FTC cracks down on credit scams

Consumers with bad credit reps have new rights against Net sites that falsely claim to repair shabby records, the Federal Trade Commission announced today.

In addition, the FTC sent out letters to 47 unnamed online "credit repair" sites advising them about a federal law that went into effect today aimed at safeguarding consumers. The FTC did not announce that it will file lawsuits against any such sites for fraud or unfair practices.

Under the new law, which was passed by Congress last fall as part of the Credit Repair Organization Act, credit repair organizations both on and off the Net can't take money from consumers before services are fully performed.

Companies also must give consumers a written disclosure explaining their legal rights about their credit history before any contract is signed; supply a written contract with all the terms and conditions of payment and services; and allow consumers a three-day period in which to cancel any agreement they sign with a credit repair firm.

The FTC has vigorously gone after online fraud in a effort to promote safe, trusted e-commerce. So far, the FTC has filed cases or received court orders to shut down companies running online pyramid schemes and "adult entertainment" sites that allegedly rerouted Net connections to rack up hefty long distance bills. Combined, the above online operations profited millions from unwitting consumers.

"Every year, people fall prey to credit repair scams," said Jodie Bernstein, director of the FTC's bureau of consumer protection. "The schemes often target consumers who are unemployed, divorced, or have medical bills--people who are vulnerable and susceptible to scams. These con artists charge hundreds of dollars and claim they can fix credit reports so that accurate, timely information about the consumer's credit history will no longer appear. These claims are false."

For example, a faulty sales pitch a credit repair company might use is to tell people who have filed for bankruptcy that they won't be able to get any type of credit for ten years, which the FTC says is not always true. Also, some claim to assist consumers "hiding" their bankruptcy by offering to establish a new credit identity for a person. The FTC also says this is illegal. Another tactic advertised is called "file segregation." This involves a credit company advising a person to make false statements on a loan or credit application.

The FTC said today that its staff will continue to surf the Net for credit repair advertisements. In May, the FTC will check on the 47 companies advertising credit repair on Web sites or Usenet to make sure they are complying with the law.

Last summer, the FTC closed one of five online businesses it accused of fraudulently offering consumer loans and credit cards. Johnny Ray Dunn of Jacksonville, Florida, offered Visa cards and loans that required "no credit check" on the Internet for $49. Consumers who paid the advance fee received a list of companies offering loans and self-help credit materials but no cards.

Sites the FTC endorses on how to repair bad credit records or for checking out credit repair firms are the Associated Credit Bureaus, National Foundation for Consumer Credit, or your state attorney general's office.