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Full text of "Credit Repair Organizations Act (H.R. 458) : hearing before the Subcommittee on Consumer Affairs and Coinage of the Committee on Banking, Finance, and Urban Affairs, House of Representatives, One-hundredth Congress, second session, on H.R. 458, a bill to prevent consumer abuse by credit repair organizations, September 15, 1988"

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DIT REPAK ORGANIZATIONS ACT (H.R. 458y 



1*^* 



HEARING 



BEFORE THE 



STANFORD 
UBRARIES 



SUBCOMMITTEE ON 
CONSUMER AEPAmS AND COINAGE 

OF THE 

Immittee on banking, finance and 

UEBAN AEFAIRS 

HOUSE or representatives 

ONE-HUNDREDTH CONGRESS 

SECOND SESSION 



H.B. 458 

A BILI. TO PREVENT CONSUMER ABUSE BV CKEDIT REPAIR 
ORGANIZATIONS 

SEPTEMBER 15. 

for the aee of the Committee on Banking, 

Serial No. 100, 




1. oovBRNMKNT pRiwrma 

WABIUNOTON : IBKS 



C5I01MAT8 
^iSIAMIJ 



HOUSE COMMTITEE ON BANKING. FINANCE AND URBAN AFFAIRS 

FERNAND J. ST GERMAIN, Rhode Island, Chainnan 



HENRY a GONZALEZ. Teias 

FRANK ANNUNZIO. niinois 

WALTER E. FAUNTROY, District of 

^Columbia 

STEKIEN L. NEAL, North CarohnB 

CARROLL HIJBBARD. Jr.. Kentucky 

JOHN J. LaFALCE, New York 

MARY ROSE OAKAR, Ohio 

BRUCE F. VENTO. Minnesota 

DOUG BARNARD, Jr., Georgia 

ROBERT GARCIA. New York 

CHARLES E, SCHUMER New York 

BARNEY FRANK. MaBBBchueetts 

RICHARD H. LEHMAN, California 

BRUCE A. MORRISON, Connecticut 

MARCY KAPTUR, Ohio 

BEN ERDREICH, Alabama 

THOMAS R. CARPER. Delaware 

ESTEBAN EDWARD TORRES. Califomm 

GERALD 0. KLECZKA Wisconsin 

BILL NELSON, Florida 

PAUL E. KANJORSKI PennBylvania 

THOMAS J. MANTON, New York 

ELIZABETH J. PATTERSON, South Carolina 

THOMAS McMILLEN, Maryland 

JOSEPH P. KENNEDY R. MassachuaetiB 

FLOYD H. FLAKE, New York 

KWEISl MFUME, Maryland 

DAVID E. PRICE. North Carolina 

NANCY PELOSI, California 

GARY L. ACKERHAN, New York 



CHALMERS P. WYLIE, Ohio 

JIM LEACH, Iowa 

NORMAN D. SHUMWAY, California 

STAN PARRIS. Virginia 

BILL McCOLLUM, Florida 

GEORGE C. WORTLEY. New York 

MARGE ROUKEHA New Jeraey 

DOUG BE REUT ER. Nebraska 

DAVID DREIER California 

JOHN HILER. Indiana 

THOM AS J. RIDGE. Pennsylvania 

STEVE BARTLETT, Texas 

TOBY ROTH, Wisconsin 

AL McCANDLESS. California 

J. ALEX MCMILLAN. North Carolina 

H. JAMES SAXTON. New Jersey 

PATRICK L. SWINDALL, Georgia 

PATRIOA SAIKI, Hawaii 

JIM BUNNING, Kentucky 

JOSEPH J. DioGUARDI. New York 



SUBCOMUTTTRB ON CoNBUlfKK AFFAKS AND CoiNAQR 
PRANK ANNUNZIO. Illinois, Chairman 
FERNAND J. St GERMAIN. Rhode Island JOHN HILER. Indiana 
HENRY B. GONZALEZ. Texas CHALMERS P. WYLIE, Ohio 

NANCY PELOSL California THOMAS J. RIDGE, Pennsylva 



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CONTENTS 



Hearing held on: 

September 15. 1988.... 
Appendix: 

September 15. 1988.... 



Thursdav, Septembui 15, 1 



Kurth, Walter R., president. Associated Credit Bureaus, Inc.. Houston. TX 

Noonan, L. Jean, Associate Director for Credit Practices, Bureau of Consumer 
Protection, Federal Trade Commission 

Rayburo. George L.. Assistant Commissioner of Consumer Credit, State of 
Maryland, Baltimore, MD 

Roberts, Jeffrey, former co-owner of Credit-Rit«. Inc., Palmyra. NJ 

Walton, Kenneth P.. Inspector, Deputy Assistant Director. Criminal Investiga- 
tive Division, Federal Bureau of Investigation 



Prepared statements: 

Annunzio, Hon. Frank.... 
Halford. Elena 



Noonan, L. Jean, on behalf of ibe Federal Trade Comi 

Pelosi, Hon. Nancy 

Raybum. George L 

Walton, Kenneth P. 

Wylie, Hon. Chalmera P 



Additional Material Submiitbd fok the Record 

Aires. Randolf H., letter to Hon. Frank Annunzio dated September 1, 1988 156 

Federal Trade Commission, letter dated May 11, 1987 from Daniel Oliver to 

Mr. Annunzio 171 

Lasko, Warren, letter to Hon. Prank Annunzio dated September 15, 1988 158 

National Retail Merchants Association, statement 163 

Text of H.B. 458 143 



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ff 4.b^/i:]00-*\( 



ACT (U. 458) 



.*^' 



HEARING 



STANFORD 



STBOIlDinTEE OS 
COSSUMEK AFFAIKS ANP iMDfAOE 

or tHi 

.COMMITTEE OX BAXTECG. FIXAXCE AXD 

rSBAX AFFAIRS 

HOUSE OF REPRESENTATn'ES 

ONB-HUNDREDTH CONGRESS 
SBCOND sisaox 



Printed for the use of the Commitl(« on Banking. Piiui 




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CONTENTS 



Thursday, Septemser 15, 1 



', Associated Credit Bureaus, Inc., Houston, TX 

Director for Credit Practices. Bureau of Consumer 

-■-■ Commission 

r of Consumer Credit, Stat« of 



■jwner of Credit-Rite, Inc., Palmyra, NJ 

lor, Deputy AssiBtant Director, Criminal Inveetiga- 
reau of Inveetigatian 



^If of the Federal Trade Commission ... 



reRiAL SuBMirrED for thk Record 



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HOUSE COMMITTEE ON BANKING. FINANCE AND URBAN AFFAIRS 
FERNAND J. ST GERMAIN. Rhode bland. Chairman 



HENRY B GONZALEZ. Teias 
FRANK ANNUNZIO. Dlinoia 
WALTER E. FAUNTROY, District of 

Columbia 
STEPHEN h. NEAL, North Carolina 
CARROLL HUBBARD. Jr.. Kentucky 
JOHN J. LaFALCE, New York 
HARY ROSE OAKAR, Ohio 
BRUCE F. VENTO, Minnesota 
DOUG BARNARD, Jr.. Georgia 
ROBERT GARCIA, New York 
CHARLES E. SCHUMGR. New York 
BARNEY FRANK, Maesachiuetbi 
RICHARD H. LEHMAN, California 
BRUCE A MORRISON. Connecticut 
MARCY KAPTUR, Ohio 
BEN ERDREICH, Alabama 
THOMAS R. CARPER, DeUware 
ESTEBAN EDWARD TORRES, CaUfomia 
GERALD D. KLECZKA Wisconsin 
BILL NELSON, Florida 
PAUL E. KANJORSKl Pennsylvania 
THOMAS J, MANTON. New York 
ELIZABETH J. PATTERSON. South Carolina 
THOMAS McMILLEN, Maryland 
JOSEPH P. KENNEDY U. Maesachusetts 
FLOYD H. FLAKE, New York 
KWEISI MFUME. Maryland 
DAVID E. PRICE, North CaroUna 
NANCY PELOSI, California 
GARY L. ACKERMAN, New York 



CHALMERS P. WYLIE, Ohio 

JIM LEACH, Iowa 

NORMAN D. SHUMWAY. CalifomU 

STAN PARRIS, Virginia 

BILL McCOLLUM, Florida 

GEORGE C- WORTLEY, New York 

MARGE ROUKEHA, New Jersey 

DOUG BEREUTER, Nebraska 

DAVID DREIER. California 

JOHN HILER, Indiana 

THOMAS J. RIDGE, Pennsylvania 

STEVE BARTLETT, Tenas 

TOBY ROTH, Wisconsin 

AL McCANDLESS, California 

J. ALEX MCMILLAN, North Candina 

H. JAMES SAXTON. New Jersey 

PATRICK L. SWINDALL, Georgia 

PATRICL\ SAKI, Hawaii 

JIM BUNNING. Kentucky 

JOSEPH J. DioGUARDI. New York 



SUBCOUUITTEB ON CONSUMKR AFFAIBS AND COINAGE 
FRANK ANNUNZIO, Illinois, Chairman 
FERNAND J. St GERMAIN, Rhode bland JOHN HILER, Indiana 
HENRY B. GONZALEZ, Teias CHALMERS P. WYLIE, Ohio 

NANCY PELOSI, California THOMAS J. RIDGE. Pennsylvania 



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CONTENTS 



Hearing held on; 

September 15, 1988,... 
Appendix: 

September 15, 1988.... 



WITNESSES 
Thubsday, Septehbeh 15, 1 



Kurth, Walter R,, president, Associated Credit Bureaus, Inc., Houston. TX 

Noonan, L. Jean, Associate Director for Credit Practices, Bureau of Consumer 

Protection, Federal Trade Commiasion 

Raybum, George L., Assifitant Commissioner of Consumer Credit, State of 

Maryland, Baltimore, MD 

Roberte, Jeffrey, former co-owner of Credit-Rite, Inc., Palmyra, NJ.,.. 



Prepared stat^mente: 

Annunzio, Hon. Frank... 
Halford, Elena.... 



Noonan, L. Jean, on behalf of the Federal Trade Comi 
Peloei, Hon. Nancv..., 
Raybum, Geoi^e L... 



Additionai. Matebial SuBiorraD tor ths Record 



Aires, Randolf H., letter to Hon. Frank Annunzio dated September 1, 1988 

Federal Trade Commission, letter dated May 11, 1987 from Daniel Oliver to 

Mr. Annunzio 

Lasko, Warren, letter to Hon. Frank Annunzio dated September 15, 1988 

National Retail Merchants Association, statement 

Text of H.R. 458 



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CREDIT REPAIR ORGANIZATIONS ACT (HJl. 458) 



Thursday, September 15, 1988 

House of Representatives, 
SuBCOMMirrEE ON Consumer Affairs and Coinage, 
CoMMrrxEE ON Banking, Finance, and Urban Affairs, 

Washington. DC. 

The subcommittee met, pursuant to CEill, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Frank Annunzio [chair- 
man of the subcommittee] presiding. 

Present: Chairman Annunzio and Representative Hiler. 

Chairman Annunzio. The meeting of the subcommittee will 
come to order. This morning the subcommittee meets to hear testi- 
mony on credit repEiir clinics. These clinics hold themselves out as 
companies that can help consumers clean up bad credit histories or 
obtain a clean credit report. 

Most often their product is not a "Mr. Clean" which leaves a con- 
sumer's credit histoid sparkling br^ht, but a "Drano" that cleans 
out a consumer's pocket. 

Under the Faur Credit Reporting Act, consumers are entitled to 
have the contents of their credit file at credit bureaus disclosed to 
them, and they have the r^ht to challenge inaccurate information. 
Consumers who are denied credit based on a credit report are enti- 
tled to have the contents of their credit file disclosed to them free 
of charge. In other instances, the credit bureau may chsirge a small 
fee. These fees generally average about $10. The consumer may dis- 
pute inaccurate information and the cr^t bureaus must reinvesti- 
gate that information at no charge to the consumer. 

Credit repair clinics claim that they can help consumers remove 
adverse information from their files even if it is true. If you turn 
your attention to the television monitors, you will see an example 
of Em advertisement from a credit repair clmic. 

Nationwide Credit Services, the firm whose ad we just saw, 
promised to stop doing business in Texas and to repay $3,800 to 
damaged consumers. Nevertheless, the company is still in business 
in Louisiana. 

All too often, promises of credit repair are fraudulent. The^ are 
fraudulent for a simple reason — you cannot remove accurate infor- 
mation from your credit file. If the information is adverse but accu- 
rate, nothing can get if off your credit history. Under the Fair 
Credit Reporting Act, it will become obsolete and be removed from 
your credit report Eifter 7 years. Until then, it remeuns in the file. 

Credit repair clinics pose a threat to consumers who can least 

afibrd it. These organizations hold out the promise of a quick credit 

fix at a high cash price. They prey on consumers whose often dire 

(I) 



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straits euid dreams of a better life make them susceptible to the 
false promises of unscrupulous credit clinic operators. 

H.R. 458 forces credit repair clinics to teU consumers the truth 
about their services up front. 

This morning we will hear the story of Credit-Rite, Inc., a compa- 
ny which defrauded at least 9,000 consumers of $2.3 million in a 
credit repair scheme. We wUl first hear from Mr. Kenneth P. 
Walton, Deputy Assistant Director of the Criminal Investigative 
Division of the Federal Bureau of Investigation. It was the FBI's 
investigation of Credit-Rite which resulted in the conviction of 
Jeimes Gray, Donald Gray and Jeffrey Roberts, for mail fraud and 
conspiracy in connection with Credit-Rite. 

James Gray was sentenced in July to 7 years in prison and or- 
dered to make restitution. Donald Gray received 3 years probation 
and was also ordered to make restitution. Jeffrey Roberts received 
a 15-month prison term and was ordered to make $600,000 in resti- 
tution. 

Following the testimony of Mr. Walton, who will provide a com- 
prehensive overview of the Credit-Rite operation, we will hear tes- 
timony from Jeffrey Roberts, a convicted credit repair clinic crimi- 
nal, emd from Michelle Arnold, a former employee of Credit-Rite. 

I want to emphasize that Michelle Arnold was in no way impli- 
cated, investigated or accused of any wrongdoing in the Credit-Rite 
case. Ma. Arnold testified at the trial of the Grays and Mr. Roberts 
as a witness for the prosecution. Her testimony was so damning 
that the defendants decided to plead guilty while she was still on 
the witness stand. 

Now I would hke to have the rankii^ minority Member give his 
statement. 

Mr. HiLER. Thank you, Mr. Chairman. 

I will Taake brief opening remarks. First I would like to applaud 
you for holding these hearings today in the lateness of the session. 
Sometimes some committees don't engage in a lot of work at the 
end of the session. I think this hearing record will help establish a 
good record for us to move early in the next Congress. 

I know that you introduced this bill awhile back. All the Republi- 
can Members on the subcommittee have endorsed it Eind signed on 
to this bill as well. Hopefully, at the start of the next session with 
this record in place, we will be able to move on it. If there are 
problems with the drafting of it or any corrections needed, this 
record will help bring that out. 

Should we perchance be moving in the wrong direction, maybe 
the hearing will bring that out, but I doubt that we are. I think we 
are movii^ in the right direction and look forward to the testimo- 
ny today. 

Chairman Annunzio. I appreciate your statement, Mr. Hiler. I 
am hopeful for all the Republicans agreeing and the Democrats 
figreeing when we conclude the hearings. I know it might be over- 
stepping my bounds, but I will really try to see if we can get the 
bill to the floor emd passed before we adjourn. I know it can be 
done with your cooperation. One thing you will all learn from this 
subcommittee is that Mr. Hiler and I cooperate with each other for 
the benefit of good legislation, and this is good legislation. 



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I now ask that the statement of Mr. Chalmers Wylie, the rank- 
ing Reptj>lican of the full ctHnmittee be made part of the record. Is 
there objection? Without (Ejection, it is so ordered. 

[The i»epared statement of Hon. Chalmers Wylie can be found in 
the appendix.] 

Chau-man Annunzio. Our first witness today is Mr. Kenneth P. 
Walton, inspector, deputy fissistant director of the Criminal Investi- 
gative Division of the Federal Bureau of Investigation. 

Mr. Walton will you please take your place at the table? We are 
delighted to have you this morning. I want to add my own personal 
commendations to the bureau for a job well done. 

STATEMENT OF KENNETH P. WALTON, INSPECTOR, DEPUTY AS- 
SISTANT DIRECTOR, CRIMINAL INVESTIGATIVE DIVISION, FED- 
ERAL BUREAU OF INVESTIGATION 

Mr. Walton. Thank you Mr. Chairman. 

I do have a short statement, Mr. Chairman, that I would like to 
read into the record if you or Members of the subcommittee have 
no objections. 

Chairman Annunzio. We have no objections. 

Mr. Walton. Mr. Chairman and Members of the subcommittee I 
am pleased to appetu* before you today and provide testimony on 
the FBI's investigation involving consumer fraud by Credit-Rite, 
Inc. My appefu-ance before this subcommittee is not in support of 
any pending legislation, but is at your invitation to outline the 
facts of the case. 

As the subcommittee is aware, the FBI has jurisdiction to investi- 
gate certain fraudulent activity in violation of Federal law such as 
bank fraud and embezzlement and fraud by wire. We also have 
concurrent jurisdiction with the United States Postal Inspection 
Service in the area of mail fraud. These Federal laws are frequent- 
ly used to prosecute crimes which victimize our citizens. 

In this case, information was received by our Newark division in 
late 1986, that Credit-Rite, Inc., doing business in Palmyra, NJ, was 
defrauding consumers throi^h a scheme wherein they promised to 
repair the credit of people with poor credit profiles. 

Credit-Rite, Inc. was operated principally by president, James T. 
Gray, its acting president, franchise director, Jeffrey Roberts, and 
its credit repair manager, Donald Gray. It was in operation from 
approximately mid-1985 to February 1987. 

Credit-Rite, Inc. sold franchises to investors throughout the 
United States for a fee of between $5000 to $30,000. The franchisers 
solicited consumers with poor credit profiles and signed them to 
contracts which guaranteed 100 percent credit repair within 18 
months. The contract was usually sold to the consumer for $650 
with initial deposits of between $50 and $250. Once a franchiser 
sold a contract, the contract would be forwarded to the main ofiice 
of Credit-Rite in Palmyra, NJ, where an account would be estab- 
lished under the client's name. Credit-Rite, Inc. would then send 
billings to the consumers on the remaining balance due on the con- 
tract. When Credit-Rite, Inc. received the monthly payment from 
the client, a percentage of that fee was to be sent to the originatii^ 
franchise. 



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The FBI received numerous inquiries from consumer affairs of- 
fices of several States each claiming to have received comfriaints 
from consumers advising they had paid Credit^Rite, Inc. for credit 
repair when, in fact, no credit repair had taken place. 

Credit-Rite, Inc. guaranteed, for a fee, to repair the negative 
credit histories of clients to t^ point where the clients could apply 
for any credit that they desired and would not be denied credit 
bs ood solely on their credit history. Investigation determined that 
"credit repair", as marketed by Credit-Rite, Inc., could not be per- 
formed since credit reporting is governed by the Fair Credit Re- 
porting Act. As you are aware, this act provides that certain accu- 
rately reported n^ative credit entries, including late payments, 
collection accounts, and charge-offs may remain on t^e credit re- 
ports for up to 7 years, while bankruptey may remain for 10 years. 
Other entries, such as liens and judgments, remain on a credit 
report until paid. Therefore, one cannot guarantee a claim to be 
able to "repair" an accurate credit report. Ilie Fair Credit Rep<Mt- 
ing Act provides that only inaccurate information on a credit 
report may be removed. 

The principEil method used by Credit-Rite, Inc. in attempting to 
remove negative credit entries from an accurate credit report was 
by disputing the accuracy of the entry. Credit reporting agencies 
are required, under the Fair Credit Reporting Act to inv^igate 
and respond to consumer disputes within a reasonable time, which 
has been interpreted by t^e Federal Trade Commission as 30 days 
from receipt of the dispute. Credit-Rite, Inc. operated under the 
premise that by inundating the credit bureaus with disputes, the 
credit bureaus would become mired and unable to respond to the 
disputes within the period of time proscribed by law. This would 
r^ult in the disputed item being removed from the credit history 
report. 

Credit-Rite, Inc. also attempted to remove or upgrade existing 
n^ative items on a credit report by "n^otiating" with a creditor 
to delete or upgrade the entry in return for the client making par- 
tial or full payments to the creditor. By and large, creditors realize 
that by succumbing to this type of negotiation; they undermine the 
integrity of the credit reporting system they depend upon for 
granting credit. Therefore, negotiations were generally not success- 
ful. 

Credit-Rite, Inc. attempted to utilize a combination of disputes 
and negotiations, whereby, they arranged with clients to repay a 
portion of existing bad debt. Once a partial payment was made, a 
dispute was sent to the credit bureau stating the account was paid 
and should be ao reflected on the current cr^t report. 

The FBI investigation revealed Credit-Rite, Inc. sold over 9,000 
"repair" contracts through 33 franchise locations throughout the 
United States. Credit-Rite, Inc. totaled over $6 million in business 
volume and available records reveal approximately $2.3 million in 
revenues were actually received. 

The three principals of Credit-Rite, Inc. were indicted in Novem- 
ber 1987, for devising a scheme to defraud the public through the 
guiiranteed "repaired credit" contracts sold throi^h Credit-Rite, 
Inc. franchises. 



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One of the defendants was sentenced in United States District 
Court to serve a 7-year term in jail, a second defendant was sen- 
tenced to serve 15 months in j£ul, and the third defendant was sen- 
tenced to 5 years on probation. All the defendants were ordered to 
make restitution of $2.3 milhon. 

We believe this investigation serves as an excellent example of 
the FBI's enforcement eHbrts to address consumer fraud in the 
credit industry. There are many other pending criminal investiga- 
tions affecting the economic well-being of the public currently 
under investigation. We attempt to address investigations in the 
most efficient, effective, and economical manner possible, given our 
limited resources. 

Thank you, Mr. Chairman, I would be happy to answer any ques- 
tions you may have. 

Chairman Annunzio. I have two questions, but I weuit to thank 
you very much for being here and to thank you for your very excel- 
lent, excellent testimony. 

Mr. Walton what amount of manpower was consumed in this in- 
vestigation by the FBI? 

Mr. Walton. In this particular case, one agent was fissigned full- 
time for roi^hly 13 months. Two other special agents worked on a 
part>time basis and four accounting technicians. Reports were sent 
to other field offices which were covered by agents in those field 
ofSces. So the manpower expended was really quite small. 

Chairman Annunzio. What factors led the FBI and the United 
States Attorney to pursue this matter in the Federeil courts as op- 
posed to the State or local courts? 

Mr. Walton. I think it was the size of the case, the amount of 
the fraud totaled over $2.3 million and the number of victims were 
9,000. The broad jurisdiction covered 33 locations in 15 States. 

The FBI is the only law enforcement agency equipped to handle 
white collar crime of that scope. 

Chairman Annunzio. Thank you. I wanted to clear that for the 
record that the reason the FBI was involved is because of crossing 
State lines. 

Mr. Walton. Yes, sir, and the overall scope of the investigation. 

Chairman Annunzio. Thank you. Mr. Hiler. 

Mr. Hiler. Thank you. Sir, do you have other investigations 
going on at this time on similar activities? 

Mr. Walton. We have a number of investigations in the white 
collar crime area dealing with essentially boiler room operations. 
We do not have a lot of cases involving credit repair which is essen- 
tially a boiler room crime. 

Mr. Hiler. You were talking about one of the techniques used in 
your testimony where the so-called credit repsiir service tries to in- 
undate the creditors with requests for information, questioning the 
accuracy of the billing information with the hope that by these in- 
undations that information does not come back or something hap- 
pens and the information ends up being removed from the credit 
bureau's rating systems. Is that what happens? 

Mr. Walton. That is essentially correct. Under the existing laws 
the credit agency that receives a disputed claim has 30 days to re- 
spond. The logic of Credit-Rite and many other credit repairs is to 
inundate the credit bureaus with such a large volume that they are 



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unable to respond in 30 days and tfaerefisre the disfNited item is 
rtricken from the credit reoOTd. 

Mr. HiLEB. For the record if you are knowledgeable in this area, 
in terms of setting aside the clfum of what this particiilar organiza- 
tion claimed it could do, the manner in which the credit would be 
reiKiiied, Uiat could be done hy an iiulividuaL I mean there is noth- 
ing magic about a credit repair service. 

Mr. Walton. There is nothing magic about it at alL In fact, an 
individual could do it himself, and very likely should do it himself. 

Mi. Hilkb. Thank you. 

Mr. Chairman, I have no further questions. 

Chairman Annunzio. I have no further questions either. Mr. 
Walton, again, many, many thanks for the cooperation you have 
extended to the subcommittee. 

Mr. Waltom. Thank you, Mr. Chairman. 

Chairman Annunzio. We have two witnesses, fidr. Je£&ey Rob- 
erta, former co-owner of CreditrRite, Inc. from Palmyra, NJ and 
Mb. Michelle Arnold, former employee of Credit^Rite,-Inc. 

Will you take your place at the table? 

[Both sworn.] 

Chairman Annunzio. The staff director will introduce Mr. Rob- 
erts. 

Mr. PRINS. Mr. Chairman, just for the record so that everybody is 
aware of the facts, Mr. Roberts is the former director of firanchimng 
of Credit^Rite. He has been tried, convicted of crimes involving 
that, has been sentenced to serve 15 months and, within the next 4 
days will report to the Federal penitentiary in West Virginia to 
b^:in serving his sentence. 

Miss Arnold was the former director of operations who was a 
witness for the Government. She has had no involvement in this 
case of a criminal nature of any kind. 

'Yhe fact that she is testifying with Mr. Roberts should not be in 
any way construed as any criminal involvement on her part. I also 
want to say that I think you will find Mr. Roberts testimony very, 
very candid. He fully accepts the responsibility for what he has 
done and has come forward and offered his cooperation more or 
less voluntarily. I say more or less voluntarily not to try to use 
weasel words, but when we contacted him Euid asked him to appear 
he was more them happy to cooperate. 

Let me say Miss Arnold was the same way. She offered her full 
cooperation. 

C^irman Annunzio. Thank you, very much. Mr. Roberts. 

STATEMENT OF JEFFREY ROBERTS, FORMER CO-OWNER OF 
CREDIT-RITE, INC., PALMYRA, NJ. 

Mr. RoBESTS. Mr. Chairmim, I have a statement to read. I first 
started in the credit repair industry in April 1985 working for a 
company called Correct Credit. I had answered an ad in the paper 
for ' Credit Counselors", no experience necesstuy, we will train you. 
The training consisted of giving me a sales pitch, telling me to 
memorize it £uid their giving me prospective customers to call on. I 
sold about eight deals for (>)rrect Credit and was never peud, so I 
quit after 2Vi weeks. I was supposed to get about $35 a deal. 



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Around the end of May 1985 I either answered an ad or a friend 
told me about a company called Credit-Rite that paid excellent 
money to sales people. I went for an interview, met Jim Gray, Sr. 
and was hired on the spot. 

I was told that the price of the service was $650, find I should try 
to get a $200 deposit at least. I would be paid Vz the amount of the 
deposit that I brought in. We also discussed franchising at that 
time. I went on two appointments that night and sold both of them. 

The next day I asked him if he had a sfdes pitch, he said no, but 
he had made one up for a company called "Ck>rrect Credit" and 
when he left he wasn't able to take any of the materials. I gave 
him my Correct Credit stdes pitch and that is how the Credit-Rite 
pitch was developed. Jim also told me that the retison he was in 
the business was because he had suffered a bankruptcy and 
couldn't get credit, so he went to the library and studied all the 
books on credit and then repaired his own credit, that is a fact I 
later found out was not true. He told me friends had asked him to 
repair their own credit, which he did. Another fact I was to learn 
wasn't true. After that, he told me he went into business at his 
kitchen table and then opened a 10 by 10 store front in Philadel- 
phia without a bathroom. 

His son, Donald, was the manager of the office and set appoint- 
ments. There was another counselor by the name of Robin Robin- 
son. Between Donald, Robin, and myself, we sold about 20 deals a 
week. I lasted about 6 weeks selling eight or nine deals a week 
before I burned out. A "counselor" was only good for about 6 weeks 
and then they burned out. Donald Gray then fired me. 

By that time Jim Gray had taken a larger office in Palmyra, NJ 
and was ready to franchise. I went to work selling franchises. I sold 
about 20 franchises between August 1985 and March 1986. The av- 
erage price was around $5000 a franchise, for that amount of 
money the franchise got the right to use the name Credit-Rite, a 2- 
day training course at his office, help in finding an office, sample 
ads, help in hiring credit counselors. Initially this was done by 
Donald Gray, who then held the title of credit repair manager. I 
didn't think Donald was capable of doing the job, and I pushed Jim 
to hire a professional operations department. In December 1985, he 
hired the first two operations people, both totally unprepared and 
ill-equipped to do the job. Dennis Rhodes and Tom O Connor both 
came from the K-Mart shoe department where they had been 
friendly with one of Jim's other sons, Jimmy, Jr. I complained that 
this was not going to work, but Jim Gray stood fast with his deci- 
sion. He gave us all company cars equipped with telephones. My 
company car was his Cadillac, a roadster. I still wouldn't be quiet 
and continually complfuned that things weren't running smoothly, 
but I w£is always outvoted. 

Around this time franchises were running out of operating cap- 
ital. Jim had said in the brochure that only $8,000 to $9,000 was 
needed. Actually it turned out that $25,000 to $30,000 was needed. 

I continued to argue with him until in April 1986, he came to me 
and said he had a job that only I could do. Open another credit 
repair company in competition with Credit-Rit«. It was either that 
or be forced out of the company entirely, so I opened USA Credit 



jyGOOgll 



8 

centers with Jim Gray £is my silent partner and supplying moet of 
the money. 

I put $10,000 to $15,000 of my own money in the business. It was 
doomed from the b^inning. I tried to run the company as Inti- 
mately as could be, but it just didn't make it, and at this time I 
started to realize that credit repair might not be possible to do. 

Meantime, Credit-Rite was prospering with around 36 franchises. 
Jim Gray had set seminars up around the country and set quotas 
for the counselors. If they met their quotas, they would win a trip 
to the Bahamas. I couldn t understand how he was going to pay for 
200 counselors to go to the Bahamas, then it dawned on me. One of 
the stipulations was that a counselor must still be with the compa- 
ny when the trip took place. Since the majority of counselors lasted 
only 6 weeks, very few would qualify for the trip in the end. 

During the summer of 1986 I started to receive calls from credit 
franchises at my USA office. They were still friendly with me euid 
complained that they couldn't get through to taUc to Jim. He 
wouldn't take their calls. 

Customers were calling them and complaining that the work 
couldn't be done. I was told there was an 8-week backlog. About 
that time Barry Flickstein, a franchise from Florida and a fran- 
chise salesman for Credit-Rite who had sold franchises for up to 
$150,000, called me and asked me if I would close down USA emd 
return to Credit-Rite. As president, Barry wtis angry with Gray. 
Gray hadn't paid him his commission. He was supposed to get $15 
a deal from ^1 the franchises he had sold, plus $15 a deal from the 
main office. See attached letter. Plus any franchises that he sold in 
Florida, he got to keep the entire franchise fee. 

He also told me that Gray had shown the franchises how to get 
credit for people who never had credit. Flickstein said he didn't 
think it was legal. Gray told them to send out their applications, 
wait about 30 days emd even if they hadn't come back approved or 
disapproved, send out three more and say the original three had 
been approved, since they would just show up on the credit report 
as an inquiry. 

Also Gray had told him to send the applications back in a plain 
envelo[>e with no return address and not to run the envelopes 
through a postage machine, but to use a r^uleu- stamp. 

In September 1986 I returned to Credit-Rite as president, the 
franchises were screaming that no work was being done by Gray, 
he wouldn't talk to them and he was never in the office. They were 
ri^t on all counts. 

By this time Gray owned 26 horses, had three Mercedes, one for 
his wife, one for him, and one for his son, Jimmy, Jr. He had 
thrown lavish parties at the Red Lion Inn, some costmg as much as 
$25,000. He was flying first class all over the country and staying 
in suites at the finest hotels. His da)'s were spent in the casinos in 
Atlantic City. He was smoking $5 cigars and nobody could talk to 
him. 

He owned several businesses including Gray Automotive, which 
$60,000 of Credit-Rite was invested in. He told me that himself. I 
tneid to run CreditrRite but couldn't since Gray never relinquished 
control. Things went from bad to worse. People were clfunoring for 



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their money back on their 18 month money-back guarantees. Gray 
said not one guarantee was to be petld. 

I had a private conversation with him in late September or early 
October 1986 at which time he told me that he never had intended 
to honor the guarantees or do the work. I then had a choice, walk 
away from a $1500 a week job, expense account and company 
luxury car with phone or just go along with the program. 

I decided to go Eilong with the program. Today, as 1 reflect on fill 
the events that took place, I realize that I might as well have 
changed my name to Gray. I was just as responsible for ripping off 
9,000 low income Americans as he was. 1 have been sentenced to 15 
months in prison starting Monday. 

The credit repair industry is big business, big business that can't 
be done. It is legally impossible to change a credit rating unless a 
mistake has been made. Yet hundreds of credit repair companies 
thrive on other peoples' misfortune. A $50,000 bond is not the 
Euiswer. Credit-Rite alone brought in over $2 million in less than 18 
months. 

