FTC Staff Comment to the Hon. Robert W. Ney Concerning Ohio S.B. 323 to Regulate Credit Repair Organizations
us-ftc-advocacy-filings-35f2289b51a552e23c7af25d7a01b6adFTC Staff Comment to the Hon. Robert W. Ney Concerning Ohio S.B. 323 to Regulate Credit Repair OrganizationsAdvocacy Filing
Matter Number
V920015
BUREAU OF CONSUMER PROTECTION V92001S UNITED STATES OF AMERICA ",,,,;q"'~.ii-~-"'''l FEDERAL TRADE COMMISSION COMMISSION AUTHORIZED t1WASHINGTON. D.C. 20580 H ~.' i .' ' '._. ..•... :.....,'. ;,:....:.:."'-.::..:..:;:...:..+::..,.;..;.~ May 22, 1992 The Honorable Robert W. Ney Chairman, Financial Institutions and Insurance Committee Ohio State Senate State House Columbus, Ohio 43226-0604 Dear Senator Ney: The staff of the Federal Trade Commission is pleased to submit this letter in response to your request for comments on Senate Bill 323. 1 This Bill would regulate the operation and sales practices of "credit services organizations," and is clearly targeted at firms in the business of "credit repair." A substantial segment of the credit repair industry engages in deceptive practices that injure both the general public and individual consumers, presenting pervasive problems even in states that have enacted laws to regulate credit repair organizations. In our experience, credit repair firms rarely do what they promise. Clear, effective disclosures and other requirements included in S.B. 323, such as requiring that credit repair services actually be performed before the consumer must pay for them, are thus likely to benefit consumers and help deter frauds that threaten the integrity of the entire consumer reporting system. We strongly support this proposed legislation, and offer here our views on the industry and on some of the particular features of S.B. 323. I. Interest and Experience of the Staff of the Federal Trade Commission The staff of the Federal Trade Commission, upon request of federal, state, and local governmental bodies, comments on regulatory proposals that may affect competition or consumers. The staff has filed comments with the Colorado State Senate and Indiana House of Representatives on legislation to regulate credit repair 1 These comments are the views of the staff of the Bureau of Consumer Protection of the Federal Trade Commission and are not necessarily the views of the Commission or those of any individual Commissioner.
May 22, 1992 Honorable Robert W. Ney
Page 2
organizations. 2 The Commission and its staff have testified before
the U.S. Congress on the Federal Credit Repair Organization Act,
which was introduced to combat fraudulent practices in the credit
repair industry, 3 and on provisions of recently proposed amendments
to the Fair Credit Reportin~ Act ("FCRA") that would deal with
credit repair organizations. The staff has investigated and the
Commission has brought a number of enforcement actions against the
kind of companies that would be covered by S.B. 323. 5
2 ~ Letter from Claude C. Wild III, Director, Denver
Regional Office, to the Honorable Tom Norton, Colorado State Senate
(February 21, 1989); letter from C. Steven Baker, Director, Chicago
Regional Office, to the Honorable R. Michael Young, Indiana House
of Representatives (February 9, 1990).
3 Commission letter to the Honorable Frank Annunzio, U. S.
House of Representatives (May 11, 1987); testimony of Jean Noonan,
Associate Director for Credit Practices, Federal Trade Commission,
before the Subcommittee on Consumer Affairs and Coinage of the
House Committee on Banking, Finance, and Urban Affairs (September
15, 1988), on H.R. 458. A copy of the 1987 letter is attached to
this letter for your reference.
" Testimony of Janet Steiger, Chairman, Federal Trade
Commission, and David Medine, Associate Director for Credit
Practices, before the Senate Committee on Commerce, Science, and
Transportation, January 9-10, 1992; testimony of Jean Noonan,
Associate Director for Credit Practices, before Subcommittee on
Consumer Affairs and Coinage, Committee on Banking, Finance and
Urban Affairs, U.S. House of Representatives, June 6, 1991.
5 ~, ~, FTC v. Steven Leff, No. CA3-89-2046-H (N.D. Tex.,
consent decree filed August 16, 1989); FTC v. American Credit
Services, Inc., No. 89-3651-KN (C.D. Cal., consent decree filed May
10, 1991); FTC v. Credit Repair, Inc., No. 89-C-0344 (N.D. Ill.,
consent decree filed March 7, 1990); FTC v. Nationwide Credit, No.
88-4071 (E.D. La., permanent injunction granted, October 19, 1989);
FTC v. S&L Professional Credit Clinic, Inc., CA3-90-2307-P (N.D.
Tex., complaint filed October 3, 1990); FTC v. NCS Credit Network
Inc., No. 90-3650 (N.D. Cal., complaint filed December 21, 1990);
FTC v. Credit One Services, Civil Action No. C 92 1577 BAC (N.D.
Cal., complaint filed April 28, 1992); FTC v. Michael Jay & Co.,
Civil Action No. 91-0448 JMI (C.D. Cal., consent decree filed May
18, 1992).
Honorable Robert W. Ney
Page 3
May 22, 1992
" II. Description of S.B. 323
S.B. 323 ("Bill"),6 if enacted, would establish a detailed and
extensive program of regulating credit repair organizations. The
Bill would apply to "credit services organizations" ("CSOs"), which
it defines in terms of particular services that a firm provides, or
represents that it can provide, for compensation. These services
are: improving a consumer's credit record, history, or rating;
obtaining a loan or credit for a consumer; assisting in either
improving a consumer's credit record or obtaining credit; "removing
adverse credit information that is accurate and not obsolete" from
a consumer's credit record; or altering a cpnsumer' s identification
to prevent the display of credit history. The Bill would exempt
most legitimate firms involved with consumer credit, such as banks,
licensed or regulated lenders, nonprofit consumer ,credit
counselors, and creditor-funded consumer reporting agencies.
S.B. 323 would require a CSO to make extensive written
disclosures to a consumer before a contract could be executed. The
required disclosure statement would describe the services the CSO
would provide and the services' costs, explain the consumer's
rights against the required security bond and identify the bond
surety, and state the availability of non-profit credit counseling
services. Finally, the disclosure statement would include,
verbatim, a prescrired detailed statement about the FCRA and the
consumer's rights. The required statement describes the
consumer's rights under the FCRA to a copy of a credit report and
the procedures to correct erroneous information on the report. The
statement refers to the state law and notifies the consumer of the
right to sue under the law and to cancel the contract with the CSO
for any reason within three days. In addition, it states
explicitly that neither the consumer nor any credit repair or
credit services organization has the right to remove accurate,
current information, and that accurate information cannot be perm-
6 Citations are to the provisions of the Ohio Revised Code
that S.B. 323 would enact.
7 S4712.01(c)(1).
8 S4 712.01 (c) (2) . The Bill would also require a CSO to
register before doing business and renew the registration annually.
S4712.02(A), (H)(1). The registration would disclose the identity
of the CSO's owners and any prior or pending litigation, designate
an in-state agent for service of process, and include the CSO's
standard consumer contract. A surety bond of $100,000 would be
required. The bond amount would be available to pay damages to
consumers. S4712.06.
