Deal reached in credit-re­pair case

For­mer own­ers of firms, associate to pay $2-mil­lion set­tle­ment.

Los Angeles Times - - BUSINESS BEAT - By James Ru­fus Koren james.koren@la­

Credit-re­pair ser­vices prom­ise to help con­sumers fix their credit scores, but there’s only so much they can do. They can help clear up in­ac­cu­rate or out­dated in­for­ma­tion on a con­sumer’s credit re­port, but they can’t erase le­git­i­mate dings.

But the Con­sumer Fi­nan­cial Pro­tec­tion Bureau al­leged that a group of re­lated L.A. credit-re­pair com­pa­nies didn’t make that clear and mis­led con­sumers about how much their credit scores might im­prove.

On Tues­day, the com­pa­nies’ for­mer own­ers and a busi­ness associate agreed to pay $2 mil­lion to set­tle the CFPB’s al­le­ga­tions, which also in­cluded claims that the com­pa­nies im­prop­erly charged fees be­fore show­ing that credit-re­pair work had been done.

The bureau al­leged the bad prac­tices took place at a hand­ful of firms — in­clud­ing Com­mer­cial Credit Con­sul­tants, Ac­curise, Park View Le­gal and Prime Credit Con­sul­tants — from 2009 to 2014, the year some of the com­pa­nies were sold to a private eq­uity firm.

Blake John­son and Eric Sch­legel, the for­mer own­ers of some of the firms, will pay a com­bined penalty of $1.53 mil­lion but did not ad­mit wrong­do­ing as part of the set­tle­ment.

“We de­cided, with great re­luc­tance, to set­tle this in­ves­ti­ga­tion in or­der to avoid the fur­ther time and ex­pense of a le­gal bat­tle over an en­ter­prise that we sold sev­eral years ago,” John­son and Sch­legel said in a state­ment. “The in­ves­ti­ga­tion al­ready had dragged on for more than two years.”

Arthur Barens and his com­pany Park View Law Inc., which did busi­ness with John­son and Sch­legel’s firms, will pay $500,000.

Barens like­wise said he opted to set­tle rather than try to fight the CFPB. He called the bureau’s al­le­ga­tions a “tech­ni­cal ar­gu­ment,” rather than some­thing spurred by ac­tual con­sumer harm. “I’m not aware of any com­plaints they re­ceived,” he said. “Un­in­ten­tion­ally, a reg­u­la­tion may have been vi­o­lated. But there was no show­ing of any wrong­do­ing or any con­sumer that was harmed.”

In their state­ment, John­son and Sch­legel also ques­late tioned why the bureau’s charges stem not from al­leged vi­o­la­tion of the Credit Re­pair Or­ga­ni­za­tions Act, a fed­eral law aimed specif­i­cally at credit-re­pair firms, but from fed­eral rules for tele­mar­ket­ing firms.

The CFBP does not have the au­thor­ity to en­force the Credit Re­pair act, bureau spokesman Sam Gil­ford said, but it can en­force tele­mar­ket­ing rules that bar firms from en­gag­ing in a wide va­ri­ety of be­hav­ior.

Those pro­hi­bi­tions in­clude mis­rep­re­sent­ing the ef­fec­tive­ness of goods and ser­vices and charg­ing for credit-re­pair ser­vices in ad­vance. The com­pa­nies, the bureau al­leged, gave cus­tomers the im­pres­sion that they could re­move neg­a­tive items from credit re­ports — pay­ments or de­faulted loans, for in­stance — with­out mak­ing it clear that those items can be re­moved only if they are in­ac­cu­rate or out­dated.

The com­pa­nies also told cus­tomers that their credit scores could be im­proved by an aver­age of 100 points but did not col­lect credit score in­for­ma­tion that could have jus­ti­fied that claim, ac­cord­ing to the bureau.

What’s more, the com­pa­nies charged pro­hib­ited fees. The tele­mar­ket­ing rules say com­pa­nies can­not charge for credit-re­pair ser­vices un­til they can prove they per­formed those ser­vices. To do that, com­pa­nies must pro­vide cus­tomers with a credit re­port six months after ser­vices have been ren­dered.

The com­pa­nies in this case, though, charged an up­front con­sul­ta­tion fee of $59.95, a one-time setup fee of sev­eral hun­dred dol­lars and then an on­go­ing monthly fee of $89.99 un­til cus­tomers can­celed the ser­vice, ac­cord­ing to set­tle­ment doc­u­ments.

In their state­ment, John­son and Sch­legel said they felt “blind­sided” by the CFPB’s reliance on the tele­mar­ket­ing rules.

They said they had never heard of those rules be­ing used to go after credit-re­pair com­pa­nies and that the idea that credit-re­pair firms must wait at least six months to charge their cus­tomers “con­flicts not just with best prac­tice but, as far as we know, all prac­tice in the credit-re­pair in­dus­try.”

Linda Sherry, a spokes­woman for ad­vo­cacy group Con­sumer Ac­tion, said credit-re­pair com­pa­nies are gen­er­ally a bad deal.

Com­pa­nies of­ten prom­ise to help rene­go­ti­ate debt or get neg­a­tive in­for­ma­tion re­moved from credit re­ports, she said, but con­sumers don’t need an out­side com­pany to do it.

“Con­sumers can do a lot of this stuff on their own and may be bet­ter served if they do so,” she said. “You can def­i­nitely dis­pute items on your credit re­port that are not ac­cu­rate — and you should.”

Steve Helber As­so­ci­ated Press

A HAND­FUL of credit re­pair com­pa­nies were ac­cused by the Con­sumer Fi­nan­cial Pro­tec­tion Bureau of vi­o­la­tions from 2009 to 2014 in­clud­ing charg­ing for ser­vices in ad­vance. Above, bureau Di­rec­tor Richard Cor­dray.

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