The franchises continued to bill clients and collect moneys even 
after Credit-Rite had no employees. It seems as if greed abounds. In 
my opinion, there is no such thing as credit repair, so instead of 
being regulated, the industry should be outlawed. If not, the regu- 
lation should be so tough and the bond so high that people are dis- 
couraged from going into the business. 

Chairman Annunzio. Thank you, very much. 

Our next witness is Miss Michelle Arnold. You can proceed in 
your own way with your testimony. You have about 10 or 15 min- 
utes. 

STATEMENT OF MICHELLE ARNOLD, FORMER EMPLOYEE, 
CREDIT-BITE. INC., PALMYRA, NJ. 

Ms. Arnold. I guess the best way to continue after Mr. Roberts' 
statement is to perhaps reflect on some things from my point of 
view as an employee in the company. 

I was personally involved with the individuals who signed up as 
clients. 'That is where my concern lies. These people are desperate 
people. When they come to us, they were telling the sales people 
that their credit was very bad. Their homes were at stake, their 
cars, livelihood. 

The people were at the very ends of their ropes and thought they 
had no alternatives and no place else to turn. When they came to 
us, we promised them everything and obviously that is not what 
could be done for these people. 

We took money from people who did not have the money to give. 
Contracts and paperwork that came into the office at Credit-Rite 
obviously showed with the T-sheets and what have you that these 
people did not have the funds to pay their own monthly expenses, 
let alone the $650 or $850 fee to Credit-Rite. 

Credit-Rite did not take into consideration these peoples' misfor- 
tunes. All they were concerned about was collecting the money. I 
can remember many times taking contracts and paperwork to the 
president of the compemy at that time, who was James Gray, and 
showing him things on the profile for the Individuals and asking 



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10 

him how is it possible, how can we accept something like this and 
take money from these people when it is obvious to me that it just 
can't happen, these people cannot continue with us. 

He would take the contracts from me and say he would handle 
them. Later I was told it was not my business to look at the con- 
tracts or review them, and I was forbidden to do so from that point 
on. It is my understanding that someone else was reviewing t^em 
and these contracts were not supposed to be accepted. 

There was a clause in the contract itself that says the contract is 
not binding unless it is authorized by the main ofBce, which im- 
plies that someone at the main office was reviewing the paperwork 
£md making sure that it was up to the standards that we were told 
to present to these people. 

Obviously, it was not. It is very unfortunate that all these indi- 
viduals were misled the way they were emd that their money was 
taken, imd if they had gone to perhaps a credit counseling service 
that is free of charge or if they had been maybe re-educated in 
their spending or helped with budgeting instead of offering rain- 
bow and pie in the sky, perhaps we would not be sitting here today. 

Chairman Annunzio. Thank you, very much. 

When these people came into the office and they were desperate, 
did any of these people look like they were suicidal? 

Ms. Arnold. I don't recall anyone looking like they weae suici- 
dal. / 

Chfiirman Annunzio. The reason I asked that is there are so 
many suicides today by people who are over their head in credit. 
They owe everybody. They become desperate. They wind up shoot- 
ing themselves and shooting their wives. This appears in the paper 
every day. I am wondering if any of that happened. 

Ms. Aanold. I don't believe so. 

Chairman Annunzio. Thank you. 

Mr. Roberts, Credit-Rite promised to repair consumer credit 
within 18 months. Is this something that it or any other credit 
repair clinic could actually do? 

Mr. Roberts. No, sir. If a person does not qualify for credit, there 
is no way that they are going to receive an unsecured credit card 
within 18 months. There is no way they can be guaranteed they 
will not be turned down for a loan. 

Chairman Annunzio. Credit-Rite used a technique that it called 
negotiations that to attempt to get creditors to remove bad credit 
information in exchange for payment of the account. How often 
was that technique successful? 

Mr. Roberts. I would say very rarely, but I am not an expert on 
that particular field. I would say very rarely. Credit-Rite, as far as 
I can understand through conversations with Donald Gray, tried to 
tie up the system through disputation. 

Chairman Annunzio. Mr. Hiler. 

Mr. Hiler. Mr. Roberts could you exptmd on that last couple of 
sentences you said about what type of effort Credit-Rite was en- 
g^ed in? 

Mr. Roberts. It is my understanding that most of the work done 
by Credit-Rite, and I say most of the work, was strictly disputation 
in order to tie up the c(Hnputers at TRW and the other credit re- 
porting agencies with the hopes that if they could tie up the c(»n- 



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n 

puters that certain items would come off because the companies, 
credit companies, would not be able to meet the 30- day deadline. 

Mr. HiLBR. Let me ask, you obviously have been impacted quite 
severely personally and in many other ways, I am sure by your ef- 
forts here and I really appreciate your coming before the subcom- 
mittee to tell us a little about your experience with this particular 
oi^anization. 

You have said that the type of legislation you would like to see is 
to completely prohibit and ban this type of activity. We, of course, 
up here are left with the responsibility to try to ensure that con- 
sumers cannot have fraud perpetrated upon them, but yet at the 
same time with Miss Arnold describing some of the people who 
were looking for help, advice and counsel, meiny times these folks 
are not going to know what the law is, who may not be quite up to 
speed. 

They are under the wire. It would seem that there is a role for 
the private sector to play in saying we will help you understand 
the law and maybe help you in exercising your rights under the 
law, but I think that where this legislation is aimed at going is to 
insure that those consumers when ^ey come into a credit repair or 
a le^timate credit repair organization know full well what their 
rights under the law are and know what it is 3X)8sible to have 
ham>en. 

This is where I think we have been pushing this bUl, in the area 
(^ just a lot of disclosure so that the consumer, when they make a 
decision when to put down $250 or $400, know there is no magic 
that can be performed and much of what can be performed by the 
credit repair service can, in fact, be performed by themselves. 

I know that is a little bit at odds with where you probably think 
the l^islation should go. 

Mr. Roberts. I personally believe many people who come 
through the door of credit repair agencies do not have the educa- 
tional level or the ability to understand what the contract actually 
says and they are being totally misled by fast speaking con artists 
and this is exactly what is being done. 

You can read a contract to a person and if the [>erson does not 
understand what you are reading and sign their neune, supposedly 
it is l^al. That is why I s£iid and I will say it again, credit repair 
should be outlawed. There should be no such thii^. 

Mr. HiLER. Thank you. 

Miss Arnold, how did you happen to get a job with this organiza- 
tion? 

Ms. Arnold. A friend of mine was an acquaintance of the owner 
of the Philadelphia franchise. They were just opening a Philadel- 
phia frfuichise. He knew 1 was looking for a job and put us t<%etl> 
er. The man offered roe a job. From the Philadelphia franchise I 
was offered a job in the home office in Palmyra. 

Mr. HiLER. What are you doing now? 

Ms. Arnold. I am a purchasing agent. 

Mr. HiLER. Thank you. I have no further questions. 

Chairman Annunzio. Thank you. Our staff director who has 
been part of most of the investigation has some questions. 

Mr. Prins. Mr. Roberts, in the course of the investigation by the 
FBI, or to your knowlec^e, was there a large number of envelopes 



jyGOOgll 



12 

with checks received from consumers that turned up in the trash 
where the envelopes had been opened, the diecks taken out and 
the credit profilee thrown in the trash? 

Mr. RoBBBTS. Yes, that is definitely true, that was done. 

Mr. Prins. How onften was that done? 

Mr. Roberts. That procedure was followed from November 1986 
through February 1987. 

Mr. Phins. So we are talking about a considerd>Ie length of 
time? 

Mr. Roberts. You are talking about 4 months. Four to five 
months that procedure was followed, yes. 

Mr. Prins. So the case would come into the office with the form 
filled out showing what the problem was and there would be a 
check in there, correct? 

Mr. Roberts. That is correct. The check would be removed from 
the envelope, the rest of the material would be disposed of. 

Mr. I^NS. Disposed of? Thrown in the trash? 

Mr. Roberts. That is correct. 

Mr. Prins. To the best of your recollection, how many of these 
cases were thrown in the trtish and the money removed? 

Mr. Roberts. I really would not know the numbers on it. 

Mr. Prins. The FBI testified earlier that there was roughly $2.6 
million taken from consumers in this scheme. Do you believe that 
to be Ein accurate figure? 

Mr. Roberts. I believe the figure they gave was $2.3 million. No, 
I do not believe the $2.3 million as an accurate f^re. I have 
reason to believe that the Grays destroyed approximately 1,500 to 
2,000 files before the FBI was able to obtain the rest of the records. 
I would believe, judging the lifestyle of Mr. James Gray, Sr. that he 
would have ne^ed more than the amount of money that he re- 
ceived from Credit^Rite to live the type of lifestyle that he did. 

Mr. Prins. Miss Arnold, the Credit-Rite setup had two buildii^s 
in Palmyra, correct? 

Ms. Arnold. Yes, sir. 

Mr. Prins. You worked in one of those buildii^s? 

Ms. Arnold. Yes, sir. 

Mr. Prins. Were you allowed to go into the other building? 

Ms. Arnold. I was told not to. That was the "credit repair" 
buildii^. They thought I was too nosey and things I wonld perceive 
emd brii^ to their attention they told me were none of my busi- 
ness. I was told I was to remain in the office part. 

I might have gone over a couple of times to take mail or pick 
something up, but that was all. 

Mr. Prins. How many employees were there in the Palmjnra 
office? 

Ms. Arnold. I axa sorry. At what point in time? There were 
many changes. 

Mr. Prins. At the largest point in time, what was the lai^est 
number? 

Ms. Arnold. When Credit-Rite, Inc. was at its largest part, I was 
not with them. I was with Mr. Roberts at USA Credit centers. I 
would have to take a guess at 20 people, maybe not that many. 

Mr. Prins. How many of those folks were clttssified as credit 
counselors? 



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18 

Ms. Arnold. The credit counselors really didn't work out of the 
home (^ce. The credit counselors or sales people were actually 
part of tite different franchises. 

Mr. Peins. Where were the folks that did the work that the (X)n- 
muners wanted in order to get their credit repaired? Where were 
they? 

Ms. Arnold. In the separate hiiil d in g . 

Mr. Prins. That is the building you were not allowed to go into? 

Ms. Arnold. That is correct. 

Mr. PRr>rs. You were the director of operations? 

Ms. Ajuiold. At Credit-Rite I was an operations manager. I was 
director of operati<His for USA Credit centers. 

Mr. Prins. Was anybody else besides Mr. Gray and the credit 
counselors allowed to go into the other building? 

Ms. Arnold. No, the secretaries were there. When I went back 
toward the end of Credit-Rite there was only one person doing 
credit repair and there were several secretaries. 

Mr. I^uNs. Were all 9000 accounts worked out of that ofBce? 

Ms. Arnold. Yes, sir. That is correct. It was a completely 
manual system. I requested eind gave them information several 
times about computer systems, and if you looked at the paperwork 
it also says on the contract that methods are computerized for 
speed and efficiency and there was no computer. 

There was no computerization whatsoever. The only thing com- 
puterized was the billing system to metke sure the bills went out 
and checks came in. 

Mr. Prins. That was the function of the organization, get the 
money in and do nothing? 

Ms. Arnou). That is correct. 

Mr. Prins. Mr. Roberts, was there a time, or perhaps Miss 
Arnold would know this, where a couple of folks were given their 
money back under the guarantee and Mr. Gray found out about it 
and got a httle bit upset and gave you or Miss Arnold or someone a 
directive on how to deal wilii future guarantees? 

Mr. Roberts. That was directed toweu-d me. Mr. Gray was not in 
Uie office extensively at all. He was preoccupied. 

Mr. Prins. What was he preoccupied with? 

Mr. Roberts. With his gambling and his horses and the Atlantic 
City casinos and other business enterprises. Donald Gray emd I 
made a decision to refund some moneys to some of these people. 

Donald had a stamp with his dad's name on it that he could 
stamp the check. I okayed it. We put through a few refunds that 
we bought should go out immediately. 

He found out about it about 2 days later and came into the office 
and made a statement, under no circumstances whatsoever is one 
drop of money to go out of this office for refunds, period, and so 
forth. 

Mr. Prins. Mr. Roberts, when the checks in the envelopes came 
in with the consumer's sheet in there and the check, who <^>ened 
those, where did they go? 

Mr. Roberts. The checks were opened msdnly by Mr. Gray's son, 
Jimmy, Jr., and he would make up deposits and run to the banks 
with the deposits. The checkbooks were kept by Mr. Gray. He had 
the only signature on the checking accounts. 



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14 

Mr. Prins. Who was responsible for filing the consumers' docu- 
ments? 

Mr. Roberts. The documents were supposed to have been taken 
from the office where the mail was opened to the other side, the 
side that I was discouraged from going over to and that Miss 
Arnold wtis forbidden to go over to. 

From what I understand, they were handed to the "manager" of 
that side, a gal by the name of Julie BemalH, I think, I am not 
sure. There was also an attorney Mr. Gray hired to work on that 
side and his son, Donald, was supposed to be working on that side 
but theoretically did not. 

Mr. Prins. Did you ever see anyone throw consumers' files into 
the trash? 

Mr. Roberts. From November through February, November 1986 
through February 1987, yes. 

Mr. Prins. Approximately how many did you see thrown in 
there? 

Mr. Roberts. Hundreds. 

Mr. Prins. Who threw them in? 

Mr. Roberts. Different people in the office. 

Mr. Prins. So it was kmd of an accepted practice, you took the 
money out of the envelope and threw everything else in the tretsh? 

Mr. Roberts. Those were the orders. That is the orders I followed 
even though I knew it was wrong. 

Mr. Prins. Miss Arnold, do you sigree that that is what hap- 
pened? 

Ms. Arnold. I was not aware or part of any of that. The only 
thing I could add to that statement is that there were bags of, I 
thought, trash that were sitting on the floor in one of the buildings. 
I was told that they were not to go out to the street, that they were 
documents that needed to go to uie other otflce which I believe was 
in Ben-Salem and they were to be shredded. We were not to put 
them out on the street for trash. 

I don't know whether they contained client files or not. 

Mr. Prins. We know the money came in and was deposited and 
the consumers' documents were deposited in the trash. But you 
said that there were a number of counselors that worked in the or- 
ganization. Did the counselors actually counsel or was their sole job 
to sell the service over the phone, either one of you. 

Ms. Arnold. They were strictly sales people. Since I was the op- 
erations manager and I vras to open the franchises and train the 
people, I was instructed to pass on the verbage, and that being that 
we call these sales people counselors and do not ever call them 
sales people because some of the people that come in to see us or to 
make themselves available to the service are people who have 
bought from sales people too many times and are therefore in the 
straits that they are in, in order to make them want this kind of 
service. So we were supposed to guise them as counselors. 

Mr. Prins. Let's talk a little bit about selling this service to the 
consumer. They would come in and meet with the counselor. They 
would fill out a credit profile and then the counselor, as I under- 
stand it, would look over that profile to determine how much the 
charge was going to be based on the amount of work and how bad 
their credit was. 



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15 

What was the normal charge that a consumer was asked to pay 
for this service? 

Mr. Roberts. Six hundred and fifty dollars was the normal 
charge no matter if there were two items on the record or 19 on 
the record. 

Mr. PRINS. Did you ever have a sale, a special 1 day only type of 
thing, if you sign right now, we will give you a discount? 

Mr. Roberts. I would not be able to answer that. I personally did 
not do anything like that. I don't know if franchise offices did that 
or not. 

Mr. pRiNS. Wasn't it a ffict that counselors were told and in- 
structed to get the consumer to sign by using the line that normal- 
ly we charge $800, but we are having a special and since your work 
is not going to be that bad, if you sign today, we can give you a 
discount of $200 and you only have to pay $600 or $650? 

Mr. Roberts. That statement is true, but $650 was the r^ular 
price. Telling them it was $800 was the stiles pitch. The r^uleu- 
price was $650 and the majority of contracts I ever saw were writ^ 
ten for $650. 

Mr. Prins. ok. You had roughly 9,000 people that you were serv- 
icing, 9,000 consumers who had paid their money in hopes of get- 
ting their credit repeured. Of those 9000, how many do you, Mr, 
Roberts and you, Ms. Arnold, have personal knowledge of whose 
credit was in ffict repaired? 

Mr. Roberts. One. 

Ms. Arnold. 1 don't know of amy. 

Mr. Roberts. Mr. Gray used one credit profile to show everybody. 
That is the only one I ever saw that was complete. 

Mr. Prins. Ms. Arnold? 

Ms. Arnold. I don't know of any. 

Mr. Prins. I'm sorry? 

Ms. Arnold. I don't know of any. 

Mr. Prins. Of the 9000 under contract? 

Ms. Arnold. No, sir. 

Mr. Prins. Mr. Gray, who raui the company — was he a good 
credit risk? Did he have good credit? 

Mr. Roberts. Well, I thought he did. In the trial it came out 
through testimony that his credit report was atrocious. 

Mr. Prins. Did he ever try to get it repaired. 

Mr. Roberts. He told me — in the b^inning of my statement I 
stated the reason he opened the company up is because he suffered 
a bankruptcy and that he had gone out and repaired his own 
credit, which I said in my statement was not true, which I found 
out at the trial. 

Mr. Prins. Here was a man franchising credit repair operations 
and couldn't get his own credit repaired. 

Mr. Roberts. He couldn't do his own, that is correct, sir. 

Mr. Prins. I guess that is like a mechanic who franchises garages 
and can't even repair his own car; is that a good analogy? 

Mr. Roberts. Perfect. 

Bffr. Prins. Let me ask you one final question because Mr. An- 
nunzio wants to move on to the next panel. 



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16 

Let me ask two quick questions. You had a guarantee, or it was a 
payment plan, rather, that went 3, 6 or 18 months. Did Mr. Gray 
tell you which plan he wanted the people to use? 

Mr. Roberts. He wauited to use a 6-month payment plan, the 
reason being that he felt that after 5 to 6 months, clients would 
stop p^ing. 

Mr. Prins. Didn't he also plan to not have the company in oper- 
ation much longer than that? 

Mr. Roberts. As I found out, in October and November, the 
whole thing was a scam. He did not plan on having the company 
more than 18 months when the majority of the guarantees would 
come to an end. 

Mr. Prins. Let me ask a question about the phone lines. Did 
there come a time when the 9,000 folks completining and the fran- 
chise people atarted complaining and they were flooding the Pal- 
myra ofBce with complaints, and what action did you all take to 
make certain that people could get their complaints heard by your 
office? 

Mr. Roberts. Orders from Jim Gray were to take all phones off 
the hook, except for one, euid he had a private number ttiat if you 
wanted to call in and you were out on the street, you could call in. 
When I say, "you," I mean one of the employees. Other than that, 
his orders were all the phones were to go off the hook except one, 
which means that possibly one person could call in. That would be 
it. 

Mr. Prins. Ms. Arnold, it is my understanding that they were 
told they could only ceiII in on Friday durii^ a certain period. Is 
that correct? 

Ms. Arnold. At one point in time that was one of the ways they 
tried to handle the phone calls. They assigned di^erent days to dif- 
ferent areas and they also ass^ed bogus names, fictitious names 
for people so that when clients would call in and ask for Mr. Jones 
they would note it was a client calling in with a question or a com- 
plaint. 

Mr. Prins. What happened to them? 

Ms. Arnold. Basically nothing. The telephone lines got so busy 
that they then changed to the new policy which was only on Fri- 
days, and that was when all the lines were busied out and just one 
or two lines, whatever, were free for calls. 

Mr. Prins. Were you personally told that the two lines were to 
be taken off the hook on Friday? 

Ms. Arnold. I was not there at that time. I was at USA Credit 
Centers, but Mr. Roberta told me that if you need to call the office, 
and you have to use the private number, that is the only way we 
can reach Jim because it is Friday and the phones are off the hook. 

Mr. Prins. This is my final question, Mr. Chairman. 

Mr. Roberts, was this a busy operation that started out with good 
intentions and somehow for a lot of reasons went sour, or was this 
a direct intention to run a nationwide scam from the beginning? 

Mr. Roberts. To the best of my knowledge, this was an out and 
out scam from the very, very banning. I did not find out about it 
until I had suspicions, though, and I did nothing about my suspi- 
cions emd I did not find out in actuality, actually being told by Mr. 
Gray that that is what it was, until October 1986. 



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17 

As I said in my statement, I stayed with him. 

Mr. Phins. Lookii^ back, now, on your time with the company, 
did you see Einything even before you crossed over to the criminal 
side or after to indicate to you that this was ever anything, but a 
gigantic scam. 

Mr. Roberts. Mr. Gray was extremely cleaver at covering up, 
and it was extremely hard for anybody to see that it was actually a 
scam from the very beginning. 

He hired a good number of people, more than 20, he had maybe 
80, 35 employees at the height of his business. He put on a night 
crew, even. He brought in six to eight people at night, supposedly 
to work on the credit repair. 

I later found out they weren't really working on credit repair. 
What they were doing actually is postii^ or they were doing other 
things, meaning that he put these employees on to show the fran- 
chises that I even have a night crew on. So he was very clever in 
his cover-up. 

Unfortunately for him, fortunately for the public and everybody 
else, it just got to the point where there were too many complaints. 

Mr. Prins. There were other credit repair companies operating 
around the country at the same time. Do you have knowledge of 
any of those other companies? 

Mr. Roberts. I have knowledge of a few of those companies. They 
were offshoots of Credit-Rite, a few of our Credit-Rite franchises 
when Credit-Rite closed down formed their own companies. 

Mr. Alice Belonte and Mr. Joe Kline, I believe their operation 
was centered right in this Washington eu-ea and they claimed that 
everything was done through computers. To the best of my knowl- 
edge, it is hearsay, but to the best of my knowledge that company 
is now defunct, out of business because they couldn't do credit 
repEiir. 

Mr. Prins. Do you know any credit repair company in the 
United Stetes that is operated other than on a scam basis? 

Mr. Roberts. That would probably be unfeur for me to answer. 
The few that I know of or that I have read of have all been operat- 
ed on a scam basis. 

Mr. Prins. Thauik you very much. Thank you, Mr. Chairman. 

Chairman Annunzio. I want to express the appreciation of the 
subcommittee to both of the witnesses for your very illimiinating 
testimony. You have been a tremendous help to the subcommittee. 
I know how difficult it has been for you to come here, and under 
the circumstances, but I commend you both. 

As far as I am concerned, you are both very, very good citizens 
and we should have more people like yourselves come forward so 
that we can expose so many, many rackets that are going on in 
this country that affect consumers. 

Ms. Pelosi? 

Ms. Pelosi. Thank you, Mr. Chairman. I, too, want to thank our 
witnesses for coming forward with their testimony, and I would 
like to commend you for your leadership on consumer issues. Your 
introduction of H.R. 458, the Credit Repair Orgemization Act, is an- 
other pro consumer initiative in a long line of actions you have 
taken to assist American consumers. 



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18 

Just briefly, Mr. Chairman, I would like to say I am proud to be 
a cosponsor of H.R. 458 which would end abuses by credit repair 
organizations. While there may be credit repair organizations 
which legitimately assist individuals, as your line of questioning 
and Mr. Prins' line of questioning indicate, there are unfortunately 
far more of these businesses which serve only to promise that they 
can deliver to people with bad credit ratings. 

Many credit repair organizations profit by promising they can fix 
bad credit ratings; something they cannot do, if the bsid credit 
rating is a result of an individual not paying his or her bills. Many 
credit repair organizations also charge high fees for obtaining in- 
formation that a consumer could already receive for free or for a 
nominal fee thanks to the Fair Credit Reporting Act of 1970. 

I am very pleased among other things, that H.R. 458 would re- 
quire that all credit repair clinics advise consumers of their rights 
under the Fair Credit Reportii^ Act before a consumer s^ns a con- 
tract. 

I thank you, Mr. Chairman, for holding today's hearings on this 
important legislation. Because of another committee work I will be 
back and forth, but I look forward to reading, if not hearing the 
testimony of our witnesses, and again I thank you for all of your 
work on behalf of the consumer. 

Chairman Annunzio. We appreciate your statement, Ms. Pelosi. 
I would like the record to show that is the plight of Members serv- 
ing in the Congress. We have to be in three places at one time. 
Sometimes it is very difficult. The only person that can't get out of 
it is the chairman, and sometimes he has to sit alone. 

You mentioned the Fair Credit Reporting Act. You know that is 
a product of this committee. We sponsored that legislation. Many 
thanks, Mr. Roberts imd Ms. Arnold. 

Chairman Annunzio. The next panel will be L. Jean Noonan, as- 
sociate director for Credit Practices, Bureau of Consumer Protec- 
tion, Federal Trade Commission; George L. Rayburn, assistant com- 
missioner of Consumer Credit, State of Maryland, Baltimore, MD, 
accompanied by George Jones, director, Anti-Fraud Program; 
Walter R. Kurth, president. Associated Credit Bureaus, Inc., Hous- 
ton, TX, accompanied by D. Barry Connelly, senior vice president, 
Associated Credit Bureaus, Inc.; and Elena Halford, president. 
Design Systems, Glendale, CA. 

The first witness we will hear from, Ms. Noonan, the associate 
director for Credit Practices. If you have a prepared statement Ms. 
Noonan, you can submit that statement for the record. 

Without objection, the entire statement will be made part of the 
record. So you can proceed in your own way for 5 or 10 minutes. 

STATEMENT OF L. JEAN NOONAN, ASSOCIATE DIRECTOR FOR 
CREDIT PRACTICES, BUREAU OF CONSUMER PROTECnON. 
FEDERAL TRADE COMMISSION 

Ms. Noonan. Thank you, Mr. Chairmem. Mr. Chairman and 
Members of the subcommittee, my name is Jean Noonan. I am the 
associate director for Credit Practices at the Federal Trade Com- 
mission. With me today is Kathleen Buffon, the assistant director 
in the Division of Credit Practices. We appreciate the opportunity 



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19 

to appear to discuss the credit repair industry and comment on 
H.R. 458, the Credit Repair Or^inizations Act. 

In our view, Federal legislation to regulate the credit repair in- 
dustry could provide useful information to consumers and help 
deter deceptive and dishonest practices. The Commission would 
support legislation requiring different disclosures, however, ones 
that would better reduce consumers' vulnerability to false credit 
repair claims. 

The Commission questions whether the proposed legislation will 
achieve this goal. In a letter to Chairman Annunzio dated May 11, 
1987, the Commission commented at some length on the proposed 
l^islation. The Commission requests that that letter also be made 
part of the record of this hearing. 

Today, I will summarize those views and discuss the Commis- 
sion's efforts to protect consumers from credit repeiir fraud. I would 
like to focus on companies that sell credit repair services, that is, 
on those claiming to be able to improve consumers' credit records. 

As presently drafted, H.R. 458 would also encompass those who 
offer to help consumers obtain em extension of credit. Many busi- 
nesses provide such services non-deceptively. The Commission be- 
lieves that the proposed legislation should focus solely on credit 
repfiir services, as this is the area in which false claims and con- 
sumer inquiry have been a recurrent theme. 

In our experience, credit repeiir companies typically promise tiie 
impossible. Television and newspaper ads assert "Credit problems? 
No problem." " Come to the credit experts." " We erase bad credit 
history." Such claims are misleading. As you know, under the Fair 
Credit Reporting Act, if adverse information is accurate and com- 
plete, a credit bureau is entitled to report it for 7 years. Bankrupt- 
cy may be reported for 10 years. 

Most consimiers who turn, to credit repair clinics for help have 
experienced genuine credit problems in tlie recent past. It is accu- 
rate information that they seek to remove, not inaccurate informa- 
tion. No matter how many times a consumer or credit repair clinic 
disputes accurate information, it almost surely will remain on the 
consumer's report for the 7 or 10 years permitted by law. Although 
credit repair companies often guarantee success, consumers rarely 
can obtain refunds when their reports are not improved. 

Since 1984, 19 states have enacted laws to combat deception by 
credit repair compfinies. The State of California was a leader in 
credit repeiir legislation. It enacted a law in 1984 that is similar to 
H.R. 458 in many respects, including the disclosure, bonding and 
other requirements. Despite this, according to a recent survey, over 
100 credit repair companies currently operate in California and 
there is evidence that a number of them engage in deceptive prac- 
tices. 

For example, the Commission recently obtained a preliminary in- 
junction against a credit repair company in Los Angeles based on 
evidence of false credit repair claims. Several other companies that 
the Commission staff is investigating are located in States that 
have recently enacted laws similar to H.R. 458. 

We recommend a close look at how effectively these laws have 
functioned at the State level. We believe that a different approach 



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20 

may be advisable if Federal legislation is to achieve its intended 
puipose. 

llie Commission has thusffir relied on its powers under the Fed- 
eral Trade Commission Act in combatting deception in credit 
repair. We have pursued a strong consumer education pn^am and 
we have brought and will continue to bring enforcement actions 
against companies that rely on deception to sell their services. In a 
1986 action, for example, we brought six individuals who had run a 
credit repair company in Detroit under order. The companies' 
founders were ordered to make paid radio and newspaper Em- 
nouncements warning consumers against false credit repair claims. 

The other action I mentioned was brought ageiinst a credit repair 
company that has been operating over a dozen offices in California 
and Nevada. Having obtained preliminary relief, we are now seek- 
ing permanent injunctions and money back for consumers. 

We are also in the process of resolving civil complaint charges 
gainst Credit-Rite, which formerly operated 31 franchises in 15 
States. As you have heard, the U.S. Attorney's Office brought 
criminal charges against this company's principals, and the compa- 
ny's founder was sentenced in July to 7 years in prison. He was 
ordered, along with his co-defendants, to make restitution to con- 
sumers. 

Yesterday the Commission filed suit against a credit repair com- 
pany that we believe to be the largest one that has operated to 
date. Our complaint charges that tms company made false credit 
repair promises, reneged on its refund guarantee and used false 
threats to collect on its contracts when consumers refused to con- 
tinue making payments. 

The staff currently is at work on a number of other investiga- 
tions which at this point are not public. The Commission also has 
been working intensively to educate consumers about what can and 
can't be done to improve their credit bureau reports euid, thus, how 
to determine when credit repair claims are false. 

During the past year, in cooperation with consumer and industry 
groups, we published our most complete consumer guide to date on 
the credit reporting system. This publication warns consumers 
about the problems inherent in dealing with credit repair compa- 
nies. Over 63,000 copies have been distributed thusfar. 

Turning again to H.R. 458, I will note several points that are dis- 
cussed in more detail in the Commission's May 1987 letter. A prin- 
cipal feature of this legislation is the disclosure requirement. Dis- 
closures can perform an important cautionary function, but we be- 
lieve that these disclosures miss the boat. 

The proposed law presently would require credit repair compa- 
nies to disclose to consumers how to exercise their rights under the 
Fair Credit Reporting Act. We believe that it is far more important 
to disclose, instead, that consumers' r^hts under the Fair Credit 
Reporting Act are limited. That is, consumers csin require credit 
bureaus to remove accurate negative information from their re- 
ports only if the information is over 7 years old; bankruptcies may 
be reported for 10 years. 

In other words, tiie problem is not that consumers can do this for 
themselves, but rather that no one can do what credit repair com- 
panies typically promise. We want to arm consumers with informa- 



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21 

turn that may lead them to question false credit repair claims 
before the sale is made. This is the first and best line of defense 
against credit repair fraud. 

Second, we believe that our law enforcement ci^uibility would be 
greatly enhanced if Congress were to grant civil penalty enforce- 
ment powers to the Commission. The Commission presently has ju- 
risdiction over credit reptiir organizations under the Federal Trade 
Conunission Act including the power to bring administrative cease 
and desist actions against such a company or to seek ii^uncticms 
and other equitable relief in Federal Court. The authority to obtain 
civil penalties could prove to be a useiul adjunct to our existing 
powers by providing a flexible alternative when restitution is im- 
practical or impossible. 

Finally, I wish to draw the subcommittee's attention to the many 
questions that were raised in the Commission's letter concerning 
the proposed bonding requirement. We do not know the extent to 
which demanded consumers know about and obtain refunds in 
States that have a bonding requirement. Again, if the subcommit- 
tee were to review these States experiences, it might shed light on 
the usefulness of a bonding requirement. At present the Commis- 
sion continues to have concerns about its efficacy. However, if Con- 
gress does decide to enact a law with a bonding requirement, the 
Commission believes that the statute should make clear exactly 
who is to administer distribution of bond funds and how and when 
consumers are to obtain access to them. 

As I have noted, the Commission's views on H.R. 45S are outlined 
in more detail in our May 11, 1987, tetter. I appreciate the opportu- 
nity to update them today and to testify on legislation to eiddress 
this important consumer problem. Thank you. 

[The prepared statement of Ms. Noonan can be found in the ap- 
pendix.] 

Chairman Annunzio. Thank you for your testimony. 

Our next witness is Mr. George L. Raybum, assistant comnas- 
sioner of Consumer Credit of the State of Maryland. He is accom- 
panied by George Jones, director of the Anti-Fraud Pn^ram. Mr. 
Raybum, you can proceed in your own manner for about 5 or 10 
minutes. 

Do you have a prepared statement? 

Mr. Rayburn. We have submitted a prepared stotement. I am 
going to deviate somewhat from what was presented to the subcom- 
mittee. 

Chairman Annunzio. Without objection, the full statement will 
be made part of the record. 