9 S4 712.04 ..
Honorable Robert W. Ney Page 4 May 22, 1992 anently removed from credit report files. It sets out the FCRA's time limitations, of seven years for most information and ten years for bankruptcy. The document containing all of these disclosures must be signed by the consumer and the CSO must retain a copy of the signed statement for two years. 10 Under the Bill, a csq could not accept payment until after its services were performed. 1 In addition, a eso could not accept payment solely for referring a consumer to a provider of credit or a credit bureau, unless credit were actually granted as a result of the referral. 12 In general, S.B. 323 prohibits making false or misleading representations in the offer or sale of credit services. In particular, it prohibits asserting that adverse credit history can be cleared up unless the assertion also states clearly that this is possible only if the history is inaccurate or obsole~e, and prohibits guaranteeing that the eso can ~et credit extended regardless of the consumer's credit history.1 As tools for enforcement, the Bill would prohibit advertising eso services without registration, failing to maintain a statutory agent for service, transferring a certificate of registration, and failing to maintain logs and documentation. 14 As sanctions, the Bill would authorize consumer lawsuits for damages, administrative cease and desist proceedings, injunction actions by the state Divi- sion of Consumer Ffnance, revocation of eso registration, and criminal penalties. 1 10 Some of these disclosures are also required on the contract itself; in addition, the contract must include all guarantees and promises of refunds, an estimate of how long the services will take (which must not be longer than 60 days), the CSO' s address and that of its agent for service, and the eso's success rate. §4712.0S. 11 §4712.07(A). 12 S4712.07(B). 13 S4 712.07. The Bill also prohibits making or advising consumers to make false statements about their credit capacity, and submitting disputes to a credit bureau without the consumer t s knowledge and written authorization. 14 §4712.07. u SS4712.12, SS4712.03, SS4712.99.
Honorable Robert W. Ney Page 5 May 22, 1992 Our comments are addressed principally to the Biltt's ~equired disclosures and certain of the specific prohibitions. 6 III. Backqround of the Credit Repair IndustkY Fraudulent companies that lead consumers to believe that they can "repair" their bad credit histories have bilked consumers of millions of dollars in the past several years, have caused consumer reporting agencies to waste time and money reinvestigating spurious disputes, and have been the focus of numerous enforcement actions by the Federal Trade Commission and state and local enforcement th . t· 17 au orl. l.es. The credit repair business is a relatively recent and ~apidly growing phenomenon, marketing services to consumers whose credit bureau reports contain negative information that makes it hard for them to obtain further credit. The principal method these businesses rely upon to improve credit bureau reports is the dispute procedure available to consumers under Section 611 of the FCRA. 18 This procedure is designed to be a self-help mechanism that consumers can use to correct credit reports containing inaccurate or incomplete information. Correcting and updating such information benefits both consumers and creditors by helping to insure that credit-granting decisions are based on information that is complete and accurate. Our experience indicates that, for most consumers who purchase credit repair services, the principal goal is not to have inaccurate information corrected. It appears instead that many turn to credit repair organizations hoping to minimize significant and legitimate credit problems that they have experienced. Although their credit reports may contain minor inaccuracies, by and large the negative information in the reports is accurate. Therefore, using the FCRA' s dispute procedures is unlikely to improve the reports' accuracy significantly. Yet credit repair companies often mislead consumers to expect that their credit reports can be improved even if the reports are accurate. In fact, if adverse information reported by the credit bureau is accurate, the FCRA permits it to be reported for at least 16 Except as noted, we express no opinion as to the other provisions of the Bill. 17 In addition to the law enforcement actions cited in n. 5, the Commission's efforts against credit repair fraud have included law enforcement investigations and consumer education programs. 18 15 U.S.C. S1681.
Honorable Robert W. Ney Page 6 May 22, 1992 seven years. Bankruptcy may be reported for ten years. credit repair companies occasionally succeed in consumers' credit bureau reports, most often they fail. "Although improving Credit repair companies may charge from $50 to $1500 for their services, with a fee of $400 to $500 per client appearing to be typical. Commission staff believe that more than fifty percent of credit repair businesses move, or go out of business, in the first year of operation without having delivered the services their clients have paid for. Since the clients are usually told that credit repair takes time, they often do not realize they have been defrauded until the company has disappeared. Consumers who are victims of fraudulent operations not only lose the fees they have paid but may also suffer from having in the meantime forgone other steps to put their credit back on firm ground. The proliferation of fraudulent credit repair companies is a matter of serious concern to the FTC and to other law enforcement bodies across the country. To combat the problem, the FTC has adopted a two-pronged strategy of educating consumers about the problem and bringing enforcement actions against fraudulent operators. The FTC has filed complaints in federal district court against six credit repair companies; four of these companies have signed consent decrees to settle the charges. 19 Because the credit repair industry is elusive and fragmented, it is difficult, if not impossible, to determine how big the industry is or to estimate accurately how much economic harm consumers have suffered. The harm caused by credit repair fraud extends beyond the purchasers of credit repair services. Consumers and businesses alike benefit from a properly functioning credit reporting system, which is crucial to the maintenance of a healthy economy. If abuses by fraudulent credit repair companies impede that system I ~ effectiveness, both consumers and legitimate business are victims. 0 19 ~ cases cited in n. 5. The Commission files a complaint when it has "reason to believe" that the law has been, or is being, violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law, and a consent decree is for settlement purposes only and does not constitute an admission of a law violation; however, consent decrees have the force of law, which means that the FTC can seek civil penalties against companies that violate their consent orders. 20 At one time, instruction manuals and training seminars appeared that taught how to open and operate a credit repair company. Such marketing may have stimulated the growth of the credit repair .industry despite efforts by law enforcement
Honorable Robert W. Ney Page 7 May 22, 1992 The methods used by credit repair companies can affect the credit reporting system adversely. The credit repair companies' most common method is to dispute everything on a consumer's report, either at one time or in "dispute rounds." This strategy aims to overwhelm the system with so many disputes that reverification is impossible within a reasonable period of time. 21 If information cannot be reverified, either because the creditor does not respond or the creditor acknowledges that there has been a mistake, it must be removed. Usually, this strategy does not work, because the credit reporting agency reverifies the information with the credi tor and the accurate information stays in the consumer's report. But sometimes accurate information is removed; when that happens, creditors may be injured and creditworthy consumers lose the benefit of a reliable credit reporting system. IV. Disclosure Requirements In general, caution is usually recommended in imposing elaborate and detailed affirmative disclosure obligations, because they may increase firms' costs and reduce business efficiency. But we believe that an exception to this general rule is warranted by the current state of the credit repair industry, because of the high incidence of fraud. Certain increased costs imposed by complete disclosures written in simple, non-technical language are likely to be outweighed by the benefits of providing consumers with more truthful information. One of these benefits is that disclosure may reduce a credit repair company's ability to misrepresent what it can do for consumers. In the staff's experience, consumers who seek the help of credit repair companies lack basic knowledge about the FCRA and how the credit reporting system works. Of particular importance, they often do not understand that accurate, adverse information will almost never be removed from their credit histories until it becomes obsolete. Consumers who do not realize that fact easily fall prey to exaggerated or false claims. In our view, the disclosures that S.B. 323 would require should go far toward correcting that problem. Many of them follow closely language that the Commission and the staff recommended for mandatory disclosures in federal legislation proposed to regulate authorities to establish controls. 21 Under S 611 of the FCRA, when a consumer disputes an item, the credit bureau must reinvestigate that item unless it decides that the dispute is frivolous or irrelevant. Upon reinvestigation, information that is found to be inaccurate or incomplete must be corrected and information that cannot be verified must be deleted.
