FTC Sues “Credit Repair” Firms for Misleading Consumers

15 Nov FTC Sues “Credit Repair” Firms for Misleading Consumers

On October 23, 2008, the Federal Trade Commission (FTC), along with 24 state agencies, announced the commencement of “Operation Clean Sweep,” a coordinated effort aimed at the deceptive practices of so-called “credit repair” firms. Credit repair firms typically promise to remove bankruptcy filings, foreclosures, late pays, charge-offs, repossessions, collection accounts, and other accurate information from consumers’ credit histories.

Under the Credit Repair Organizations Act, and the Federal Trade Commission Act, credit repair firms are forbidden from promising to remove accurate information from credit reports. Credit repair firms are also forbidden from collecting a fee in advance of performing services to amend credit reports. According to the FTC’s press release announcing Operation Clean Sweep, the purpose of the FTC’s action was to prevent credit repair firms from taking money from consumers for services that could not be provided.

The FTC filed its lawsuits in Florida, Illinois, and California, and named as defendants Nationwide Credit Services, Inc.; Clean Credit Report Services, Inc.; Successful Credit Service Corp.; Advantage Credit Repair L.L.C.; RCA Credit Services L.L.C.; Latrese and Kevin Enterprises, Inc., dba Hargrave and Associates Financial Solutions; and Ace Group, Inc. According to the FTC lawsuits, the credit repair firms charged consumers up-front fees ranging from $39.95 to $4,000. Sometimes a monthly service fee was imposed as well.

The FTC’s press release advised that consumers considering credit repair remember the following:

  • Don’t pay for credit repair services in advance.
  • Don’t hire a credit repair firm that fails to inform you of your legal rights, and how you can repair your credit yourself.
  • Don’t hire a credit repair repair firm that discourages you from contacting a credit bureau yourself.
  • Don’t hire a credit repair firm that advises disputing every entry on your credit report.
  • Don’t listen to a credit repair firm that advises creating a new credit identity by applying for an Employer Identification Number, to use in place of your Social Security Number; this is unlawful and may constitute fraud.

The FTC advises consumers to remember that federal law provides the right to have erroneous information corrected by the credit reporting agencies free of charge. Further information about Operation Clean Sweep can be found on the FTC website, and its October 23, 2008, press release, at www.ftc.gov.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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