A Credit Line?
The commercial dangled an array of elixirs for the credit-impaired. Get a Visa card in 30 days. Repair bad credit. Declare bankruptcy, and--making this unique among the bankruptcy attorneys and credit repair agencies who clutter the airwaves--incorporate yourself in Nevada. I caught these ads in the wee hours of the night, when most skeptical and productive people are fast asleep, on programs such as “Strange Universe” and “Could It Be a Miracle?” They’re the kinds of ads that almost everybody ignores. But who are the people who don’t?
To find out more, you are invited to attend a free seminar. It was a door that opened into the twilight zone of credit repair, a shadowy world whose siren calls, dubious as they may sound, lure countless desperate souls.
Standing before the projected image of a smiling couple and their sailboat,convertible and big house was Ray Reynolds from Yorba Linda, the man who wouldmake all this possible.
He used to own United Credit Repair in Anaheim until the firm collapsedunder the weight of state and private lawsuits. By then it had taken $7million from 9,000 people.
Now he’s general manager of Service Maintenance Awareness Systems, whichhas attracted a melting pot of 100 people to this bland downtown Los Angeleshotel meeting room.
Reynolds is a bit heavy, with a trimmed reddish-blond beard and swept-back hair,and he’s hyped up in the way most minor-league motivational speakers are. Hissharply dressed minions stand in the back of the room while one burly associate hovers nearby.
Just by being here, he says, you will be able to soak up “$4,000 worth of free information.” As proof of his credibility, he rattles off feats of credit dexterity, which, he claims, were recorded by the L.A. Times, “That’s Incredible,” TV reporter David Horowitz and others. These feats run the gamut from the amazing to the absurd. For instance, he is certain that we all remember that news story about a guy who got a credit file and Visa card for his cat. “That was my cat,” he boasts. “Sam Reynolds.”
The room is filled with the financially distressed. Many, by a show of hands, are contemplating bankruptcy. “You’re not bad people, you’re just going through bad times,” Reynolds assures them. Standing before the hopelessly debt-sick, he prescribes the medicine they would find easiest to swallow: more credit. Anybody, by careful application of simple techniques he will teach in his free workshops, can fatten their wallets with at least five unsecured credit cards in the next 30 days. Then, when they need money, well, he wants everyone to repeat the mantra, “Cash Advance.” Bad credit can be erased in four months or less. How about a new, clean credit file?
He lingers on what appears to be the soul of the Ray Reynolds system--Nevada incorporation. It has dual appeal: end your credit problems and live like a millionaire. No income tax. No shared information with the IRS. Also, you can contemplate $100,000 in potential corporate credit. You get a new tax ID number, the ability to buy products at wholesale prices, yadda, yadda, yadda. There is talk of having your corporation take over your personal debts by lending you money at favorable terms.
And there are the perks. “I don’t own that Mercedes out front,” he says, dangling a chain full of keys. “But my Nevada corporation does. And do they let me drive it? You bet they do.” Best of all, if your corporate credit persona goes the way of your personal one, nobody knocks on your door. “You drive the car you want. You live where you want. And if anyone sues you, they get diddly,” goes Reynolds’ version of the American dream.
After an hour of mouth-watering fiscal scenarios, Reynolds shifts gears. To attend these free workshops and be personally guided through his system (“You don’t want to do these things yourself,” he warns. “You’ll just screw up.”), you have to purchase one or more of his company’s books or services. For $199, you get “How to Erase Bad Credit” and an audiotape. A hundred dollars more gets you two other books, “A New Credit File” and “How to Get Credit in 30 Days.” At the high end, you can go for a Reynolds bankruptcy job--$599 for Chapter 7, $699 for Chapter 13.
The reluctant are urged to consider: “If you’ve already messed up your credit, what’s one more bad mark?” And finally, the “dream of Nevada incorporation” can be had for the nominal fee of $399. He is “donating his time” because he’s confident that the happily incorporated will keep him plied with referrals.
But unfortunately, this is to be the last opportunity to be mentored by the master himself. Tomorrow, the price will hyper-inflate and the workshops will be taken over by underlings. And better move it because even this low rate is available only to the first 45 people. Cash customers receive their materials right away. Those paying by check will get them a few days later at the workshop. Finally this: the Wizard of Plastic does not accept credit cards.
During his spiel, Reynolds clicks through lots of slides. They show government documents and newspaper clippings but none actually refers to him and his financial talents. Regardless, people line up en masse. The hot seller is Nevada incorporation, often purchased with other services.