May 22, 1992 Honorable Robert W. Ney Page 8 credit repair firms. 22 Required language should simply and succinctly explain the limitations on circumstances under which a consumer or a credit repair company may improve consumer reports, and advise consumers of their rights to sue a credit repair company and to cancel a credit repair contract within a certain period of time. To be most effective, any required disclosure should be conveyed in simple, non-technical language, on a separate document, before a consumer signs a contract or pays a fee, and the required discbosure should be specified in model language set out in the law. The adoption of a short, simple required disclosure statement conveying information that consumers can easily comprehend will leave less room for fraudulent operators to prey on vulnerable consumers. Based on our experience, we believe that leaving specific disclosure language to each CSO's discretion might result in disclosures that, although accurate and complete, are purposely written in language consumers perceive to be long and complex. Such legalistic disclosures might have the unintended effect of aiding the fraudulent operator rather than assisting the consumer. A favorite ploy of fraudulent operators is to represent that their 22 ~ n. 3 supra. Similar legislation has been introduced in the present Congress, as H.R. 29. 23 In its comments on the federal Credit Repair Organizations legislation, .a..e.e. n. 2, the Commission proposed the following language: 1. You have no legal right to have accurate information removed from your credit bureau report. Under the Fair Credit Reporting Act, the credit bureau must remove accurate negative information from your report only if it is over seven years old. Bankruptcy can be reported for 10 years. Even when a debt has been completely repaid, your report can show that it was paid late if that is accurate. 2. The Credit Repair Organizations Act also gives you the right to cancel your contract for any reason within three working days from the date you sign it. 3. The Federal Trade Commission enforces these federal laws. For more information, call or write: Division of Credit Practices Federal Trade Commission Washington, D.C. 20580 (202) 326-3233
May 22, 1992 Honorable Robert W. Ney Page 9 methods comply with the law and that they possess special expertise in interpreting and using the FCRA I s dispute procedures. Some states with disclosure requirements still have substantial problems with credit repair fraud, in part, perhaps, because their laws do not specify simple, explicit disclosures. 24 v. Prohibited Practices The Commission has strongly supported proposals, like that in S.B. 323, to bar a credit repair firm Jrom receiving reimbursement before its services are performed. Similar provisions are included in the credit repair laws of New York and Tennessee and in the proposals now pending to amend the federal FCRA. This approach resolves in advance the problem of making the consumer whol~ after the perpetrator of a fraud has fled. Although stringent, it is an approach that the Commission has said is warranted, given the credit repair industry's history of consumer fraud. In our experience, credit repair firms rarely do what they promise, so the service-now-pay-Iater approach would put the fraudulent operators out of business. S.B. 323 would also prohibit a CSO from charging a fee solely for referring a consumer to a provider of credit or ~ credit bureau, unless credit were actually extended as a result. 2 In the past, the staff of the Commission has questioned whether prohibiting CSOs from charging for referrals addresses a practice that is necessarily deceptive or injurious to consumers. 27 A complete prohibition may be broader than necessary to protect 24 While we have had opportunities to review in other contexts many of the disclosures that S.B. 323 would require, we have not previously studied the costs and benefits to consumers of requiring CSOs to disclose their success rates in providing credit repair services. Thus, we are less confident about this requirement's desirability. We note that requiring the disclosure of CSO success rates may raise some difficult questions of interpretation and application. In addition, it might, ironically, make possible another deception: CSOs intent on fraud could lie about high success rates while claiming to be fulfilling a legal disclosure obligation. Thus they might attract more consumers with this deception than would CSOs providing services honestly, who would report much lower numbers. ~ ~ statements cited in n. 3 and n. 4. 26 S4712.07(B). 27 ~, ~, comment to Indiana, n. 2, and letter to Representative Annunzio, n. 3, supra.
May 22, 1992 Honorable Robert W. Ney Page 10 consumers from misrepresentations by CSOs about credit extended by others. Instead, such a prohibition may deny consumers a valuable source of information about credit availability. The limited prohibition set out in S.B. 323 may discourage unscrupulous CSOs from resorting to a related method of separating consumers from their money without providing a service in return. However, because the Bill's definition of covered CSOs is broad enough to include firms that are engaged only in credit referral services, the constraints might also impair firms that offer credit referral services but are not engaged in the kinds of credit repair fraud that are the Bill's principal targets. Credit referral services could be of value to consumers. To establish a good credit record, a consumer may first need to obtain a line of credit from which a credit history can be built .. Thus, a consumer might value a clearinghouse of information about those businesses that are likely to extend credit to consumers who have had credit problems. A consumer may not have access to this information without the assistance of a third party, which could be a CSO covered by S.B. 323. If, through the assistance of a CSO, a consumer who cannot otherwise obtain credit is able to do so, the consumer may consider this a worthwhile service and be willing to pay for it. Whether the credit is offered on terms that are desirable to the consumer will depend on the financial circumstances and options available to the consumer. The critical issue, in our view, is whether consumers understand what they are purchasing. Declaring it unlawful for CSOs to charge a fee for providing this assistance might remove the CSOs' incentive to provide information that consumers may otherwise be willing to purchase. The approach of S.B. 323, although less drastic than a complete ban, might still inhibit firms from offering consumers desirable services. Although some misrepresentations would be curbed because CSOs would make no money from illusory referrals, some useful services would also be curbed because CSOs would make no money from good faith referrals that proved unsuccessful. S.B. 323 applies to CSOs, as defined by services provided, but exempts a wide range of institutions that may provide some of these same services. 28 The services that define a covered CSO include 28 The bill appears to be drafted to place one particular type of business, CSOs, under very tight scrutiny. This is reflected in many of its administrative requirements, such as advance registration and surety bonding. In the past, the Commission has questioned the effectiveness of bonding requirements by pointing out, for example, that truly unscrupulous operators would probably not bother to comply with them. ~ statements cited in n. 3. Consequently, the promise of funds to repay consumers in this
May 22, 1992 Honorable Robert W. Ney Page 11 not only credit repair, but also other services, such as a~sisting in obtaining credit, that are often performed by firms that are not in the credit repair business. The long list of exemptions is apparently needed so that these other firms would not be subject to new regulatory requirements. Another approach that might be considered would be to draft the legislation and regulations to apply only to firms that are engaged in the credit repair function. The firms covered because of their credit repair operations might also be subject to ,;loser regulation of their other operations as well, if the legislature found it warranted. In our experience, such a targeted approach may make possible a simpler definition of the firms to be regulated, without the need for a lengthy list of exemptions. By addressing only credit repair firms, it might avoid impairing firms offering legitimate credit referral services. VI. Conclusion On balance, S.B. 323, if enacted, would represent a strong and valuable contribution to combatting the serious problem of credit repair fraud. Please let me know if you have any questions concerning this letter or if we can be of further assistance. ~;;;t~ David Medine Associate Director for Credit Practices manner might be illusory.
