Credit Repair Firms Still Bilking Consumers Out of Millions

If telemarketers who promise to help consumers “clean up” their credit records ask for any money up front, they’re breaking the law. Moreover, they can’t do what they promise, if the information in the consumers’ credit report is accurate and up to date. So say the Federal Trade Commission and 10 state Attorneys General, who today announced the results of “Operation Payback,” a federal-state crackdown on fraudulent credit repair telemarketers. Credit repair services continue to be a major money maker for boiler room con artists who prey on consumers already in financial trouble and bilk them out millions of dollars every year, the FTC said. Some of the firms in the actions announced today charged more than $1,000 for their services, even though consumers can check and correct any errors in their own credit records for free or very little cost. Many scam artists don’t even perform that basic service for consumers, according to documents in the cases.

“Federal law now makes it illegal for credit repair telemarketers to ask for any money until six months after they deliver their services,” said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. “Given this information, consumers themselves can put these fraudulent telemarketers out of business because, in fact, credit repair firms cannot deliver on their promise to remove accurate, up-to-date information from consumers’ credit records. If consumers never pay until services are delivered, they’ll just never pay.”

“These con artists are taking advantage of people who are already strapped financially and are making an honest effort to clear up their credit,” Tennessee Attorney General Charles Burson said. “It can happen to anyone regardless of your intelligence or education level. The sad reality is that most people are too embarrassed to report it to the very people who can do something to stop it.”

The cases announced today in many instances were brought to enforce the credit repair provision of the FTC’s new Telemarketing Sales Rule, which went into effect on Dec. 31, 1995. The rule implements a statute passed by Congress in 1994, and allows the FTC and any one of the state Attorneys General to file an action against a violator in federal district court and obtain an order that applies nationwide. Today’s state rule violation cases represent the first time they have enforced the FTC’s new rule.

“The rule draws bright lines between legitimate marketers and con artists, and boosts the number of cops on the national telemarketing fraud beat from one FTC to 52, including the 50 state A.G.s and the D.C. Office of Corporation Counsel,” Bernstein said. “If our crackdown also results in consumers becoming more educated about how these scam artists work, then we have some real hope of significantly reducing telemarketing fraud in this country.”

“This new rule is a national consumer policy designed to help all of us,” Burson said. “It creates a multiplier effect, and means we can stop duplicating our efforts. This means we can take action from any state and it will reach out across the country and put a stop to these fraudulent companies from taking advantage of consumers everywhere.”

“Consumers can now arm themselves with the information they need to guard against con artists, and together, we can put them all out of business,” Burson said.

Toward that consumer education goal, the FTC also announced today that the Newspaper Association of America has joined in the FTC’s Partnership for Consumer Education, and recently began placing consumer education messages about credit repair fraud in the classified advertising sections of its newspapers across the nation. The FTC applauded the action, saying the ads are being placed voluntarily by the newspapers in one of the key locations that consumers in financial trouble might look for firms to help them.

The FTC also announced a free consumer education brochure that it developed jointly with Associated Credit Bureaus, which represents the nation’s credit reporting agencies. These are the agencies that compile consumer credit histories and are charged by law with working to ensure the information is accurate. The brochure, titled “Credit Repair: Self-Help May Be Best,” is available from the FTC at the address below. The FTC also encouraged consumers to report fraudulent credit repair telemarketers to the National Fraud Information Center by calling 1-800-876-7060. Consumer complaint information from the Center is downloaded every afternoon into a law-enforcement database cosponsored by the FTC and the National Association of Attorneys General.

Credit repair cons are pitched in a variety of media, including in television and radio advertisements that appear on cable, network-affiliated and nationally syndicated programs; through infomercials on both television and radio; in classified ads in both major and smaller newspapers, in supermarket tabloids, local shoppers and magazines; and on the Internet. A conservative estimate by the nation’s major credit bureaus is that there are more than 1,100 credit repair companies operating, yet the FTC’s Bernstein said today that she has yet to see that any of the firms so far investigated by the Bureau operates as a legitimate business.

