FTC v. 1st Guar. Mortg. Corp.

Consumers deep in debt and about to file bankruptcy may want to read about Federal Trade Commission (“FTC”) v. 1st Guar. Mortg. Corp., 2011 U.S. Dist. LEXIS 38152 (S.D. Fla. Mar. 30, 2011) on credit scores and repairs.

The background facts of the case: The FTC brought an action against corporate defendants and individuals alleging they were involved in deceptive or unfair conduct or practices with respect to the sale and offering for sale of credit repair services in violation of FTC Act, the Credit Repair Organizations Act (“CROA”), and the Telemarketing and Consumer Fraud and Abuse Prevention Act (“Telemarketing Act”). Credit Repair Organizations Act Section 1679(b) protects the public from unfair or deceptive advertising and business practices by credit repair organizations.

Defendants operated a credit repair organization. Under the CROA, a credit repair organization is defined as “… person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of … improving any consumer’s credit record, credit history, or credit rating…”

The defendants misrepresented their abilities to assist consumers in repairing their credit report when looking to get a loan for a house. Defendants used online advertising and the telephone to encourage consumers to sign up for their services. Defendants charged a flat fee for the services and did not begin work until a consumer paid all or a substantial portion of the fee. Defendants promised things they did not deliver, such as guarantees of deletion of all negative items from the consumers’ credit reports, regardless of the accuracy. The deletions were not in the control of the defendants, and the defendants could never deliver on the promises.

One defendant stated he could improve a consumer’s score by 100 points in 30 days by disputing negative items. The FTC alleged the defendants defrauded consumers, causing injuries of at least $2.7 million. The court found defendants subject to the CROA because they used the internet and telephones to sell, provide, or perform credit repair services for the purpose of improving consumers’ credit records, history, or rating. The Court further found defendants violated the CROA by misrepresenting credit repair services and charging consumers before the services were fully performed in violation of CROA §§ 1679b(a)(3) and 1679B(b).

In New York, engage an experienced bankruptcy attorney for credit counseling.