.J o,r,c.o' h.e «;".''''....N r::CEf=':'~ ;~ A.C~ CCMMISSlCN ..,... S"',NC~CN. :. C. Z:~.!C May 11, 1981 ." ~he nonQ~able ~~an~ ~~~w~:i= O.S. House of Representatives Washington, o.C. 20513 Cea~ Mr. Annun:ios Thank you for your recent letter forwarding a copy of ~.R. 458, t~e C~edit Re?air Crganizations Act, t: t~e rederal Trade Commission. We app~eciate the opportunity to comment on t~e ~ro?Osed legi~laticn. The c:acit :eFai: =usiness ap?ears to be a r~lafively recent ehe~c~e~o~. !~ involves the marKe:ina 0: credit repair ~ervices to consumers whose credit bureau reports contain ne9ative infor- mation that interferes with their ability to obtain credit. The principal method such businesses rely upon to improve consumers' credit bureau reports is l:he dispute procedure available to -:.. consumers under Section 611 of the Fai: Credit Reporting Act (FC~). Section 611 is designed ~o p~ovide consumers wit~'a self-hel~ mechanism to co:~ect credit recor~s that contain inaccura~e or incomole~e information. C;r~ec:in9 and ~pdating such information benefits creditors as well as consu~ets by helping to ensure that credit-granting decisions are made on the basis of complete and acc~rate infor~ation reflecting the probable creditworthiness of the consumer. It does not appear, however, that most consumers who employ the services of a c:edi~ repair organization seek to correc~ inac:u~ate information. Based on the monitoring experience 0: Commission staff, it _??_a:s i~St8~= th~: ma~y cf those who turn to credit repair o~sanizations have experienced significart credit prob~ems in the past, which they hope to minimize. ~::hoU9h minor inace~racies may ap?ea~ in their credit reports, lo.'J a"~ 'a"-e t"'e a~""'''-''' ( _ .. ~i ~ ... ~~ ~e .. ""-- 6~ .. l-.,.. -h~m .... ..-- ., .. _ltI~ ..w ••• _'-' _ •• ~ :"' "- .. fai:lv ~efleets what actually oceu~red. Ot111:a:ion of FCRA dis?ute procedures is, t~erQEore, ~nl~~ely tC ai: these ecns~=e:s. ~~o~etheles~, ehrough adver~is~~~~t~ a~d oral :~?=~ sen:a:ions, credit :e~ai~ orsanizacions often :~ad ;;i.~~~e:$ t~ 1 7he C~~~iss~o~ b:~u~~: an e~!::ce~e~t ac:io~ aca~~s~ six credle :epai= p=ac~it~c~8:S i~ 1986 (s~e !~~e:a~ ~:~=~ ':O--iee;on docket numbers C-3185 through C-3190j and presen~:y ~s ~c~i:o:ins the ac~ivities o~ several others. ~. "'or ! I I I I
Tho Honorable Fran~ ~nnun%io "~ag.:t 2 .. believe tha~ aeverse Lnf~rmation in their credit reports can =~ deleted or mOQifi~d regarjless of i~z aceur~. !n ~~c~, howeve:, i~ adv~rse i~formation reported by the cr~d1t bureau is accura~e, under th~ ~C~A i~ ~ay be ,~po::~d eo~ at least seven Y~4rS. cankruptcy ~ay :e :e~~:~~c !c: t~n ~~ars. Although the rCRA ~oes not ,.qui:s credit ~ureaus to r4port adverse informa- tion for this period of time, it ~xplici~ly authorizes them to ce ~O. Credit bu~e~us, ~hic~ are in the cus~ess o~ s~lli~~ c:a=~~ hi.tory information to e:.diters, ordin~ri11 te?o:e suen info:- ~ation ~or as lons ~s i~ legally pe~mi~5ible. . . . It acce~re that credit recalr o:=a~i:a=icns ccc3sic~allv .. .. -improve consumers' ctedit bura~u reports, but ~ail to do so in ~ost ins;ance3 -- ~:ir.cipally because most of the information ~hey dispute is Accura~e and within the permissicle :apcr::~; ?ariod. ~~eir services ~:e f:e~uen:1y sole on a ~oney-oaek ~~4:~~te~ basis, but consu~ers ha~8 :e~or~Qd difficulti~s in obtaining refunds. ~he company may be 4 0ut of bU3iness, laCK the Eunds to pay by the time consu~ers $~e~ rafunds, or simply refuse to honor the guaran~ee. Credit repair .or~ani%ations have ca~~ed economic injury to credit our~aus ~~ ~ell as to consu~e's by -. senerating large num~ers of ;eoundless disputes that c:ed~t bureau~ ~ust ?l:ocess. To t.h~ extent t.1.. t. a t::redi~ repair. ~r9ani%atio~ " ~oes .UCC~~Q in aal.ting accur~te adv-.rse inf~rmat.ion from a con~ume:'s credit ~ist~:y, cr~dit~rs are de?rived of informaticn t~at. ~ight otherwise have ~p.en a decisive eact~r in ~he ~:edit ~ranting decision. Credit~rs ~a~e ~x?ressed concern to the CQ~~ission that dQletio~ ef accurate information may r~sult in inc:~a~e~ lending risk. . .The Coxnmiss ion's :sta f f celie ves tha t -!. subs tan t i~l segmen:. ~f the ct ..dit repair industry ~:esently engage~ in prac:ices that injure both the general public and inoiviJual consu~~rs. Whethe: 2 C:'jrl it bureaus are" requirec1 by Sec-:ion 611 of the !Cl\,.; to r.in~es;i=a~e ~is~u~ee infor~a~ic~ wi;hin a ~easonable oeriod 0: ~ . .. ti~e &~C t= cele:e information :hA~ thev c~~no~ v~~ifv. ~ e=edi~ . .:u:eau ~ay ~eleee acc~raee info:m~e~on f=c~ a c=r.s~me:·$ c=edi~ burea~ report. ~ecause, for exa=?le, i; is cver~helmed ~: cis?~~es genera:3d by credit. r~pair organizations or because c:e:i~=:s fail to respond p:omp~ly to veri~ic3-:icn :eq~est~.
