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Fraud and False Advertising Laws


Fraud is the misrepresentation of material fact to the detriment of the consumer.

Many scholarship scams violate federal and state laws against fraud and false advertising. Most states prohibit false advertising and deceptive acts or practices in the conduct of any business, trade or commerce. The FTC Act also prohibits deceptive acts or practices, including the false and misleading representation of material facts.

False advertising is defined as advertising that is misleading in any material respect, either explicitly or indirectly through representations made in a statement or combination of statements and any failure to reveal material facts.

The Federal Trade Commission's telemarketing sales rule sets down strict requirements for telemarketers, such as restrictions on when they can call you and requirements for them to take your name off their list if you ask. It also requires that you give explicit, verifiable approval before the company debits your checking account. There's also a provision making it an "abusive telemarketing act or practice" to request or receive "payment of any fee or consideration in advance of obtaining a loan ... when the seller or telemarketer has guaranteed or represented a high likelihood of success in obtaining or arranging a loan or other extension of credit for a person." There are many other powerful provisions as well. Violations of the rule are subject to civil penalties of up to $10,000 per violation. The rule is enforceable by the FTC as well as each of the 50 state Attorneys General. The rule applies only when a company calls a consumer directly, and not when a consumer responds to an advertisement by calling the company.

Some scholarship matching services guarantee that you'll receive at least $1,000 or $2,000 or they'll refund your money. Such guarantees are fraudulent, because the service has no control over your performance. You can't get around doing the work yourself, and if you do the work, they can't guarantee the results.

A guarantee is also fraudulent when it has so many restrictions and qualifications that it is meaningless; when material requirements of the guarantee are not disclosed up front (e.g., the written guarantee differs from the verbal guarantee given over the phone, after the consumer has already paid the vendor); when the guarantee is deceptive or misleading (e.g., it gives you an unreasonable expectation of success in receiving scholarship money or falsely gives you the impression that the service is without risk); or when the business fails to honor its guarantee.


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