“Consumers can correct any errors in their own records for free, in most instances, so there is no reason to spend hundreds or thousands of dollars for that service. And only time will cure a credit record that contains adverse, but accurate credit information,” she said.

Typically, credit repair firms are of two types: one promises to remove truthful, but negative information, such as bankruptcies, late payment histories and judgments, from consumers’ credit reports; and the other offers to create a new credit identity or history for its customers, sometimes by having them apply for credit using an Employer Identification Number instead of their Social Security number, because both have the same number of digits. This second scenario is called file segregation.

In the first instance, the companies simply are making false claims because federal law allows credit bureaus, which compile consumers’ credit history information -- to report all truthful information, including negative information, for seven years (bankruptcies can be reported for 10 years). In the file segregation scenario, it is illegal to use false information in applying for credit, so credit repair firms that promise that this method is perfectly legal are putting their customers at considerable risk. Moreover, credit bureaus keep reports only on individuals, so using an Employer Identification number in place of a Social Security number could set off an alarm in the credit bureau’s computers.

FTC cases announced today are against:

• Giving You Credit, Inc. and Partners in Vision International, Inc., both of San Diego, California; their principal officers Paul Symington and Lois Symington; and sales representative Keith Berggren and his firm, Clear Your Credit, Inc., of Chicago, Illinois. The FTC complaint in this case states that the defendants developed a multi-level marketing plan to sell credit repair services through representatives who earn commissions on their sales and additional monies for recruiting new sales representatives. The defendants charged tens of thousands of consumers $385 to $520 each. According to the complaint, one tactic used by these defendants was to falsely claim that the Fair Credit Reporting Act requires deletion of the entire negative entry when it is not 100 percent accurate. The defendants agreed to settle these charges under aconsent decree that prohibits them from engaging in similar practices, and requires them to notify customers that they are not required to make any more payments and to cease all collection efforts against customers. The order does not require the payment of redress, but may be reopened should the defendants be found to have misrepresented their financial condition.
• Jayco Associates, Inc., doing business as Credit Doctor, of Washington, D.C., and corporate officer Jerry J. Jewell. Credit Doctor charged consumers as much as $995 up front for its services, and claimed in its own written materials to have as many as 18,000 clients. Jayco and Jewell have agreed to settle the charges by signing a judgment that would require them to pay $15,000 to be used for refunds to customers who were victims of the firm’s alleged rule violations. The judgment also would prohibit them from trying to collect payment on past credit repair contracts with customers, and require them to withdraw negative reports they sent to credit reporting agencies about consumers who did not pay Credit Doctor. Further, the order would prohibit the defendants from making similarly deceptive credit repair claims and from violating any provision of the FTC’s Telemarketing Sales Rule in the future. The D.C. Corporation Counsel brought this case jointly with the Commission.
• The Law Center and The Consumer Law Center, two names under which Walter D. Channels and James Martin Coose, of southern California, have done credit repair business. These defendants charged consumers $1,000 or more, requested at least partial payment up front, and touted their services as a law firm that will go to “all three of the main credit bureaus and force them by law to remove negative or bad credit.” This case is headed toward trial in federal district court in Los Angeles.
• A fourth case was filed under seal and the seal has not been lifted by the court.

The Commission votes to bring these enforcement actions were all 5-0. The cases were filed in appropriate federal district courts, as noted below. The FTC also noted the assistance of Better Business Bureaus from around the country and from the nation’s three largest credit bureaus in Operation Payback.

NOTE: A consent decree or judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees and judgments have the force of law when signed by the judge. A complaint is filed when the Commission has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of the credit repair brochure, the legal documents in these cases, and a list of all cases brought under Operation Payback are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov

FTC File Nos. / Civil Action Nos.:

Giving You Credit -- 952 3136 / U.S. District Court for the Northern District of Illinois, Eastern Division, Civil Action No. 96C 2088)

Credit Doctor -- 962 3114 / U.S. District Court for the District of Columbia, Civil Action No. 96 0687)

The Law Center -- 962 3037 / U.S. District Court for the Central District of California, Civil Action No. not available at press time.)