•"The-Honorabl~ Frank Annun~lo the potential scope of this problem just1~les enactment ~f f=detal 18Sis13t1~n" i~ ~n issue fc~ C:ng:as3 :0 decid~& ~s the primary law enforcement aqency, however, the Commission believes that it has a ~nique gerspeceive to coneribu:e if Cong:ess c~ccses ~: enac~ such legislatlc~. In our view, the proposed le;1slation would be streng~hened by changinq its tocus Gomewhae. n.R. 4SS woula ~~Fcse a bcncing req~i:~men~ on c:~~it rQ?ai~ organi:aticns. It also woul~ pro~iee c=nSu~e=s ~i~h the right t~ $ue and to obtain payment from a su:e:y whe .. a c:edit :e?a:= oraanization violates t~e t;=~s c: :~9 s~~~~~~. T~e C:~~issic~ ~pposes this approach ~ecause ~e have serious r~sarvations abcut hew well 1~ would work in prac~ice. The way that the bond is in~enQed to function is E~r ::=~ el~ar. I~ additicn~ administra- tion of a bonein~ req~i:g~e~~ involves oVQrsight and enforcernen~ ~~sponsibilities tna~ are e6t:a: ~~:e::akan b¥ t~e stat:$ t~an the federal government, in our view. From ehe ~er5?ec~iv~ of public l~w enforcement, the Commis- sion believes that requiring disclosures about the ~CRA'~ limL~eo ~aais for changing creait reports \olould protect eons&u~ers :nore"' simply and effee~ively. Their :i~ht to 5ue.a credit re~air . organi:ation that: enga~es in cecepti~n should also b~ di~closecl. Mcreov~=, although we belie~e that the pro?osed private :ight of action for eon~umets may aid in enfotcin~ the law, we ~hink "that enforcement: of the Credit ~ep3ir ~r9ani%3tions ~ct would be enhanced considerably if Congress ~e~~ to ~rant the Com~ission authority to seek civil penal~ies f~r violations of its provi- sions. The ensuins comments discuss these issues i:l mor:~ ~etail.'t'hey 3150 sugge~t narrowing the definition of a ~r~dit repair organi%ation an~ eli~inating one of S~ction 404'5 prohibitea ?ractices. ~isclosur~ ~e~uire~ents: Sec~i~n 405 The Commission supporestne incl\:sion of ef!ec:i,,~ disclosl.:=~ :e~~i=emen:s in this le9islation. ~Qs~i:e educatiqnal efforts, 3 Alt~c~gh we a:~ awa:e ~f a fe~ lar~e c:eci= :ep~ir or:~ani%a ~ions, a 9r~at many o:~ers appea: t: be !~all an~ :81~tively ··ne·a~'· ~e hall- ~~ ~as:· c e·J~2.: __ .~. -.I'-~_er cc. ¥ tiiiI" w __ • ,. • 'lIIIIiI .......,..... _ '.,: _ •• g ._ ••ai e~stQ~e~s ~~ev e~::e~t:v ~~~==ct C~ =~~ie~i~a _he:he~ ~hei: clie~~ele may·di~ini2~ in the near f~.~~e as Aresult of consumer educaticn and un!avcrable publicity.
•The nonor.bie Fran~ ~nnunlio
many consumer. continue to ~e unaware of the fCRA's rulea 90vern-
1ng the reperting o~ in::::nat:ion by c::adit b-cr~aus. ~s a res;,::':,
these consume~s ar~ easily misled by c:redit te~air organi:ations
that o~fer to repai: :: i=prove tho!: c:ediehiseories. Requir-
1_... c:-"~~" ......a.~ .. c .. - .. •• .. '·4 ....... d "1"'\ di"'clos A inf.....ma .. ion abc·· .. PO'-- •• ~ .... --.- ."1:.. ...~_ ..• -_. __ .. - -- - - ....,,~ "- wt.. ... 6'1:1'
FCRA prior to execution of a sales contract should reduce their
ability to misrepresene .hac che c:eci: re~ai: process is li~ely
to achlave. ~he C~=mi!sic~ ~elieve~ t~at the fcc~s o~ t~a c~s
closures required ~n~a: S.c~ion 40S{b} 0: the ~:c?Osed legisla-
tion should :2 shi!ted, hcwever. Sec:.ien 405(:) (1) requires a.
credit repair organ1:ation, prior to ehe execut:ion of a cont:ac~,
eo d1~elose to con$u~ers their right to review thai: ~wn c:a~i~
files ,and to dispute the completeness or accur~cy of inforrnaeion
contained the~ein. The ef:ect of this section is to bar a credit
re?air or~ani%ation that only sells information aco~: cC~$~~e:~1
:ichts to correct Lnfcr~aticn conce:~inc the!: c::cli~ tgcord,
cr;d1~ history, or credic tacing from charging a fee fer ~a~i~g
this information available to con~umQrs.~ There is no a??a:e~~
reason for a prohibitio~ 0: this sort. Other businesse~ ana pro-
~essions routin~ly charge for t~e disclosure of information about
ri9hts and opportunities provided by la~7 lnde~d, thi~ is a ~~
com?on~nt in the provi3ion ot ~any profe$sion~l ser~ices. ,. . . . • 0
to1oreover, the disclosures required by S'!c~ion 405 (0) (1) Or)
not address what appears to 'be ehe principal cause of injury to
~onsumers in their eealings ~ith crgdit:. ~e~air organizations.
!njury does not arise bec~use credit repair organi%atiens, for a
fee, ~x~,cise rights t~at consumers ~ould exercise ~hemselv~s at
llt:le or n~ cost. ~nstead, consumers ar9 injured when they ?ay
money to an orqanization to do somet~ing that nei~her that
organization nor ~hey themselves can accomplish. We think that
disclosures explaining instead the li~ited circumstances uncer
~hich c:eJit history information must be al~~red by c:~dit
b~rea~s ~o~ld ~ro~i:e c=~s~me=S ~ith an infor~ed basis for ~valu
aeing a credit-repair ~rsanization's elaims and that this is
their best protec~ion. It may also =e worthwhile to req~i:e
disclosures that cons~~ers may sue a c:edit repair organi:ation
~~ it e~;a;e~ i~ decept~c~ a~d tha: thgv mav rescind anv contract
within three days of sisninq it. Finaliy, ~e thin~ it woulQ oe
hel~f~l to leer-tify the !ede:al ~:ade CC~~i5sion as the relevane
, aw .n.flo .. c en~ a··~ .. o .. : $'" __ ---"s"-e"s OJ> ..... t"!"e ''''ons OJ; ~ ~ - ~ 11& :;1 _0, "ON. ft __ •• ~_ ~.... ft_ .
~ncw whom to CQn~Ace.
4 Of course, this CQncer~ is ~ess s;:~i:icai.:· to crecit ce?ai:,... ... ~~-..; _.J.-_ .'- 1_ " .... -.. ~ _
.... ':1 6 .......... 5 ..... ~ a ... .:.::; 5-e __ sa. ::.cas :;: toe cureose 0 .. l.m ... rov-
inq a consumer's cr9dit rec~r~, c=~ci: his:o: 1 : or credi: rating.
~
""'~
" .
•~~e Ecnc=::le ~:an~ ~nnun:io -- ~age S ..
~he:e a=~ ~.-e ~d=i~ic~al sets of ~18closures thae Sec~ion
405 presently requir~lS. S-eco:ion 405(b) (2) tequlres a complete
and detailed disclosure of the $ervices to be Fe:~or~ed a~: t~e
total ~mountto be ~aid for thege services, disclosures which are
duplicated in Section 406 qovernin~ the content o~ c=n~:ac:s. We
question the ~tility of requi:ing a detailed dQsc:iption of
i.r~icas t~ ~e ee:~o:m~d. tven a minutsly detailed'desc:iption
could ~asily avoid convey~~s clea: and definitive infctillation
al:ou~ what wi:':' :e c:ne i~ the case of an individual coneume:. ..,
Sectiljn ~OS {=) (2) ra'i~:':as cisclos~=e c~ t:~e conSl.::';'ler t s ,iSh'; to
e:oc~ed a~ai!"l.sl:. a Ocnd a~d i':en':i~ie9·=hQ surety. In~o:mation . .about the right to p~oceed against a bond clea=ly wc~ld be
significant to eonSu~erS if Congress ·should decide to retain the
~cnc :a~ui:~~ent. ~owever, for reasons discussed i~ ~~e en:~in;
$ec~ion, we do not endor2e a bon~ requirement.
