Credit repair companies have been around for years and so have credit repair scams. Although there is no exact count of how many people fall victim to these rip-offs each year, Federal Trade Commission (FTC) spokesperson Steve Baker says the number is in the thousands. The Internet is the latest tool used by phony credit repair companies to target unsuspecting consumers. Now the FTC is taking more forceful measures to pull the plug on these unscrupulous firms.
The Credit Repair Organizations Act is one weapon the FTC uses to combat credit repair frauds. “It prohibits [among other things] counseling consumers to get a new credit identity,” notes Baker. And that’s exactly what these fraudulent companies have been doing, drawing consumers in with promises to “erase bad credit” or provide “a new credit file overnight.” They sell instructions for fees ranging from $29.99 to $399.99, informing users how to substitute federally issued nine-digit employee identification numbers or tax identification numbers for Social Security numbers. These numbers are used illegally to build new credit profiles that will allow consumers to get credit which they would otherwise be denied based on their real credit histories. And while these firms claim the practice, known as file segregation, is totally legitimate, using a false identification number to apply for credit is a felony, and offenders can be prosecuted.
“We have no criminal jurisdiction,” Baker explains. “However, we have organized two sweeps over the last six months, [enabling] consumer protection groups to get civil actions for injunctions and restrictions against more than 60 different enterprises.” In February 1999, the FTC and the National Association of Attorneys General cracked down on several credit repair companies. Seventeen law enforcement agencies filed 43 legal actions against defendants. The companies that have been accused of file segregation by the FTC are listed on the Web (www. ftc.gov).
“Many have settled,” says Baker. “For the most part we are getting injunctions prohibiting the deceptive claims, money back for purchasers of these [credit repair] kits and notices to purchasers that it is illegal to follow the advice contained in the packages being sold.”
“The Internet and e-mail are spreading [credit repair] scams far and fast.
America Online (AOL) reports that credit repair schemes represent one of the biggest categories of unsolicited commercial e-mails,” says Jodie Bernstein, director of the FTC’s Bureau of Consumer Protection. Over the last two years, AOL started suing companies that send junk e-mail to its users because this violates the rules of AOL conduct. But, according to AOL spokesperson Rich D’Amato, it’s not easy to rid the Internet of these unscrupulous firms, and even AOL’s own attempts to block junk e-mails have been challenged. He says, “Once we figure out the address they’re coming from and block that address, they change it.”