On August 5, the FTC announced a proposed settlement that included a $12 million fine related to a complaint it filed against operators of a credit repair company in May 2022. The original complaint alleged that the company violated the Credit Repair Organizations Act, the FTC Act’s prohibition on unfair, deceptive, and abusive acts and practices, and the Telemarketing Sales Rule by exploiting consumers with low credit scores by promising them deceptive credit-building services they could not provide and by charging illegal advance fees.
The FTC accused the company of luring consumers with the promise of improving their credit scores by removing all negative entries from their credit reports and then luring them into a pyramid scheme where the credit repair services were sold to others. The company exaggerated the potential to make money by participating in the pyramid scheme, claiming consumers could earn tens of thousands of dollars by recruiting others to the company. In addition, the complaint said the company and its owners and operators deceived consumers about their credit improvement product and also required payment up front for their services, in violation of the Credit Repair Organizations Act.
Settlement of this case will result in over $12 million worth of assets being turned over to the FTC. The Commission voted 5-0 to approve the order. The FTC filed the proposed orders in the U.S. District Court for the Eastern District of Michigan.
Putting it into practice: The FTC has repeatedly taken enforcement actions against companies that engage in deceptive practices, particularly in the credit repair space (previously discussed here and here). This development underscores the regulators’ commitment to stamping out deceptive credit repair tactics as well as illegal pyramid schemes. We expect the FTC will continue to take enforcement actions against companies that engage in deceptive practices in connection with offering credit repair services, as well as those that require advance payments for their services.