\ie sU9"3e~~ thac, t~ OP. ::\05: effec:iv-!, <a •• J =~Ci'.:i:,d
diselosur~s be conveyed on ~ se~arate sheet of paF~r, i~ simple,
non-technical language, ~~fore the consu~er 3igns a cont:~ct or
the credit repair organization receives any payment. So as to
avoid poss ible obf:Jsca t i~n, "'e recommenli tl'1a t c:ed i. ~ r epai: -:"
organizations be required t~ follow language ~hae 13 identical or
substantially simi13r to model language proposed by Consrass.
~or example, the r~qui:ed di~closure might begin with ~
warning not to sig~ a cont:~ct ~r pay ~oney for credit r!~air
&erviees ~efore readin~ the n~tic~. It might then state:
1. lOU have no le~al right to have accurate
information removed from your c:edit bureau
r.~ort. Under t~e Fair :redit ~e~ortin9 Ac,;,
th~ ~:edit bureau must remove accur3te ne9ativ~
information fr~m your re90rt only if it is OVer
7 years old. aankruptcy can be re90r~ed for 10
years. ~ven when a debt has been completely
repaid, your report can show that it was paid
late if that is accurate. .
.
~. Yo~ have th~ :iS~: := ;~e a c:e:it re~air Ot
c:~i~ i~o=cvQ=ent com:anv ~n4; violates the
C:e~1t ~ecair Orcani=aeio~s Act. ~h15 law
P=:hi~its·~ec~ptiv~ ~rac~ices by credit repair
<::~?anies.
~ ~-. -~e~/~ ~--~:- ~·_~_.~~-.~-s ~_. ~'eo ~ives ... • .... \-.. :... ... _ r •• :,~ •• ........... __ ... •• •~ __ .. _
1:~ ~h. risnt to cancel your cont:act for Any
reaSon within 3 work1:tg cays froln the caee you
sign it. ~.
'.. ir
'. . . . 'rhe iionotable Fr ani( .\:\nun·~ io ... 4. The Federal Trade Commission entorees these federal laws. :ormore in!or~a~ion, call o~ write: Division of Cred!~ Pt!c:ice~ Federal T:ade Commission Washi~9ton, O.C. 20SSa ( "'~'" .... ~ ~ ..... c:."'.1 ~4Q-~"''''. Fc~ enforcement purposes, each disclosu:~ ~tacement should be si;~ec :1 the CC~Swiller as an ackncwledgemen~ of having read i~ before entering into the contract. ~he consumer's name, address, and telephone number should ~e included, as shoula the sales a~en~'~ si;nat~:a and t~e company's n~me, address, and telephone number. The stateme~t sh~uld be sioned in due11c~te, !o :ha: t~e ::n~~:ec may recain one CO?y and the credic re~aie ~rqani%a:ion may retain the other for t~e ~wo-year period th~t, we assu~e, Section 40S(c) would r8~uirG. -. . We believe that tnesa disclosures would effect;vely warn consumers against cont~ac:ing ~it~ c~~di: ~ep3ir organizations .. whose bus iness~s ar e based ~::m expl iei t or i.nplici t !nisrep~ esenta- tlons of what the law ~er~its. Howev~~, these disclosures should ~ot ~dverse11 affect t~e ac=iviti~s of cr~dit tmprove~ent coun- selors who do not rely on consu~erst ignorance of the c:edit reporting laws or othe:wise atteopc to mislead them. =ondin~ rtecuirements: Sec=ion 404(a) ~he proposed legislation requires a credit repair organiza- tion to Obtain a $50,000 surety ~ond if i~ wishes to obtain ?~yment for $ervices in advance of performance. ~ surety is a thi:~-?arty guarantor who promises to pay i~ t~e ;~inci?al ~=es not and requirei a percentage of the bond amount fer providing this assurance. The percentage is often small because t~e 3 It would facilitate evicence that~a c:eci: ~e-~~~--2-e c-_~lt~~-• ~ ........ _'w...... .,.;u"r ..... _a •• -..- C1:ea:er <:eeail. coth compliance and enfo::e~en: i~ t~e :er~i: o:gani%~~icn shculd ret~i~ to .. ..I .. -ec-~o'" ',.~() e e • - Eo"·!' l'n u •• _e .. .: ....... 'tl,/~ C w: Oile... .. .. ~. 6 ~e ~s~ume th~t inde=~i~i=ation of this so:t is what the ~e;~sla~ion is in:e~=ec ~= :=ocuce. :: is e~: ~ncers~a~ci~; ~hat ~ee? a~r~~~en~ take·~any dif!~~en~ fo:~s, hcweve~, a~c are designed to achieve many different pu:poses. .~ "tr
• The Honorable Frank Annun:ic surety tetalns the right 1:0 recever e~a amount: pa id -'~:::~ the F:inei?al. !~ er:er to ebt3in a bond a company must persuade the surety ~hat it.is a good risk. :~ the e~se of a credit tepair organization, we Qss~~e th~~ a !~:aty ~c~ld ~ant some assurance that the o:~a~i=ation's praceices will conform to thq law and that, as a result, the organization is not likely to be held liable tor violating the law. ?:ior business expeiiences, b~3i ness and personal credit his:e:y, income, assets, and ctne: in::icia ot reliability ::tay t::e fac~ors in deter:':\ining whet~e: an" oroanization is able to Obtain a bond. ~ business that does no~ app~ar to be 9uf:icien~ly risk-f:ee otdinarily wo~l; ;a :eq~i:ed by the sur~ty to ~ut up collaceral corresponding to the amounc of the bona. Under che ~roposed le~i91ation, a com9any that ~annot or does not wish to ~~eain a ~uret¥ bend is no: ba::a~ ~==~ t~~ c:9di~ recai: cusiness. Althcu=h i~ ~ou:c be ~:ohibtted ::om r-~.i~i~;·~~~s ~rior to ~erfor~ing the $Qrvice~ ie sc:~, i~ C~~:~ obligate consumers in advance to pay Eor services upon co~?le:ic~ of per~ormance. The purpose of the pro~osed bond requirement, ~~ ~ssu~e, is to ~ake funds available ~or ~he payment of consumers. 1 claima• .The Commission is concerned that it may not serve ~is ?urpose ~n ~rac=i:~, however. Susinesses that are engaged in·deliberat~ consumer fraud may well' ignore the boni:!ing r9qui:~ment. \10:e- over, the requirement ~ay ~e too a~o:?hous to achieve its int~nded purpose. T~e l~gislation does not outline in any detail how ~h~ bond is to func~ion or who is to administer oavrnents from it. It do~s not 9xplain what ?rocedure~ are to be f;ll~wed in t~e ~vent of competing clai~s that exceed the bond amount or ~heeher the bond amount ~f $50,000 must be continuously ~ain talned. It is not clear fro~ th4 statu~ory language whethe~ a~ orsani=ation that Joes ~usiness in more than one s~ate ~ust provide for a $SO,CCC :ond i~ e~ch s~~~e or whether, alterna- tiv.ly, a single $50,000 bona issued by a suret~ licensed to co business in each ot those state~ would Quffice. I It also is uncl~4r whether residents of one !~~te ~ay make claims against ~ bond issueQ in anc~~e: s~~te ~he~ ~he bond f~ncs in th~ir state oe residence have been oaid out. ~or is it clear ~hethe: con- s~~a~s are intanced ~o name' the su:e~1 as a de~endant in an ..~ -I Credie repair organizations va:; consi~e=a:ly in c:e=a~ic~al s~:~c~~=e (:: anc:hises ~r e :e<:;~i~g I:Q: e <:=~on), s i:., .1:":: business volume. It C=n;:es~ ~h:~l~ decide to include a bond re~uiremen~ in this legislation, we suggest that i~ examine ways to link the value and number of bonus reauired to-variables- such as t:lese. • " ito
