/>iOn August 5, the FTC announced a proposed settlement which included a $12 million fine in connection with a complaint it filed against operators of a credit repair operation in May of 2022. The initial complaint alleged that the company violated the Credit Repair Organizations Act, the FTC Act’s prohibition against unfair, deceptive, and abusive acts and practices, and the Telemarketing Sales Rule, by preying on consumers with low credit scores by deceptively promising credit building services they could not deliver on, and taking illegal advance fees.
The FTC charged that the company lured in consumers with promises of cleaning up their credit by removing all negative items from their credit reports, and then recruited them into a pyramid scheme of selling the credit repair services to others. The company overstated the potential to make money through participation in the pyramid scheme, claiming that consumers could make tens of thousands of dollars recruiting others into the company. Additionally, the complaint stated that the company and its owners and operators deceived consumers about their credit building product and also charged an advance fee for their services, in violation of the Credit Repair Organizations Act.
Settlement of this case will lead to more than $12 million in 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 brought enforcement actions against companies utilizing deceptive practices, particularly in the credit repair space (previously discussed here and here). This development underscores regulators’ commitment to stamping out deceptive credit repair tactics as well as illegal pyramid schemes. We anticipate the FTC will continue to bring enforcement actions against companies engaging in deceptive practices in connection with the offering of credit repair services, as well those who require advance fees for services.