STATEMENT OF GEORGE L. RATBURN. ASSISTANT COMMISSION- 
ER OF CONSUMER CREDIT, STATE OF MARYLAND, BALTIMORE, 
MD. 

Mr. Rayburn. Mr. Chairman, honorable Members of the subcom- 
mittee, it is a pleasure to be here and an honor and privilege to 
appear to testify before you in support of H.R. 458. We believe that 
this bill, to protect consumers from unfair and deceptive practices 
by businesses that have come to be called credit repair services, is 
direly needed. 



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Over the pitst several years, various consumer protection agen- 
cies in the State of Maryland on both the State and county level 
have received an increasing number of complaints r^arding these 
credit repair services businesses. 

Generally, these companies promise to assist consumers to im- 
prove their credit reports, to obtain credit cards, to secure loans, to 
arrange automobile financing or otherwise provide financial coun- 
seling. Please note that these services require the consumer, who is 
<^ten desperate or in dire financial straits anyway, to pay a fee, 
<^ten a very substantial fee. 

We have heard testimony here today that these fees -were $650- 
$850, where the only services received in many cases is a series of 
Xeroxed letters to be sent to creditors and to credit bureaus. Other 
examples that we know of include: a $35 per minute, 976 telephone 
number, which is supposed to help the consumer who has credit 
problems find financing for an automobile. Actually the only serv- 
ice that is provided is a list of dealers who regularly finance their 
own cars. 

We have seen advertisements promising to eliminate negative 
credit information includii^ judgments euid bankruptcy. No real 
service is ever provided, nor could it be, to fulfill these promises. In 
fairness, some of these businesses do offer what might be consid- 
ered legitimate informational services, especially to unsophisticated 
consumers. 

However, there is no regulation of their fees and they offer little, 
if anything, that is not available to the consumer for no cost, either 
through State, Federal or county agencies. I might add that we 
have brought with us something that was prepared by the Federal 
Trade Commission, an excellent booklet that is now available. We 
also have others that are the Federal Trade Commission's that are 
distributed by State, county and Federal agencies. Maryland's legis- 
lature recognized this problem after a number of these complaints 
were brought to their attention. In 1987, Delegate Hattie Harrison 
of Baltimore City introduced legislation that would require these 
credit repair businesses to obtain a $10,000 bond to be held by the 
State, if they collect any fee before performing the promised serv- 
ices. 

It is now a part of Maryland's Commercial Law Article. The new 
law requires that a notice be given to the consumer which dis- 
closes, among other things: the consumer's legal right to receive a 
copy of, and to dispute the accuracy of, information in their credit 
report; a statement that accurate information can't be legally re- 
moved from a credit report; a complete description of all services 
which the credit repair business will perform and the total cost to 
the consumer of these services; and, information that the surety 
bond exists to compensate the consumer for any loss sustained as a 
result of a violation of law. 

I might add that all or most of these provisions are contEuned in 
H.R. 458. Further, Maryland's law prohibits a credit repair busi- 
ness from charging a fee for simply referring a consumer to a re- 
tailer or other credit grantor, if the credit to be granted is on sub- 
stantially the same basis that other consumers can receive. 

It prohibits fraud or false or misleading statements. The law also 
establishes that the consumer has a 3-day right of rescission on euiy 



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contract with a credit repair business and requires notice of that 
fact to be given to the consumer at the time the contract is signed. 

The Maryland Commissioner of Consumer Credit, a princip^ ad- 
vocate of the Maryland legislation and the Consumer Protection 
Division of the Maryland Attorney General's OfFice are vested with 
administrative enforcement authority with respect to the Act. 

Further, there is a criminal fine that is available, although no 
incarceration is provided for convicted violators, I'm sorry to say. 

In attempting to enforce the new statute regulating these credit 
repair services we have encountered some difficulty. The most sig- 
nificant road block is that of State boundaries. Some of these oper- 
ators, who were faced with the Maryland requirements for bonding 
and other requirements and our active enforcement efforts, have 
simply packed their bags and moved to another State, especially 
those without strong regulatory l^islation. Or, in other cases they 
declare bankruptcy to avoid giving refunds to consumers. 

They place advertisements in local newspapers using an 800 
number to entice unsuspecting victims into their web. We have 
found it all but impossible to locate and take action against these 
operators in many cases. We believe this problem can best be ad- 
dressed by Federal legislation. 

I am sure all of you are aware, as I am, that it takes little more 
than a telephone and a few ads in a local newspaper to set up one 
of these businesses. For this reason, we strongly support a bonding 
requirement as that is contained in your bill provided to cover 
claims by injured consumers. 

But more importantly, we have found that the bonding require- 
ment keeps many of the operators that could be considered charla- 
tans out of the business from the beginning because they can't 
qualify for the bond. We believe it to be essential to the enforce- 
ment effort. At this point we are prepared to answer any questions 
that the subcommittee may have, and also to recite specific con- 
sumer complaints in support of our previous statements, if that is 
your desire. 

Chairman Annunzio. We will continue with the witnesses and 
then get back to you with questions. 

Mr. Rayburn. Thank you, sir. 

[The prepared statement of Mr. Rayburn can be found in the ap- 
pendix.] 

Chairman Annunzio. Thank you for an excellent statement. 

Our next witness, Mr. Walter R. Kurth, president of the Associ- 
ated Credit Bureaus, Houston, TX. He is accompanied by D. Barry 
Connelly, vice president of Associated Credit Bureaus. 

We welcome both of you here to the subcommittee. You have tes- 
tified before this subcommittee on previous occasions. We have 
alwajrs enjoyed your testimony and cooperation. We are happy to 
have you here today. Mr. Kurtii? 

STATEMENT OF WALTER R KURTH, PRESIDENT, ASSOCIATED 

CREDIT BUREAUS, INC., HOUSTON, TX. 
Mr. KuKTH. Thank you, Mr. Chairman. 



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24 

Chairman Annunzio. Proceed in your own manner for 5 or 10 
minutes. Your entire statement will be made part of the record, 
without objections. 

Mr. KuRTH. Thfmk you, Mr, Chairman. 

Let me say first of all, that the Associated Credit Bureaus strong- 
ly endorses H.R. 458. We think the case has certainly been clearly 
stated as to the abuses that are occurring in the marketplace. Our 
industry has a concern about the efforts of credit repair oi^aniza- 
tions for a number of reasons. 

First of all, it attacks the integrity of the consumer reporting 
system, the soundness of the banking euid commerce of this coun- 
try. Are consumers really served even if a credit repetir compimy 
were successful? 

We have seen documentation this morning that it is very difli- 
cult for them to even come close to fulfilling a small percentage of 
promises that they holdout. Are consumers served who have been 
overextended in having that record wiped clean, and then obtain- 
ingadditional credit irresponsibly? 

That drives up the cost to the credit granting community and ul- 
timately drives up the cost to all consumers. We think they are not 
well served, even if they were successful. More importantly, we 
know that the record already is clear, they are not able to fullill 
promises that accurately reported adverse information can be re- 
moved from the file. 

We believe in education, and we commend the Federal Trade 
Commission for the pemiphlet that they prepared. We also have an- 
other psmiphlet, "Fix Your Own Credit Problems," that is available 
without chEU*ge from our association to consumers. 

All they need to do is to inquire. Those kinds of efforts and the 
efforts of the nonprofit consumer credit counseling services, we be- 
lieve best serve the American consumer. Thank you, Mr. Chair- 
mem. 

[The prepared statement of Mr. Kurth can be found in the ap- 
pendix.] 

Chiiirman Annunzio. Thank you very much for your statement. 

Now, our next witness, Ms. Elena Halford. Welcome to the sub- 
committee. 

STATEMENT OF ELENA HALFORD, PRESIDENT, DESIGN SYSTEMS, 
GLENDALE, CA. 

Ms. Halford. Mr. Chairman, theuik you. 

Chairman Annunzio. You can proceed for 5 or 10 minutes. Do 
you have a prepared statement? 

Ms. Halpord. Yes, sir, I do. 

Chairman Annunzio. The entire statement will be made part of 
the record without objection. 

Mb. Halford. 1 am Elena Halford and I am the founder and 
president of the American Association of Credit Inc. in Glendale, 
CA. Thank you for giving me the opportunity of presenting my 
views on H.R. 458 this morning. 

Along with me is Steve Frank, my public affairs consultant My 
company is licensed in the State of California, and I do have the 
required per California law, $25,000 trust account. 



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In California we have an option of havii^ either a trust account 
or a bond. The bond is only for $5,000. However, because of the dif- 
ficulty in obtaining bonding in the State of California, there was 
another option where we could have also a trust account. However, 
that trust account has to be for $25,000, which my company has 
placed in a bank in California. 

Several years ago I got into the business of credit repair because 
I saw the need for the consumer to have better control over their 
credit find their credit information. The credit reporting bureaus 
were making the mistakes of not accurately reporting information 
to potential credit givers and in many cases refused to listen to 
consumerB when legitimate information was given to them. 

It is my opinion that credit reporting bureaus are merely con- 
duits of information. It is not up to them to judge information or 
determine what information goes on a consumer report and what 
does not. 

Unlike the m^ority of the credit repair agencies in this country, 
my company uses the negotiating procedure, instead of the disputa- 
tion procedure. We contact the creditor, and it is the creditor him- 
self who makes the decision whether this item of derogatory infor- 
mation should be removed from the record or not. The credit bu- 
reaus have nothing to say about that. 

The information, once reported by the creditor himself, J.C. 
Penny, Montgomery Ward, however, they control the information. 
They know whether it is accurate information or not. So they have 
the right to say whether it belongs there or not, not the credit bu- 
reaus. 

A consumer comes to me Emd they say that they are unfairly 
being denied credit because of misinformation on their credit 
report. I get the pertinent information from them, get a copy of 
their credit report and explain to them under the law their alter- 
natives. I then attempt to correct the information, negotiate a set- 
tlement with the credit giver emd/or explain to the consumer that 
nothing can be done to chemge the report. 

In 1987 I refunded $20,000 to consumers. This year so far I have 
refunded $7,000. Unfortunately H.R. 458, while it correctly regu- 
lates the credit repair industry, leaves out a key element; that is, it 
does not mandate the credit reporting bureaus to recc^nize our ex- 
istence thereby precluding the consumer from having representa- 
tion. 

Our success ratio is 89 to 90 percent, again the reason being be- 
cause we deal directly with the creditor who reported the informa- 
tion. This presents a problem for most consumers. The area of con- 
sumer credit is complicated, technical and unnerving for most con- 
sunaers. 

They don't understand the law, what their rights are or how to 
exercise their rights under the law. Some consumers ask their rela- 
tives, friends, attorneys or credit service organizations to represent 
them to credit bureaus, but TRW, the largest credit reporting 
bureau, refuses to allow anyone to represent a consumer. They 
claim that the right to privacy precludes them from talking to 
anyone about an individual's credit. But this is hypocrisy, Air. 
Chairman. 



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TRW does not protect the right to privacy to any consumer. In 
fact, it invades the right to privacy. Any debtor's clerk in this coiiii- 
tiT can get a copy of your credit report on a moment's notice, Mr. 
Chairman. But under the law it will take you 80 days to get the 
seune information from a credit reporting bureau. Is that the pro- 
tection to the right to privacy? 

More importantly, this action by the credit bureau is harmful to 
the consumer, and as an example, in California an elderly gentle- 
man in San Bemadino County had a stroke, which among other 
things, caused him to have financial problems. He asked his adult 
daughter to speak to TRW on his behalf because he could not get 
out of bed. 

TRW, because of this so-called right to privacy, refused to talk to 
the daughter, even though she had a signed statement from her 
father. £n't it strange, you could be charged with murder and have 
an attorney. You can s^ a power of attorney to anyone to take 
care of your finsincial matters if incapacitated, but credit reportii^ 
bureaus refuse to recognize the right to representation that every 
business and economic segment of the American society recognizes. 

In the area of convenience, TRW says that you can deal directly 
with them at their store front locations. But the problem is that 
they only have four in California, a State of 26 million people. The 
locations are not generally known, and the hours they are open are 
horrendous. In California, the hours are from 9 until 12, 1:30 to 4, 
Monday through Friday and that is it. How can the general con- 
sumer take time from work and then appear only to be told it 
would take a couple of hours to run your "TRW report before they 
can even discuss it? 

All of the examples that I have given you are in effect a repre- 
sentation of legal fraud upon the consumer. I have in front of me 
160 letters. I could have brought several thousand from TRW that 
implied that if you use a credit repair organization, you might be 
breaking the law. And because you might be using a credit repair 
orgemization, they will not respond to your inquiry. 

I have an interview held with KCOP in L.A. showing an official 
of TRW denying the existence of this letter and implying that it is 
a phony, but the next day the reporter brought beick the evidence 
that the TRW official had lied about the letter. 

Mr. Chairman, I would like your permission to show that tape 
now. 

Chairman Annunzio. How long is it goii^ to take? 

Ms. Halford. About 2V& minutes, sir. 

[A video tape was played for the subcommittee.] 

Ms. Halfobd. Thank you, Mr. Chairman. 

I will go on now. This is an example of why the consumer needs 
to have the right to representation before a credit bureau. Each 
one of us has had our own horror story about dealii^ with a credit 
bureau. I have talked with members of your staff and others on the 
Hill 

Chairman Annunzio. Ms. Halford, how much more time do you 
want. We are beginning to run out of time and we want questions. 
I sEtid at the beginning you can have between 5 and 10 minutes, 
and your whole statement would be made part of the record. 

Ms. Halford. I understand, sir. I have only one page to go. 



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27 

Chairman Annunzio. Proceed. 

Ms. Halford. Thank you. I strongly sup[>ort this l^islation with 
two chfinges, Mr. Chairman. First, I urge an amendment that 
would ensure the right to representation with a credit reporting 
bureau. This should indeed be a fundamental right of all people. 

Second, I suggest that section 404 that deals with prohibiting 
practice be Eimended. It is suggested that a $50,000 surety bond be 
issued before a firm could get clients, such a surety bond is next to 
impossible to get. Surety companies are not issuing them to our in- 
dustry, plus it would take a consumer years under the current 
status of such bonds to get paid from the bond. 

I would suggest that an escrow account or trust can be set up of 
$50,000 as an Edtemative. Let me finish this issue. An older gentle- 
man in southern California was forced to sue 25 of his creditors in 
small claims court for reporting derogatory information on his 
credit profile, which didn't belong to him. He decided to do this 
after persisting for 3 years in correcting the information. 

He has won most of his cases. Each creditor requested that the 
information be deleted from the profile. However, TRW refused to 
do it. Should creditors and consumers really suffer this way? 
Thank you for this opportunity of testifying in support of H.R. 458 
with the two proposed amendments. 

Chairman Annunzio. Thank you very much, Ms. Halford. 

Mr. Raybum, we have heard today about Credit-Rite, which took 
in $2.3 million from 9000 consumers. Maryland requires a $10,000 
bond. H.R. 458 would require a $50,000 bond. Given the amounts 
involved, are such bonding limits reeilistic in your opinion? 

Mr. Rayburn. The emswer to your question, I believe, Mr, Chair- 
man, is the fact that if this company that we heard the testimony 
about today had been required to get from a legitimate bonding 
company a $50,000 bond before they were able to go into business, 
they would have never collected a nickel from a consumer because 
they wouldn't have gotten the bond. 

CSiairman Annunzio. That is an added protection for the con- 
sumer. 

Mr. Rayburn. Absolutely, sir. 

Chairman Annunzio. You mentioned in your statement that 
some credit repair services offer legitimate services. Can you dis- 
cuss these services that you consider legitimate euid those that you 
consider abuses or not legitimate. 

Mr. Rayburn. Yes. The legitimate services that they provide, I 
believe, are those informational services that some unsophisticated 
consumers are not able to get for themselves. As an exsmiple, it is 
rare that the consumer has full knowledge of the Federal Fair 
Credit Reporting Act or in our case in the State of Mfiryland, the 
State Credit Reporting Act, and as a result they can get this infor- 
mation from one of these credit repair services, if they are willing 
to pay a fee for it. 

Now, please understand that they can also get this information 
from an attorney, for which they usually pay a fee or from l^al 
aid, if they qu^ify, but in all cases from the Commissioner of 
Credit and the Office of the Attorney General at no charge whatso- 
ever. 



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I believe the Federal Trade Commission is not charging any fees 
either for consumers. They do have informational services. They 
have a Bureau of Consumer Protection here in Washii^ton, and I 
might add, sir, that the ofHces of the Congressmen in their local 
districts provide this kind of information to their constituents at no 
charge as well, or refer them to State agencies that will give this 
kind of information at no charge. 

Chairman Annunzio. Well, Mr. Raybum, if the Congressmen are 
listening, that is one way of coming back each time. 

Mr. Rayburn. It wasn't intended that way, sir, but we do get a 
number of inquiries from our Congress people in Maryland's offices 
and they know us and know that they can contact us. I am certain 
that it is the same way in Illinois tmd Indiana and wherever else in 
the United States you have an office. 

Chairman Annunzio. I would point out that we are going to con- 
tinue until the first bells ring for a vote. After that we are going to 
have to leave. Please try to make your answers short. We want to 
get as many questions in as possible. 

Mr. HiLER. Ms. Noonein, as was mentioned by Ms. Halford, 
should the Pair Credit Reporting Act give the consumer a right of 
third party representation before a credit bureau? Current law 
states, of course, that only the consumer can represent himself 
before the bureau. Can you comment on this proposed change? 

Ms. NooNAN. Of course. As you know, the Fair Credit Reporting 
Act permits consumers to bring a third party with them if th^ 
would like. If a person feels, for any reason, that they can benefit 
from the assistance of a friend, relative or peiid person, they are 
free under existing law to do that. Moreover, I would note that it is 
not necessary to go to the office of the credit bureau in order to 
obtain disclosures of the information in your file or to dispute it. In 
fact, most credit bureaus accomplish that over the phone and 
through the mall. 

Mr. HiLER. So if there is a problem with a credit bureau about 
allowing a third party to assist an individual in their dealii^s with 
the credit bureau, no new legislation is needed. I meem, that is 
something that is — that ability is already in existing law. 

Ms. NooNAN. The existing law gives you a couple of different op- 
tions. The credit bureaus have provided a third. You may go down 
in person, but few consumers choose that because of the time in- 
volved. You may get a disclosure over the telephone, and most 
credit bureaus permit a disclosure throi^h the mail as well. 

The consumer can initiate that process and the resfWnse comes 
back to the consumer. When consumers get the information back, 
either by phone or mail, they can share it with whomever they 
like. If consumers want to use the right to go down in person, they 
may bring someone with them under existing law. 

Mr. HiLER. Mr. Kurth, can you comment on the same question I 
asked about third party representation before credit bureaus. 

Mr. Kurth. As Ms. Noonan pointed out, existing law permits a 
consumer to be accompanied by a third party on the disclosure. 
TTiis has not been a problem for the industry. In the wisdom of the 
committee, when the law was written back in — it became effective 
in the early 70's, those provisions and protections were put in 
Uiere. 



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Mr. HiLER. Ms. Halford, where do you perceive the problem to 
be? 

Ms. Halfohd. Mr. Hiler, the problem here is that the credit bu- 
reaus are saying that, yes, you cftn be accompanied by a person of 
your choice to the — directly to the credit bureau. This ia wie way I 
understand the Fair Credit Reporting Act. 

This is a provision for appearing in person, not by mail. If you 
were to give me a power of attorney and I use that power of attor- 
ney to obtain a copy of your credit profile, the credit bureaus will 
not allow me to. 

Mr. Hiler. Ms. Noonan? 

Ms. Noonan. The law requires credit bureaus to respond when a 
person with a power of attorney, acting on a consumer s behalf, re- 

auests disclosure of information in the consumer's Gle. However, 
le credit bureau may send the report directly to the consumer. 
There is no requirement that the disclosure be made to the third 
party. This practice helps assure the privacy of the information in 
the report. Moreover, it protects consumers from false promises of 
credit repair. If a third party engaged in credit repeiir fraud were 
permitted to obtain a consumer s credit report directly, the con- 
sumer would have less opportunity to discover that his or her 
credit report has not been improved by the credit repair company. 
The way the system works now, the credit report must go through 
the consumer's hand, which gives the consumer an opportunity to 
learn exactly what is contained in his or her credit report berore, 
during, and after the soK:alled credit repEiir process. 

We would note, however, that this doesn t preclude the consum- 
ers from sharing that information with Einyone they choose. 

Mr. Connelly. Mr. Hiler, to mandate to law third-party repre- 
sentation for a consumer to a credit bureau sounds like it is neat 
idea. But in fact, sir, it would open up one of the most major loop- 
holes that we are here trying to close up. Picture, if you will, sir, 
the advertisements in front of you of these, and as you saw here, 
and see those adds saying "Erase bad credit. Hire us as your third 
party representative to the credit bureau. We will help you erase 
bad credit." 

That is what they are going to do. It is not a case of hire us so 
that we will go in and correct erroneous information. That is not 
the gimmick. This is a smoke screen, sir. It is just going to add an- 
other loophole to the loophole the chairmfm has identified and you 
have by cos|>onsoring this legislation, that is in section 611 and it is 
a good provision that says that you have to re-verify and delete it if 
it can't be re-verified. 

That is the httle loophole they are taking advantage of right 
now. This would add another one, sir. 

Mr. HiLEB. Mr. Raybum, do you — in the State of Maryland's 
eyes, is the bonding, the surety bond the only way to go or is the 
trust fund concept, which apparently is in place in California, a le- 
gitimate thing to look at, or do you see distinctions that are impor- 
tant? 

Mr. Rayburn. We have an alternative trust fund provision in 
Maryland. We have a $10,000 bond. There is also the alternative to 
post a $10,000 cash trust payable to the State of Maryland as an 
alternative, if they can't get wie bond. 



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30 

Mr. HiLBR. Sir. 

Mr. KuRTH. Mr. Hiler, I will note that lUinois just passed legisla- 
tion r^nilating credit repair companies. They have a $100,000 bond 
imposed in that law. 

Mr. HiLER. I have no further questions, Mr. Chairman. 

Chairman Annunzio. Mr. Wylie? 

Mr. Wylie. Thank you, Mr. Chairman. 

First, I want to apolc^ize for being late. The Veterans' Affaire 
Committee had a markup on judicial review this morning and we 
don't have proxy voting in that committee. All of the Members 
were present and I thought it was important that I be on recnrd 
there. So that is the reason. Although this subject is just as impor- 
tant, I felt like I had to be present. 

ChairmEm Annunzio. Thank you. We are happy to have you 
here. You always Eidd so much to our hearings. 

Mr. Wylie. Thank you. We worked on the Fair Credit Reporting 
Act years ago together and helped write it. One of the provisions 
was the Privacy Act provisions party at the insistence of the con- 
sumer groups. And I think that is part of the Act that needs to be 
protected. 

Having said that, Ms. Halford, your t«8timony stat«s that the 
legislation under consideration does not mandate that credit re- 
porting bureaus recognize existence of credit clinics tmd therein 
precludes the consumer from having representation. Is it not true 
that you are free to give the consumer any advice you wish aa long 
as the consumer personally acquires his or her credit report, either 
in writing or by personally visiting the credit bureau? 

Ms. Halfoed. That is correct, Mr. Wylie. 

Mr. Wyue. Is it not reasonable that a credit bureau then re- 
quired that an individual be personally responsible for securing his 
or her credit report to assure that his or her privacy is not violated 
and is this requirement not like a bank's requirement, for instance, 
where no one except the customer can request a copy of his or her 
bank statement? 

Ms. Halford. That is correct. Let me separate one thing here. 
The problem is not obtaining the report. The problem is getting the 
credit bureau to invest^ate information that we have found to be 
inaccurate or unverifiable under the Fair Credit Reporting Act. 

Obtaining the report is not a problem. Once the information has 
been investigated as being inaccurate or unverifiable, then the 
credit service organization who represents that consumer would 
have the right to dispute the information to the credit bureau. 

Now, I understand that there is a lot of controversy 

Mr. Wylie. Have you been able to obtain the credit report your- 
self? 

Ms. Halford. Yes, sir, I have. 

Mr. Wyue. Through your organization Design System? 

Ms. Halford. Yes, sir, I have. 

Mr. Wylie. Without a power of attorney from people you repre- 
sent? 

Ms. Halford. I didn't get that. 

Mr. Wylie. Without a power of attorney from the people you ai* 
representii^? 



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31 

Ms. Halford. No, sir. I always require a power of attorney from 
the consumers that hire me. 

Mr. Wylik. When you get a power of attorney and ask for infor- 
mation, they supply it; is that correct? 

Ms. Halford. That is correct. 

Mr. Wtlie. Now, in the case you gave here it says there was a 
young man or old man who had a stroke or had finaiicial problems 
and he asked his adult daughter to speak to TRW on his behalf be- 
cause he could not get out i^ bed, and he came to you? 

Ms. Halford. No, sir. This was presented in the State l^islature 
in Sacramento. California is tiying to deal with a ^Tnil^r problem. 
I found out throi^h Assembly Manager leves. 

Mr. Wtue. It was hearsay as far as you are concerned. 

Ms. Halford. It was evidence entered into a hearing in the Cali- 
fornia legislature. 

Mr. Wtue. Did she have a power of attorney? 

Ms. Halford. No, sir. What he gave her was his authorization 
for her to obtain the report and deal with any problems that had to 
do with the credit reporting agency. However, the credit bureau re- 
fused to talk with her or listen to her or do anything about it be- 
cause she was not the consumer that was referred to. 

Mr. Wtlie. Biaybe ttiey were using an over abundance of caution 
as to how this credit information should be disseminated? 

Ms. Halford. That is correct. This over abundance of caution 
has coet consumers a tremendous amount of money. I found out 
that 70 to 80 percent of the information that I verify through the 
creditors is inaccurate or unverifiahle. The Fair Credit Reporting 
Act specifically says if those two situations occur, then the infor- 
mation must be promi^ly deleted. 

That much information being incorrect deserves another look. 

Mr. Wtlie. I would like to have Mr. Kurth comment cm that. It 
seems to me that you don't have a lot of complaints as far as the 
procedure at the present time is concerned. 

Mr. Kurth. lliank you, Mr. Wylie. 

As you know, under the Fair Credit Reporting Act our membere 
have the obligation and responsibility of assuring the maximum 
possible accural^. Again, as Mr. Connelly said, this is a smc^ 
screen. What we are tfillring ahout is trying to get information that 
was accurately reported, adverse information, removed from the 
file. To say Uiat 75 or 80 percent, whatever the term just referred 
to, was information where maybe the cents was left crfT of the bal- 
ance <^ the account, was that inaccurate information and then they 
would profess that information should be deleted as a trade line on 
a credit report. 

The system has beoi in i^aoe for 17 years and has worked ex- 
tremely well with over 200 millicm credit reports being furnished 
each year for the benefit of the general publK: and the stimulation 
of conunerce and indnstiy for credit grantors to be aUe to make 
•onsible dectmons in tl^ extension of credit, 
at our concern is, is to challenge it on the bass that as a 
smoke acne^i this information is inaccniate and oa^ to be diet- 
ed because it has been challenged. 

Mr. Wtuk. I don't think the last line of the tape that joa had 
was too hrifrfiil to yoor cause. Hie reporter said if you can t sBord 



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32 

to hire Design Systems, we can show you how to clear up your 
credit yourself. 

Ms. Halford. Yes, sir. There is one thing I tell my clients, if you 
cannot afford to pay your bills, you cannot afford to pay for my 
services whether I charge $2 or $200. I tell my clients they have to 
be debt free before I can have any information removed from the 
credit profile. 

We are talking about consumers that have been in trouble 3 or 4 
years ago and they paid fill their debts. Now they want to start 
again, they wsmt to buy a home, they want to buy a car. They want 
to maie good again. 

Yes, I understand the statute of limitations is 7 years and it may 
remain on the record for 7 years, that is correct, however we are 
talking about consumers who paid their debts. 

We are talking about derogatory information that does not 
belong there because it is inaccurate or unveriHable. We are also 
talking about consumers who are doing well now, who had had a 
bad credit report in the ptist. 

Mr. Wylie. 1 think the point is though, that can't the consumers 
clear up their credit rating themselves? 

Ms. Halford. Absolutely, Mr. Wylie. Consumers can do this 
themselves, however I do give them an opportunity to deal with a 
professional company, somebody who is feuniliar. I deal with 7,900 
creditors throughout the country. 

They know I will not take a consumer who has not paid his 
debts, who is having financial problems. 

Mr. Wylie. Have you been involved in a series of lawsuits on the 
issue of power of attorney or privacy of information? 

Ms. Halford. Right now my corporation is in the middle of suing 
TRW because they do not accept our power of attorney. 

Mr. Wylie. They have counter sued? 

Ms. Halford. Yes, sir. 

Mr. Wylie. Do you believe a credit grantor has the right to know 
the previous payment history of the consumer to whom he is con- 
sidering extending credit? 

Ms. Halford. Absolutely. He definitely has a right. 

Mr, Wylie. If you negotiate a payment on overdue debts in 
return for a low rating, doesn't this distort the picture? 

Ms. Halford. No, sir. The creditors are the ones that are giving 
the blanket form along with all creditors. I deal with all of them, 
not just one or two. All of them have to be in agreement that the 
consumer is back now. 

Mr. Wyue. Wouldn't it be more Eiccurate to report that a delin- 
quent Eiccount has been paid? 

Ms. Halford. There is also a rating as a paid account unrated, 
which is not a lie. 

Mr. Wylie. Would you like to comment, Mr. Kurth? 

Mr. Kurth. I think I can only respond that that is smoke. 

Mr. Connelly. Mr. Wylie, how would you feel if you were a cred- 
itor considering me for credit and I had been to Design Systems 
and all of my previous credit history, history now, whi^ has been 
bad, has been bartered away by the promise that I would pay? I 
would only pay if they would promise to not report to the credit 
bureau. 



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Now you are the next creditor that I am walking into and you 
are not going to be told the truth about my history. 

Mr. Wylie. My time has expired, but since there is disagreement, 
you may comment Ms. Halfoni. 

Ms. Halford. It is not a threat to the creditor. We are not 
threatening not to pay the account unless they remove it from the 
record. We are trying to resell the credibility of the consumer. 

We are saying this person made a mistake in the past, let's not 
beat him over the head for the next 7 years because he was 30 days 
late in making a payment. That is the point I am msiking, let's not 
beat people over the head for having gone bankrupt or doing some- 
thing more serious, let's give them a chance, educate them in the 
credit system, make them understand that you have to pay your 
bill and there is a way of paying bills. You cannot be late and, if 
you are going to be late, contact the creditor and tell them, I am 
sorry, I will be late, but I don't want it shown on my record. 

Anything can be negotiated, Mr. Wylie. 

Mr. Wylie. I thank you for your testimony. I am sorry again I 
was late, but I think the point has been made. 

Chairman Annunzio. Miss Halford when ^ou say anything can 
be negotiated, we are having one hell of a tune around the world 
trying to negotiate. 

Ms. Halford. I agree. 

Mr. PsiNS. Miss Halford do you represent in advertising or to 
perspective clients, that your success rate is 100 percent? 

Ms. Halford. Yes, sir, I have. 

Mr. PRINS. Didn't you just testily at the b^inning of your state- 
ment that your success rate is 70 or 80 percent? 

Mb. Haijvird. Yes, the actual success ratio is 80 to 90 percent. 
The only time when we cannot do some^ng for the consumer is 
when the consumer promises to pay his bills and then turns 
around and says, no I am not going to pay it. 

Mr. Prins. Then you don't have a 100 percent success rate, do 
you? 

Ms. Halford. If the contract is complied with, we will have a 100 
percent success rate. 

Mr. Prins. You testified that your success rate is 70 or 80 per- 
cent yet you advertise it as 100 percent. Which is it? 

Ms. Halford. OK. It can't be both. 

Mr. Prins. I realize that, but I would like to know which one it 
is. 

Ms. Halford. If the consumer pays his debts according to the 
contract, then our success rate is 100 percent. If he doesn't, then 
there is no guarantee. 

Mr. Prins. If I walk outside and it is raining it is raining, but if I 
don't walk outside, then it is not raining. You can't have it both 
ways on the thing. 

Let me go on. You said you don't think that you could get surety 
bond. Why do you think the bonding company would not issue you 
surety bonds? 

Ms. Halford. Mr. Prins the credit repair industry has a terrible 
reputation, and I understand why eifter seeing what Credit-Rite 
did. I totally understand why. 

Mr. Prins. Thank you for that answer. 



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34 

My final question is: if you have had a 100 percent success rate, 
as you said, and the person pays their bills so you have 100 percent 
success rate, you fdso give folks a guarantee saying that you will do 
what you say you will? 

Ms. Halfoiu). Yes, sir, I do. 

Mr. Prinb. Do you receive payments from people to apply to vari- 
ous debts? 

Ms. Halford. Yes, sir, we do. 

Mr. Phins. Do you receive payments to make tax loan payments? 

Ms. Halford. No, sir, we don't. Any item of public record is paid 
directly to the creditor himself. 

Mr. Prins. Have you ever failed to make these payments, with- 
held the money? 

Ms. Halford. No, sir. 

Mr. Prinb. Never have? 

Mb. Halford. Never have. 

Mr. Prins. It is my understanding, and correct me if I am wrong, 
but this comes off the public record that the day before yesterday a 
judge in the Small Claims Court of Orange County, California, ren- 
dered a verdict etgmnst your company in the amount of $700 under 
charge of fraud and breach of contract because one of your custom- 
ers gave you $600 to pay a tax loan and another debt and that you 
did not honor the guarantee, that when the customer complained, 
you gave him a check which was returned for insufficient funds 
which is another way of saying the check bounced. 