· - . 'the jigng, ~~.. i":.n < ~~~~1:"1 :!.o : 4~tion 0: to seek paymen~ !rom the sur~ty only if conv~ntional efforts eo satisfy ~ ~~~=e~~ ~:o~ th~ credie repair ~rgani%ation have been exhaust~d. 0: !n~urers ""h'o issue :;u:e:y eonds, such ag 90vernmen~ per:orm- ance bonds or 'indemnity guarantees, may well be reluctant to i3sue any bond pursuan~ to ~~is legislation, regardless ~f t~e ~ha:ac:e: of ~he c:~d~~ :!?air otgani%at1on 5t issue. Sureties' otclna:ily want to knc~ ;ha~ their ~oligat1ons a~d 1i~bilities ~:. fixed and olear ~et=~e ag=e~i~; to ac~ in this capacity. Und.: the law as ?rese~:ll ~:af~ed, t~w i~ any i~s~:e:s m~y eg •.d"f n- "0 ac" aa SfO:"'S ~- a~' .... ..,~a~- c .. - ..... ~ .. ··~cns ~"en .,. ....... ':::t,.., ... ~ Q _ .. -- "' ,-.q~" • • -,. ... ~..,_ .. _........ _- • ~.., if the bonding requiremen~ a~J consumers' Access :: i~ ~ere spelled OU~ in more detail, however, we are not persuaded that it 600ula ~~ incl~Gad i~ ~:ce:a~ le~isl~~io~. Th~ eauitable dis- t:ibution of bond funds may ~e difficult or i~possible without the lnf;erv~nt:ion of a ~~si:"'.:s:es~aC: :~i=: FaC:':;t such 'as a s:.~:e acministrative agency. :n oalan~e, th~ Cc~~issic~ b~lia~es t~a~ the bonding of credit r~pair organizations should oe l~ft to the states to legialata and administer. -. Enforcement: S~c~ions ~09 and 411 Sec'tion 409 of 'the ).ct t'rov'ides consumers ',Ji:'h the right to· sue for a viola~ion of any ~f Lts ?,ovisions. It provides for ac:~ual damages, additional damages, costs of bringing the ac~ion, and at:orney's ~ees. sy pro~iding consumers with a meohanism f~r recovering, at a minimum, the fees paid to a violativ~ organiza- ti~n, this right of ~rivate ac~ion should help to make the 3tatu~e aelf-enforcin9. None~heless, the Commission celieves that enforcement of any c:edit repair organi%a~ion 1egisla~io~ Congress migh~ enact would be s~ren9thened considerably if Congress were to grant the commissionScivil penalty enforcement authority for viola~ions of its terms. ~t ~resent, Sec~ion 411 of the proposed le~islation ..~ a Cc~;:ess ty?ieal~J aceo:ds the Commission eivi: penalty ~uthor1ty by authori;in~ er.:;:c~~e~t of statutory violations as i: t~ey wereviola:l;cs o~ a Commission t:a~e res~~a~ion rule, i. ~., t~:o:':Sh Sec-:~c~ 5 (~) (1) (A) o! t~e :'eceral T:ace Commission A~":, whi~h empowers t~e Cc~~;,=sic~ :0 -!eek c!..,il eenalties. See ~eo~lon 7~4,(c) of the tc:ual Credi~ OppQro:uni':y ~c::, lS 0.5.C.- ~ l6~lc; ~ection 814(.) of the i"ai: veb~ Collec':ion Praco:ices Act, lS u.s.c. 5 l6921._ tr* I
'. =-: anI< .a.nnun: i~ ~age 9 acce:~ e~j a~~i~~:a~ive enforcement authority to·thQ Commis- slon. I~ provides thae a violation of its terms con$titute~ an unfair e: cec~ptive act or practic~ in violation o~ Section 5(a) o~ the Fedaral Trace Commission Ac~ and is enfocceacle throuah the Commission's administrati~e adjudication procedures under Sec~ion 5(b). The Commission currently posse~ses Secti~n 5 enforcement authoritv over c:edit repair organizations. Thus, as ~ro?Osed, the ~rant of aut~o:ity to enforce the credit repair stat~te wc~ld not ex~and the Commission's cowers, althouah the af~1rm4tiv~ requi:e~;n:3 c~ t~e law would ;i~?l!~y en~c:~~m~n: to some e~tent. ay including civil ?enalty authority in the Act, Congre$s ~c~ld ac~~:d ~he Co~mission greater flexibility in selecting . enlorcement alt~rnatil/'!s and ·.... ould also, ,..,e believli, .p;omote .iiore vi;oro~s enforcemen~. ;a:~icula=ly in casas ~~vo:?i~g eeli~e:a:~ -"aud .. ~.::. ~........ "", ... to ·~c":--'l. ........ --a .. ·' ~ ... AI--,",,:,-. l~ ... - .. ~#~ .. J.. , .:.._ t:-l!If__ .. ,. ...... '1; -. '-;.", ... :- .~. -- '-6"O":f"llJ ':s'" --. ~ - through imposition of a civil fin!O~ay be the only way to acc:ess adequately the violative conduct. Eeca~se ci~il penalty actions are brought and resolved in federal court, the·final· order -- whether it involves injunctive :~lief, a civil fin~.. or more -- is directly enforceable by the cour~. ~~e' contempt powers availabl~ to the court are a ?otent t~ol if compliance pr~bll!ms arise. Praced __ nt exi3ts in the f~deral consu~er c:edi~ protecti~n field for establishing a range of enforc9men~ mechanisms. Congress has accorded the Co~~ission th~ authori:y to seek civil penalties for violations of the Equal C:~dit Opportunity Act ~n~ the Fair Oebt Collection Prac~ices ~ct under 'sections providing for acministrative enforcement. Other ~e~tions of these stat~tes provide for thelmposition of civil liability by author1:ins conSU~ers to bring private damage suies. The Commission's enforcement experience ~1tn these laws indica~es that diz£erent enforcement a~proaches can serve Jiff~rent but often comrlemen- tary enforcement goals. As a result, we ~elieve that allowing the Commission to seek civil penalties fot violations of this ~c: would a~sis~ ~nfotce~~nt ef:orts. 9 T~e e~~::ce~ent ac~ivity refe::ed ~o l~ footnote 1 abov~ was cased on that Se~~ion 5 authcrity. 10 ~he credit repair business is often a transient one. ~~en a company moves from st.ate to state, ~he likelihood ~ha~ individual consu~ers ~r local la~ enforcement authori:ies will succeed i~ brin~in, an ac:i~n against it is s~bstantiallv r~ced. • 'co I J I