“I was contemplating bankruptcy, anyway,” says one middle-aged woman, her face etched with worry lines as she fills out an order form. One CEO-to-be cries poverty, trying to wrangle an incorporate now / pay later deal. Reynolds tells him to “go to the ATM right now so we can turn your life around in 45 days.”
In the lobby, after Reynolds and company pull down their flashy display boards and depart, a few sour notes surface. One woman complains that she signed up last summer and still hasn’t received her documents of incorporation--something Reynolds guarantees within 45 days. Another man, Joel, who says he went to law school, believes the whole corporate thing is suspicious because “there’s no reason that it takes more than about a week to process a corporation.” He is further disturbed as to why books that cost $100 or more and contain information that Reynolds reckoned to be worth “over $100,000” are published on third-generation photocopied pages and bound in a loose-leaf.
Having said that, Joel reveals he had signed up for the corporate plan weeks ago. “I’m still optimistic,” he says. After all, he’d only been to the weekly seminars and hadn’t yet attended any of the actual workshops, “so give the guy the benefit of the doubt.” Joel adds that those at the earlier seminar were also told that they were the last people to be offered Reynolds’ personally guided workshops.
By this time, many of the palms that clutch paid invoices are beginning to sweat. But, like Joel, no one is giving up hope. Some harbor get-rich-quick schemes that they decline to discuss the details of, which are to be initiated once the incorporation goes through. (For those who don’t incorporate, Reynolds offers cash for referrals.) They might as well wait and see what happens at the free workshop.
One customer, a parking enforcement officer, says that unlike most of the others, his credit is fine. But he decided to take the Nevada plunge so he could give up writing tickets and start his own business. His plan is to buy foreclosure estates and other distressed properties with no money down, using all of that promised corporate credit. The conversations in the lobby give him pause, but, he says, “If [Reynolds] takes entrepreneurs step by step in how to establish a corporation, I think, for $399, it’s worth it.”
*
Clearly, a lot of people are having a hard time handling their bills. The final quarter of 1996 saw credit card delinquencies reach a record high of 3.72%, with California reporting in ahead of the national average (4.15%). Personal bankruptcy filings increased a whopping 60% last year in Los Angeles County, dwarfing the 19% increase in Orange County. It’s not surprising that credit agencies would thrive among all these unpaid bills, although how many is hard to pin down. At any one point, there may be several dozen in the region.
“It’s one of those industries that spring up and disappear,” says Pastor Herrera, director of the L.A. County Department of Consumer Affairs.
Regulating the industry is not easy. “There are so many of these guys and we have limited resources,” says Susan Henrichsen, a California deputy attorney general. Cracking down on violators, she says, is complicated by the fact that “the company is gone by the time we prosecute, we don’t get very many complaints considering the size of the problem, and even if we do prosecute, finding the money in many cases is difficult if not impossible.”
Case in point: Ray Reynolds.
Reynolds--who’s known on some official documents as Dana Ray Reynolds--is 37 and lives in Yorba Linda. A database search going back to 1985 did not turn up a single mention of Reynolds in any manner that could be called flattering (there was no citation for that story about his cat, Sam, that everyone was supposed to have seen.) In 1986, for instance, he was charged with grand theft in Downey for taking payment for satellite equipment and then failing to deliver the goods.
Reynolds’ rap is that he’s selling only information and guidance. The individual does the actual credit repair. “We are not a credit repair agency,” he says. “We go against those companies because they hurt consumers.” He’s said as much at his free seminar and on his recorded message line.
It’s an interesting thing for him to say, considering that in 1991, as owner of an Anaheim company called United Credit Repair, he was sued by the California attorney general for operating, of all things, a fraudulent credit repair agency. Reynolds and UCR agreed to a settlement of $20,000. This was not the only lawsuit filed against UCR, and it collapsed after taking in $7 million from 9,000 people.
The resulting mess helped inspire the Legislature to adopt a measure that, among other things, requires credit repair companies in the state to post a $100,000 bond against consumer loss.
Exempt from the bond are nonprofit corporations. Two years later, Reynolds resurfaced as president of the nonprofit Consumer Debt Management, which Reynolds called a “counseling service.” Again, he was sued by the attorney general, who wasn’t convinced of its charitable nature and further charged him with false advertising and violating agreements stemming from the earlier judgment. This time, the cost was stiffer--$3,500 in restitution and $150,000 in civil penalties.
Those looking to Reynolds for advice on shirking their debts, however, would be heartened to know that, according to Henrichsen, who filed the lawsuit, Reynolds still owes $11,500 on the first settlement and “has not paid a penny” on the second.
