FTC Files Suits Against ‘Credit-Repair’ Firms
Stepping up government efforts to combat telemarketing fraud, the Federal Trade Commission on Thursday announced a nationwide campaign to put fraudulent “credit repair” firms out of business.
The FTC, working with the attorneys general of 10 states, said it has filed four federal lawsuits against companies that falsely promised to remove negative credit information from individual credit histories in exchange for payments of up to $2,000. Three of the suits involve companies based in Southern California, two of them apparently run by Orange County attorneys.
FTC officials estimate more than 1,100 fraudulent credit repair operations cost consumers millions of dollars annually. An estimated 50% to 60% of them operate in California.
“For whatever reason, Los Angeles and Southern California are very prominent locations for many, many different types of fraudulent marketing activities,” said Ann Jones, the FTC’s regional director in Los Angeles. “I can’t explain why.”
Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection, said one possible explanation is the state’s recent recession, which created a large pool of possible victims.
Bernstein warned consumers to be extremely suspicious of companies that promise quick fixes to credit problems. “None of [the firms] that were investigated by us or the states were operating a legitimate business. None of them.”
For a fee, the credit repair firms promised to clean up a person’s credit history by deleting negative information such as bankruptcies or late payments. FTC officials noted, however, that it is illegal to remove any accurate, up-to-date information from an individual’s report.
Inaccurate information on an individual’s credit report can be removed at no cost or for a nominal charge by writing to credit reporting agencies such as TRW Information Services.
Under a tougher telemarketing law passed by Congress in 1994 and implemented by the FTC at the beginning of this year, it is illegal for a credit repair firm to collect any money until six months after it delivers the services promised. As a practical matter, few if any firms would be eligible to collect, Bernstein said.
“Credit repair firms can’t deliver on their promises,” she said. “They can’t collect, and that means they’re out of business.”
The new rule allows states to sue credit report firms in federal courts in an attempt to prevent them from relocating from one state to another as they come to the attention of authorities. Thus, state attorneys general can win injunctions in federal court that apply nationwide, instead of just in their state.
The FTC said Thursday it already has settled two lawsuits involving two San Diego firms--Giving You Credit Inc. and Partners in Vision International Inc.--and other firms in Washington, D.C., and Chicago. The settlements prohibit the firms from engaging in similar activities and from attempting to collect for the illegal services.
Jones said a third suit was filed Wednesday against the Law Center and The Consumer Law Center, businesses that appear to be operated by Orange County attorneys Walter D. Channels and James M. Coose.
The FTC said the firms touted their services by promising to go to “all three of the main credit bureaus and force them by law to remove negative or bad credit.”
Channels declined to comment Thursday, but Coose, an attorney in Costa Mesa, insisted that his Consumer Law Center is “a legitimate business.”
The center charges between $500 to $1,200 to clean up errors in credit records, said Coose, who added that he hadn’t yet been contacted by the FTC or served with any charges. He said he started the business, which is based in West Covina, about a month ago, and that consumers can choose to pay upfront, or through a payment schedule.
“To my understanding, I’m not doing anything that’s violating a statute or any law,” Coose said. “If we’re violating any rule, we’ll change that.”
Coose said he knows Channels, but that their businesses are separate.
Details of a fourth case involving another, unidentified Southern California firm were sealed.
Another 11 cases were filed by state attorneys general in state courts.
The FTC is also pursuing credit repair firms that offer to create new, clean credit identities by providing “file segregation” services for consumers. Under that scam, a person with credit problems applies for an IRS employer identification number, which is then substituted for his or her social security number on credit or loan documents.
Steven Baker, the FTC regional director in Chicago, said the file segregation scam exposes the consumer to potential felony charges because it is against the law to supply false credit information.
Moreover, he added, “It doesn’t work. Credit reporting agencies computers can detect” the phony identification numbers.
In addition to the crackdown on fraudulent firms, the FTC is cooperating with the Newspaper Assn. of America to educate consumers to be more cautious when dealing with credit repair firms. Participating newspapers will run public service announcement in classified advertising sections, where credit repair ads are typically found. The announcements will advise consumers that the firms cannot legally ask for money until they deliver the promised services.
Bernstein added that consumer repair fraud is especially tragic because the victims tend to be people already experiencing financial hardships.
Victims of telemarketing fraud are encouraged to contact the National Fraud Information Center at (800) 876-7060.
Miller reported from Costa Mesa. Salem reported from Washington.