'. ••"l'~e ~cr.c:i:l=lQ O· F:~:'\k .\tH\un:io Page 10 " The defi~i~icn of a c:edit repair organi:aticn in Sec~ion 403(c), like =os~ ~! the p,ovisions of the proposed legislation, focuses on businesses selling credit repair or c:edi: ~~~:=ve~Q~t services, i.~., services to remove ad~erse information from con- gumers' ~red1t bureau ,~?Orts. The definition of a credit repair erg4ni%ation ap~ears t~ ce ~aedlessly broad, h~weve:. :: i~cludes .nti~ies th~t, for a fee, provide services for the ~urpose of ·ootai~ins an e~~a~s~cn 0: c~nsu~er c:edi~ for a consumer ••••N ~~~s =e~i~i~ion would include, ~or examole, °automatao mortgage loan ~~C?~:~g se:vices and ot~e: busi~9sses that sell informacion about currently a~ailable ter~s and cQndi- tie~s of eredi~. ~uch businesses can ?rovide an i~Fe:~a~t con- sumer service in a e:edi~-oriented ec~nomy and should not :e aUbjec~ed to =egul~tion i~ the absence 0: evicenca t~at ~~ey callse CCnSU1:l.er in~i.l:". ~;e t~a:a=Q:Q :ac:::'..~e:':.c tha.t the Q~fini- .. .ticn of a credit repair ~rgani%3tion ~e revised to ~li~in~te reference to thos~ who ~SSi3t in obtaining credit extenaions for consu~ers. !ndi~iuual bu~inesses t~atmake false clai~s about their ability to obtain credit foc cons~mer$ are, we ~elrev~~ ~ettar dealt ~ith on ~ case-by-case :asi$ under Sec:~on S of the Federal ~=ade Commission ~ct or similar s~ate consumer prote~eion laws. We note that the p,~posed l~gislation predently exempts a number ~f in~titutions and professions from the definiticn of a credi: repair ~r9anization. Oeposit~ry institutions, rgal estat~ brokers, and bro~er-dealers ap?ear to b~ ~xemp~ed becaus~, in t~e ordinary course of business, they ~ay assist cons~m.rs in obtain- 1n9 c:edit. If Congress adopts the foregoing reco~~enJation to r~define a credit repair ~rgani:3tion, thes~ exemptions may be unnecessary. The Commission is not aware that s~ch entitias ordin3rily sell services to consu~ers for the purpos~ of improv- ing their c~edit bureau repor~s. We suqg~st tha~ the exemp~io~s Eor consu~er repor~ing agene1es and debt collec~ors be eli~inat~d as well. Neither of these @ntities ~dvises o~,assists consume:s i~ i~?:ovi~; c=eci~ ~ureau ,epor~s for a fae.-- 11 . Whe~ c:eeit bureaus remove neaa~ive informacion that is inac=~rate or obsolete they ~ay i~~rove consumers' crecit re~:~3. =eca~se ~~is is no~ a $er~ico th3t c:~dit bureaus may charge for but a righ~ granted to con~umers by t~e !C~;, c:eci~ burea~s would no~ fall within the defini~ion of a c=~dit r~Fai: or~an1%ation. Serviees t~at c:edit bureaus are permitted ~~ c~a::e fer are ceseribed in Seco:ion 612 of the FCM_·... or
'.
rage 11
Under this apprQac~ only t~o exem?tions remain -- non~roflc
c:g~ni=ationa and a~:::~eys. ~o~pro~it orqanl%atlons~ such as
the consumer c:ed1t counsaling-$ervices operated b1 the National
~c~~dation fot Con~umer Credit, !ometimas charge a small fe~ fo:
acvi:i~g consumers about c:edit histo=y p~oblems. Attorneys may
also advise or assist their clients concerning thair credit
hi~tories ana their rights under the Fair C:edi~ Rercr~ing Act.
In the Ccmmission's view it is preferable to avoid e~emp-~
tions when ?ossiole. !xemp::o~s can c:ea~~ ~nforcement gaps.l. :_
The1 givo a competitive acva~:as~ to ene S:CU? or pro~ession eve:
ano:he:. Regulations nec~ssa,ily impose so~e b~=dens on business
and, if reg~lat10n is nece3sary, the underlyi~; rationale ordi-
narily $hould be equally applicable to all industry members. We
~uSges; t~e:e~cre t~at C:~g:e$s con~l~er ~hether ~he definition
of a c:p.di; repair organi~ation should pr~vide f~r any p.xelnptians.
Pa .. ·.cui ... rly i· t""e '---~~ .. " .. .:a,-o.,l -e lS e~i-{ ..... ·~A 'a.s ·~e _\.a a ~ ., _ .. -:\_ _:L~ ~1 '" _ ."~ •• Q __ ", __ A
Comlnission has pro?C~ed, ccm?lyin'3 "il~h the a.~:~=~a':i·:e :eq'..!ir~
ments of the Ac,: should not be unduly oner~us.
~rohibited ?rac~icas: Se~tion 404(0) ..
S~c':ion 404(b) of the proposed le~l~lation prohibits
char;ing fees 301ely for r~!atring a consu~er to a retail seller
who will or ~ay make cr,9dit availabl~ t~ t~e consumer an su~stan
tially the same terms as those 3vailable t~ the general ~ublic. -
I: Congress r~vises the definl:i~n of a c:edit r~9air ocganiza-
~ion to exclude those who refer ~onsumer3 to c:editors f~r
possi=le credit extension, it rna1 wish to delete this provision
as well, as it ~ppears to ~e dir~ct~d at practices a.ssociat~d
with c:edit." referral raeher -than with c:edit ret;:lair.
In any event, the Commission questions ~hether the ~r~j~ice
~hat this .ec~ion addresses nece~sarilj injures consumers. I~,
through the assi$tance of a credit repair ~rgani%ation, a con~u~~r
who cannot otherwise obtain c:edi: is _able to do so, the c~nsumer
.. ..-- Fe: exa~le, the at:o~~ev-a:-law exem=:io~ ~~ ~he Fai= Oebt
C~llec;ic~ P:ac:~ces Ac: was·=.centl~ reo~ale~ beC3use i: had
;ecome a haven fo~ a:to~~eys who pra~~ic~d debe collection ra~~e=
t.han law.
l~ . . .Mo"eo"er ;c "',;s o .. a,.. ... ,...: ., - ... ~_.:, .... l"""e -_""•• e CommiSSlon lS ... .., , _. __ .w " ~ ,., __ .. __.. ,
no: certain why the injury would ariSe only in ~onne=ticn wit~
e:e~it extended by retail sellers as opposed to other ca:a~o~ie~
of e:edi~o:s.
j
• The Honorable Frank ~nnun%io C'agl! 12 may well d••m this a sGrviee wQrth paying f~r. The e=ltical 1ssUQ, in our view, is not ~het~er the c:edi: to be ?rovided is &vailacla to others on the same eerms or ~ven on more ~avo:ab~a terms, b~t whether the consu~er understands w~a~ he or she is paying for. Wh.t~sr the ~:~~it is c~!e:ed on ter~s that are cesi:a:le ~= the consumer ~ill depend on the tinancial circum- staneas and options available to enat consumer. ~~ank you ag~in for ~c~ieittn~ the Cc~~igsion's views on the C:e~i~ Re~air Orsani:ations Ac~. ~e hope that these commonts will ce useful in your deli~~r~~i~~:. ldi~~,,1v Oani"!l 01iv"er Chc:lir:nan -.;. ....
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