As stipulated in both judgments, Reynolds was forbidden, among other things, from claiming that he or anyone else “can permanently remove negative items . . . from a buyer’s credit record, regardless of the accuracy of such records,” and “representing that a member of the public . . . will receive or will be eligible for a credit card or any other extension of credit, unless such representation is true and not misleading.”
And now, in 1997, Reynolds returns. “He has obviously modified his business,” Henrichsen says, explaining that because Reynolds sells only books and gives the seminars away for “free,” he may not be covered by the laws that apply to ordinary credit repair agencies. Reynolds says his current customers needn’t worry about his past. “This company tries to help people,” he says. “No matter what happened to me at any company I worked for, it doesn’t reflect what we’re currently trying to do.”
Regardless of how Reynolds packages his nostrums, Henrichsen says consumers need to be educated about their credit rights, “and that means not believing that somebody you pay $1,000 can magically do something that you can’t do and nobody else can do.” The bottom line is that there is no way to remove bad credit as long as that information is accurate, without the consent of the creditor. She also has this to say to potential customers who think they could open a new credit file with the intent to escape the damaging information contained in the old one: “You are committing fraud.”
As for Nevada incorporations, by calling a toll-free number, the state of Nevada will fax all the documents you need anywhere in the United States--free. What’s the going rate for a bare bones incorporation? According to Reynolds, $399; according to the state of Nevada, $125. Delivery time, five days. But Reynolds says he throws in other services, including notary fees and the use of his Nevada address.
It was this flair for creative pricing that, in 1992, prompted a federal bankruptcy judge to order that United Credit limit its fees for bankruptcies in Riverside and San Bernardino counties to $100. Apparently Reynolds’ company was routinely charging $695 for what the judge said was the simple task of filling out bankruptcy forms.
Dara Duguay, the director of education for the nonprofit Consumer Credit Counseling Service of L.A.--where the L.A. Department of Consumer Affairs recommends people take their credit woes--is horrified that Reynolds equates a bankruptcy with any other negative credit information. “It is much, much more serious than having charge-offs or late payments,” she says. Charge-offs (meaning you completely flake on your obligation and the creditor writes you off) stay on your record for a maximum of seven years, while a Chapter 7 bankruptcy lingers for 10.
CCCS offers no quick fixes. Instead, clients can expect a three-year journey out of credit hell. The agency will negotiate on your behalf to keep your interest from ballooning out of control. “We have agreements with most of the major creditors where they will either stop charging interest or lower the interest rate,” Duguay says. The service is free. Of course, you have to kiss your credit cards goodbye and knuckle down to some reality-based budgeting.
*
Two days after his workshop, the parking control officer calls. “It’s pretty much a scam,” he has concluded. What they got were more fuzzy gems from the Service Maintenance Awareness Systems office copier. “He gave us photocopies of the corporate documents and a sheet of all the things a corporation is entitled to deduct. I’m sure I could have gotten this information free.”
The man says he’ll file a complaint or maybe try to take Reynolds to court. “I thought Reynolds said that he would take you step by step and cross the t’s and dot the i’s.” Instead, much of the two-hour workshop turned out to be a come-on for a $635 package of services in which Reynolds will do the paperwork for you, plus he’ll throw in a $99 “incorporation kit.”
After that, there were hints of a third phase that would run you $1,000, though Reynolds disputes this account. And yes, the parking officer notes, Reynolds urged them to hurry up because this was the last group to which he’d be offering his personal assistance.
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Speaking of Credit Repair
“You’re not bad people; you’re just going through bad times.”
--Ray Reynolds
“I don’t own that Mercedes out front. But my Nevada corporation does. And do they let me drive it? You bet they do. You drive the car you want. You live where you want. And if anyone sues you, they get diddly.”
--Reynolds, again
“He gave us photocopies of the corporate documents and a sheet of all the things a corporation is entitled to deduct. I’m sure I could have gotten this information free.”
--A disgruntled client
Personal bankruptcy rose 60% in L.A. County last year, 19% in Orange County. No one knows how many credit repair agencies operate here. “It’s one of those industries that spring up and disappear.”
--Pastor Herrera, director of the L.A. County Department of Consumer Affairs
Cracking down on scam artists is complicated because “the company is gone by the time we prosecute; we don’t get very many complaints considering the size of the problem, and even if we do prosecute, finding the money in many cases is difficult if not impossible.”
--Susan Henrichsen, a California deputy attorney general