You were sued and the judge rendered that verdict on Tuesday. 
If that information is not correct, please let me know. 

Ms. Halford. I would be glad to find out. Tuesday I was here in 
Washington. I had somebody in my ofiice who was supposed to 
handle that ceise. I am ffimiliar with that CEise. There weis a mis- 
take done when that refund was issued to the client and the refund 
was only for $200 coming from the trust account that she l^ally 
had coming back to her. 

It was a mistake on the bank's part or our part. I would be will- 
ing to take full responsibility for it. 

Mr. Prins. The problem of the bad check doesn't bother me, but 
isn't it a fact that you lost this case because you did not do what 
you said you were going to do? 

Ms. Halford. No, Mr. Prins, the reason we lost the case is prob- 
ably because somebody forgot to go to court on Tuesday. 

Mr. Prins. I have no further questions then, Mr. Chairman. 

Chairman Annunzio. I want to thank the witnesses. I observe 
Mr. Rayburn, Mr. Kurth and Ms. Halford all supporting the l^is* 
lation. The Federal Trade Commission is, what would you say, you 
£u^ neutral or what? 

Ms. NooNAN. Mr. Chairman, I would say we certainly support 
legislation in this area and have some suggestions on how we be- 
lieve it could be made even more effective. 

Chairman Annunzio. Thank you, very much. I want to thank 
each of you for being here. Your testimony will help us in our de- 
liberations. This is the key panel that I wanted to hear from before 
we start marking up our bill. 

So your testimony today will help us a great deal in reaching de- 
cisions. 



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I thank you, very much. 

[Whereupon, at 12:12 p.m., the hearing was adjourned.] 



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Mr. Chalrwu), and andaar* of tli* Subooaaltt** on coiwuaar Affaln 
and Celnag*, I am N«lt«r S. Kurtb, PraBldant of As«oclat*d Cradit 
Bu»«iw, Inc. I •■ acconpaniad today by Aaaoclatad Cradlt 
Buraaua Sanlor Vica Praaidant, D. Barry Connally. Kay I wqpraaa, 
on babalf of our aaaociatlon, appraeiatlon for tliia opportunity 
to praaant taatiaony at thla baaring. 

Chalnian Annuncio, I think it la only propar at tb« vary 
baglnning of ay taatlaony for aa to racall for tha racord tha 
long ralationahip our aaaociation haa bad with you and your 
atall. our aaabara will alwaya raaanbar with raapact and 
appraeiatlon tha guldanca and undaratandlng you provldad ua 
during critical dabata in 1970 on tha Fair Cradit Reporting Act 
and In 1977 on your vary own Fair Dabt Collactlon Practieaa Act. 

Hr< ChBiraan, tha following background la unnacaaaary axcapt aa 
naadad for tha racord ao I aak you to baar with aa for a aoaant'. 
ACB, BB wa ara known In tha Induatry, la a trada aaaociatlon 
Yepresenting ovar 1300 of tha natlon'a conauaar cradit buraaua 
which produca ovar 200 ailllon cradit raporta annually. 
Additionally, va rapraaant 900 collactlon aarvlca offlcaa in tha 
Onltad Stataa. 

Cradit buraaua atfiliatad with our Baaoclstion gathar, atora, ancS 
diaaaainata tactual inforaation ralating to tha idantlty and 



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paying habit* of consuMn. Thi» Inforutlon flows Into crwllt 
bureau fllos tvom l*dg«rs of cr«dit grantars and froB public 
racord ■ourcaa. Subacrlbara to eradlt buraau aarvlcaa arc 
primarily local, raglonal and national credit grantara who naa 
thaaa tactual raporta In ordar to arrlva at a prudant oradlt 
granting daclalon. 

For ttaa aoat part, buraaua affiliated with ACB ara aola preprla- 
torahlpa, partnarahipa or corporatiena. A aliaabla Blnority, 
howavar, ara ownad and operated by Mrchanta aesecietlone or 
chanbers of connarca . 

Mr. Chairman, it is particularly appropriate that you ara the 
sponeor of H.R. 458. You have been a champion of consumer 
rlghta, and credit clinica are a consumer rights ieeue. Mhen the 
Congreaa enacted the Fair Credit Reporting Act (FCRA) you were 
one of those who inaiated that the law strike e proper balance 
between the consumer's right to challenge the accuracy of bis 
eradlt report and the credit grantar'a right to report and 
receive accurate credit payment history about the c 



Let me make it clear that we have always supported the right of 
the oanaumer to challenge Information that the consumer baa 
reason to believe is inaccurata. 

It is the duty of ths credit buraau to re-verify challenged 
information and the raeponsibillty of the credit grantar to 



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oonfira Um accuracy of th* Intormatlra. w do not ■■■k any 
ehana* In thc«« r««pcn«lbllltiM. As m uttar of tact, cndlt 
grantor* doing bualnooa with ACB aoabMr ooapanlaa ar« aslud to 
algn a "Policy Statoaant on Intogrity of Cradlt intoTBatlon" to 
raatfira tbaaa raaponaibllltiaa. 

Howavar, evar th* past faw yaara, a naw industry has amargad 
ooast-to-coast, praying on ovar-axtandad consuvsrs and abusing 
cartain provisions of tha FCHA, particularly sactlon 611. In a 
racant case succassfully prosacutad by tha U.S. Attomay in Kew 
Jarsay against Cradlt-Rlta, a national credit rapalr franchise 
vhlch took over 2 million dollars ftoB 9,000 consuvars, tha judge 
in santancing tha principal dafandant to 7 yaars In tha 
penitentiary said, "I find it to be a aohama that prayad upon the 
poor, tha weak and the elderly." 

Mr. Chairman, for these reasons we, without qualification, 
Btronoly endorse your bill. H.R. 45B. Tha Credit Repair 
Organizations Act. We ars also pleased to note that you bava 
racaivad letters of support froK numerous cansusar cradit 
granters, trade associations and consuaar education groups 
urging Congress to anact legislation to rsgulata ttaa business 
practices of credit clinics. 

At this tlaia, Z would like tc suHmarlie the key prcviaions of 

H.S. 458, The Credit Repair Organizations Acti 

H.R. 45S would require so-called "credit repair organl cations" 



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o kdvia* coMUBan of their rlgbta undar th« ralr Cradlt 
Kaportlng &ot bafor* th* oonauMar algiw ■ oontrkctt 

o fully dlscloaa tba aarvicaa tbay will provlda, along 
with tha coat of all aarvloaa, and giva tha CMMiauaar an 
opportunity to cancal a oontracti and 

o poat a Buraty bond if thay aocapt aonay froa oonsuBara 
in advanca ot providing aarviesaj 

H.R. 458 would also: 

o prohibit cradit rapait organiiatlona froH Making 
■ialaading atatamanta about thalr aarvicaa t 

o prohibit cradit rapair organltatlena froB counaallng 
conauaara to aaka ■ialaading or falaa atataaanta to 
crsditora and cradit buraauaj 

o aipower tha radaral Trada CeBmlaaian to anforca tha 

provlaions of thia act) and 

o provide for civil ranadiaa for individual conauaara and 
claaa action lawauita. 

Cradit providaa conauaara with tha powar to buy now and pay 
later. Unfortunately, aona conauaera do not aanaga thalr aoney aa 



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mil «a otlwra «nd «■ a nsult a eonsuaar with a poor eradit 
hlatory May aaak aaalatanca froa "cradlt rapalr organisationa* 
Nhlcb of£ar or "fuarantaa" to l^rova a oonauaar'a orodlt 
■tandlng, but in uny inatancaa, do littla >ora than raliava 
eonaimara of tbalr hard aamad caab. 

Cradlt rapair organiiatlona ara co^aniaa, which for taaa ranging 
froM $75 to 92,000, allaga that thay can "claan up" an 
Indlvldual'a racordad eradit hlatory. nila practlca and othar 
cradlt alaaicka ara costing tha natlon'a conauaara ailllona of 
dollara a yaar. 

Why la our Induatry concamad? Bacauaa, If laft unchackad, tha 
practlcea of cradlt rapait organlEatlona will jaopardlia tha fila 
integrity of tha nation's conauaar reporting ayataa. Thia in 
affect incraasea the lending induatry'a rlaka and thereby 
jeop&rdizea the eafety and aoundneaa of tha conauaar credit 
granting Induatry at large. If credit grantara cannot rely on 
tha integrity of credit reporte, thay will either tighten 
landing requlrenenta which will reault In fmrar Indlviduala 
qualifying for cradlt or they will have to ralae the coat of 
credit aa veil aa the price of goods or aervlcea to abaorb tha 
cast of increased losses. Ultiaatelv. all eoneuaere ■!-■ hurt- 
How do Credit Beoair Oraanltatlona Operate? nielr appeal ia 
directed to tha conauaar who haa bean denied cradlt because of a 
poor credit record. They hold out the proalae, either laplicltly 



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or axplleitly, that th«y can balp th* oonauaar obtain a elaan 
or*dit record. 

On* alght ask, Mbat !■ wrong with that? & claan cradit history 
la a nobl* goal for anyona. But, Hr. OtalEsan, an ijtprovad 
eradlt raoord la 34 to 36 aontha of on-tlaa payaant history with 
aavaral aatabllahaanta and no advaraa public racord itaas for tba 
past aavaral yaara. 

You aaa It taKaa tl»a to "claan" a cradit racord. It can not ba 
dona by a acaa artist holding hiaaalt out as a cradit doctor whan 
in fact h* la a quack. Tha lllnaas of a poor eradlt biatory can 
only ba curad by ti>a and caraful raconatruction e£ a eonausar's 
payaant hiatory with creditors in tba futur*. This is a 
difficult praacrlptlon, but It's honaat and it costs nothing. 

Hall, what la tha praacrlptlon of farad by cradit clinics to claan 
up a cradit racord? pirat, thay proalaa bepa and avan guaranteaa 
and than thay praacrlb* glaaleka, ctaanca, and lying but not until 
thay eollact $75 to $3,000 for tha praacrlptlon. 



niair prlaary technique la to advise tha eonauaer of tha right to 
disiputa the accuracy of the credit bureau's file. Then they 
ancDuraga the canauaer to challenge virtually all adverse 
Information In tha racord, whether accurate or not, thereby 
triggering Section 611 of the Pair Cradit Reporting Act, entitled 



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"Prooadur* In cm* of Disputed koonraey.* 



ttmm eradlt olinles »«r«ly provld* "advica" to th« t 
iMtruetlng tlM individukl to eall or visit tha crodit buroau and 
oballang* all tba advana data in tba endit racerd. Othan 
•aballiata thair activitiaa~for an approprlataly higbar eburga, 
of aauraa~by writing tha cradit buvaau daaanding nrvarKi- 
oation. 8\Kb conninioation la obviously aaant to l^raaa tha 
eonauMor, avan though tha oradit clinic probably knowa that tha 
cradit buraau la not ebligad to honor it. Aa you knew Hr. 
Chairman, Saotion 611 of tha rCRA doaa not raquira any action by 
a conaumar raportlng agancy unlaaa tha dlaputa ia diraotly 
convayad to tha cenauaar raporting aganoy by tha e 



Tba obiactivt is to ovarvhala tha aatabllahad ayatan with ao wtny 
oballangaa to tha intorsatlon in £ila that cradit buraaua and 
cradit grantara will ba unabla to ravarlfy tha data within a 
"raaaonabla tina" aa raqulrad by TCSA. Tbua, tha oonaunar'a 
cradit racerd will ba wlpad olaan. W> baliava that ^ ^ty ^^ a 
patwit diatortlon of tha apirit and intant of tha Fair Cradit 
Kaportlnn >et. 

But, Mr ChalEBan, avan if aewaona vara of tba opinion that aueh 
glnicXry and dlatertlon wara fair gana for cradit grantara and 
oradit buraaua, fcaap In aind that aoat credit olinica don't avan 
provida that auch aarvlca - if It can ba callad aarvica - te 



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thalr ell«nt«. 

TlioB* mamm wrtlats kaow mnxf^img I mm tolliag ytn. 

tlwr* i« lltU* limilhood tft^r «MI c 

■dvarsa InrdXBKtlan « ■ i ibhubii '■ cxaOlt hiatacy. 

m*ir prucriptlsn 1« cvm BBra InvldiMW. It Is par^lj angar 
and mfcar, not mva sild uplxla. itaar coUaet thair (•• aaS 4c 
notbins but Btenwall ■ mwwiT cll«nt vntU Iw «eM aM«y in 
fnatratlon or tba clinic closas da«n and mGnraa to a saw 

locatian. 

Dndar tha Fadaral Pair Cradit Snorting Act, eanaoBUra ara 
antitlad to chack tbair cradit r^orta and to hara any 
inaccuraclas oerractad. If a craditor rajacta an Indivldual'a 
application for cradit bacauaa of advaraa inforBatloa in thair 
raport, tlia craditor auat Idantlfy tha oradlt buraau vhicH 
providad tba raport. Tba coaauaar aay tban contact that touraati 
raquaatlng a disclosure of tbalr fila. If tha oonainar acta 
within 30 daya of balog danlad cradit, tbara ia no osat, otbar- 
viaa thara la a nowinal faa. 



Ih* conauaar aavaa both tina and Bonay by daallng diractly witb 
tha cradit buraau Inataad of going through a cradit clinic. 



If an individual dlaputaa tha accuracy of any raoorda, thay are 
antitlad, undar tha Fair Cradit Xaporting Act, to challanga that 



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information. Th« credit bur««u ia r«quir*d to »lnvo«ti9*t» th« 
■attor. If th* inforMstlon cannot b« variflod by tbo oe^pany or 
cxnpaniaB Mu> cauMd tba adv«ra« information to b« plae*d in th* 
oon«um*r'B fila, that information muat ba dolotad from th* 
individual '• rocord. 

If th* ermdlt buraau variflu th* information to b« aecurat* — 
and th* conaunar diaagraM with thaaa finding* — th« oonaumar may 
aubmlt a briaf atatamant of up to loo vorda daecrlblng th* 
diaputa. Thla than b«co*«a a part ot thalr otadit fila, and la 
includad in any futur* raport containing th* dlaputad 
information. 

Hovavar, if th« advar** information provaa accurat* upon ravarl- 
flcation, thar* ia nothipg anyona ala* can do to ranova it. But 
yat cradlt clinica hold out th* hop* and prexiaa to eonauaara 
that factual, advara* cradlt hlatory can ba ramovad from th* 
fila, and that la not tru*. 

You aay h*ar, Mr. Chairman, clalaa from cradlt cllnloa, that 
eonauaar* naad halp bacauae not •v*ryon* la *ophiatieat*d *nougti 
to know hov to go about correcting an error In thair cradlt 

What 'a wrong vith paying ■onaone to halp you through tha 
procadurea to corract an arror in your cradlt report? Aft*r all 
I could do «y own Incon* tax tor fr**, but I pay acmaon* to do It 



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UMr* !■ nothing wrong with paying for profAvaienal iMlp. That's 
not th« point, lb* Fair Credit Ktti^rting Act provides you with 
Um right to b« aocoapanlad by anottaar parson during a fll« 
disclosura. 

The crlae pertomad by credit clinlce ia the hope and proalse 
they sell to consuaars that an accurately reported bad credit 
history can be erased. That la a liel 

Mr. Chairman, credit bureaus are not in a an adversarial 
relationship with consuaers. Our aeabera are not repulsed by 
credit clinics bacauaa they sight advise a consuxsr how to 
correct Inforaatlon In a file. Na do that ourselvaa all the tine 
through an intensive public relations progran. 

Credit bureaus have no veated interest In arroneous InCoraation 
or adverse infomatlon. Quite the contrary, we do have a vested 
Interest in accurate infornatien and we believe the Congress 
acknowledged that interest when It put the Fair Credit Keportlng 
Act into law. If a credit bursau is not coaplylng with the FCRA, 
the law should be enforced and has been enforced administratively 
and in the courts. 

In the vast majority of clrcunstances all ravariElcation requests 
are accoaaodated within a couple of weeks. However, In eoma 



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liwtancas, ths raVBrlfication systca do«s ai^aricnc* a log jui 
«nd th«rttf«ra th« advarae Intenution say t««ior»rnv b« raaovad 
froB tita fil* bacauaa it cannot ba ravariflad witbln tha 
■tatutorlly aandatad "raaaonabla tiaa" — it is tha creation of a 
log jaa that cradit rapalr organltatlons oount on. 

I aay twtporarily rawivad Mr. Chairman, bacauaa aany of tha 
natlon'a cradit buraaua and cradit grantara routinaly prooaad to 
ravarlty dlaputad data and It auch data la found to ba acourata, 
tha Infomatlon ia placad back In tba raport. Tba "rapalr," 
tharafora, haa provad to ba tampcrary at baat and tba conauvar 
who vaa lullad by tha axpactatien at "rapalr" could aaaily ba put 
In a vulnarabla poaitlon brought about by an araaura which doaa 
not In fact axiat for aora that a ahort parlod of tlaa. 
Mr. Chalman. whlla cradit hlatery can ba eorra ctad. It cannot ba 



Further, Kr. Chairman, It la difficult to laagina bov a c 
with accurate adveraa information in hla fila la wall aarvad by 
auch an araaura - that la, if tha ovar-axtanded oenaumar la now 
grantad additional cradit bacauaa tha report haa baan tamporarily 
"claanad up" , tha nat affect la that tha conaumer haa dug 
himaelf a deeper economic hole by aaaumlng additional debt. 

Another method utillted by cradit rapalr organitationa la tha 
■entteamant davlea." In thia aituatlen, cradit repair companiaa 
ge diractly to credit grantara with the otter to get the conauner 



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13 
to pay long-ov*rdu« ^llgatioM in •xdiang* for ■ proala* that 
fcb* cradlt ^rantar vlll ruova tha advaraa inforaatlon frmt tba 
eradit buraau flla. What oovpanlaa tdilcta uaa tbla »attaod fail to 
raalisa and axplain to conatuMra ia that tba payaant of an 
ovardua ebligatian doaa not changa tba fact that tha aoooimt waa 
In fact dallnquant for a pariod of tiaa and that thla 
InfozMation May contlnua to ba raportad undar tha rotx. 

Ironically, coapanlaa oiploying thia aathod taka tha poaition 
that this ai^roBcb la fair and aquitable to cradit grantara and 
conauKata, but ia dialilcsd by cradit buraaua. Kr. Chairman, I 
aak, is it fair that tha naxt credit grantar Uho ravlaws tha 
cradit raport «B)ce their lending decialon baaad on a diatertad 
picture of the consuiier? We think not. Hor do wa think it la 
fair to tha vaat aajority of conauaara who hava workad hard to 
■aintain a good credit hiatory by fulfilling thair obligatlona in 
a tiaaly aannar. 

It ia important to raaenbar that conatmera axpariancing cradit 
problaMa hava alternative* to cradit repair elinlea—thay can uaa 
tba conauxar counseling services at tha credit buraau or tha 
•arvicas of tha non-profit Conausat Cradit Counaaling sarvica 
irtiich haa offieaa in 44 states and providea free counaeling to 
t with cradit difficultiaa. 



Ha are also pleased to adviaa ycu Mr. Chairman that our 
Aasociation, in cooperation with tha Federal Trade CoMniBalon, 



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13 

Th* Rational Foundation tor Consiaar Cr«dlt, Hw CansuBur 
Inferaation Contcr and tha U.S. OfZic* ef ConauMar ACfaira haa 
preduoad two conauaar aducation paa^ilata ajitltlad, Flir Yonr own 
Cradlt Problam. and B ava Monay and Building A Battar Cradlt 
*■">")- Tbaaa paaphlats provld* oonauaars with Infonuitlen ent 

o how to gat your cradlt raport 

o how to corract InBccurnta Inferaatien 

o how to gat Craa or inaxpanalva cradlt counsallng 

Mr. OlBlman, ACB !■ Plaaaad to provida tJiaaa p«MPhlat» fraa of 
charoa to any Intaraatad conaunar. 

Mr. Chalrvan, ao that thara will ba no KlBundaratanding, wa wlah 
to wnpbaalza that tha wrong balng parpatratad on oonauaara ia 
not tha pronlaa of cradlt cllnica to do aonathlng which tha 
coneumar could do tor fraa on hia own. Ma ragrat it, but wa 
ttndaratand that Individuals nay ba Intinidatad by tha eensUHar 
raportlng procaas and any aaaX halp froa a third party, niat ia 
untortunata, but it ia not wrong. 

Tha wron? halncji eomnltta d bv cradlt cllnica ia tha proalaa hald 
out to Intlaldatad ccnaunara. that bv aona ■nclc a cradlt clinic 
can BcconpllBh thlnoa that tha cenauaar cannot aeeomllah and 
that falaa promlaaa. rootaJ in half trutha. will coat tha 



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?»1 hundred dollara or » 



1, TtM Crsdit Sapalr 
Orgutliationa Act and b«li«v« it will go ■ long my to wtaur* 
that th« intagrlty of tha nation'* oradlt Information ia 
■sintalnad and that conaimara ara protactad froa unsenipuloua 
buainaaa oparatora proaiaing a quicX fix tlut ian't tbara. 



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N««d Cradlt? B« Nary 
of Clinic* Offering 
Help 

Credit. Clinics Clear 
Hallete, Hot Bad 
Ratings 



Houston 
Chronicle 

(article) 

Attorney Can. 
of Texas (Press 



April 17,] 
Sept. 9, 



Mattox Advises Madia 
to be Aware of Credit 
Repair Ads 



Hall Street 

Journal 

(article) 

Houston 

Chronicle 

(article) 

St. Louis Post 
Dispatch 

(Article) 



Credit Clinics Hake it 
Sound Too Easy to Clean 
Dp a Bad Record 



Feb. 4, 1988 



April 29,1988 



Feb. 18, 1988 



Credit Card Tricks 



Dec. 20, 1987 



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APPEMDIX - Continued 



Llat of Selected Television Reports on Credit Repair 

Hum*rouB Credit Repair Advartisements 

Credit Protection Association, Inc. - Mailing 

Richcreak Credit - Mailing 

American Asiociatlon of credit, inc. - Mailing 

Credit Correction Co. - Mailing 

Super Credit - Mailing 

Credit Bite Inc. - Mailing 

Capital Recovery Service - Mailing 

Design Bus in ess Systeme - Brochure 

Design BuslnesB Systems - Mailing 

Design BuslnesE syetems - Advertisement 



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!£-CQHSU!BER:S Wgmj> sa tij^daY. wly i^ im 



Need Credit? Be Wary \ ., 
Of Clinics Offering Help 



' The tactic is to 
-^■ilirSS'-^'sS bury the system 
SSJS^SiSWXT: under challenges. 



Mna'iniiM^iinHrbKii." ^"^Ullf '^;±! 
IMMaHMAIHnqFMWwKnir nrciKUMMii 






SH"'^ 



afd. Cirdi pnrtdtd nirvfih crtdK- civlJli iwirddiDKni^uaa^jvar 



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to niacKef7 ^ 
MeTdnven 




ed can haunt you 



Greditxlinics ■" 
clear wallets, 
not bad ratings 

ASS 



UI3H, (PTlv iDT HiHvSri iSil cndM turaMi tcSaZ 






ing as a free perk 









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Busines 

Credit repair 

Borrowers beware: Offers to era 



the gro-iiiB number iH credit re- 
That'! the conclujion beinii 


Business Matters 


m need and can least afford to 
■ islE money." Boan said. "There 
Juat is no such thing as legitimate 


leiched not only by the creilii n- 




credit repair." 






Several nates have already 


have > veited interest - but by 










credit repair business. On Ihe fed- 
eral leveL U.S. Rep. Frank Annun- 






liicludbig the Banhcard Holders oi 


HARRY ^^S^TF 


lio. D-nth. has Introduced the 


Credit repair firms ha.e been 


»edlt Repair Organizations Act. 
The bill would force credit repair 


inniixl iLnce the early 1980), but 


GAMBLE ^iiiJ^ir 


(Irmi to luUy disclose their serv- 




WtBKL. 


ice. 


Ions to lur* thrue with pur or no 


misk 


"SoDte of these cUnlcs charge as 


credit hlitulei ii Iheir clienti. 


.^J^I^m 


much as Cmg to provide services 


Svnt nnm promise u wipe > cred- 


M^l^fl 




it neord cJeui - thefi ill but Im- 
pusible - or lo obtain a VIm or 
MaslvrCird tor thine whu have 


mrr m 






"ci^lt'reiiir c'ibIm' which l^'- 


ben lurnd down in prniwi appii. 


reporiing bureau miut help you 






write H if you aik them. 


credit nlluit do lltU* bul rellev* 


The pnAlem U that wme of the 
credit repair Ilnni can be of Kenu 
ine help lo consuinen *hD don't 
know Uieir tijhu or the reauin 
Uicir crsdii recard is povt." said 
Robert Sleem. deputy dimlor ■H 
.be U.S. Omc of C«.».n»r Alfa.r. 

'"■SS*« i.n «mpa.W la when 
credit rwX K™ ^"^lebtJ! 


repair tiniu li to remiast a copy ot 


consumers of ihalr cub." 

Earlier this year. Cook County 
SUIe-s Atiomey Richard M. Daley 
died suit to (reeie the auels of a 


Ihen deluge the bureau with verin- 

laiw Under the law. the credit ho- 
reau must recheck disputed [acts 
with credit u-antors within M days. 


WesUnont credit rspair aiaiRii. Ha- 

tlonwlde Credit Services, and ob- 
tain refunds for Iboje allegedly de- 
frauded by Ihe firm. The suit 
charged Ibat Nallonwlde misled 
consumers b, promlsln« la erMt 
negative IniortDatlon from their 


Intpouible things. Sleeves conll- 


Lion." said Cierl Scbani, nuiugcr of 




media teladon, [or TBWi men- 


credit repair agencies Is the prom- 


tion services divlslod - om of Ibe 


is* IP secure a Visa or MasterCard 




tor peiHil* with poor histories. And 
often they can - by having the 








pinliig most or >U or live'daiaon aii 




porling Act can get that Informo. 






lion elicwhere — by wniing ihe 




^rhJ^r'anS-Km-brS^^bS^^ 


Federal Trad. ComMsiion. Eor e» 




ample - and avoid the fees that 


But snowing uuder a credit re- 


ferlng Ibe card. 




porting bureau with verWcallon re- 




can range tnm levenl hundred 


queiu can occislenaUy work — if 






only (or a start time. 


lag damaged credit - but they can 






be obtained without the help of a 




dair'''t'hai*'Va?l"bi' ctaJk^^" 


credit repair dim. For a list of 




month's lime l> dropped, bul only 


banks offering secure credit ctrds. 








ynu eapect lOr the fee you pay is 




America, wo Spring Place. Suite 




tor. " laid Marvin KtpUn, spokea- 


low. Herodon. VA 12070. 


iH going to hippen li aitually «oIiik 


man (or Aiiodiud CredU Bunau. 




I.I Happen." 


a rntlMal trade aaaodaaw for U» 


igenclei should not be confused 


Basically, connimers are endtled 


Industry. "So you haien'l wiped out 


wllh low-cosl, non-profll coniumer 


to eximioe their credit liie without 


the (act of laUHM in ptrZfpl. 11 


ciedll couDsdbig services (CCCS). 


charge if they have be«i wned 




Tliese aiencMs charge a modal 
fee (usuaVly laaa Ihan lU) to help 


down (or ttwill In the leu U days. 




or at any tine for a fee (aroimd 




consu».rs budget their nnancsli 


(IMIS). ChiOenged data must be 




and negotiate repayment sehadulls. 


recheched. Coniumen may giso in- 




For more Information on CCCS. 




rcsldenK - is cleariy a I« of crad- 


write to the NaUonal FoundathMi 


mrdi or 1*91. giving their iiidr o( a 


11 repair 


for Consumer Credit. OTOl Q*or(li 


parlkulir credit dispute: the cirdlt 


■Thtyre sfillng a UU e( goodi. 


Ave.. Silver Spring. UD M910. 



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'Credit-repair' firms often mislead 




■inM u npM tUN to daoiuM SltWAnonwySwivUjimMKtojionTnijrtdiylol _ _ 

iiiiiiiniKi <o M wvy 01 crMit-rcptlr Mrvlaai vm promiH lo Own j| 

Hnwi *M bM inillt< mndv 0°^ enau mngc Ptgt 2S. 






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^SEP 09 '88 13: JE asaxiaTED a?EDlT BUBErtjS. I 



FOR IMMEDIATE RELEASE CONTACT: ELNA CHRISTOPHER 

THURSDAY, SEPT. 8, 1988 ORRONDUSEK 

463-2050 OR 463-2062 

MATTnx ADVICES MEDIA Tn RFWARF TREnTT BEPAIH ADS 

Atlorney General Jim M»ttOJ\ Thuriday warned coDSumeis and 

[he media to beware of credit repair buiinestei that promiie to wipe 

clean consumers' credit ratings and obtain credit cards for consumers 

no matter what their credit history. 

Maitox mailed advisories to advenising depanments of all Texas 

media, where many of the credit repair businesses are advenising, 

and to about 90 credit repair businesses in Texas, both registered and 

unregistered. 

"We've seen a lot of publicity lately about the proliferation of 

credit repair services," Mattox said, "and my Consumer Protection 

Division is receiving an increasing number of complaints about these 

businesses.' 

— 'During ihe past 12 months, we've received approximately 300 

consumer cortiplaints. ^boui credit repair businesses and filed half a 

dozen lawsuits against unprincipled businesses," the Attorney General 

said. "Ii's a new and growing business -- and one thai consumers 

need 10 be wary of because they can easily get ripped off if they're not 

careful." 



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..SEP 09 '38 13:45 hSSOCIOTEIp ^I^DI' SURE-US. INC. 



'UnfonuDitely, people who need help wilh theif credit are ofien 
desperate and make easy tirselt for unscrupulous businessei that 
promite them the moon and charge them exorbitant fees without 
delivering what the consumer] are led to believe they'll get." 

'For instance, these companies fall to tell people that bad credit 
information can only be removed from their credit histories if it's 
inaccurate or obsolete," Mattox said. 

In response to the increasing number of complaints about credit 
repair services, the 70th session of the Texas legislature passed the 
Credit Services Organizations Act, which took effect one year ago. 
Businesses covered by the new law include those that provide services 
to improve a consumer's credit history or credit rating, obtain an 
extension of credit for a consumer or provide advice on how to 
improve or obtain credit. 

Under the law, credit repair businesses must register with the 
Secretary of Sute and post a SIO.OOO surety bond. 

Credit repair businesses whl.ch violate the new law also violate 
the Texas Deceptive Trade Practices/Consumer Protection Act. 

In his ad advisory to Texas media, Maiiox wamed media 
advertising departments to carefully screen potential advertisers in 
the ciedli repair business before accepting the ads. He suggested ihey 
obtain answers lo four important questions before accepting ads lo 
make sure they do "not contribute to false, misleading advertising on 
their stations and in their newspapers. The questions are: 

1. Does the business fall into the category of a credit rep.iir 
service? 



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JEP 09 -38 13:J^ &S&JCWTED CPECIT SJUD^uS- IK . 



2. Can the company provide copiei of Iti TOglitniion and lurety 
bond? 

3. Doet ihe business idvenlse that ii will 'eme bad credit" oi 
wordi to thai effect? 

4. Does [he buslneii advertise that it will provide a person with 
a credit card, regardless of that person's credit rating or hlsiery? 

The ad advisory notes that media accepting and running 
deceptive advertising may be sued under Texas' consumer protection 
law if they knowingly accept false or misleading adi. 

Mattox also mailed business advisories to approximately 90 
credit repair businesses around the state. Some of the businesies are 
properly registered inder the new law; some of them are not but are 
businesses that Mattox's ottlct has' received complaints on from 
consumers and other credit-related businesses. 

The business advisory 10 the credit repair services explains the 
law to them and warning them not to violate the law. 



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p OS '-^ li-'Ji ^s-y.iHTZi' lpemt E>_*E:iius- ittc. 




TO: AU AdvHiliIni DlKCton with Teui Media 

FROM'. Texw Attoney Ccnera) Jim Mbiiok 

RE: OttUl Repiir ButinejMi uid ihc lli^» 

DATE: Scpiember S, 19SB 



Then hat been much publicity legirditig the prolifeniion of credit rcpiir builncitei in 
Teicai. ThMB budneatei promiie u improve i perion'i credit hliiory or riiins by nmoving 
derojaiory infomi»lion from i perioni credii file. They uiually oharje exorbltani feci. In tnnny 
insttuicei, thesE credli repair buiineiiai operau In violaocin of Texu law, Thia Ad Alen li »ni to 
VDU becauie credit repair buiineiiei aitnci cuitomert prlmehly through mail media adwenitlns. 
we believe thai coopentlon between the media and thii o/Tlcc can pievani deception of your 
vJeweri orreaden. 

In General, credit repair buiinetten opeiaie by feneniiing 'dispute letiert to be Kntio credit 
reponinj ajenciet on behalf of coniumere so challenge infomiiition i^ their sredii files. Unde.- a 
federal la*. the Fair Credit Reponinj Act, a consumer hat ilie right to go directly to a credit 
rcporrinj agency to requeii that Inaocuniie Information be conecied. The credii reporting agettsy 
cannot charge for iliit lervicE. However, credit repair buiineiiei take advantage of contumen' 
licit of knowledge of thi<: federal law by offering to provide terviceithMt the consumer can uiuaily 
do on hli own. 

