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Car Wash Franchisor Settles FTC Charges


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Agoura Hills, California-The Car Wash Guys International Inc. and its principals have agreed to settle Federal Trade Commission charges that they made false earnings claims to market and sell mobile car washing franchises throughout the United States.

The FTC alleged that the defendants violated the FTC Act and the Commission's Franchise Rule when they failed to provide prospective franchisees with written substantiation for their earnings representations. Under the terms of the settlement, the defendants are prohibited from making misleading representations or omissions in connection with the sale of franchises or business ventures. The settlement would also prohibit the defendants from future violations of the Franchise Rule.

The Franchise Rule requires a franchisor to provide prospective franchisees with a complete and accurate basic disclosure document containing 20 categories of information. The rule also requires that a franchisor have a reasonable basis for any oral, written or visual earnings or profit representations, and that it provide franchisees with an earnings claim document containing certain substantiating information.

In July 2000, the FTC filed a complaint in federal district court naming The Car Wash Guys; WashGuy.com; Lance Winslow III, the president of both companies; and Michelle Portney. The FTC alleged that the defendants misrepresented the earnings potential of their franchises and the support they would provide. In addition, the complaint alleged that the defendants violated the Franchise Rule by failing to provide earnings claims documents and by making statements inconsistent with those disclosure documents. Shortly after the complaint was filed, the federal district court issued a temporary restraining order against the defendants and froze their assets.

The settlement, which was approved by the court on February 28, prohibits the defendants from making the types of misrepresentations alleged in the complaint and from misrepresenting the size of their business operation or the number or identities of their purchasers. The settlement also prohibits the defendants from making any representation concerning any franchise or business venture unless they have reasonable basis for making such representation and possess written substantiation. In addition, the defendants are prohibited from violating the Franchise Rule in the future. The settlement further prohibits the defendants from taking any legal actions to enforce franchise agreements executed before the start of the FTC's enforcement action and from collecting on promissory notes signed by franchisees. -Bureau of Consumer Protection