Car Wash Franchisor Settles FTC Charges <b></b>
Agoura Hills, California-The Car Wash Guys InternationalInc. and its principals have agreed to settle Federal TradeCommission charges that they made false earnings claims to marketand sell mobile car washing franchises throughout the UnitedStates.
The FTC alleged that the defendants violated the FTC Act and theCommission's Franchise Rule when they failed to provideprospective franchisees with written substantiation for theirearnings representations. Under the terms of the settlement, thedefendants are prohibited from making misleading representations oromissions in connection with the sale of franchises or businessventures. The settlement would also prohibit the defendants fromfuture violations of the Franchise Rule.
The Franchise Rule requires a franchisor to provide prospectivefranchisees with a complete and accurate basic disclosure documentcontaining 20 categories of information. The rule also requiresthat a franchisor have a reasonable basis for any oral, written orvisual earnings or profit representations, and that it providefranchisees with an earnings claim document containing certainsubstantiating information.
In July 2000, the FTC filed a complaint in federal districtcourt naming The Car Wash Guys; WashGuy.com; Lance Winslow III, thepresident of both companies; and Michelle Portney. The FTC allegedthat the defendants misrepresented the earnings potential of theirfranchises and the support they would provide. In addition, thecomplaint alleged that the defendants violated the Franchise Ruleby failing to provide earnings claims documents and by makingstatements inconsistent with those disclosure documents. Shortlyafter the complaint was filed, the federal district court issued atemporary restraining order against the defendants and froze theirassets.
The settlement, which was approved by the court on February 28,prohibits the defendants from making the types ofmisrepresentations alleged in the complaint and frommisrepresenting the size of their business operation or the numberor identities of their purchasers. The settlement also prohibitsthe defendants from making any representation concerning anyfranchise or business venture unless they have reasonable basis formaking such representation and possess written substantiation. Inaddition, the defendants are prohibited from violating theFranchise Rule in the future. The settlement further prohibits thedefendants from taking any legal actions to enforce franchiseagreements executed before the start of the FTC's enforcementaction and from collecting on promissory notes signed byfranchisees. -Bureau of Consumer Protection