In addition, manv credit repair butintttet promise to remove derogatory information 
without conecrn for wheiner the Information li correcL It ii impottible to perrwm the aervieea aa 
promised if a penon's credit hitierv Is correct and the information it not obsolete. Many credit 
repair butlnenaet alio pramiie to obtain credit curdi for persona regurdleia of whether they have 
been refuted by card itiuers or have bed credit. They prey on people who have a hiitery of bad 
credit and are deiperaiel)' seeidng to build up a good credit lecoro. 

In response to deceptive pricilcei of credit repair buiitieiaes, on September 1, 19fl7, the 
TtKas Legislature passed the Credit Services Organiiailons Act. This law apnliet to any company 

which provldei servlcei to improve a coniumar's credii hlnorv or raiing, obtain a ' — ' 

credii for a consumer, or provide advice on how to improve or detain credii. 



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The Aci reguiitt a credit npuir buuneu lo file i reGi^nnUon staienwri with the Sccitiar)' of 
Suite btfatt doinc bui^inett iiKl to obiiin ■ SlO.OUU lurety bond or turety iccount. The money<l 
held Tor the beneni of contumen who have been damieed ai > retuU of a violation of ihc Act. The 
Uw idiQ requiret tpedflc wriueii dlKlotuKi lo bo {Iven the comumer before the voniumer ii|ni 
any eonmct for iiervicH or piyi money- 

A violation of the Credit Service! Orfianlaailont Act li a!to « violation of the Dsceptive 
TTide Pnetlcet-Con turner Protection Act. Tht Turn Attorney General It auihorlisd id file lult to 
enjoin violailoniof both Actiand to recover civil penalileiof upioSIO.OOO, 

Credit rcpiir buiineitei advenito their tervlcet In newtnupen, on televiiion end radio. 
Prior to publithins or ^ing an idvoniicmRnt. advenitinG media should cenilcler the followinf; 

Does the businett advenite (cr>'lce[ to improve a perion't credit hlitory or railnt, 
obiiiin an extention of credit [uiually a credit card or loan) or provide advice or 
uiiiEUnce to a perton to Improve creoii or obtain an extension of credit? Ifto, Itit 
a credit repair builneii. 

Exernpiionsi T^e Act exempli reguieied ienden, banlci, lavlngi uid loan 
aatoclailoni, credit uniona. nonprofit organiutiont, tluented real ettaie 
brolierii, Iiwyeri. rejikUred tecuHtiei brolier-dealen. and eoniumer 
reporting ajenciet. 

• Can the btiiineit provide a copy of iti regitirition naiement and number filed with 
the Secreiary of State and a c^y of iti bond or turety account? If the builneii it 
not reslstered and bonded, it cannot lesally do butlneti and Khould net be aliowed 
to adverrlie, 

Doei tht buiinesi advenlie tliat it will "erace bad credit!! or wordt :o thai efTeci? If 
ao, this violaiet the law unlet) the adveriUemcnt clcarlv dliclotei ihat thlt ntuli 
cunbereichedonly If thecrediihiiiory It inaccLraieoroBiolete. 

• DoM the businens advEnite that it will provide a pereon with a credit card 
resardlets of the perton'i previoui credit problem or credit hiitory? If to, ttiit 
vjoletet ;he la* unleit the BdvcrtUemeni clearly ditelosei cliBlbUlty retauirementi 
for obtainin) k credit card. (Typlcilly, the cardholder mutt depoxit fundi etiual to 
the amount of 'credit" approveif, to lerve ay collateral, In addition, tubitaniial feei 
are charged both by the credit lervicet or|;ajiization and the credii curd ibtuer.} 

By thlt Ad Alert, wore alenins you to the falte, mltleadlnj and deceptive advertiting 
siatemenn that may be made by some cr«di: repair butlnethet so thai you may make en infonned 
deciaion about wlieihertoaublithorair theiradvertiMmeiiii. In inuhing that decision, you ihould 
be awtfc that Section 17.49 of the Deceptive Trade Practicto Act providei^ a defense lo i lawsuit 
under the Act for the owner or employcei of cenain advertising media only if those perjonj have 
nn knowledge of the false, mitleadine, or dtcepitvt net! or pmctiues upon which the tawiuit it 
beted. 



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COMPANY NEWS 




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THE WALL STREET JOURNAL 



a Cmt^. r^anyn, R, 



Credit Clinics May Make It Sound 
Too Easy to Clean Up a Bad Record 



ACLAIMduLiU 
ncgiCivi informauon 
on b* wiped off a credit 
™port 'jiut im't tru« u tn 
unqualified promise.' aayi 
i Uw-anforcemnii afOcUL 



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MChranldl Thundi|'.F(bniin'(tn 



^G tackles credit restoration firm 



."Tlie sUte attorney generil Wed' 
nesday Filed a consumer protection 
lawsuit against a company that 
pTomiiei lo clear customen' bad 
credit records. 

iNatlanwide Credit Services 
charging )4D<I lo tSOO to provtile 
credit counseling available tree 
liom non-profit orginlutlons. the 
sfate district court lawsuit says. 

•The company's method], tl says. 
[jcluda correcting errors In credit 
nconb. negotiating Improved credit 
ritlap and seeking credit from bttst- 
n^sKi with lower credit standirds. 

f Forms given lo potential custom- 
^ and "extensive" advertising fall 
tj Include certain dlsclomrei re- 
quired by a state law that toolc effect 
S^pL 1. ihe suit says. These include 
descripilon of services provided, a 
ekpianallon of consumer rights in 
disputes witn the company and " 






all I 






canceled within three 
ing. the sun says. 

It says r^atianwide has done busl' 
nes! with thousands of Texans and ■ 
has signed al least 500 contracts i 
worth 1250,000 since Sept. 1. 

It has alio allegedly [ailed to list a 
local agent, aa retjuired by law. 

Company officials and lawyers In 
Louisiana did not return calls. 



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CH1CA0<(,«.IPH-T1I11«. T1»~U.. '•«™0','«' '*B 

Credit firm sued as fraudulent 



Richard M. Dtltr fiJ*d suit BoidM liMtint iht unu at Ni- tlonwld* (lid 
Wtdnadar ittkini to Ina» thi Uonwida, wbieti hn Imm doini MM to pnp' 
aiHU o(,l Wnlmonl compspy that busimn <n lUimili linn Pib. U. (riy twU^ cU- 



St Natippwidf Crtdit Strvi 




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iffif fulfil iigH^ifif"^- 



"^ Credit! 
^^M Card Tricks 




issures in OPEC Regulatory Turf War Big Bank Loans: From 

un Deep 114 Stalls Industry 112 Bad to Worse 106 



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edit Fixers: Some Don't Deal Straight 






Credit Where Credit Is Due 






easaisr'Jr^SE 



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lecommunications Regulators Need Referee 



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t S»I*gt«d T«;«vnion H«perf en Cr«dit Mp«lr 



• 1 «po>H (ctlvltiH of ccadlt opalE ( iKUE^d scwllt cdrd 



o( balnq a 



by eradiE rapair caipantaa in»rui.a>'a anpIcyaaB In redic ispAir 
conpanl**, atcm^ti to gat unaqanHne af ccadic rapaic sas^panisa 
te axpUin why chay-va fsilad ta llva ap ca proniiaf luda co £±r.auii»ri 

inawoM looaptaulB to raporcor Blmchaid point" out conlunara ahoulii 
la- paaaad . 



•ffaetlv. January l.t 


1M7.1 


■rWht aaen wicr, :javi, 


i HofowitiVEvenina i^. 








rapair company aetivlelaa. Horowlti ealla lasac o: 




■11 coniuniari hack Uiair own eradit Taccrdt and 


aaak la^icinata saunai 




Counaaling Seivica, 










ue uoMn who, daiplta acaady th and good lnet«e, 




3.yir.9 Ifiil. and ha. diffi=ulCy in -quilifyins 




Itaauaat raipuidad to ad by eradic tapilr sonpany 




ty iinax flonacninq r mdn'?." sna paid IJSO for 








t vh.in jne called Staoaal wama eonaunars to 


avoid ctadit rapair ^i 


jmpaniea because chay car.'c !ix cradle. 


k?k:-tv k,,. - Hcii.toi 


1 - Auautc J-.t i Sac^aniiai 1st 1987 



alva e»dic pmbl-aBa. 

arlaa of Baporta Baqtnnljq MovamBar iind 198T 

ha aalf-scylad "Ciadic Cicit Hllllenai. 



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inveiElgiEu soDpldinc oC coniunar who luid bud ciadit a: 
net dbuin flmmcLng for noma lo«n. Ma uiuead cndic 
tlx hla ccadlt Isr tiiO fi*. Thay told hlx thay couU > 

«nd n«tfB fflport^E' fOkind covpany h«d gon* out of bualnai 



S>ri«» on CraJli C 



- vmt-yj - Chip 



invaicigltLdn Co fariot ouC behind -ctL*-*e*nai 



iclwcd Mdamm. Tha f«opl«'« Lavyac 



Mrtai 


.one 








Ineari 




-ith 1 




on har crwUt taeotd tnd . 


buiu. 




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:io •upLalnad ho- bu 






itar. 1 


Saler; 


















ratam. Chat c»>MMr* ean 


ccidii 






rot. .i*ply By eont 


.MiB7 cradle bur«u »nd th 


tntocu-tion 




jt ba ™oved p.™. 






*i. * 









huaband diad. Conpany did 



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CREDIT PROBLEMSl 
BAD CREDIT? 

TURNED DOWN FOR CREDIT AGAINIj 



Negative InformaHon That 

Can Be Included In Your Credit 

Report Or Credit History 

•BANKRUPTCY •JUDGEMEKTS 

•SLOW PAYMErfTS -DELINOUENT ACCTS 

•REPOSSEStONS •FORECLOSURES 

•DIVORCE •CONVICTIONS 

•GARNISHMENTS 'INCORRECT DATA 

•BROKEN LEASES 'BAD INQUIRIES 

Tired Of Being Turned Down 
For Credit?. .-For Loans... 
...For A House.-.A Job? 



LINCOLNSHIRE FINANCIA) 
SERVICES, INC. 

Credit Rating Repair Service 

■We Legally Remove Negative InlormaM 
•Reasonable Rates (about half what an 
attorney will charge you for the same) 
•100% Guaranteed 
•Experienced Professionals 
•Listed With The Better Business Burea 
Master Card & Visa Evcryona Accept 
Ragardlus of Cradit 

OUR SERVICE INCLUDES CREOr 

CLEAN-UP, CREDIT COUNSELIN( 

AND CREDIT RESTORATION 



LICENSED & BONDED 



WE CAN HELP 

CALL r202) 397-7150 

A'isha AbdulKareem, Agent j^sS 

Executive Office & National Processins Center ■Wn 

LINCOLNSHIRE FINANCIAL SERVICES. INC. #11 

16000 Ventura Boulevard, Suite 500 'tWiK- 

Encino. California 91436 •£3Z£ 



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BUSINESS SERVICES PWIHC SERVICES GETAWAYS/VACATIOWS 



^^^ ~ **^ -"^"^ JJJ^- .F^..« ?*, « w^ **tfcltai fk^^ ITIOWimTn^ run i r llifi^iMirtMii^Mii.ew 







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, ; SAVE » OH MOW aW MMMWHIPSl 

INSTANT. 



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^;?:^f7^r 







predit 
^protection 
'^sociation 



$ 5.00 



F!VE DOLLARS & 00 CENTS 

■'.Ml'. SMCiUSBCufHy Code 000578 36-500 



HatBCloo, li 5070' 




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Yes I want the Credit Ppotr^ liun /.. ooiation 
beliind me ) iincfi'if.t.nnd tliiit ensiling or 
depositing ttiis uliitck represnnls n<-cc|itance of 
my first yt-nr niombetship in tin- 1 '.ri'dit ['loteution 
Association for lliirty nim! dolljirs riiereaftcr. 
please continue niy .itniu.it iiionilxirsliii) (unless I 
decide to cancel), l)illeil aiitniiifiiically to my 
MasterCai d/Visa account 

I hereby appoint Crpdil Protection Association as 
my agent for instructing citdtt linrenus to send 
me tlw information they havR fttiout nie 

Please check one tor eligibility to cnsh or deposit 
th)s check; 
n MasterCard 
a Visa 

Account Number: 

I I I I I It. 1.1 

I I I I I Exp Dale: 

This check is void wilhout a v.ilid t.lii^loiCjird or 

Visa account number 



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'protection 

^Association 



Enclosed Is A Real "LIVE" 

$5.00 Check In Your Name ■ 

Deposit Or Cash It Before 

Its Void Date . 

Dear Credit User: 

Vsa, the ancloBed 55.00 shack is a real, negotiable cheek in 
your name - real money - juet waiting for you to endoreo, then 
deposit or CB.sh. 

I endorse and cash H , you'll get a lot more than SS.OO , 
.Iso f l:id out the truth — though it may shock you — 

\ your ered-t report -what it says about your 
e, how it reflects on your reputation, your 
n ho* it could affect your ability to get a .•job 



Did you loiow that an elaborate mechanism has been 
developed for investigating and evaluating your 
character, your credit standing, and your reputation? 

Did you loiow that your credit, reputation, and character 
can be damaged - and may already be — without rou even 
Imowing it? 

Did you Imow that central f ilei are kept on most 
Americans by credit bureaus? Credit grantors routi.-oly 
uee these files for approving or denying credit . 
Employers use them as a character check before hiring or 
giving promotions . Did you know these files may contain 
errors, misrepreaertations, and outright lies? 

Did you know that the information about you in those 
central files is for sale ? And that it can be sold without 
your Imowledge or approval? 





■ what ' ; 






. what 


jmxr central cred: 


t burei 




le ooi 


itains . . . what's be 


■in« done 


with that "oonfidentlal' 


" PT 


■sonaJ 






eonoemed about it 


that w 




will: 


Lng to pay yoo SS.OO 


to 




ind e-t 




lyeur 


credit bureau file 


•an 



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?ou may be shocked when you discover the 
information that is being accumulated about 
you by consumer reporting agencies without 
your knowledge. Vour Inoome, how quickly yau 
pay your bills, Job information, your bank 
account balancaa and account numbers, ever. 
your medical records -• the nost personal 
information imaginable. 

And some of the information coaipiled by the 
nationwide network of credit bureaus Is often 
just plain wrong. False, Damaging, 
Frightening ! 



Wrong information in your credit file can be like a ticking 
time-bomb . It can block you from getting a mortgage or a car 
loan. It can prevent you from getting an insurance policy . It 
can stop you from getting a promotion at work. Or even a new 
Job. It can be devastating. 

Inforattlon About You 
from These Central Files Is Being Sold . 

The fact that credit bureaus ma 
that errors often exist in then 
shocking truth. 



The frightening tr-jth is 


that 


this i 


nformati 


on 


is t 




)0ld 


to practically everyont - 




r ored: 


itors, ca 


11, 


soti 






agencies, omDlcyors, Insi 




oo comTJaniea, a: 






t ever 




else who says they need it 


: in i 


;onnec 


■-■.on with 


. a 


trar 


isacti 





From your employer considering you for z. promoLior. . . to your 
landlord . . . io your banker . . . even to someone you lOiow who's 
considering a business transact ion with yo-j . 

This elaborate credit bureau mechanism - fueled by enormous 
computers owned by giant corporati as — continuaualy 
accumuli.te3 information about you. Personal information you 
probably think ic " confidential " . Information that can hurt 
you without you even kr.owing it , And this most personal of 
information about you can be e ■. Id to practically everyone who 
says they need It . 

Ycu might argue that this elaborate mechanism should be a 
crime. It isn't. Quite simply, it 'a called a "credit biireau" . 
Hie information about you that la being sold is your so-called 
"credit report" , 



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What they 're doing 19 legal. You can't 
atop thsD . But you can make aure everything 
they say about you la TRUE , . . that they tall 
you who they got their "Information" from 
. , . that they tell you what they aaid about 
you and who they aolci It to . 

The $5.00 Check Enoloaed 
Will AotuallT Pfc7 lov To Protect Youraalf ■ 

There are two ways you can tackle thia elaborate credit bureau 
mechanism . . their computers, their layers of bure&ucracy . 
You can do it yourself, if you have the time, patience, and can 
atand the aggravation. Or you i-an save all that (and thereby 
money) by joirii:ig other prudent Americana who, as members of 
the Credit Protection Aanoalation, let us handle it. 

Our specialists V:now how to deal with this ■ 
of credit bureau:. V.'t ' 11 act on your behi.-.f 

the massive credit bureau files say about y 



We can't chanae 


the tri; 


ith. But w 


e'll mal.f 


f them verify every 


bit 


of information V 




jeraly be 










ice thei 


D take out 




ing that's not true 




We ' 11 make them ■ 


take QU 


It everythinK you : 


imoerelv dispute a 


nd 


that they can't ■ 


/arify 


. And fast 


, . And if 


you have a dispute 




with a creditor. 








included in your 


credit reports 




on. 




Hare's What Heabershl 


.p In the ( 


Sredlt Pr 


oteotlon Asaoolatl 


on 











Find Out What Your Fils Contains Risht Mow . You'll find 

hanism has on you (except any medical 
hav= on you . . We ' II even get you ar. 



You'll know Che sources of Vr.e mformatio. 




everyone «ho has revealed information abc 


<ut 


Keep tabs on who's looking at your files. 


Yoi 


thia information was sold to in the past s 


ix 


Know who's savinfT what about vou. You'll i 


mo 



You ' 1 1 know w 



saying derogatory things about you that end up in your 
credit report . . . what they said, and who they are , 

5. You'll Ret items 1 through 4 every six months so you'll 



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The clout of the Credit Prof otion A««oolatloo on your 
aide . Our teun of profflSBlonaJ. Bpecl«ltstB (inoluding 
lawyers and accountants ) la on-call for our nembera . 
Whenever you need us , we'll swing Into action tor you. 
We ' 11 aake them throw out every pleoe of fale* 
information. Then; 



We'll axacine the credit &-jreau's 


Infonutlon closely 


andmaki 


c them ver 


Ify whatever you ! 






If they can't, out It goes 




If whatever vou a 


Incerely dispute 


is not removed 




the credj 




to "verlfv" It. we'll 


help vol 


1 write a : 


itatoment tellinR 


vour side of the 




td oake su 


re vour side - : in 


eluded In all future 



, anyone t^ey sell this 
to will also get your side 
. And we ' 11 make sure they 



send yi 


3ur aide of the story to 


everyone 




they sold your information to 


in the 














as sold for emplovraent Durt>oaea . 




Once your 


credit bur^iai: file Is accurate^wa 


: 11 help 






willvoubelteotm 



the dark . Never again will they sell information about 
you that isn ' t true . No more sneaking around behind 
your back '. 

• Our specialistB are available to help you at any time . 
Frop protecting your reputation, character, and 
credit rating to practically any consumer problem, our 
personal protection team will be on your side. If you 
get charged for something you ;on ' t owe or if what ycu 
bought wasn't what was promised, we '11 do the dirty 
work for you and get i ^ at^alJi.^iened out . 

Free analysis of your credit report . If you have trouble 
understa-idir.g your creidit report or ita i.-aplicaticns . 
just send us a copy . Then call us . We ' 11 interpret It for 
you, free of ehi-rga, 

A convenient, toll-free "600" number to call . If you go 
directly to one of the credit bureaus, you go during 
their office hours, at their convenience. This nay not 
be convenient for you. But you can call ua , anytime, da.y 
or night, toll-free, and we'll assist you. SERVICE TO 
MEMBERS IS OUR BUSINESS. And remember, the credit bureau 
doesn't make money helping you; they make money selling 
information about you. The Credit Protection 
Association's purpose is to help you, our m<mber . 



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Th« Cfdlt Protaction Aaanol^tion Work» On Pi* Tha^nr 

Th*t Th»r» ' a " Strength In WuabTa " . 

And »»'r> Willing Te P*y >S . 00 

Far Th» Chajica To Prov« It . 

By now you're probibly thinking. "This Is terrlf ie, but I 
can't afford the thousands of dollars this protect Ion iin»t 

Now the good news I Uembershlp In Itie Credit Protection 
Asooclatlon costs only thirty-nine dollars a year. Why so low? 
Because the purchasing power of many thousands of people like 
you makes It poisible . And it's that same strength in numbers 
that gives the Association Its clout in tackling our nembers' 
credit problems and . . . winning. 

The only other cost is a nominal fee (usually about SIO I that 
the credit bureau can charge you for a copy jf your credit 
report, plus a two dollar handling charge , And if you pe-t 
turned down for credit as a result of a credit bureau report, 
let us know immediately. We'll get a copy of that report for 
you absolutely free of charge. 

Should you want additional help in straightening out any type 
of consumer or credit problem - from correcting lies in your 
credit report to unraveling knotty billing or purchase 
problems — our team of professionals is available to you . 
After discussing the problem with you, we'll tell you exactly 
what you can expect us to achieve for you. Costs will be 
estimated in advance and approved by you before we begin . 
This optional service is yours to use only if you wish. 
Remember , we can ' t change the truth, but we oan sure make them 
stick to it. 

So let 's gev going. Let 's first find out what thif elaborate 
BBChaniam of credit bureau files has on you. All you need to do 
IS endorse the enclosed S5 . 00 check, then deposit or cash it . 
You'll get the 35,00, When the cancelled check is returned to 

^.th complete instructions on the few ai::]ple t^.ings we need 
from you to g=t the credit bureaus to open their files to you . 

What You Don ' t Know 
CAM Really Hurt You , 

if you think you have excellent credit and a top notch 



reputation, 


you don ' t 


really know 


what 


, tne c 


iredl 


t bureau f ; 


Lies 


a ay about yc 


,u'. Sure yo 


u pay your b: 














perhaps you 


' ve argued 


about somet: 


Hinn 


with 


a mer 


■chani 


:. Eve 


n if 


you think it 




ed, you don' 




jw wha 


t they aai 





you, behind your back, to the elaborate cred: 

aechaniam that ' s only too eager to collect da,~iaBlnK 
"information" . 



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L«t 's faco it . A por«oii'« reputation raally counts . Your 
credit bureau tile is irtvat people Judge you by every day. You 
can' t protect yourself without knowing what ' s In it , who it's 
sold to , and where the information came Croin ... on a 
continuing basis , 

We ■ re making this extraordinary t5 , 00 menbership offer for 
three reasons . First, we 're convinced that, by and large, 
Americans are unaware of the existence of this elaborate 
mechanism of credit bureau f i les and their potential impact . 
Second, we know we can help. And third, we think that by giving 
you E5.00 to see and experience the benefits of membership in 
the Credit Protection Association , you ' 11 knew we mean what we 
say and do what we promise . 

So depos i t or cash your $5 . 00 check now : What you don ' t know 
really can hurt you. 

Sincerely, 



P. S. You may cash the enclosed S5. 00 check or deposit i 
your bank. But you must cash or deposit the chock 
the void date printed on its face . 



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The Credit Reporting bureau in turn lists this as I.SflO'^^ 
"paid collection accouaf dated Har.h 1987. This is ^ 



1 NEGATIVE II 
;otal of twe! 



an effort to lei 



idlvlduals where ve handle such potential [.r,.l 
-ance of finalizing any financing trarsaccion- 



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■ Standard Client Cr. 
, This agr. 



of the foUowing change; 



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TB Easl MJMicn Drive • fisn Gabriel California «1776 • (81S265-2183 






do ptr off thUf lawful debts. 

1 cotreci. 
2) OE,ti°"'.' 



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>«HE 


«. 


(P,r Cred.t r.oor;) 


Stjt,.i 


B.l. 


CORRECTEO 


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CREDIT FLASH 



'O T.^r Ais-c v: 






Walcom* in in* Amtrlcan A*- 
(Odallon Dt CrMH, Inc. W« IT* 
th* pBTtnt comptny of Dtiign 
Sytltm*. KHojrjoblOtHCh 
I proper fIninoJai 



You may hcv« r*otiMd many 
iMor* Imn ui In ractnt yMrt, 
Tha lattar* mquast •uditt a 
b>iano*i en our cUonto' u- 
counU wHh jwu. Thl( I* ih« 
ftrtt itop taken to rt>a(tablah 
tha cradtfv 
cEanL 



Whar wa talk with paopla 
about ttiBir cradli preUanif , im 
put Iham on a budgat and a II- 
r^clal plan. Wa ttach tham 
how 10 pay thalr bllla. if thay 
can not maka timaly paymann, 
wa aneouraga tham to kaap tn 
touch with thair cradtora. Wt 
itiaaa tha urganejr ef kaaping 
paymant hittory racordi in 
good ttandlng, 

Paopla anllraly Ml ling to pay 
ihair bliii and get out ol debt 
ara the only onat who quality 
for our program. Whan an ac- 
count Is rapoftad dallnquart 10 
oradit bureaui, iha account 
holder li panaiiiad tor aevan 
yaan. What li woraa It that 
once Iha account It paid, tha 
atttut data it movad up to tha 



date Ihe payment li made. 

T?ia Federal Trade Commla- 
alon didavcn thie praciioa, but 
credit raponing buraaua have 
not ooTeciad thair «y«amt to 
rtttaoi thit Inaoeuraey. 



Wt 



pMloiephy 
of rewarding oentumart who 
are raiponclbia and wrant to 
handl* thair dtbte, ragtrdltat 
of Iha age or tiatui of tht to- 



aeddantt. EducaUns and 
guiding that a paopla glvaa 
tham ■ second chance; gobd- 
raapontlbla paopla who know 
how to handle eradK properly 
[i tha end reeuK, 

If a cDtm k In dabt, wa LiauaJly 
arrange to have the oUarrt pay 
tha bill, and wa eencurrantly 
negotiate with Iha cradlter 
when tha bill le paid, the ao- 
count Mil be reported at non> 
rated, or It will be daiatad from 
tn* dltnfi credit raportt. 

Our tyattm it like Iha Iraffio 
lickat eyatem. Tha conaumar 
payt the paneily. He atlendt 
traffic school, Itarnt better 



driving, and gttt tha ctwlan 
rtmoved from hit dhvlng 
rtaonL Ttdt dONnt mawi M 
doainl knew how to drtva. Hi 
tlmply naadt to know hew ts 



Datign Syaiamt paid 
tl SOMO back to oradHert IM 
ytar. Ttiit la money crtdnm 

and ooiliGtkon aocoimta. 

Wa weuU tincaraly Uke ti 
know tiow you (••! about us 
LMut knew howwacaiilw^ 



Orwrlia: Daalgnt Syttafflt 

e7B Watt Wilton Avenue 

SufleA 

Qlendan, CA 9T20S 

Anantlon: 

Creditor Diedoauraa 




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•ndlng b«lBne« through r«gul«r T»ril •«'•*' 



■ my Bradltworthincsa 



, and resuus nakinc rcsular nonthly p 



11 hftv* raported ay account as 
t th* account as 'Curruit .'.cc 
119 upon the payment of tha ou 



Ian, tsriDa and contlngencte 
o lie. Upon Its receipt, 

..^eod and -icceptedi 



% 1S3.30 SALnHce 



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NOV 1 h 

RITE, INC. . 



__iJ±CXjL. CREDIT-R 






I ntnil Elald today i3 the •tecceasing ntntieE of crndit 
n year. mlUloDS of pcsviousXy cndit lactMf custcnen 
i> tlte^ CTBditors- A wy high penxntage of the ihtjoe- 
if grtpwlAg faiiilieB om oduLtn, agca 24 to 



c ineligible for credit since im. 



ig credit for individuals bi 
tQ !;0. Wa work witli our clients to solve post ccqdit pci 

Co a good credit ratij^g. 



tlmiugli tnonugti negotiations vith crBditoiBi ond. unlilte collection agsncias 



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NO" 2t! 1386 JB 



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FHIS J'ECUI. CFfEl NIL 



REPEATED Pod JCSEPH «JI»UE 



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t«;;l4.nloey Ij. ethlc.l and ptof.ssIonBl. ' J^ 

.t sign up for our service. Frankly, we do not understand 
«e answoi- ^il your questions M yout sstlsfsccinn? Have- 

L UP knov, Wc sincerely wanL 1:0 help you be a ciedic and 
Euccfiss . Our experience has ahcui: us, though, that people 



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OPEHING STATEMENT OF THE HONOMBLE FRANK ANNUNZIO 

OR H.R. 458, nr CnDll REPKn ORGMIZATIONS ACT 

INUtSMT, SErTEMKR IS, 1S08 

This nomlng the Subconntttee Meets to hear testtmony on credit repair 
clinics. These dlnics hold thtmelves out as ccwipanies that can help 
consumers clean up bad credit histories, or obtain a clean credit report. 

Kost often their product ts not a 'Hr. Clean* which leaves a consumer's 
credit history sparkling bright, but a "Orano" that cleans out a consumer's 

Under the Fair Credit Reporting Act, consumers are entitled to have the 
contents of their credit file at credit bureaus disclosed to the>, and they 
have the right to challenge inaccurate Infomation. Consumers oho are denied 
credit based on a credit report are entitled to have the contents of their 
credit file disclosed to the« free of charge. In other Instances, the credit 
bureau nay charge a saall fee. These fees generally average about SIO. The 
consumer may dispute Inaccurate Inforutlon and the credit bureau must 
reinvestigate that information at no charge to the consuaer. 

Credit repair clinics claim that they can help consumers remove adverse 
information from their files even if It is true. If you turn your attention tc 
the television monitors, you miW •■• an iwawpl* ef an edvtrtliemmt from ■ 
credit repair clinic. 

ISHOM NATIONWIDE CREDIT REPAIR COMRERCIAL] 

Nationwide Credit Services, the firm iihose ad we Just saw, promised to stoi: 
doing business in Texas and to repay 13800 to damaged consumers. Nevertheless, 
the company Is still in business in Louisiana. 



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- z - 

All too often, proalses of credit npt1r in fnudulent. They *r« 
fraudulent for a xfiqile reason--you cannot remove accurate InforMatton fron 
your credit file. If the Inforaatton Is adverse but accurate, nothing can get 
it off your credit history. Under the Fair Credit Reporting Act, it Mill 
become obsolete and be reaoved froa yotir credit report after seven years. 
Until then, it remains in the file. 

Credit repair dtnics poie a threat to consu«eri Mho can least afford it. 
These organiiations hold out the proalse of a quick credit fix it a high cash 
price. They prey on consuaers whose often d1re straits and dreaas of a better 
life make then susceptible to the false proalses of unscrupulous credit clinic 

K.R. 4S& Mill force credit repair clinics to tall censuMers the truth about 
their services up front. 

This aoming Me >I11 hear the story of Credit-Rite, Inc., a coapany ahich 
defrauded at least 9000 consumers of tZ.I Billion in a credit repair scheae. 
We Hill first heir froa Nr. Kenneth P. Halton, OepMy Attistant Director of the 
Crialnal Investigative Division of th* Federal lurtui of Investigation. It was 
the FBI's iwestlsatlon of Cradtt-lliU Hhlck feeallad to M* MMlcttw of 
James Gray, Donald Gray and Jeffrey RobeKs, for aail fraud and conspiracy in 
connection Mith Credit-Rita. 

Jaaes Gray was sentenced in July to seven years in prison and ordered to 
aalie restitution. Donald Gray received three years probation and aas also 
ordered to aake restitution, ileffrey Roberts received a IS-aonth prison ter« 
and MIS ordered to aake SUO.OOO in restitution. 



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FsllMing tb* tettlwmy of Hr. Hilton, iilw Mill prmiik a ciw fr thenttve 
ovorvlw of the Crcdit-RUt openttm, ae will ti«ar tattlaeny fnM Jaffroy 
Rotwrts, a convicted cradit repair dtnlc crlnlnal and fron Hichella Arnold, a 
femer «v1oyo« of Cred1t-Ritt. 

1 vant to OMphastze that Hlchelle Arnold was In no way lapllcated. 
Investigated or accused of any wrongdoing in the Credit-Rite case. Hs. ArFWld 
testified at the trial of the Grays and Nr. Roberts as a witness for the 
prosecution. Her testimony was so daanlng that the defendants decided to plead 
gulUy while she tias still on the witness stand. 



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DE QjGN 

AN AMERICAN ASSOOAIKN OP acEWrCO. INC 



15 Sept lO'F. 

TtSnvpHY CF Hflft HHTCRD 

Mr, Oiainan and mmhers of this CccmiCee. My nare Is Elena Halfotd and I 
an t'v? founder s-y^ Presi:lent of thp A-nerican Assoctaclon of Credit, Inc. of 
Gleiklale, California. Thank yoii for the opportunity of presenting wy vieus 
on H.R, 455 this romire;. Alonp with me is Mr. Steve Fran!;, iriy Public 
Affairs Consultant, 

Several years ^o I ^>t i 

the neecf for the consime: 
their credit Information, 

The credit reporting bureaus were niaklnf; the mi5ta!x:s of not accurately 
reoortinf* tnformatiori to potential credit fivers and in many casea refused 
to listen to oxiSnieTS yiien le>^itli<ete Infnnnatian vas given to thea. 

It is Ty opinion that credit reporting bureaus are i^rely conduits of 
Inforrvition, It is not up Co them to judge informaticn, determine what 
inforF,ation <;oes on a consiru^r report ani what does not. 

