The Federal Trade Commission recently announced that it has entered into a settlement with one of the nation’s largest credit repair companies and its owners for alleged violations of the Credit Repair Organizations Act (CROA) and the Federal Trade Commission Act (FTC Act). The settlement demonstrates that regulators are continuing to target the debt relief industry for compliance with consumer protection statutes.
In its complaint, filed in federal court in Texas in October 2011, the FTC alleged that RMCN Credit Services, Inc. (RMCN) and its individual owners sent letters to consumer reporting agencies and creditors that were designed to appear as if they were from consumers. According to the FTC, the letters were actually created by RMCN, did not mention the company, and were not shown to consumers. The FTC claimed that the defendants violated the CROA through conduct that included:
Charging fees before providing any services for a six-month program to improve consumers’ credit ratings
Making false statements to credit bureaus by disputing the accuracy of negative information in consumers’ credit reports
In the latter instance, the FTC alleged that RMCN sent its dispute letters without taking any steps to determine the truthfulness of the reasons used for disputing the information, or sent the letters after receiving detailed billing histories or signed contracts showing the credit reports were accurate.
The CROA deems any violation of its provisions an unfair or deceptive practice in violation of the FTC Act. Accordingly, in its complaint, the FTC sought injunctive relief under the Act as well as civil penalties. The Act authorizes civil penalties of up to $11,000 for each CROA violation occurring on or before February 9, 2009, and up to $16,000 for each violation occurring thereafter.
The stipulated order requires RMCN to send a specified form of letter to all existing customers informing them of the FTC’s lawsuit and their right under the settlement to cancel their contracts with RMCN and owe no money to the company. Additionally, the order imposes a $2.35 million civil penalty, but based on the defendants’ inability to pay, the FTC has agreed to suspend the remainder of the penalty upon payment of $400,000. The order also bars RMCN and its owners from engaging in any practices that violate the CROA, including making untrue or misleading statements to consumer reporting agencies and charging consumers advance fees for credit repair services.
The defendants are further prohibited from sending letters to consumer reporting agencies or creditors about a consumer’s credit information without having the consumer review and attest to the letter’s accuracy. Letters that purport to be from a consumer but are actually from RMCN are likewise prohibited. The order also establishes a 10-year period during which RMCN must create certain records and, upon the FTC’s request, submit compliance reports.
The debt relief industry has also been a major focus of Consumer Financial Protection Bureau enforcement actions, including the CFPB’s first criminal referral.