Financial Shortfall In Miss Cleo's Future

The operators of Miss Cleo's psychic hot line agreed Thursday to cancel $500 million in customer bills to settle federal charges that the service fleeced callers while promising mystical insights into love and money.

The settlement requires Access Resource Services Inc. and Psychic Readers Network Inc. to stop using pay-per-call numbers to sell their soothsaying services, the Federal Trade Commission said. The two Fort Lauderdale, Fla.-based companies, which promoted a national network of "psychic readers" on television and the Internet, also must pay the FTC 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.

"Some consumers got up to 10 calls a day, often pre-recorded, telling them that Miss Cleo had a dream about them, and they should call back for another reading," he said. "The callers were led to believe that their calls were free, when they were unknowingly racking up charges that sometimes ran to the hundreds of dollars."

Under the settlement, the companies did not admit to breaking any law but agreed to stop trying to collect money from customers who called the service and to forgive about $500 million in outstanding charges. The service also must return all uncashed checks to customers.

The FTC voted 5-0 to approve the settlement. The amount involved eclipses the record $215 million that Citigroup Inc. agreed to repay customers in September to settle deceptive lending charges involving mortgages and credit insurance.

The FTC filed a lawsuit in February accusing the companies of misdeeds including false promises of free psychic readings, tricky billing tactics to squeeze money out of callers and unrelenting and abusive telemarketing calls. The action was prompted by more than 2,000 complaints.

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 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."

In separate actions, the two companies agreed in October to pay $1.9 million to Connecticut residents to settle charges of deceptive practices. Settlements also have been reached in Arkansas, Illinois, Indiana, Kansas, Oklahoma, Pennsylvania and Wisconsin.

Also in October, a Missouri court sentenced the service's two owners, Steven Feder and Peter Stolz, to probation and fines, resolving criminal charges of unlawful merchandising practices.

Florida authorities have a civil case pending against the service's spokeswoman, Youree Dell Harris, known in advertising as the Jamaican mystic "Miss Cleo." During a deposition in June, Harris repeatedly invoked her Fifth Amendment right against self-incrimination, refusing to discuss a birth certificate that shows she was born in Los Angeles to American parents.