Because of ^lis, I forrned n^ c-ti co;:pany to advise clients on the credit 
ayste-n, counsel thea on the responsible use of credit and act as 
litterrEdiary and negotiator on behalf of t^ c 



E unfairly being denied cretllt 



1 get the pertinent Information frnn theni, get a copy of their credit 
report, and explain to Chec, under the lav. their alternatives. I then 
attempt to correct the information, nesotiate a settlement with the credit 
gi^'er and or explain to the consirrsr that not^iii^g can be done to change the 

Unfortunately. H.R. 658, lAile correctly regulating the credit repair 
Inhistry, leaves out a k^ elanent. That is, it does not mandate the credit 
reporting bureaus to reco^niise our eitistence, and dwreby precluding the 

consuner fron having representation. 



WEST WILSON BUSINESS PAKK • 676 WEST WILSON AVENUE • SUITE A 
OLENDALE, CALIFORNU 91203 • (818) 5004753 



„GoogIe 



DEjSjGN 
OYSTEf 

AN AMWCAN ASSOOAIXMOFOtEDrra 



Testirmny Page 2 



This presents a probl«n for nost 

conrolicateit, technical m] unnervli^ for 

understand tha niances o£ the lau, tivt their rights are oc how to exercise 

their rights under tte las-. 

SoTfi consigners ask their relatives, friends, attomers or credit service 
organizaclnnB to represent ttwsB to the credit bcreaus. But 1SU, the largest 
credit reporting bureau, refuses to sIIch tnyont to reforeaent a cansuner. 
They claim that Che right Co privacy precluiies th«i fro> Calking to anyone 

about an Individual's credit. 

But this is hypocrisy. TRW does not protect the ri^hc to privacy of «iy 
consuner. In fact, it invades the right to privacy, toy department atore 
clerk in this countr;' can gst a copy rf your credit report, (fc. Chairman, 
on a inCTientE notice. But. imder the law, it will Cake you 30 days Co get 
the same information from a credit reporting bureau. Is that the 
protection of the rl?iit to privacy? 

More importantly, this action by the credit bureaus la harmful to 
consiners. As an exxnple; in California, an elderly genclenan in San 
Bernardino County had a atroke, uhich aniong other things, caused him Co 
have financial problsu. He aiked his adult dau^ter to speak Co TW on 
his behalf, because he could not get out of bed. 



Isn't it Btran)^, you could be charged with mirder anj have ai attorney, 
you could sign a power of attorney Co anyone to take care of your financial 
matters if Incapacitated, but credit reporting bureaus refuse to recognize 
the ri!;ht to renresentation that every business and econimlc segmnt of 
the American society recognizes. 

In the area of convenience, TSM says that you could deal directly wltJt tltai 
at their store front locations. But the problem is chac they have only 
four in California, a state of 26 million people. TTie locaclcns are not 
generally known and the hours they are open are horrendous, even if you can 
find aiem. In California the hours are nine to tuelve, one thirty to four, 
Monday chru Friday, that's it. 

WEST WILSON BUSINESS PARK • 676 WEST WILSCM AVENUE • SUITC A 
(H£NDALE. OOJPntNIA 91203 • (818) S0O«7S3 



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DEjSjGN 
ejY§TEM& 

AN AliOUDUl ASnOATIONa'atESCrOO, MC 



Testtiony Pa^e 3 



Kow can the ganeral CMiKuner take tine fro-i uork and tJEn appear, oily to 
be told it wL1\ take a couple of houra to tibi yotn TIW report before they 
can even diecuss it. All of tiw eutnples I have given 70U are. In effect, a 
repressntatlcn of le;;al fraud upon ttv: consmer. 

I have in front of ne 160 letters, I could have brought several Chouaand, 
fro-i TSW that imply that tf you use a credit repair otf'.aniiatlon you mlgjit 
be breakin", the law. And, because you rdght be using a credit repair 
or;;anizaticn, ue will not respoTK: to your inqulryl 

I have the transcript of an interview held with fSXS-V/, in Los Angeles, 
sho-jinn an official of TRW denying the existence of this letter and 
iriplylrv? that it is a phony. But, the next day, tiie reporter biouf^t bade 
the evidencs that the TSJJ official had lied about Che letter, 

the right to have 



Each one of us h«s our own hsrroc story about dealing uith a credit bui^au. 
I have talked to retters of your staff and others on the Hill, and every 
office has given ue a horror story. Every one of these stories could be 
easily resolved if only the credit bureaus would listen. 

The people here on the' Hill are articulate, cap^le and energetic folks. 
You knou the aysten and know the law. Yet many of you are frustrated in 
dealins with wrom? Mid outdated tnfomation on your credit reports. 

IiiBgine i/iat it rrust be like for the general piiilic in dealing Hith a nulti 
billion dollar corporation like 1RH. Don't they deserve the rl^t to have 
representatives written into the law? 

1 strongly support this legislation with Wo changes. 

First, I urge an amendnent that would insure the right to representation 
with a credit reporting bureau. This dnuld indeed be a ftnJwtntal right 
of all people. 



WEST WILSON BUSINESS PARK •<76 WEST WILSON AVENUE • SUriE A 
OlENDALE. CAUFORNIA 91203 • (ll«) S0M753 



„GoogIe 



dejSjgn 

AN AMERICAN ASSOCUTKN OF OtEUT CO. 



Testlnony Pa^ '. 



Second, I woulH susf.eat that section 404 that deals with prohibited 
practices, be arendai. It Is suggested that a S5O,O00.X surety bond be 
Issued before a fiim could get clients. Such a surety bond is next to 
liipossibla to ^eC. Surety ccciTpanieE sie not issuing them to our industry. 
Plus, it Miuld take tiie consuiei ysars under the current status of such 
bonds to get paid from the bond. 



) account of S50.000.00 be s 



Mr. Qiairman, in today's society credit Is i^t makes our eccmnny exist. 
Without it. an individual loses economic opportunity, and freedons and a 
chance to participate. Ihose \iK> have abused the right to credit nust 
understatvi that they will pay the ocTialty. But, those lAio do not abuse it, 
b'jt because of a compjter error, or hinan Intransigence, cannot be alltwed 
to suffer. They imst have the rifjit to correct the credit reports. 

And, if they do not fee! confortable or qualified In dealii^ with a TRW. a 
CBI or a Trans Union, they should be sUoued to ask their sister in law. 
their neighbor, their friend or a credit service organization to help. 

An older gentler^an in Southern California was forced Co sue 25 creditors in 
sniall clalns court, for reporting derogatory information on his credit 
profile uhich did not belong, to hit. He decided to do this after persisting 
for 3 years In correcting the information. He has uon most of his cases and 
each creditor had requested the infoitnation to be deleted frca the credit 
profile. Hoi«ver, TRH refused to do It. 



Should creditors and consiners suffer this way? 



WEST WILSON BUSINESS PARK • 676 WEST WILS(»( AVENUE • SUITE A 
OLENDALE. CALIPCKNIA 91203 • (818) 5004733 



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Aneherwonan: 

IRH is being sued by a credit repair agency. ITiey claim they are winning 
their case, t^t's before t>ie case even gets to court. Tonight in Consmex 
13 ttie first of a 2 part series on TSM and credit. Constner reporter Anfy 
Nadell is here and: 

Andy, If you would tell us vhat's the basis of die Lau Suit. 

Andy Ifadell (consumer reporter. KOW-TV. Los Angeles) 

Basically, this bbsII oaapaisy believes thst HtW is not taking derogatory 
information off of a credit report vhen it Indeed should cone off In slx^ 
to seventy five days, it's takiiig a year or mare, or in sone cases not at 
all. And Oxy don't lllte It. 

Design Systems is a canipsny thst you might go to if you had a credit 
problem. In sens cases they can help you ^t rid of bad Informstion on a 
TRW report. But they are ignored by TRW and say as a result, you, the 
custcner, are being hurt. Here's how you are involved In this story. 

Let's say you visit your favorite batdi to apply for a credit card. But 
you're turned doun because your TRH report shows you're a bad rlA as a 
result of outstanding or late paid debts. You're confused or just buqr. so 
you contact a third party; s credit fixing ccn^Mriy like Design Systens. 
Ihey obtain your permission to work on your credit file. They contact the 
bank that TRW says reported you as being a bad risk. In this case Hells 
Fargo, then writes bade to Dealgn Systems on your brtialf, saying tfiac 
they'll stinit s correction to IRW. But nothing h^pens at TSU, alleges 
Design Systens In their lawsuit, vhich says in mai^ cases TBU falls to 
delete derogatory Infomation. 

Elena Halford (Fomder and President ^ ft«rican Association of Credit. 
Inc., DBA Dealffi Syatawa) 

It cook a year to a year m3 a half to get then to do It. And, again they 
(TRW) say that if a creditor, one of their customers, requests the 
infomation to be deleted, that they do so. Ihey have it in writing. But. 
we're rinwlng that they really don't. 

AKJylMtell (reporter): 

TRW will not ocHiailcatc vith a titixd party, cwn thoq^ Dealgn Systws 
obtained a Power of Attorney to help oonsuners lUe Ed Menderttall. 



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Ed MenderJiall {consaner. and Design Systems client) 

A creditor. <he meant to say consumer), vixs has a problem with credit has 
no place to jp except to talk to TRU, this giant that can scare the hell 
out of inost people. 

Andy Hadel l(reporter) : 

TSW believes that credit problems are between the consixner and TBU only. 
Hot a third party. But Mike Wolfe of Trans Union, the other major credit 
reporting agency, has a different view. He said, "If a reesanable and 
- specific third party request Is made, with the consent of the consuier, ue 
will reinvestigate derogatory Informstion, and correct if necessary. " 

Ccnsumere receive letters like this fxcm 7RM: 

'%Je believe you have been assisted by a third party in autmltting disputes. 
Ccntrary to what you have been told, ND (TIE can require us to delete an 
accurate Item from your file . " 

But the following ccnnent from TOW spokesperson, Itelia Fernandez, is to the 
contrary; 

Delia Fernandez; (spokesperson for TRW Information Services) 

"Our custoTcrs, the major banks, department stores, and finance ccxnpanies 
in all fifty states across the country, control the data in our files. Our 
data is only as accurate and conplete as the information they provide us, 
and If mey tell us to change our records, ve change than." 

Andy Sadell; (reporter) 

IRH's letters to consimers continued by saying: "taking into ccnsideracion 
the source of the dispute, we believe it is Irrelevant and frlvolcue, and 
we will not reinvestigate." 

TWI denied sending these letters, hinting they were phcny. TRW claimed the 
nurber of digits In the ID code of the letter was wrong. But stationary we 
obtained that TRW did verify, proved to have the same number of code 
digits. So, TRU's denial of the frivolous letter, is frivolous. 

Design Systenis' law suit includes scne 90 different consumers uho have had 
difficulty dealing with 7SH In cne way or the other. If you cannot afford 
to hire a 3rd party like Design Systsns to help you with the dispute, 
Wednesday 1 will show you how you can clear up aone of your own credit 
problems all by yourself, under certain clrcunstances. 



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If you have a different type of consuner question or a coiplalnt for t», 

write me a letter. 

KOOP Consimer 13 
915 N. La Brea 
Hollywood, CA 90038 

Ancherwynan! 

So, Andy, hcu does this conpany feel th^x. is winning the Isb' suit before 
It even gets to court? 

Andy Nadell; (reporter) 

Well, the law suit was filed almost a year a°o, a little over a year ago, 
and already, they clalT that Wil is movlni; a lot faster with all of those 
people end they believe Chat 1RV is on their way of cleaning iq> tiieir act, 
and they may not even have to end up in court. They believe TRW has been 



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B«nAL UST OF OMSamS WHO HMffi RECEIVm UmSS FWW CRgirr BWEAUS 

DBWnC m DWEgnMTICH OW.Y BEtaiBE THE [OEUHER HftS WIADE) HELf ntCH A 

CREDIT OCm^UHS CRGMnZATICH. 



1. Daniel P. Feraoile 

2. Joel M. Sussman 

3. Ray Grant Jr. 

U. Patricia Sanchez 

5. >:arc S. fiowrian 

6. Daniali Bah!)an 

7. Clarence Nolan 

8. Walter A. Shlvely 

9. Daniel G. Durchsleg 

10. Earl Jordan 

11. Susan ICWak 

12. Otarles Dunn Jr. 

13. Ridiard Mayer 

14. Hark Neesham 

15. Robert Valdes 

16. Edward (teidenhan 

17. Davar Kheradrimnd 

18. Jose Mareque 

19. Mark S. Haney 

20. Susan Hsnpton 

21. David Pratt 

22. Edilberto 0. Gonzalez 

23. Renae Webster 

24. Michel A. Cardenas 

25. John M. Ames 

26. Rosalyn UCala 

27. Saeed Nikayln 

28. Adelaide C. Malabo 

28. David Mcculloush 

29. Abdul J. Meiji 

30. Stanly E. Hiyahea 

31. Rosemary Morrison 

32. Mary Noidc 

33. David Pourbaba 

34. Jinniy K. Qulaiiiso 

35. RjAan D. Randrez 

36. Patrick Ryan 

37. Cecilia Sena 



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Liat of consurers Page 2 



3S. Rcgei Schleslnger 
39. Tijiothy Sena 
4n. Bret Snyder 
Ul. Linda Suhlam 
U2. Edgar U. Kootton 

43. Itoence Hetton 
41^. Dong B. Suh 

45. Kathleen A. H!hj 
¥>. Rosenarl Koszegi 
47. Kathleen ndka 
4B. Debrah Hau^rth 

44. Eric W. Larson 
SO. Daniel Fermoll 
^1 . Lauls Naacone 

52. Michael Hricalc 

53. Patrick Hayday 

54. Robert Kaplan 

55. Sanwel Crawford 

56. Mitchell R. Pindua 

57. Gregory Stubblefield 

58. Ullllan G. Ulllson 

59. Scwen ■Sifts 

60. Mario Ownali 

61. Roland Birrer 

62. Masza Aitiave 

63. GaU Dqi«' 

64. Robert Kaplan 

65. Corol O'Dea 

67. Susan E. Horland 
6R. Gregg Stidsblefield 

69. Cristoppher Black 

70. Job W. Ughcfoot 

71. Ray Grant Jr. 

72. Stacia Jofison 

73. Patrick Sanchez 
7&. Clarence Nolan JR. 

75. Halter A. lively 

76. Daniel G. Durchslag 

77. Drixirah J. Hill 

78. Stacia L. Johnson 

79. Haifc Keeny 



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List of Consimers Page 3 



80. Mashid Jazayerl 

81 . nawnnd Adcock 
8?. Dean Aldenderfer 
83. Robert A. Brock 
Hb. Ja-nes Alex 

85. Pear Aglipay 

86. Joanico Agllay. JR. 

87. Ranald V. Bennett 

88. Thonas W. Black 
fio. Kelly T. Burris 

90. Richard A. BelTnonte 

91. Anthony F. Barbata 

92. Jeffery Bartholenew 

93. Mario Chemali 

94. Sanuel Crawford 

95. Nestor Cbrrea 

96. Loida Ccnetf; 

97. dnatles Dunn JR. 
95. Gorge rvamo 

09. Gall Donner 

100. Daniel Durchslaj; 

101 . Phil ] ip Sowney 

102. Mary Diyon 

103. Sinnn Djahanbni 

104. "Ronald Diay 

105. Juan Diaz 

106. Batean Faralmartd 

107. David Felgin 

108. Jarcs E. Fax 

109. Francis Flynn 
110 Harry Friedman 

111. Smart M. Flshtnan 

112. Gwendolyn Ferguson 

113. Edilberto Gonzalez 

114. Redenipto Gcmez 

115. Joe Guaoan 

116. Terry Gunbs 

117. Leo[iidas a^rro 

118. Gene Garralida 

119. Jacob Gabay 
Gene Ga^alinda 



121. 



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List d clients Page A 



n2. Charles A. Jones 

123. Gene P. Janes 

124. Susan K. Kivak 

125. Kintiz KD^iani-n 

126. Sharon Kubota 

127. Seui« Kin 

127. Kevin Kelly 

128. Fred Khalill 
1?9. Olen S. Leonard 

130. Johnny Li 

131. Gregory P. Larson 

132. Fduaxd Hendenhall 

133. Hricak Michael 

134. Mark Neesham 

135. David Prat 

136. Ant^uny Msxwell 

137. Adelaid C. Kalabo 

138. Adbul J. msji 

139. Stanly E. MIyahia 
IMi. Mitchell R. Pindus 
lAl. Rolarei Birrer 

142. Paciick Ryan 

143. Ruben Ramirez 

144. Walter Shivley 

145. Joel Sussyian 

146. Timothy R. Sena 

147. Bret Snyder 

148. Linda Stahlam 

149. Steven Tufts 

150. Terence WeCton 



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STATEHEHT OF THE FEDERAL TRADE COHHISSIOH 

BEFORE THE 

SUBCOMMITTEE OH CONSUMER AFFAIRS AND COINAGE 

OF THE 

COHHITTEE ON BANKING, FINANCE AND URBAN AFFAIRS 

U.S. HOUSE OF REPRESENTATIVES 



SEPTEMBER 15, 1988 



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Mr. Chairman and Haabars of tlM SubcoBsitt**: 

Th« Padaral Trad* Comniaaion appraciataa Cha opportunity to 
discuss the eradit rapair industry and to coMBsnt on H.R. 458, 
th* cradit Itapair Organisations Act, wbich has baan introducad to 
coHbat fraudulsnt practicas in that industry, cradit rapair 
cospanias, irtiich vara littl* known only a faw yaars ago, 
incraaaingly bavs baco«a tba focus of stata and fadaral law 
•nforeaaant atforts. It appaars that a substantial ssgnant of 
til* industry sngagas in dacaptiv* advartising and salas 
practicas. nia Fadaral Trada CoKaission has brought law 
•nforcaswit actions against savaral cradit rapair practitionars 
in racant yaars and has a nuvbar of invastigations in pregrass. 
In addition, ya ara aducating consusara about thair salf-halp 
rights undar tha Fair Cradit Raporting Act and ancouraglng Chas 
to approach cradit rapair claiss with skaptieiss, so that thay 
will ba battar aqui^ad to protact tbansalvss against cradit 
rapair fraud. 

Fadaral lagislation to ragulata tha cradit rapair industry 
ccMild provida usaful infomation to consuaars and halp datar 
dacaptiva and dishonast practicas. Tba Cemission would support 
lagislation raguiring disclosuras that would raduca oonsusars' 
vulnarability to falsa cradit rapair claiss. Kowavar, far 
raaaons I will outlina sbortly, tha Cosaisslon guastions whatbar 
tha disclosuras that tha proposod lagislation prasantly raquiras 
ara likaly to achiava this goal. Tha Coamission also has 

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120 



raaarvations about other proviaion* of th« proposed legislation, 
including th« bonding r«quir*a*nt. 

In a l«tt«r to Chairsan Annunzio datad Hay 11, 1987, tha 
COBBlaaion coaaantad at aoma langth on. apacific provisions oE tti* 
proposad lagislation- Tha Coaaission raquaata that tha letter b« ' 
Bada a part of tha record oC thia bearing. In ay ranarks today I ' 
will auMBariia tha views that letter axpraaaad. I also will ' 
provide an overview of tha problaaa eonsunars axparianca in their 
dealinga with credit repair organizationa and will discuss our 
enCorcesent and educational afforta to protect consuaera from ' 
credit repair fraud. 

At the outaat, Z would like to note that our coamants today ' 
focna on eoapanias that purport to be able to alter eonsunars' 
predit bureau reports — usually, in theory, by elieinating 
negative infomation about the consuaar'a payment hiatory. An 
iaprovad credit bureau report would aolca tha consumer appear mora 
creditworthy and, tbua, would improve the conaumar'a chance of 
obtaining credit. Zt ia tha desire for aecaaa to credit — 
particularly in the form of credit card* — that makea consuiMrs 
vulnarahla to falsa credit repair claims. Soaatiaea, as a 
result, companies that sake credit improvement claims also 
purport to be able to gat credit or credit carda for conaumera. 
Often, however, theae eoq^aniea tell consumers that, once their 
credit reports have bean 'cleaned up,' they will be able to get 
credit on their own. 



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Th« definition of a credit r«p«lr organlEatian In H.R. 458 
focus** priaarlly upon thosa who sail cradit repair sarvlcaa — 
that is, upon parsona who claiB tbat thay can ii^rova a 
conauBar's cradit racord or provida advica or assiatanca to 
anabla tba eonauaar to do thia. Rowavar, tha prasant daflnltien 
alao encomfiassas thoaa who do not offar cradit rapalr aarvicaa 
but irtio ofCar, inataad, aarvicaa to halp conaumara obtain an 
axtanslon of cradit. Daapita tha Bany axaaptiena froa tha 
dafinition that tha Act previdaa, thia aaction of tha dafinitlon 
nay wall aaka tha Act applicabla to organizations that aaka 
usaful information available to conaoaars and do net raly on 
dacaption to aall their aarvicaa. Tba Coimiasion beliavaa that 
it would be preferable to focua tha proposed lagialation solely 
on organizations offering cradit history repair acrvices, as thia 
is the area in which falae claiaa and consuver Injury have been a 
recurrent thaaa. To the extent that organizations offering to 
halp consuaera obtain credit aalca £a1u claiaa about thalr 
services, the Coaalssion believes that auA probleas can l>e 
addraased on a case-by-case baala under Section 9 of the Federal 
Trade Coaaiaaion Act or siBilar atata consuBer protection 
statutes. Falae cradit repair claima alao can be, and have bean, 
addraaaad under Section 5. The Coaaiasien believea, however, 
tbat a law specifically addraaalng deceptive credit repair 
practices could be uaaful in ll^t of the prevalence of auch 
practices. 



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Credit r«pair coapanlAs typically pronis* to do th« 
iBpocsibla. For sxaBpl*, t«l«vision and newspaper advartisenents 
asaart: 'Credit problena? Ho problanMI' 'Co*a to the credit 
exparta. Ha araaa bad, credit." 'Credit clean-up guaranteed or p 
your >u>nay backl' In oral salea praaantationa, credit repair ^ 
aalaa ataff Bay atate that they can raaiove evidence oC ii 

delinquency, liana, judqnanta, or even bankruptcy from consumers' j 
credit raporta — for a subatantial fee. Fees charged Cor credit, 
repair nay ba aa little aa $50 or mora than $1000. Paea of , 
aaveral hundred dollara par parson are connon. The sales pitch 
uaad frequently highlights the technical expartisa of the credit 
repair coapany (or idiat say ba daacrlbad as its 'legal 
daparbaant') in dealing with creditors, credit bureaus, and the 
arcana world of credit. To bolater tbair credibility and to 
allay consuaara' concams, credit repair companies also nay 
asaart that their methods are legal or are based on federal law. 
soma even rafar to the Fair Credit Reporting Act by name in an 
effort to persuade consunars that the law baclcs up their credit 
r^air claima. Frequently, ttaay also guarantee results on a 
■onay-back basis or asssrt that their succsss rata approachaa 
100%. Thus, even when the fee is high, consunsrs nay think 
ttaay have nothing to lose. Dn fortunately, too often this is far 
from ttaa truth. 

Although aoma credit repair companies purport to ba able to 
ranagotiata credit ratings with creditors, most rely upon dispute 
procsduras provided by the Fair Credit Reporting Act as a basis 

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Cor attaapting to iaprova can«uH«rs' credit burMU raports. Th« 
het Has always provldad a aachanlcm througb wbich consuaara can 
correct arronaoua infonnation in thalr cradlt raporta. Undar tha 
law, whan a cenaunar diaputaa a raportad itani oC inforaatlon, tha 
erttdit butraau must rainvastigate that itati unlaaa it dacldaa that 
the disputa la frivolous or Irralavant. upon ralnvastigatien. 
InComaCion that is found to ba Lnaccurata or Inconplata auat ba 
corrsctad and information that cannot ba varlfiad must ba 
dalatad. Rowavar, if advarsa infomation is accurate and 
coaplata, tha aradlt buraau is antltlad to report It for aeven 
years or, in the case of bankruptcy, tan years. 

Based on the staff's experience, it appears that sost 
consUBsrs vtio turn to credit repeir clinics for aaaistance in 
i:i9rovii>g their credit histories have experienced genuine aredlt 
probleas in the relatively recent paat. Although thalr credit 
bureau reports say include occasional inaccuraclas, in general 
ttM reports present a reasonably accurate picture of the paat 
credit pr^blaas these ccnsuaers have axpariancad. Because credit 
bureaus are in tha business of selling credit hlatery 
Inforuatlon, they ordinarily report accurate adveraa inforaatlon 
for as long as the law permits, fltus, no setter how sany tlMas 
the consueer or tha credit repair clinic dlaputes such 
iaforuetion. It Is likely to reuain on tha consumer's crsdlt 
bureau report for the seven or ten year period peraltted by law. 
In short, the only consuuer who is likely to be aided by the 
services of a credit repair cospany is tha consuser whose credit 



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124 

r«port contains Inaeeurata advars* Inforaatlon. In our K 
•xpcriMica, such conaumcrs raraly n««d to turn to credit repair a 
clinics for correctlva action. D 

Nbsn censuBsrs wbo havs purchased credit repair services a 
coBplain that tbsir rsports ar« uninprovad, tha credit repair « 
clinic ordinarily lays the blana at the door of the credit bureau, 
or explains that credit repair requires aore time to carry out. ■ 
Consumers who request refunds are stalled with axcuses, or told e 
that they have failed to seet conditions of the guarantee. « 
SoBstlaes the company points to a sinor change in the report and g 
asserts that it constitutes the prmiised improvement. Not | 
infrequently, the eompeny goes out of business, leaving consumers^ 
with no recourse. Because consumers are led to believe at the [ 
qutset that credit repair will talce time, they may not realize . 
that they have been defrauded until the company is gone. 

Based on informal surveys of credit repair practitioners by 
two major credit bureaus, it appears that within their first yeai- 
of business at least half of all new credit repair companies 
move or go out of business. This estimate confirms Comnission 
staff's experience. The fly-by-night nature of the businsss 
■akes administrative enforcement difficult and, in most cases, 
makes consumer redress almost inpossiblc. Bssed on the 
Ceiaission's enforcaaent experience, even when the principals in 
a defunct credit repair operation can b* located, the proceeds 
derived from the operati«i have long since been spent. Tb* 



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industry by its natur* is clusivs, Cragmsntsd, and 
under cap italizad. 

Unfortunately, th« credit repair industry may still be 
groving. Virtually unlcno%n) only a few years ago, credit repair 
services are now widely advertised. Since 1984, nineteen states 
have enacted legislation to coabat this rapidly growing 
phenoaenon. But state laws hava not brought deception by credit 
repair organizations to a halt. The State of California was a 
pioneer in credit repair legislation. In 1904, it enacted a law 
that is sinilar to R.R. 458 in nany respects, Including its 
disclosure, bonding, and other requirements. Despite this, 
there is evidence that credit repair organizations operating in 
California and in other states that have enacted ' similar laws 
contimie fo engage in deceptive practices. For example, the 
Commission recently obtained a preliminary injunction against a 
credit repair company in Los Angeles based on evidence that the 
coqiany falsely claimed to be able to repair consumers' credit 
and get then credit cards. Several other companies that the 
Commission staff is investigating are also located in states that 
have recently enacted laws similar to H.R. 458. We rscommend a 
close look at the experiences of consumers and law enforcement 
agencies under such legislation at the state level. Their 
experiences nay well support our view that a different 
legislative approach is advisable if federal legislation is to 
achieve its intended purpose. 



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Tb« CoBBiaslon continues to «xplor* ways to addrass th« 
cr«dit repair problaa most affactWely. In our viaw, th« bast 
approach involvas a conbination of consuaar aducation and claar- 
cut sanctions to datar fraudulent industry practices. H« hava 
pursued a strong consumer education program, and we have brought 
— and will continue to bring -- enforcement actions against 
companies that rely on deception to sail their services. 

In a 19S6 administrative action, for example, six 
individuals agreed to enter into consent orders with the 
Commission enjoining future deception in the sale of credit 
repair services. Their Detroit-area company had no remaining 
resources for consuaer redress, but its two founders were ordered 
to make paid radio and newspaper announcements warning consumers 
against false credit repair claims and explaining what the FCRX 
does and does not permit. The California action that I mentioned 
previously was brought this year in federal district court 
against a credit repair company that has been operating over a 
dozen offices in California and Nevada. The Commission, having 
obtained a prelininary injunction prohibiting the company from 
misrepresenting its services, is now seeking permanent injunctive 
relief and restitution for consumers. We are also in the process 
of resolving complaint charges filed in district court against a 
New Jersey credit repair coi^>any and three of its principals. At: 
one point, the company operated thirty-one franchises in thirteen 
states and the District of Columbia. The U.S. Attorney's office 
for the District of Kew Jersey also brought charges against this 

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coapany's principals for crininal law violations in < 
with thalr operation oC the credit repair business. Th* 
company's owner and founder was sentenced to seven years in 
prison for his role in defrauding consumers and, along witli his 
codefendants, has been required by Uie court to make restitution 
to consumers upon his release. Commission staff currently is in 
the process of investigating a number of other credit repair 
companies. At this point, the investigations are non-public. 

Thm Comfflisslon also has been working for over three years to 
educate consumers about what can and cannot be done to Improve 
credit bureau reports and, thus, how to determine when credit 
repair claims may be false. During the past year, we published 
our most complete consumer guide to date on the credit reporting 
system. This booklet, -entitled -Building A Better Credit Record: 
Hhat To Do/Hhat To Avoid,* outlines In detail how credit bureaus 
operate, what information appears in a credit report, how to deal 
with erroneous information and, most Important, why accurately 
reported adverse information will almost certainly be reported 
until, under the Fair Credit Reporting Act's reporting rules, it 
becomes obsolete. This booklet also warns consumers about the 
problems Inherent in dealing with credit repair companies. It 
was published in cooperation with a coalition of Industry and 
consumer protection groups, which are assisting us in 
distributing the booklet to consumers nationwide. The booklet 
has been well received and widely promoted lay vwdla specialists 



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■ cr*dit. Over 63,00a copies tuv* been distribut«d to 
consuners since its publication earlier this year. 

Federal legielation, however, can carry consumer education 
one laportant step further, by requirincr important disclosures at 
the point of sale. Section 40S(b) of the proposed Credit Repair 
Or9ani2ations Act presently would require credit repair 
organizations to disclose to consumers that they have the right 
under the FCBA to review their own credit reports at little or no 
cost and to dispute any erroneous information that appears there. 
As the Commission's Kay 11, 19S7, letter points out, this 
provision fails to require the disclosure of Information that, in 
our view, consumers can profit from the most. He believe that 
any law congress nay enact should substitute instead a disclosure 
requirement informing consumers that, under the FCRA, credit 
bureaus can be required to remove accurate negative information 
from consumers' credit bureau reports only if the information is 
over seven years old, and that bankruptcy may be reported for ten 
years, we also recommend that congress require all disclosures 
to be made in plain language that is specified in the Act itself 
rather than left to tbe Interpretation of credit repair 
practitioners. Finally, to help ensure compliance with this 
provision, we racommenil that the disclosure be made in duplicate 
and be dated and signed by the consumer, with one copy to b« 
retained by the credit repair organization for two years 
thereafter. Arming consumers with information that may lead them 



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to guastion falsa credit repair clsims before the sale is made is 
the Cirst and beet line of defense against credit repair fraud. 
Nonetheless, it seems inevitable that some consuaers will 
fall prey to fraudulent credit repair scams. There is no 
guarantee, for example, that a fraudulent operation will make the 
disclosures discussed above or, indeed, will conform to any of 
the proposed law's requirements. Such an operation can cause 
extensive consumer Injury before law enforcement authorities 
catch up with it. I therefore reiterate here the view, expressed 
earlier by the Commission, that potential enforcement of the 
legislation would be greatly enhanced if Congress were to 
incorporate in it a provision granting the CoDmission civil 
penalty enforcement powers. Because the Commission presently has 
jurisdiction over credit repair organizations under the Federal 
Trade Commission Act, it already has the power to bring an 
administrative cease and desist order against such a company 
under Section 5 of the FTC Act or to seek an injunction and 
associated equitable relief in federal district court under 
Section 13(b) of that Act. He believe, however, that the 
authority to obtain civil penalties would prove to be a useful 
adjunct to existing Commission powers. For example, when a 
company has gone out of business, no longer has sufficient funds 
to sake restitution to consumers in any meaningful amount, or has 
failed to keep records of the consumers it defrauded, a civil 
penalty may be the most efficient way to deprive the company of 
such profits as it has retained. In addition, civil penalty 

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•nforcaaant powsrs, which may carry a $10,000 fin« p«r violation, 
nay b« parccived as pora onarous than tha powar to saak 
raatitution or radraas and tharafore nay ba a' mora affective 
datarrent to fraudulent practices. 

