that access a consumer's bank account without authorization.

Yost said Madera opened more than 60 bank accounts in at least 25 different financial institutions, many of which were closed by the financial institutions within six months as a result of the high return rates.

Upon discovering the nationwide scope of the victimization, Yost notified the FTC and worked cooperatively to develop the cases.

The complaint against Educare and its codefendants alleges violations of three Ohio and federal statutes, for a total of 14 counts. The complaint against Madera and its codefendants alleges violations of two Ohio and federal statutes, for a total of five counts.

Both complaints seek declaratory relief, injunctive relief and consumer restitution.

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