Companies that promise to remove negative information from consumer's credit reports -- for fees paid up-front -- and don't deliver are the targets of a new law enforcement operation dubbed "Project Eraser." The first combined effort of federal and state officials since the Credit Repair Organization Act took effect on April 1, 1997, this joint law enforcement sweep has resulted in action against 31 companies so far.
Credit repair cons pitch their services in television and radio ads, infomercials, classified ads, and on the Internet. In one case brought by the Federal Trade Commission, the defendant, Dixie W. Cooley, used unsolicited e-mail, commonly known as "spam," to offer consumers help in obtaining new credit identities.
"File segregation," creating a new, unblemished credit history, is one approach that fraudulent credit repair services use. The consumer is advised to apply for an Internal Revenue Service "Employer Identification Number," which has the same number of digits as a social security number, and then provide the EIN as his or her social security number when applying for credit. Because the new number isn't linked to the consumer's old credit report, that report, and any negative information it contains, won't pop up in a credit check. What the companies don't say is that consumers who follow this advice are committing felonies under federal law.
The other approach used by fraudulent credit repair operations is more straight-forward. They simply guaranty that, for a fee, they will get negative information, including bankruptcies, erased from consumer's credit reports. The problem is that if the negative information is accurate, it can't be removed for 7 years (10 years for bankruptcies). And if the information is inaccurate, consumers can correct it themselves, for free. In announcing the "Operation Eraser" actions on March 5, Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection, observed that while "there are legitimate, not-for-profit credit counseling services, the FTC has never seen a legitimate credit repair company." Under the federal credit repair statute, for-profit credit repair organizations are:
Any contract that doesn't comply with the law is simply void. In addition to the FTC, state Attorneys General and consumers can bring lawsuits in federal court for violations of the CROA. Many states also have their own laws concerning credit repair or that generally prohibit unfair or deceptive acts or practices, and several actions included in the "Operation Eraser" effort were brought by Attorneys General or District Attorneys in state courts. For example, the Oregon Attorney General's Office sued Don Leask, who does business as Advanced Credit Consultants, for allegedly claiming that, for a $200 advance fee, he would clear a consumer's bankruptcy entry on a credit report "as if it never occurred."
The FTC has a new consumer alert, Credit Repair: Help Yourself First, a special brochure on File Segregation, as well as a packet of credit education materials called Getting Back in the Black. They're available free from the FTC's Consumer Response Center, Washington, DC 20580, (202) 326-3128, or through its web site.
For more information about "Operation Eraser," check out the FTC press release.
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