Finally, I wish to draw the Subconmittaa'a attention to tha 
■any guaations that were raised in the COMmission's letter of Hay 
11, 1987, concerning the bonding requirement that presently 
appears in Section 404(a) of tha proposed statute. We do noC 
know tha extant to which consumers have sought and obtained such 
funds in states that have a bonding requirement for credit repair 
organizations. If the SutocomBittaa ware to review those states' 
experiences, it might shed light on the efficacy of a bonding 
raguiramant as well as on other aspects of the proposed 
legislation. At present, the Coimission continues to have 
guestions about the efficacy of the bonding requirement included 
in the proposed statute. The worst actors in tlie business may 
well ignore such a requirement. If so, bond funds would be 
unavailable where most necessary. If, however. Congress dees 
decide to enact a law with a bonding regulrement, the CoBonission 
believes that the statute should make clear exactly who Is to 
administer distribution of bond funds and how and when consumers 
ere intended to obtain access to them. Any bonding regulreasnt 
would involve substantial administrative responsibilities. In 
the Commission's view, such responsibilities would be better 
undei^akan by the states than by the federal gevemnsnt. 



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As Z hav« noted, the Commiasion's vi«WB on H.R. 458 ar* 
outlined in nor* detail in its Kay 11, 1987, letter. I 
appreciate the opportunity to update then today and to testify 
en legislation to address tbis important consumer problem. 

nienk you. 



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STATEMENT OF THE HOtK»<ABLE NAHCV PELOSI 

SUBCOMMITTEE ON COWStlMEH AFFAIRS AtTO COINAGE 

HEARING OH H.R. 458, 

THE CREDIT REPAIR ORGANIZATIONS ACT 



MR. CHAIRMAN: I WOUU) LIKE TO COMMEND YOU FOR YOUR LEADERSHIP ON 
CONSUMER ISSUES. YOUR INTROMJCTION OF H.R. 456, THE CREDIT 
REPAIR ORGANIZATIONS ACT, IS ANOTHER PRO-CONSUMER INITIATIVE IN A 
LONG LINE OF ACTIONS VOU HAVE TAKEN TO ASSIST AMERICAN CONSUMERS. 

I AH PROUD TO BE A COSPONSOR OF H.R. 458, WHICH WOULD EHD 
ABUSES BY "CREDIT REPAIR" ORGANIZATIONS. HHII£ THERE MAY BE SOME 
CREDIT REPAIR ORGANIZATIONS WHICH LEGITIMATELY ASSIST INDIVIDUALS 
IN CONTESTING REPORTS OF BAD CREDIT, THERE ARE, UNFORTUNATELY, 
FAR MORE OF THESE BUSINESSES WHICH SERVE ONLY TO PROMISE WHAT 
TREY CANNOT DELIVER TO PEOPLE WITH BAD CREDIT RATINGS. MANY 
CREDIT REPAIR ORGANIZATIONS PROFIT BY PROMISING THAT THEY CAM FIX 
BAD CREDIT RATINGS, SOMETHING THEY CANNOT DO IF THE BAD CREDIT 
RATING IS A R£SUI;F OF AH INDIVIDUAL NOT PAYING HIS OR HER BILLS. 

MANY CREDIT REPAIR ORGANIZATIONS ALSO CHARGE HIGH FEES FOR 
OBTAINING IHFORMATim THAT A CONSUMER COULD AUIEADY RECEIVE FOR 
FREE OR FOR A HOHINAL FEE, THANKS TO THE FAIR CREDIT REPORTING 
ACT OF 1970. AMONG OTHER THIKGS,-y,H.R. 45B WOULD REQUIRE THAT ALL 
CREDIT REPAIR CLINICS ADVISE CONSUMERS OF THEIR RIGHTS UNDER THE 
FAIR CREDIT REPORTING ACT BEFORE THE CONSUMER SIGNS A CONTRACT. 

I THANK YOU, MR. CHAIRMAN, FOR HOLDING TODAY'S HEARING ON 
THIS IMPORTANT IZGISIATION. I LOOK FORWARD TO HEARING THE 
TESTIMONY OF TODAY'S WITNESSES. THANK YOU. 



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C^^dlt Repair ServicBB 

I . Introduction 

The State of Maryland has over the past several years, 
received an increasing numbtir of complalntB regarding 
so-called credit repair service businesses. These companies 
generally offer to assist consumers in ln^roving their credit 
standing, obtaining loans or other extenelona of credit and 
providing financial counneltng aervlcea for a fee. Actual 
eKarnples Include: 

1. A $35.00 per minute 976 exchange telephone number 
which is supposed to provide consumers who have credit 
problems with a "guaranteed" automobile loan. 

2. Credit repair companieB who advertise that they can 
eliminate banhruptcy proceedings and other negative credit 
information from a consumer's credit report. 

Although some of these businesses offer what must be 
considered legitimate services to the public, there in a huge 
variance in the amount they can charge and there ia nothing 
that these companies can do that applicable laws do not allow 
a consumer to do for himself/herself. 
tl. Maryland' a Response 

The Maryland legislature, acting in responae to many 
consumer complaints enacted legislation in 1967 requiring 
credit service businesses to obtain a $10,000 bond to be held 
by the State if they collect any £•« b*£or« parfomlng 
pEomised services. (A copy of Maryland's law is attached). 



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The new law also requires that a notice be givan to the 
: which diacioscD; 

ir'a legal rights to receive a copy of, 
•nd dispute the accuracy of Information in, their credit 

2. A statement that accurate information cannot be 
removed from the credit report; 

3. A complete description of all services which the 
credit repair business will perform and the total coat to the 
consumer for those services, and 

4. Information that the surety bond existe to 
compensate the consumer for any loss sustained as a result of 
a violation of the law. 

Maryland's law prohibits a credit repair businesa from 
charging a fee for aimply referring n conaumer to a retailer 
or credit grantor if the credit ia on substantially the same 
terms as those offered generally to the public. It prohibits 
fraud, or false or misleading statementa. The law alao 
establishes that the consumer haa a three-day right of 
cancellation of any contract with the credit repair bualness, 
and requires notice of that fact. 

The State Commiaaioner of Consumer Credit, a principal 
advocate of this legislation, and the Conaumer Protection 
Division of the Maryland Attorney General's Office are 
vested with various enforcement authority with respect to 
th* Act. Also, a criminal fine la available, although no 



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incarceration is provided for succeaeful proaecution of 

Violatore. 

1 1 1 - Enfo rcement Probleme 

The State of Maryland has encountered difficulties in 
attempting to enforce the new statutory regulation of credit 
service businesses. The most significant roadblock which we 
face is that of the state boundaries. Some of these 
operators, when faced with the Maryland requirements, have 
olmply moved their operationa acroao otate linen to another 
political jurisdiction. Additionally, wb receive many many 
complaints about businesses located outside Maryland who 
advertise toll free telephone numbers in local newspapers. 
It has been difficult if not impasBible far State authorities 
to even locate these companies, much less undertake 
meaningful enforcement measures. In short, this is an 
interstate problem which should be addressed by federal 
legislation. Maryland has recognized, and thia committee 
should be aware that it takes nothing more than a telephone 
and a few advertisements to start one of these companies. 
That is why bonding to cover claims by consumers is so 
essential . 

Maryland's Financial Audit Services Team and the 
Attorney General's Office have cooperated with federal 
authocitieo in the past on this and many other law 
enforcement issues. We urge that you consider enacting laws 
that will asalBt our efforts to regulate this fast-growing 
industry In which we have found many areas of abuse. 



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TESTIFIUNY 

OF 

KENNETH p. WALTON 

INSPECTOR - DEPUTr ASSISTANT DlRECIOlt 

CRiniNAL INVESH6AT1VE DIVISION 

FEDERAL BUREAU OF INVESTIGATION 

BEFORE THE 

SUBCOimllTEE ON CUNSOMER AFFAIRS AND COINAGE 

HOUSE UF REPRESENTATIVES 

ON 

THE FBI'S INVESTIGATION OF CREDlT-KITE INC 

SEPTEMBER 15, 1988 



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137 



:1R. CHAiRMAIJ AUD HEHBEKS OF THE SUttCONMlTTtE. 1 AM 
PLEASED TO APPEAR BEFORE YOU TODAY AHD PROVIDE TESTINUY OH THE 
FBI'S IHVESTIGATIOH INVOLVING COHSUnEK FRAUD BY CREDIT -filTE, INC 
NV APPEARANCE BEFORE THIS COHHITTEE IS HOT IH SUPPORT OF AHY 
PENDING LEGISLATION, BUT IS AT YOUR INVITATION TO OUTLINE THE 
FACTS OF THIS CASE- 
AS THE COnMITTEE IS AMARE, THE FUi HAS JURISDICTION TO 
INVESTIGATE CERTAIN FRAUDULENT ACTIVITY IN VIOLATION OF FEDERAL 
LAW SUCH AS BANK FRAUD AND EnBEZZLEMENT AND FRAUD BY WIRE. NE 
ALSO HAVE CONCURRENT JURISDICTION WITH THE UNITED^ STATES POSTAL 
INSPECTION SERVICE IN THE AREA Of HAIL FRAUD- THESE FEDERAL LAWS 
ARE FREQUENTLY USED TO PROSECUTE CRIMES WHICH VICTIMIZE OUR 
CITIZENS. 

IHFUflllATION WAS RECEIVED BY OUK NEWARK DiVliilOH IH LATE 
1936, THAT CKEUIT-RITE INC DOIIIG BUSINESS Itl PALMYRA, 
HEW JERSEY, HAS DEFRAUDING CUNSUHEKS THROUGH A SCHEME WHEREIN 
IHEY PROMISEU TO REPAIR THE CREDIT OF PEOPLE WITH POOR CREDIT 
PROFILES. 

CREDIT-RITE IHC WAS OPERATED PRINCIPALLY BY PRESIDENT, 
JAMES T- GRAY, ITS ACTING PRESIDENT AND FRANCHISE DIRECTOR 
JEFFREY ROBERTS, AHD ITS CREDIT REPAIR MANAGER, DONALD GRAY- IT 
HAS IN OPERATION FROM APPROXIMATELY HID 1985 TO FEBRUARY 1987- 

CREDIT-RITE INC SOLD FRANCHISES TO INVESTORS 
THROUGHOUT THE UNITED STATES FOR A FEE OF BETWEEH t5,000 TO 
(30,000- THE FRANCHISORS SOLICITED CONSUMERS WITH POOR CREDIT 
PROFILES AHD SIGNED THEH TO CONTRACTS WHICH GUARANTEED 100 
PERCEHT CREDIT REPAIR WITHIN 18 MUHTHS- IHE CONTRACT WAS USUALLY 



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139 



UHiLE BMKRUPTCY lUY KERAIM FOR TEN VEAKS. OTHER EHTRIES, SUCH 
AS LIEUS AHD JUObMMIS, REMIH OH A CREDIT RETORT UHTIL PAID- 
THEREFORE. ONE CAHHOT &UARAHTEE A CLAIH TO SE ABLE T9:^ftEPAIR- All 
ACCURATE CREDIT REPORT- THE FAIR CREDIT REPORTING ACT PROVIDES 
THAT ONLY INACCURATE INFUKHATIOH UN A CREDIT REPORT HAY BE 
REHOVED- 

THE PHlHCiPAL NETHUD USED BY CREDlT-RITE INC* IN 
AlTENPTiNG TO REMOVE NE&ATIVE CREUIT ENTRIES FKOH AH ACCURATE 
CkEUIT HEPORT WAS BY D1SPUTIH6 THE ACCURACY OF THE UTRY- CREDIT 
REPORTIHG A6EHC1ES ARE REQUIRED UHDER THE FAIR CREUIT REPORTING 
ACT )0 INVESTIGATE AND HEtiPOHD TO CONSUnER DISPU^S WITHIN A 
REASONABLE TIRE, UHICH HAS BEEN INTERPRETED BY THE FEDERAL TRADE 
COHillSSIUH AS 3U DAYS FKUH RECEIPT OF THE DISPUTE^ CREDIT-RITE 
lUC- UPEKAIEU UdDEK THE PREHISE THAT BY IHUHDATIHG IHE CREDIT 
BUKtftUS HITrl DISPUTES, THE CKEUII BUKEAUS UUULD BECOHE HIRED AND 
UNABLE TU HESHOHll TO [HE DISPUTES HITHIH THE PERIOD OF TlflE 
PHUSCkIBEU by THE LAW. THIS WOULD RESULT IN THE DISPUTED ITEn 
BEIHB KtNUVED fKOH THE CREDIT HISTORY REPOHT. 

CKEUH-KITE IHC- ALSO ATTEFIPIED ID REMOVE OK UPGRADE 
EXISTING NEGATIVE ITEMS OH A CKEDIT REPORT BY 'NEGOTIATING' WITH 
A CKEUITOH TO DELETE OK UPGRADE THE ENTRY IN KETOKN FOR THE 
CLIENT MAKING PARTIAL OR FULL PAYMENTS TO THE CREDITOR- BY AHD 
LARGE, CKEUITORS REALIZE THAT BY SUCCUMBING TO THIS TYPE OF 
NEGOTIATlUtI; THEY UNDEKMIHE THE INTEGRITY OF THE CREUIT REPORTING 
SYSTEn THEr DEPENU UPON FOK GRANTING CREDll- THEREFORE, 
UbGOTIATlONS WERE GENERALLY HUT SUCCESSFUL- 



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140 



CftEDlT-RITE IHC ATTEMPTED TO UTILIZE A COHfllHATlOH Of 
DISPUTES AND HEGOTIATIOHS, WHEREBY, THEY ARRAH6ED WITH CLiEHlS TO 
KEPAY A PORTION OF EXlSTiH6 BAD l£BT. ONCE A PARTIAL ^AYHEHT HAS 
HUE. A DISPUTE WAS SENT TU THE CREDIT SUHEAU STATING THE ACCOUNT 
HAS PAID CURRENT AND SHOULD HE SO REFLECTED ON TKE CREDIT REPORT. 

THE FBI INVESTIGATION REVEALED CREDIT-RITE INC SOLD 
OVER 9,000 'REPAIR- CONTRACTS THROUGH 33 FRANCHISE LOCATIONS 
THROUGHOUT THE UNITED STATES- CREDIT-RITE INC TOTALED UVER 
16 niLLIOH IN BUSINESS VOLOHE AND AVAILABLE RECORDS REVEAL 
APPHUXIMATELY SZ-i HILLION IN REVENUES HERE ACTUALLY RECEIVED. 

THE THREE PRINCIPALS OF CREDIT-RITE INC WERE IHlllCTED 
IN NQVEnBER 19S7, FOR DEVISIUG A SCHEtlE OR ARTIFICE TO DEFRAUD 
THE PUBLIC THROUGH THE GUARaHTEED 'REPAIRED CREDIT' CONTRACTS 
SOLD THROUGH CREDIT-RITE INC- FRANCHISES- 

UNE OF THE DEFENDANTS WAS SENTENCED IN UNITED STATES 
DlSTKlCT COURT TO SERVE A SEVEN-YEAR TERM IN JAIL, A SECOND 
DEFENDANT WAS SENTENCED TU SERVE FIFIEEN HOHTHS IN JAIL, AND THE 
THIRD DEFEHDANf WAS SENTENCED TO FIVE YEARS OH PROBATION- ALL 
THE DEFENDANTS WERE ORDERED TU HAKE A TOTAL OF S2-i HILLIOU IN 
RESTITUTIOH- 

WE BELIEVE THIS INVeSllfiATIOH SERVES AS AN EXCELLENT 
EXAnPLE OF THE FBI'S ENFORCEHENT EFFORTS TO ADDRESS COHSURER 
FRAUD IN THE CREDIT INDUSTRY- THERE ARE HANY OTHER PENDING 
CRiniHAL INVESTIGATIONS AFFECTING THE ECONUHIC HELL -BEING OF IHE 
PUBLIC CURRENTLY UNDER INVESTlGATlUN- HE ATTENPT TU ADDRESS 



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THESE lUVESTiGATlOHS IH THE HOST EFFICIENT, EFFECTIVE, AND 
ECONOfllCAL HAHHER POSSIBLE, GIVEN OUR LiniTED RESOURCES 
AUTHORIZED TO ADDRESS UHITE COLLAR CRINE NATTERS- ^'^ 

THANK YOU, HR- CHAIRMAN, I MOULD ItE HAPPY TO ANSWER AMY 
QUESTIONS YOU NAY HAVE- 



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5TATEHBHT OF HCSWRABLE CBALKESS P. mLIS 

BEARING OM B.R. 45B - CREDIT REPMK 0IIGAIiIIATI<»8 ACT 

SBPTEHBEK 15, 1988 



I believe that we ace holding heaclngB today on a fin- "^lece o£ 
consumer legislation, I want to commend Chairman Annunslo and bis 
staff for the excellent work that they have done or this issue. I an 
pleased to have joined chalcman Annunzlo as a co-sponsor of H.R. 458, 

B.R. 458 will solve a considerable problem In the market place. 
Credit repair organizations prey upon consumers promising to cocrect 
their credit histories and put them on sound financial footing. In 
reality, many of these credit repair organizations abuse the system 
offering their clients nothing more than the consumers could 
accomplish themselves or that they could accomplish with the help of 
local non-profit organizations which specialize in credit problems. 
Many credit repair organizations make false and misleading statements 
to consumers about their services and as a result, many consumers 
fall further into debt Instead of Improving their credit ratings. 
This bill establishes a system where these types of abuses will be 
prevented. 

I am a strong proponent of H.R. 45S and encourage my colleagues 
to support this bill. I look forward to the testimony we will hear 
today and I hope we can move this piece of legislation through 
Congress In an expeditious manner. 



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H.R.458 

To prevent consumer abuse by credit repair orguuzations. 



IN THE HOUSE OF REPRESENTATIVES 

Januabt 7, 19B7 

Hr. Annunzio introduced the following bill; which was referred to the Conunittee 

on Bankings Finance and Urban Affairs 



A BILL 

To prevent consumer abuse b; credit rep^ orgftnizations. 

1 Be it enacted by the Seriate and House of Representa- 

2 tives of the United States of America tn Congress asseiiibled, 

3 That title IV of the Consumer Credit Protection Act (15 

4 U.S.C. 1601 et aeq.) is amended to read as follows: 

5 "TITLE IV— CREDIT REPAIR ORGANIZATIONS 

"See. 

"401. Short tiUe. 

"403. FWingt uid purpose. 

"403. Definitions. 

"404. Prohibited practiceB b; credit repair orguiiialioai. 

"405, Disclosures. 

"406, Credit repur organiistions coimcts, 

"401. Right lo cucel contract. 

"408. Noncorapliance with this title. 

"409. Civil liability. 

"411. AdminislrBtive enforcenwiit. 
"412. Relation lo Stale law. 



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144 

2 

1 "8401. Short tiUe 

2 "This title may be cited as the 'Credit Bepair Organiza- 

3 tions Act'. 

4 "§ 402. FindingB and purpose 

5 "(a) The Congress makes the following findings: 

6 "(1) Consumers have a vital interest in establish- 

7 ing and mftintAJning their creditwortiuness and credit 

8 standing in order to obtain and use credit. As a result, 

9 consumers who have experienced credit problems may 

10 seek assistance from credit repair organizations which 

1 1 offer to improve the credit standing of such consumers. 

12 "(2) Certain advertising and business practices of 

13 some companies engaged in the business of credit 

14 rep^ services have worked a financial hardship upon 

15 consumers, particularly those of limited economic 

16 means and who are inexperienced in credit matters. 

17 "(b) The purposes of this title are U> provide prospective 

18 buyers of the services of credit repair organizations with the 

19 information necessary to make an informed decision reg&rd- 

20 ing the purchase of those serviccB, and to protect the public 

21 from unfair or deceptive advertising and business practices by 

22 credit repair organizations. 

23 "S 403. Definitions 

24 "As used in this title — 



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146 

3 

1 "(fO the term 'person' means any individual, part- 

2 nership, corporation, trust, estate, cooperative, associa- 

3 don, or other entity; 

4 "(b) the term 'consumer' means an individual; 

5 "(c) the adjective 'consumer', used with reference 

6 to a credit transaction, characterizes the transaction as 

7 one in which the party to whom credit is offered or ex- 
6 tended is a natural person, and the money, property, or 
9 services which are the subject of the transaction are 

10 primarily for personal, family, or household purposes; 

11 and 

12 "(d) the term 'credit repair organization' means 

13 any person, who, with respect to the extension of con- 

14 sumer credit by others, sells, provides or performs, or 

15 represents that he can or will sell, provide or perform, 

16 in return for the payment of money or other valuable 

17 consideration, a service for the express or implied pur- 

18 pose of improving a consumer's credit record, credit 

19 history, or credit rating; obtaining an extension of con- 

20 sumer credit for a consumer; or providing advice or as- 

21 sistance to a consumer with regard to a consumer's 

22 credit record, credit history or credit rating. 

23 The term 'credit repur organization' does not include — 

24 "(1) a depository institution whose deposits are in- 

25 sured by the Federal Deposit Insurance Corporation, 



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1 the Federa] Savings and Loan Insurance Corporation, 

2 or the National Credit Union Administration Board, or, 

3 a depository institution chartered by a State; 

4 "(2) any nonprofit organization exempt from tax- 

5 ation under section 501(cK3) of the Internal Revenue 

6 Code; 

7 "(3) a licensed real estate broker acting within 

8 the course and scope of that Ucense; 

9 "(4) a Ucensed attorney at law rendering services 

10 within the course and scope of that license; 

11 "(5) any broker-dealer registered with the Securi- 

12 ties and Exchange Conunission or the Commodity Fu- 

13 tures Trading Cotomission acting within the scope of 

14 the Securities and Exchange Commission or the Com- 

15 modity Futures Trading Commission regulations; 

16 "(6) any consumer reporting agency as defined in 

17 title IV of this Act, acting within the course and scope 

18 of that title; or 

19 "(7) any debt collector as defined in title "Vlll of 

20 this Act, acting within the course and scope of that 

21 title; and 

22 "(e) the term 'extension of credit' means the right to 

23 defer payment of debt or to incur debt and defer its payment 

24 offered or granted primarily for personal, family, or house- 

25 hold purposes. 



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1 "§ 404. Prohibited practices by credit repair organizations 

2 "A credit repair organization, its employees and agents 

3 shall not — 

4 "(a) charge or receive any money, or other valua- 

5 ble conaideration prior to completion of the services the 

6 credit repair organization has agreed to perform for the 

7 consumer, unless the credit repair oigaaization has ob- 

8 tained a surety bond of $50,000 issued by a surety 

9 company admitted to do business in the State in which 

10 the credit repair organization is doing business; 

1 1 ' "(b) charge or receive any money or other valua- 

12 ble consideration solely for referral of the consumer to 

13 a retail seller who will or may extend credit to the 

14 consumer if the credit which is or will be extended to 

15 the buyer is upon substantially the same terms as those 

16 available to the general public; 

17 "(c) make, counsel, or advise any consumer to 

18 make any statement that is mitrue or misleading or 

19 that should be known by the exercise of reasonable 

20 care to be untrue or misleading, to a credit reporting 

21 agency or to any person who has extended credit to a 

22 consumer or to whom a consumer is applying for an 

23 extension of credit with respect to the consumer's cred- 

24 itworthiness, credit standing, or credit capacity; and 

25 "(d) make or use any untrue or misleading repre- 

26 sentations of the services of a credit reptur organization 



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148 

6 

1 or engsge, direc% or indirectly, in any act, practice, 

2 or course of business ^t operates or would operate as 

3 fraud or deception upon any person in connection with 

4 the offer or sale of the serrices of a credit repair 

5 organization. 

6 "§ 406. Disclosures 

7 "(a) Before the execution of a contract or agreement 

8 between a consumer and a credit repfur organization or 

9 before the receipt by the credit repair organization of any 

10 money or other valuable consideration, whichever occurs 

11 first, the credit repair organization shall provide the con- 

12 sumer with a written statement that clearly and conspicuous- 

13 ly discloses to the consumer all the information required by 

14 subsection (b) to the extent applicable. 

15 "(b) The statement required by subsection (a) shall 

16 include — 

17 "(1) a complete and accurate statement of the 

18 consumer's right to review any file on the consumer 

19 maintained by any consumer reporting agency, as pro- 

20 vided under title IV of this Act, including a statement 

21 that the consumer may review his or her consumer re- 

22 porting agency file at no charge if a request is made to 

23 the consumer credit reporting agency within thirty 

24 days after receiving notice that credit has been denied, 

25 the approximate price the consumer will be charged by 



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149 

7 

1 the consumer reporting agency to review the iirfoniur 

2 tion contained in his or her consumer reporting agency 

3 file, and a complete and accurate st&temeitt of the con- 

4 snmer'B ri^t to dispute the completeness w accuracy 

5 of any item contained in any file <hl the ctHuumer 

6 maintained by any consumer r^orting agency; 

7 "(2) a complete and detailed descriptifMi of the 

8 services to be perfDrmed by tiie credit repair organiza- 

9 tion ior the consumer and the total amount the con- 

10 aumer will have to pay, or become obligated to pay, for 

11 the services; and 

12 "(3) a statement of the consumer's ri|^t to pro- 

13 ceed against any bond required under section 404 and 

14 the name and address of the surety company that 

15 issued the bond. 

16 "(c) A credit repair oiganizatimi shall retain evidence of 

17 compliance with this tiUe for two years after the date disclo- 

18 sures are required to be made or actim is required to be 

19 taken. 

20 "§ 406. Credit repair orsaaizations contracta 

21 "(a) Each contract between a consumer and a credit 

22 repair organization for the purchase of the services of the 

23 credit repair organizaticm shall be in writing, dated, signed by 

24 the consumer, and include^ 



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1 "(1) the terms and conditions of payment, includ- 

2 ing the total of all paymenta to be made by the con- 

3 sumer, whether to the credit repur organization or to 

4 some other person; 

5 "(2) a full and detuled description of the services 

6 to be performed by llie credit repair organization for 

7 the consumer, including all guuunteea and all promises 

8 of full or partial refunds, and the estimated date by 

9 which the services are to be performed, or estimated 

10 length of time for performing the services; 

11 "(3) the credit repair organization's name and 

12 principal business address; and 

13 "(4) a conspicuous statement in bold face type, in 

14 immediate proximity to the space reserved for tiie con- 

15 aumer's signature on the contract: 'Tou, the buyer, 

16 may cancel tiiis contract at any time prior to midnight 

17 of the third day after the date of the transaction. See 

18 the attached notice of cancellation form for an exphina- 

19 tion of this right.'. 

20 "§ 407. Right to cancel contract 

21 "(a) The consumer shall have the right to cancel any 

22 contract with a credit repair organization until midnight of 

23 the third business day following the consummation of the 
34 transaction, or the delivery of the information and cancella- 
25 tion forms required under this section together with a state- 



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151 

9 

1 ment containing the material disclosures required under this 

2 tide, whichever is later, by notifying the credit repair organi- 

3 zation of his intention to do so. 

4 "(b) Each contract shall be accompanied by a completed 

5 form in duplicate, captioned 'Notice of Cancellation', that 

6 shall contam in bold face type the following statement writ- 

7 ten in the same language used in the contract: 

8 " 'You may cancel this contract, without any penalty or 

9 obligation within three business days from the date the con- 

10 tract is signed. 

11 " 'If you cancel, any payment made by you under this 

12 contract will be returned within ten days following receipt by 

13 the seller of your cancellaUon notice. 

14 " 'To cancel this contract, mail or deliver a signed dated 

15 copy of this cancellation notice, or any otiiet written notice to 

16 ( name of credit rep^r organization ) at ( address of credit 

17 repMT organization ) not later than midnight ( date ) 

18 I hereby cancel this transaction, 

19 ( date ) 

20 (purchaser's signature ). 

21 "(c) The credit repair organization shall give to the con- 

22 somer a copy of the completed contract and all other docu- 

23 roents the credit repair organiztiion requires the consumer to 

24 sign at the time they are signed. 



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152 

10 

1 "S 408. Noncompliance with tiiis title 

2 "(ft) Any wuver by a consumer of the protections of this 

3 title is void. Any attempt by a credit repair organization to 

4 have a buyer waive rights g;iven by this title is a violation of 

5 this title. 

6 "(b) Any contract for services which does not comply 

7 with the applicable provisions of Uiis title shall be void and 

8 unenforceable as contraiy to public policy. 

9 "§409. avil liability 

10 "(a) Any credit repur organization which fails to 

11 comply with any provision of this title with respect to any 

12 person is hable to that person in an amount equal to the sum 

13 of— 

14 "(1) any actud damages sustained by such person 

15 as a result of such fulure, but in no case less than the 

16 amount paid by the person to the credit repair organi- 

17 zaUon; 

18 "(3HA) in the case of any action by an individual 

19 such additional amounts as the court may allow; or 

20 "(B) in the case of a class action, (i) such amount 

21 for each named plaintiff as could be recovered under 

22 subparagraph (A), and &) such amount as the court 

23 may allow for all other class members, without regard 

24 to a minimum individual recovery; and 

25 "(3) in the case of ainy successful action to enforce 

26 the foregoing liability, the costs of the action, together 



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163 

11 

1 with & resADiiable attoraey's fees as detennined by the 

2 court. 

3 "(b) In detennining the amount of liability in any action 

4 under subsection (a), the court shall consider, among other 

5 relevant factors — 

6 "(1) in any individual action under subsection 

7 {a)(2KA), the frequency and persistence of noncompti- 

8 ance by the credit repair organization, the nature of 

9 such noDcomphancfl, and the extent to which such non- 
10 compliance was intentional; or 

11 "(2) in any class action under subsection (aK2XB), 

12 the frequency and persistence of noncompliance by the 

13 credit repair organization, the nature of such nonoom- 

14 pUance, the number of persons adversely affected, and 

15 the extent to which the credit repair organization's 

16 noncompliance was intentional. 

17 "S 410. Jurisdiction of courts: limitation of actions 

18 "An action to enforce any liability created under this 

19 Act may be brought in any appropriate United States district 

20 court without regard to the amount in controversy, or in any 

21 other court of competent jurisdiction, within two years from 

22 the date on which the liability arises, except that where a 

23 defendant ha« materially and willfully misrepresented any in- 

24 formation required under this Act to be disclosed to an indi- 

25 vidual and the information so misrepresented is material to 



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154 

12 

1 the establishment of the defendant's liability to that individ- 

2 ual under this Act, the action may be brou^t at any time 

3 within two years after discovery by the individual of the mis- 

4 representation. 

5 "§ 411. AdministratiTc enforcement 

6 "Compliance with the requirements imposed under this 

7 title shall be enforced under the Federal Trade Commission 

8 Act by the Federal Trade Commission with respect to credit 

9 repair organizations. For the purpose of the exercise by the 

10 Federal Trade Commission of its functions and powers under 

11 tlie Federal Trade Commission Act, a violation of any re- 

12 quirement or prohibition imposed under this title shall consti- 

13 tute an unfair or deceptive act or practice in commerce in 

14 violation of section 5(a) of the Federal Trade Commission 

15 Act and shall be subject to enforcement by the Federal Trade 

16 Commission under section 50>) thereof with respect to credit 

17 repair organization subject to enforcement by the Federal 

18 Trade Commiaison pursuant to this subsection, irrespective of 

19 whether that person is engaged in commerce or meets any 

20 other jurisdictional tests in the Federal Trade Commission 

21 Act. The Federal Trade Commission shall have such proce- 

22 dural, investigative, and enforcement powers, including the 

23 power to issue rules in enforcing compliance with the require- 

24 ments imposed under this title and to requrie the filing of 

25 reports, the production of documents, and the appeamace of 



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165 

13 

1 witnesses aa though the applicftble terms and condldooB of 

2 the Federal Trade Commission Act were part of this title. 

3 Any person violating any of the provisions of this title shall 

4 be subject to the penaltdes and entitled to the privileges and 

5 immunities provided in the Federal Trade Comniisison Act as 

6 though the applicable terms and provisions thereof were part 

7 of this title. 

8 "8 412. Relation to State law 

9 "This title does not annul, alter, affect, or exempt any 

10 person subject to the provisions of this title from complying 

1 1 with the laws of any State except to the extent that those 

12 laws are inconsistent with any provision of this title, and then 

13 only to the extent of the inconsistency.". 

14 Sec. 2. The amendment made by this Act shall take 

15 effect ninety days after enactment of this Act. 

O 



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Sears, Roebuck. aiv4 Co 

Corporate Governmental Affairs 

Sear^Hoi^ "7 ' ! :\ 
633 Fbiiisylv«tuaArauie,'N,W 

SiutcSOD 
VasKuigton, D. C. 20004 



a Hcnwabla Fm 



U. S. Hsuae of 
SufaccBiBittee <xi Caiamer affairs aixl Coinage 
of the CEandtitae cr Banking, Finance and 
Cbban Affairs 

B Office Building Annex No. 1 
- - 20515 

Dear Hr. OiaimiBn; 

I sa pleased to adviae you of Seara Buppan. for the caxxpta 
eatndied in the 1pgl«li>tiiji kbicb ycu inUcduc«d, U.K. 458, Ttie Czedlt 
Bipiir Ocganizatiicne Act. 

advlM cctiKiDBrs of tteir ri^tts a^a: tin Fair Credit REporting Act 
before the i:ct>i>— if ai^ia a ccntxact; to folly '^'— '"— Uw eo«t Mid 
aarri/se* to b« perfcnnedt to pxwlde a ri;^ to cancel the omtri c L ) md 
to poat a aecurity bond fee ai^ smay acc^ted in aihance of pnividliig 

Xonr legislBtim wuld alao [aiohlbit credit nfieir ovganicoticna 
a about thair aervloaa, or 



Sears joins mBiiy other (^xfanizatlcns and ceDpanieB in Endorsing 
the need foe this legislaticr to pr e s en t ccnsuKr tixma by credit repair 



Sincerely, 



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D*ar OwlrBui Jkniuinslei 

nM OMwuaar cradit Induatzy !■ 9r«atly oonc*nMd about tiM 
prelifaratlen of cr*dlt cllnio and "cradlt r^alr" oparatloiu 
fro* ooaat to coast. In addltlcn to t.' ' 
eoMWwa out of hiri mi^ drtlM* tl 
«■• In p«ri>*f ■" ***■ ■i' HMkarl^ t 
crodit cllnica ttaruton th« Mfatr e£ th« antlr* ooiwmMr cradlt 
Indnatry. 

