Photo Marketer Challenges Cost Estimate by FTC of Settlement

Traditional Industries in Agoura Hills last week settled a dispute with the Federal Trade Commission over certain sales practices. But the dispute did not end there.

Traditional sells packages of photographic products and services directly to consumers. The company announced the settlement in late July, noting that it agreed to change the sales practices at issue. It did not estimate how much the agreement might cost the company.

But last week, the FTC announced its version of the settlement and estimated that Traditional could lose more than $50 million in future sales because the settlement enables some customers to cancel their contracts with the company.

If the FTC’s estimate is accurate, the loss could be devastating for Traditional, whose sales totaled $47 million for its fiscal year that ended June 30, 1988. But Traditional charged that the FTC’s estimate is far too high.

“I dispute it vigorously,” said Alan F. Kane, who last week was named Traditional’s president and chief operating officer. “I don’t think it’s going to be close to $5 million.”

Kane said he could not specify how much Traditional might lose, but said the “point people seem to miss is that this was a negotiated settlement; this was not mandated by a court.” He added: “We would not, and indeed did not, negotiate away the financial viability and survivability of the company, and a $50-million result would achieve that very unfortunate result.”

Sold on Credit

Traditional’s photo packages--which are typically aimed at newlyweds and new parents--cost between $300 and $1,500 each, and often include a camera, film and dozens of coupons for film processing and picture enlargements over an extended period. Most of the contracts are purchased on an installment credit plan offered by the company.

The FTC had alleged, among other things, that Traditional made false claims about providing customers with custom enlargements and other photographic services at substantial savings, when in fact the services involved no unique customizing and are available at other outlets for less money.

The FTC also alleged that some customers were not given the opportunity to cancel their contracts with Traditional within three days, as FTC rules require.

In the settlement, Traditional agreed to cancel contracts with certain customers, and it sent questionnaires to customers to determine if they qualify. Kane said Traditional based its estimate of lost sales being under $5 million on a preliminary evaluation of the questionnaires that have been returned.

The significant majority of the questionnaires were sent to customers whose accounts already had been assigned to collection agencies for being in default, and thus represent sales that Traditional did not expect to collect anyway, Kane said.

Traditional’s stock closed Monday at $6.75 a share in over-the-counter trading, unchanged from a week earlier. But the stock remains near its lowest point of the past year.