Psychic Hotline Accused of Caller Scam

The brief but flamboyant television career of “Miss Cleo” is coming to an end, amid charges that the psychic hotline advertised by the Caribbean clairvoyant scammed consumers out of millions of dollars with false promises of free readings.

In a lawsuit filed in U.S. District Court in Ft. Lauderdale, Fla., the Federal Trade Commission accused two telemarketing firms of using deceptive tactics to lure callers to the hotline, which actually provides psychic readings at a cost of $4.99 a minute. The Ft. Lauderdale-based firms, Psychic Readers Network Inc. and Access Resources Services Inc., used the pseudonymous Miss Cleo in their nationwide TV ads, infomercials and mailings.

“Considering the laundry list of unfair and deceptive practices in this case, it’s a mystery to us why Miss Cleo and her employers haven’t seen this coming,” quipped J. Howard Beales III, director of the FTC’s bureau of consumer protection. Beales said the hotline in recent years has been the subject of about 2,000 consumer complaints.

Along with the telemarketing firms, the suit filed late Wednesday named their president, Peter Stolz, and officer Steven Feder. The complaint seeks an injunction barring future violations of the Federal Trade Commission Act and the FTC rule governing 900-number telemarketing services. The agency also is asking the court to order refunds to consumers and disgorgement of ill-gotten gains.

During the last year, the two firms also have faced enforcement actions by nine states.

Lawyers for the firms complained that the FTC had refused to discuss the allegations before filing its complaint, choosing instead to try the firms in the media. The commission “apparently was unwilling to allow the truth to compromise a good headline,” they said.

“To say we’re being deceptive is just plain wrong and unfair,” said Stolz, adding that “99.999% [of customers] are happy with the service.”

Ads for the hotline--featuring Miss Cleo’s Caribbean-accented entreaties to “Call me now!”--promise free psychic readings to callers to an 800 number. Authorities said callers are then directed to a 900 number, where they are to receive a three-minute reading for free.

But according to Beales, the three minutes typically run out while the callers are on hold or being asked routine questions, such as name and address. Hotline operators, he said, do “whatever it takes to keep them on the line and keep the meter running”--including lying about when the free time has ended. According to the FTC lawsuit, psychic readers “who consistently fail to keep consumers on the line past the allotted free time are likely to be terminated.”

In many cases, Beales said, customers are called with the news that “Miss Cleo has had a dream about you”--and are urged to call her right back on the 900 number. “Some consumers have gotten 10 calls a day, and when consumers say, ‘Please don’t call me anymore,’ sometimes the marketer has been abusive,” Beales said.

Cautioning that the numbers are rough estimates, the FTC said that as many as 6 million people have called the hotline through the years, running up average phone charges of $60 apiece--or $360 million total.

“We think a large portion of that is consumer loss,” Beales said, though “there are probably some people who are happy with what they got.”

Stolz told The Times that during the nine years his companies have operated, phone traffic has been about half the FTC’s estimate. He confirmed that $60 is the approximate average cost per call, but he denied that consumers are deceived about when they are being charged for their calls.

In response to the lawsuit, he said, “we’re going to show them with specifics that the things that they think we did, we didn’t do.”

Whatever the outcome, the FTC action spells Miss Cleo’s retirement as brand name and spokeswoman for the telemarketing firms.

Miss Cleo’s real name reportedly is Youree Dell Harris, but Stolz would not confirm this. He said she began as one of the hotline’s readers and was anointed because of her “electric personality ... in addition to her psychic abilities.”

She “knows things about people that there’s no way she can know,” Stolz said.

Nonetheless, he said, “we’re taking her off of the commercials because she shouldn’t really be tarred with the problems the company is having.”