«• undorctand that loglalatlon to rogulat* erodlt clinics ia 
ponding In your ccaMittoa, and tba undaralynod grov^a atrongly 
ondoraa tba conopta otfx^lad In your lovlalatlen, R.R. 45a, tha 
Crodlt RapaiT Organisationa Xct. Wm knew o2 faw otliar laauaa 
wltbln tha conaunar cradit Industry whara ttaara ia such unanlalty 
tlwt lagialativa action ia naoaoaaxy. Tbarafora, wa urga you to 
anaot laglalatlon In this aasaion ts xagulata tba dangaroua 
kuainaaa practlcaa of cradit r^alr organliatlona in ordar to 
protact botb conaunara and tba oenau»ar eradlt Induatry. 

Slnoaraly, 

Aaarloan BanXara Aaaooiation Juarioan S^raaa 
Jbsorican Katall Padaratlon Aaaoeiat^ Cradit Bnraaua, Inc. 
Bamatt Banka Conauaax Bankaxa Aaaeclatlon 

Moaabold Intamational 

Intamatlonal Cradit Asaoclation 

J. C. Panny Coapaiv —af rcard 

Mallon Bank Nobil Oil Corporation 



Saourity Pacific National Bank 



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Tlie Honmhle Fnnk AnmiBiio 

Ouirpua 

SubcDiiuiunee on Consumer Aifun uid CoIiu|« 

CommilUe on BuiUni. FinaniK, and Urtnn Albin 

US. Roue of Rqimaiuiivs 



Dear Mr. Chairoun: 



a Septcmbet 15, l9Se, which relati 

A rcbtivdv new indunry. sedh r^wr orpniuliofls, has sprung up arouod (he 
caanuy tntt the pail few jFcati. Many ol thoe ot^nialiam daim lo be able Ic 
dean iMt an ndividual's ovdit roconL r^anUesi of the individual'B recordul 
credit bMny. Cemin i&itnmBt and buiiiKs praoim ot these cnnpiiuei hiivt 
milled codpanen uid uaen of crtdk infoniialion in falsely ciaiming that an 
ndrviduall cndit ■f"^*i^ en fc- ' ^ '— >— -? — -*-- — -^- — ■e-.-..--- 



Morluc knden, ipdudiiig morlpfe bvnken. 
these use and misleading pnctices. Ai dailj 
underwriting mortgage Joans, leaden must be aUe to have complete confkleoce in 
the Bccuncy of credit Trwrls icmtied Ic them, either dincOy by applicants or 
b) cicdil bureuu TCUined la pnWKle IDCli iaIOntiatkia. When lenden originite 
non|a|e loans baaed i^hhi Use czodit Infonnatioo, and Ihose loans result bi 
tforeoaaima, eve j yfaody toao. Monpge botrow ers kwe their homes, the equity m 
(he bomea, and su^r further dettrionliiHi of avdil standing; mortgage leiuien 



ins are federal^ insu 

B HR 4% and its oonqianion bO] S I20I, the *Credil Servics Reform 
ad bf SenMor wmiam Ptaimiic {D-WI], because this legislation 
^ ocber iicmsi pruMbit pcdit Vquir' companies from DDunielinE 



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would empower the Federal TracSe ComraiHioa to enforce the*e provitioiu. It it 
one thing for an individua] to be able to correct inaocimte and miileading items 
found on ■ (rodil rqxirt, which MBA fully lupportt and encouraiei. However, we 
believe it ii quite a different matter for aa bdividual, with the he^ of a credit 
repair orpnization, Mte^ and fraudulently to 'repair' accurate concumer credit 
information. 

MBA apprecialex the Ofipoftunity to Gle this letter with the Subcommittee for 
inclusion in its official hearing record. FkaM contact Burton C, Wood, MBA't 
Legislative Counsel, at 861-6507, if you have ai^ questioni or need bitther 
information. 



^ncerely, 



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160 

ITATEIIENT OF 

GERALD LEWIS, COIIPTROLLER OF 

FLORIDA ADD HEAD OF THE aORIDA 

DEPARTnEIIT OF BANKIKC AIID FINANCE 

BEFORE THE 

SUBCOmiTTEE ON CONSUIIR 

AFFAIRS AND COINAGE 

OF THE 

COmmEE ON BANKING, FINANCE 

AND URBAN AFFAIRS 
U.S. HOUSE OF REPRESENTATIVES 

SEPTEMBER 15, 1988 



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1(1 

m. CHAIRIVUI AMD KEIXEItS OF THE SUBCOfHITIEE: 

AS FLORIDA'S CniPTRGLLER, I Pf. AICKCV HEAD OF TIE FLORIDA 
DEPARTIIEIIT OF EAMKIMC AIID FIWKE AW) THE ELECTED OFFICIAL RESPOII- 
SIELE FOR BEGOLATIOII OF OUR STATE'S FIKAtlCIAL SERVICES IfflUSTRV. 
IN THIS CAPACITY, I UOULD LIKE TO EXPRESS HV SUPPORT FOR H.R. Iffi, 
THE PROPOSED CREDIT REPAIR OROAKIZATIOMS ACT. 

on OCTOBER 1, 19es. A REVISED VERSION OF THE FLORIDA CONSUIER 
FINANCE ACT (CH. 516, RORIDA STATUTES) WILL TAKE EFFEn. THIS 
IIEU LAU STREHCTHEHS THE AUTHORITV OF THE KPARTICnT OF DAMClnO AHD 
FINANCE TO COflEAT ABUSES BY SO-CALLED "CREDIT REPAIR aiKlCS" 
WHILE COriTINUINC OUR STATE'S COmiTIEliT TO PROHOTI LECITIIIATE 
CONSUHER CREDIT COUNSaiNC. I Afl CONFIDENT THAT IN COOPERATION 
WITH THE FEDERAL TRADE COWISSION AND OTHER LAW ENFORCEIENT 
AGENCIES, FLORIDA WILL RID ITSELF OF. THOSE UNSCRUPULOUS OPERATIONS 
WHO WOULD PREY ON THE HOST UIFORTUNATE AND VULNERABLE OF OUR 
CONSUIIERS. HOWEVER, BECAUSE OF TELECOWUHICATIONS TECHNOLOGY, I 
BaiEVE A NATIONAL RESPONSE TO THIS PROBLEM IS NEEDED. 



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162 

IT IS OUP. EXPERIEIICE TBAT T"HE OPERATORS OF THESE "CLINICS- 
ARE FRECUENILV THE SAHE CRIRIIIALS UIIO HAVE FOR YEARS PLAGUED 
CONSUieS KITH FRAUDULENT INVESTItllT SCHEMES. FLORIDA HAS MADE 
6RCAT PROGRESS ACAIIIST THESE "BOILER ROOM" OPERATORS THROUGH 
STRICT EHFORCEMENT OF STRONG NBI SECURITIES LAUS. YET, AS I HAVE 
FREOUEHTLY TESTIFIED IN CONGRESS, FEDERAL ATTENTION TO THE GENERAL 
PROBLEH OF TELEIIARKETIIIG FRAUD IS IMPERATIVE. 

I CONGRATULATE YOU, MR. CHAIRWN, FOR YOUR LEADERSHIP ON THIS 
ISSUE AND THANK YOU FOR THE OPPORTUNITY TO EXPRESS MY VIEW. 



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tm«mMMtUmiiw,*,Amocmcn 



nwma 



STATraEHT OF THE 
NATIONAL RETAIL MERCHANTS AaSOCIATKW 



H.R. 458, THE "CREDIT REPAIR ORGAHIZATIONS ACT" 



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InforBStion will be unable to respond to the objections in a 
tinely Banner. The credit repair organization nay file such 
abjections itaalf, or may counsel its clients to do so. If 
timely responses are not received, the bureau is required to 
delete the allegedly inaccurate information from its files, 
thereby improving the apparent creditworthiness of the 
customer. When unfavorable — but accurate — infarmation is 
deleted from a customer's credit record through such a 
technique, creditors' who subsequently obtain Uia report 
unknowingly receive an inaccurate profile of the customer, 
and may therefore grant credit to a customer who would 
otherwise fail to qualify for it. Creditors are thereby 
exposed to risKa of default and bad debt losses they never 
intended to undertake. 

Other customers — those whose credit histories are 
legitimately more favorable — are also injured by thle 
technique. If creditors experience losses from cuatomers 
whose credit histories appeared good, but were in fact 
"repaired" through deceptive means, they may respond by 
imposing more restrictive standards under which credit will 
be made available. As a result, some customers whose records 
would otherwise have been acceptable may find that they do 
not qualify. Legitimate consumers are also injured to the 
extent that increased bad debt losses resulting from a 
reliance on "sanitized" credit reports are recovered through 



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Credit grantors ar* vitally intar*st*d In Maintaining 
th« accuracy and raliabllity of consuaar cradlt r«ports whan 
deciding whether to offer credit to an applicant or to expand 
an existing line of credit. HRHA nenbar conpanias process 
millions of applications for coneuner credit each year, 
utilizing millions of consumer credit reports in the process. 
In turn, they provide intomatlon regarding the payment 
activity of thair cuatoners to credit reporting agenciea 
throughout the United States. It is essential to the credit 
granting process that the infomation in these reports 
accurately reflects the experience of credit grantors with 
the individual who is the subject of a credit report. 

NRKA is concerned that the actions of credit repair 
organizations can undermine the reliability. of the 
infornation in consumer credit reports. This occurs when a 
credit repair organization encourages consuners to dispute 
accurate information in thair credit profllae, in the hope 
that unfavorable — but accurate — information will be 
deleted from the consumer's- file, thereby "improving" the 
coatoaer's credit standing. 

One technique which has been utilliad by some credit 
repair organizations is to file objections pursuant to 
Section 611 of the Fair Credit Reporting Act, to all or 
selected items of the information contained in a credit 
report, in the hope that creditors trtio reported the 



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Infonution will be unabls to raspond to th« objactions in a 
tlBBly Banner. The credit repair organization nay file such 
objections itself, or »ay counsel its clients to do so. If 
timely responses are not received, the bureau is required to 
delete the allegedly Inaccurate information from its files, 
thereby Improving the apparent creditworthiness of the 
customer. When unfavorable — but accurate — information is 
deleted from a customer's credit record through such a 
technique, creditors'who subsequently obtain tAa report 
un)uiowingly receive an inaccurate profile of the ouatomer, 
and may therefore grant credit to a customer who would 
otherwise tail to qualify for it. Creditors are thereby 
expoBsd to risks of default and bad debt losses they never 
intended to undertake. 

Other cuatomsrs — those whose credit histories are 
legitimately more favorable — are also injured by this 
technique. If creditors experience losses frcan customers 
tmose credit histories appeared good, but were In fact 
"repaired" through daceptive means, they may respond by 
inpoBing more restrictive standards under which credit will 
be made available. As a result, some custonerB whose records 
would otherwise have been acceptable may find that they do 
not qualify. Legitimate consumers are also injured to the 
extent that increased bad debt losses resulting from a 
reliance on "Bsnitised" credit reports are recovered through 



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higher marchandia* or sarvlc* prlcsB, Incraasad flnanc* 
chargaa and othar fasa, or additional restrlctlona on tha 
availability of credit to bordar-lin* consumera. 

While it is clear that widespread usa of this technique . 
could effectively destroy the value of consumer credit 
reports. It is difficult to assess the extent to which this 
technique has already resulted in Injury to credit grantors 
and their custonars. Some of NRHA's larger nenhera report 
that they have not yet experienced significant difficulties 
in responding to increased volumes of objections to credit 
information filed by credit repair organizations or by 
consumers who have consulted them. This Is due, In part, to 
the fact that their operations arc efficient and largely 
automated, enabling rapid responses to Inquiries regarding 
customer credit information. But not all credit grantors 
have this capability. Indeed, the very succasa of the 
blanket objection technique is dependent on the Inability of 
some creditors to respond to reveri fleet Ion requests. As a 
result, a creditor cannot know the degree to which 
information It receives regarding other creditors' 
experiences already has been "repaired" through the 
intervention of an organization which has utilized the 
"blanket objection" technique. Thla Is particularly true 
with regard to inforaation in credit bureau reports which was 
provided by smaller creditors or those In distant locations. 



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UnlasB restrictions ar« placed on this technique, credit 
reports will becone Increasingly less reliable as predictors 
of an applicant's credltuorthiness- 

He believe that H.R. 458 wlll^raduce the use of the 
"blanKet objection" technique and, we hope, roetrict such 
objections to those instances In which a consumer has a 
leqltiinate basis to object to the accuracy of information in 
his credit profile. Section 404 of the bill, which prohibits 
credit repair organizations from engaging In certain 
practices, prohibits the making or (counseling consumers to 
makej statements which are "untrue or misleading" with 
respect to a consumer's creditworthiness, credit standing or 
credit capacity. This section covers not only statements 
known to be untrue or misleading, but also those which a 
credit repair organization could have discovered to b« untrue 
or misleading "by the exercise of reasonable care." HRHA 
believes that this provision can ~ and should — be read as 
Imposing an affirmative duty on a credit repair organization 
to ascertain the basis for a claim that information in a 
consumer credit report is Inaccurate, before an agency makes 
such a claim or counsels a consumer to do so. 

He urge the Subcommittee, through an amendment to the 
bill or in its report on M.R. 458, to confirm that Section 
404 is intended to prohibit unfounded claims that consumer 
credit repair Information is inaccurate. Further, we urge 



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that th« Subceawttt«« •xpr*s«ly conflm that a cradit repair 
organization'* duty to "axarcisa raasanabl* car*" in 
BBcartalning th* truth and accuracy of ■tatanants nad* to 
creditors or crsdlt reporting aganoiea, iHpoaaa a duty to 
ascertain whether there is a lagitiaate basis Cor a stateMent 
which challengea th* accuracy of information in ooneuner 
credit reports. 

HRHA also urges the Subcommlttae Co consider a related 
amendment to H.R. 4S8, which w* believe would furth*r reduce 
the potential abuses by credit repair organizations In the 
area of consumer credit reports, and would provide additional 
protection to consumers. Section 405 requires cradit repair 
organizations to provide certain disclosures to consumers 
before the consumer contracts for the organization's 
services. Included is a discloeura of the consuawr'a right 
to examine credit bureau reports, a description of the 
aarvlcee the credit repair organization intend* to perfon 
and the costs of such services, and a notification of th* 
consumer's right to proceed against the surety bond the 
organitation is required to obtain. HBKX suggests that an 
additional disclosure be mandatad: a conspicuous statement 
to the affect that neither the consumer nor the credit repair 
organization has the right to compel the deletion of 
information from a consumer credit report unless such 
information is inaccurate, outdated or misleading. 



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W« balicve that this anendigent would datar credit repaii 
organizations fron stating, or inplytng, that thsy can "claar 
up" an unfavorabl* cradlt history, avan if th« advars* 
infomatlon in the consuner report is accurate. Wa believe 
that many consumers pay credit repair organizations for a 
service which the organization cannot legitiiMtely provide — 
a "sanitized" credit profile — and faal that an express 
disclosure which disdains such a result would deter 
consunera fron wasting their resources on the purchase of an 
•npty promise. 

NRHA commends the Subcomnlttee Cor the attention which 
it has provided to the abuses engaged by credit repair 
organizations. He hope that our comments will be helpful to 
the subcommittee as it considers H.R. 496, and we urge the 
Subcommittee to give its approval to thia legislation. 



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FEOCRAL TRAOe COMMISSION 



Til* Honorable FE«nk Annunsio 
U.S. Sous* o£ B«pc«*«ntativ«a 
Haahington, D.C. 205IS 

Daac Kr. Knnunsioi 

Thank you for youc racant lattac foEwacdlBg a copy of 
B.X. 4SS, tba Ctadlt Rapalr Organlsatioiw Act, to tlia FMlecal 
Tcade CoBnisBion. Ha apptaelata tba onortunlty to co^^nt on 
tha propoaad laglalatlon. 

Tba ccadlt lapaii bualnaas appaara to ba a lalativaly lacant 
phenomenon It involves Che ndiketlng of ccedlt repair aarvlcaa 
to consumers whoaa CEeciit bureau cepocts contain negative InCoc- 
mation that intetfaraa with theic ability to obtain credit. Tha 
principal method such businesses cely upon to iraprovs conauaaEc' 
credit bureau xepoccs is the dispute procedure availabl* to 
consuBaca undac Sactloii 611 of the Fair Credit Reporting Aet 
(FCRA] . Section fill ia designed to provide consumers witb a 
self-help nscbanism to correct credit reports that contain 
inaccurate or incomplete information. Correcting and updating 
such infoimation banaElts creditors as well as consumers by 
helping to enauca that credit-granting decisions are Bade on tba 
basis of coBpleta and accurate information laflacting the 
probable cEcditwor thine aa of tba consuMai. 

It does not aippear, however, that Boat coaauBara who enploy 
tba sacvlces of a credit repair organization seek to cottact 
inaccurate InfocBatlon. Eased on the monitoring axparience of 
Comiission staff, it appears instead that many of those who tucn 
to credit repair otganiiations have experienced significant 
credit problems in tha past which they hope to BiniBisa. 
Although minor inaccuracies nay appear in tbair ocadit EepoEta> 
by and large the adverse information that la repocted about thaa 
fairly reflects what actually occurred Otilization of rCBA 
dispute procedures is, therefore, unlikely to aid these 
conauBars. tlonatheleas, thiougb advertisements and oral rapra- 
sentations. credit repair organisationa oCtan leBd eonauBaca to 



*■ The CoBBiaaion brought an enfoecaNant action againat aix 
credit repair pcactltioneca in 19BS (see federal Trade CoBBiaaion 
docket numbers C-31SS through C-3190) and pceaantly ia Bonltoriag 
the activities of several others. 



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172 

Tha Honorable Pcank Annunilo — 7b9« 2 



b«ll«v« that advacBB infocaatLon In thali ctadlt c*pocts can ba 
d*l*tad oz Modltiad ce^acdlasa oC Its accuracy. In Cacti 
bowavar, IC adversa InforMatton taported by Cha ccadlt bureau Is 
accurate, under tha FCRA it may be reported for at least seven 
years. Bankruptcy iiay be reported for ten years. J^ltliaugh the 
FCRA does not require credit bureaus to report adverse Informa- 
tion Cor this period of tine. It expLicltly authoclzas thea to do 
so. Credit bureaus, ithich are In the buslneaa of Bailing credit 
history InCoraation to creditors, ordinarily report such infoc- 
Bfltion for as lon9 as Is legally peraisatble. 

It appears that credit repair organisations occasionally 
Improve consuners' credit bureau reports, but fail to da so in 
•ost instances — principally because Most of tha infoiMation 
they dispute is accurate and within the paralsaible reporting 
period. Their services a[« frequently sold on a .ttoney-bach 
guarantee basis, but consumers have reported difficulties in 
obtaining refunds. The conpany nay be out of business lack the 
funds to pay by the tine consunrars seek refunds, or slniply recuse 
to honor the guarantee. Credit repair organisationa have c«u*ed 
eoononlc injury to credit bureaus as well as to conBu.iers by 
generating large nuabers of groundless disputes that credit bureaus 
aust process. To the extent that a credit repair srganiiatlon 
does succeed in deleting accurate adverse inEocmation fron a 
consuoer'a credit history, creditors dce deprived of information 
that might otherwise have been a decisive CacCor In tha credit- 
granting dsc aion. Creditors have expressed concern to tha 
Connlssion that delatioa of accurate InEornation may result In 
increased lending risk,' 

The Commls3ion'E staff believes that a substantial segment 
of the credit repair Industry presently engages in practices that 
injure both the general public and individual consumers. Whether 



' Credit bureaus ate required by Section 611 of the PCRh to 
reinvestigate disputed information within a reasonable period of 
tine and to delete Information that they cannot verify. A credit 
bureau may delete accurate inforaatlon from d consumer's credit 
bureau report because, foe example. It la overwhelmed by disputes, 
generated by credit repair organisations or because creditors 
fall to respond promptly to verification requests. 



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173 

Tha Honatable Pcank Annunilo — Page 3 



Chs potantlal scopa oE this pcobl«n Justifies t 
federal legislation Is an Issue for Congtesa to decide. ^ As the 
pcinary law enEoccenent agency, however, th« Conwisslon believes 
that it has « unique perspective to contribute If Congress 
chooses to enact such legislation, in our view, the proposed 
legislation would be strengthened by changing its Cocua 



H.R. 4S8 would Impose a bonding cequirenent on credit repair 
organisations. It also would provide consuners with the right to 
sue and to obtain payiaent froa a surety when » credit repair 
organization violates th« tet«3 o£ the statute. The Coaaission 
opposes this approach because wc; have serious reservations about 
how well it would work in practice Th* way that the bond Is 
intended to function is far Ecora clear. In addition, aarainistra- 
tlon of a bonding tequiremeni: involves oversight and enforcement 
r°sponsibllit les that are better undertakan oy the states than 
the federal government, in our view. 

Froa the perspective of public law enforcement, the Commis- 
sion believes that requiring diaclosates about the FCRA's limited 
basis for changing credit reports would protect consumers more 
simply and effectively. Their right to sue a credit repair 
organization that engayes in deception should also be disclosed. 
Moreover, although we believe that the proposed private right of 
action for consumers may aid In enforcing the law, we think that 
enforcement □£ Che Credit Repair Drganliations Act would be 
enhanced cons derably if Congress were to grant the Comralssion 
authority to seek civil penalties for violations of its provi- 
sions. The ensuing comments discuss these issues in more 
detail. They also suggest narrowing the definition of a credit 
repair organization and eliminating one of Section 40*'s 
prohibited practices. 

Disclosure Requirement si Section 405 



' Although we are aware of a few large credit repair organiza- 
tions, a great many others appear to b« small and relatively 
unstable. We have no basis for estimating the nuaber of 
customers they currently attract or predicting whether their 
clientele may diminish In the near future as a result of consumer 
education and unfavorable publicity. 



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Ths Bonocable Pear 



Bsny coDSUiurs continue to b« unaware of the FCRA'a rules govern- 
ing th« reporting of information bjr credlc bureaus. As a result, 
these conauners are easily misled by credit repair organizations 
that offer to repair or improve their credit tilstoiles. Requir- 
ing credit repair organizations to disclose inCormatlon about the 
FCRA prior to execution of a sales contrsct should reduce their 
ability to misrepresent what the credit repair process ii LlKely 
to achieve. The Commission believes that the focus of tiit dis- 
closures required under Section 4a5(b) of the proposed legisla- 
tion should be shifted, however. Section 4a5{b) (1) requires a 
credit repair organization, prior to the execution of a contract, 
to disclose to consumers their eight to review their own credit 
flies and to dispute the completeness or accuracy of information 
contained therein. The effect of this section is to bar a credlc 
repair organization that only sells information about consumers' 
rights to correct inCormatlon concerning their credit record, 
credit history, or credit rating from charging a fee for mailing 
this Information available to consumers.* There Is no appafent 
reason foe a prohibition of this sort. Other businesses and pro- 
Eessions routinely charge for tfie disclosure of information about 
rights and opportunities provided by law) indeed, this Is a key 
component in the provision of many professional services. 

Moreover, the disclosures required by Section 4aS(b) (1) do 
not address what appears to be the principal cause of injury to 
consumers in their dealings with credit repair organizations. 
Injury does not arise because credit repair srganlEations, for a 
fee, exercise rights that consumers could exercise themselves at 
little or no cost. Instead, consumers are Injured when they pay 
money to an organization to do something that neither that 
organization nor they themselves can accomplish. We think that 
disclosures explaining Instead the limited circumstances under 
which credit history information must bo altered by credit 
bureaus would provide consumers with an informed basis for evalu- 
ating a credit repair organization's claims and that this Is 
their best protection. It may also be worthwhile to require 
disclosures that consumers may sue a credit repair organization 
if it engages in deception and that they may reacit\d any contract 
within thee* days of signing It. Finally, we thlnK it would be 
helpful to identify the Federal Trade Commission as the relevant 
law enCorcanent authority, so that consumers with questions will 
know whom to contact. 



, this concern is less significant to credit repair 
I that also sell services for the purpose of inpiov- 
!t'a credit record, credit history, oc credit rating. 



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175 

The Honorable Fcank Annunzia — Page 5 



Thece are two additional ssta of disclosures that Section 
405 pcesently requires. 5«ction 405(b)(2) cequices a conplete 
and detailed dlsclosute of the services to b« pecfoimed and the 
total amount to be paid for these services, disclosures which are 
duplicatefl in Section 406 governing the content of contracts. Me 
question the utility of requiring a detailed description of 
services to be performed. Even a minutely detailed description 
could =asily avoid conveying clear and definitive infocmation 
about what will be done In the case of an Individual consumer. 
Section 405(b)(3) tequl:es disclosure of the consumer's right to 
proceed against a bond and identifies the surety, Infornation 
about the right to proceed against a bond clearly would be 
significant to consumers If Congress should decide to retain the 
bond requirement. However, for reasons discussed in the ensuing 
section, we do not endorse a bond requirement. 

Me suggest that, to be most effective, any required 
dlsclosTiices be conveyed on a separate sheet of paper, in simple, 
non-technical langtiage, before the consumer signs a contract or 
the credit repalc cri^anizatlon receives any payment. So as to 
avoid possible obfuscation, we recommend that credit repair 



For example, the required disclosure might begin with a 
itning not to sign a contract or pay -noney for credit repair 
•rvices before reading the notice. It might then state: 

1. YOU have no legal right to have accurate 
Information removed from your credit bureau 
report. Under the Fair Credit Reporting Act, 
Che ctsdit bureau nuet remove accurate negative 
information from your report only if it is over 
7 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. You have the right to sue a credit repair or 
credit Improvement company that violates th« 
Credit Repair Organizations Act. This law 
prohibits deceptive practices by credit repair 

companies. 

3. The Credit Repair Organizations Act alao gives 
you the right to cancel your contract tor any 
reason within 3 working days from the date you 
sign it. 



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The EIonaEBble Feank Annunzlo — 



Division of Ciadlt Piactlcva 
F«d«cal Trade Comoisalon 
Washington, D.C. 20S80 
(202] 326-3225 

For enfotcenent pucpoaes, each diaclaauce sCatemant atiould 
be signed by the consiuaer aa aft acHnowledgoment of having read It 
before entering Into the contract The conaumer'a name, addceaa. 
and telephone nunber atiould b« Included, as should the sales 
agent's signature and the company s name, address, and telephone 
number. The statement should be signed in duplicate, so that the 
consumer may retain one copy and the credit repair arganisation 
may retain the other for the two-year period that, we assume. 
Section 405(c) would requite.' 

He believe that these disclosures would effectively warn 
consumers against contracting with credit repair organizations 
whose businesses ace based on explicit or ImpHclt misrepresenta- 
tions of what the law permits. However, these disclosures should 
not adversely affect the activities of credit Improvement coun- 
selors who do not rely on consuiaers' ignorance of the credit 
reporting laws or otherwise attempt to mislead then. 

Bonding Requirements; Section 404(al 

The proposed legislation requires a credit repair organiza- 
tion to obtain a $50,000 surety bond if it wishes to obtain 
payment for setvlcea In sdvance of perfornance. k surety Is a 
third-party guarantor who promises to pay if the principal does 
not and requires a percentage of the bond amount foe providing 
this assurance.'* The percentage Is often snail because the 



It would facilitate both conpllance and enCorcerwnt if the 

evidence that a credit repair organization should retain to 

demonstrate compliance under Section 405<c] were set forth in 
greater detail. 

He assume that Indemnification of this sort is what the 
legislation is intended to produce. It Is our understanding 
that surety agreements take iiany different forms, however, and 
are designed to achieve many different purposes. 



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suE*ty retains tha eight ta tmaovmt th* «Bount p«ld Ztom tb* 
principal. In ocdac to obtain a bond • ooapony Bust persuade th* 
suraty that it Is a good tiak. In tha casa ot a credit cepaii 
ocganliation, w* aaauaa that a sucaty would wont some assurance 
that tha ocganizatlon's ptactloos kIIL confoim to the law and 
that, as a Easult, tha otgantaatloa is not likely to be held 
liable for violating th* la*. Ptioc business expeciences busi- 
ness and [pecaonal ccadlt hiatocy, income, assets, and other 
Indicia of reliability may b* factors in detecmining whether on 
organization Is able to obtain a bond. A business chat do*a not 
•ppear to be suEficiently cisk-free ocdinaiily would be r*qnlr*d 
by tha surety to put up collateral corresponding to the aaount ot 
tha bond. Dndar the proposed legislation, a company that cannot 
or doas not wish to obtain a surety bond is not barred Erom the 
credit repair business. Although it would be prohibited fro* 
receiving fees prior to performing the services it sold, it could 
obligate consunera in odvanca to pay Cor services upon ooaipletion 
of perCoraance. 

The purpose ot the proposed bond E*qalE*Bsntf w* *aau*e( 1* 
to nake funds available for the payaent of consuBsrs' claias. 
The Connlsslon is concerned that it aay not serve this purpose in 
practice, hovevar. Buslnaaacs that are engaged In dellbarate 
consumer fraud may well Ignore tha bonding raquiceBant, llore- 
over, the requirataent may b* too amorphous to actiieve Its 
intended purpose. Tha legislation does not outline In any detail. 
hOM the bond Is to function or who la to adainlsCer psy«snte Cioa 
it. It does not explain what procedurea are to be Eolloited in 
the event of competing claias that exceed the bond wMunt Ot 
whether the bond amount of fSO.OOO *uat be continuously main- 
tained. It is not clear Croa the statutory language whether an 
organization that does business in aora than one state must 
provide Cor a 950 OoO bond in each state or whether alterna- 
tively, a slngl* $50 000 bond issued by a surety liesnsed to do ■ 
business in each of those States would anftic*.' It also Is 
unclear whether residents of on* state vay nake claiaa against a 
bond Issued in another state when the bond funds In their state 
of residence hava been paid out. ifor is it claar .wh*th*r eon- 
auraers are intended to naaa the surety as a defendant in an 



Credit repair organisations vary considerably In opscatioaal 
structure (franchisaa are bacoailng aor* eoaotonl , sis*, and 
busineaa voliuM. If Congrsss should decid* to Inclttd* a bond 
caqulrenent in this lagislatlon, w* suggest that it suMln* ways 
to link the valu* and nuabar of bonds required to variables snob 
as these. 



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178 

The Bonotable Frank Annunaio — Page 8 



action or to seek paynent from the aucety only i£ conventional 
efEotts to satisfy a judgment fcon the ctedit cepatr aiganizatlon 
have been exhaostad. 

InsuEets who Issue surety bonds, such as government perform- 
ance bonds or indemnity guarantees, may well be reluctant to 
issue any bond pursuant to tfils legislation, regardless of the 
character ot the credit cepalr organization at issue. Sureties 
ordinarily want to know that their obllgationa and liabilities 
are fixed and clear before agreeing to act in this capacity. 
Under the law as presently drafted, few i£ any insurers inay be 
willing to act as sureties for credit repair organizations. Even 
if the bonding requirement and consumers' access to it were 
spelled out in note detail, however, we are not persuaded that It 
should be included in federal legislation. The equitable dis- 
tribution of bond funds may be difficult or Impossible without 
the intervention ot a disinterested third party, such as a state 
administrative agency. On balance, the Commission believes that 
the bonding of credit repair organizations should be left to the 
states to legislate and administer. 

Enforcement: Sections 409 and 111 



Section 409 of the Act pcd^ides consumers with the right to 
sue for a violation of any of its provisions. It provides for 
actual damages, additional damages, costs of bringing the action, 
and attorney's fees. By providing consumers with a mechanism for 
recovering, at a minimum, the fees paid to a violative organiza- 
tion, this right of private action should help to make the 

!lonetheless, the Commission believes that enforcement of 
any credit repair organization legislation Congress might enact 
would be strengthened considerably if Congress were to grant the 
Comtlsslon civil penalty enforcement authority for violations of 
its terms." At present. Section 411 of the proposed legislation 



Congress typically accotds the Commission civil penalty 
authority by authorizing enforcement oE statutory violations as 
if they were violations of a Commission trade regulation rule. 
I.e.. through Section 5(m)<l)(A) oE the Pederal Trade Commission 
Act, which empowers the Comnisaion to seek civil penalties. See 
Section 704(c) of the Equal Credit Opportunity Act, 15 o.S.C. 
5 ie91c; Section 814 (a) of the Fair Debt Collection Practices 
net, 15 U.S.C. 5 1692i. 



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179 

The Honorable Fcank Annunzio — Page 9 



accords only administrative •nCorcenent authority to the ComiS' 
sion. It provides that a violation of its terms constitutes an 
unfair or deceptive act or practice in violation o£ Section 5 (al 
of the Federal Trade Comialsalon Act and is enforceable through 
the Cocnnilsslon ' 3 administrative adjudication procedures under 
Section 5(b}. The Commission currently possesses Section 5 
enforcement authority over credit repdit organisations,' Thus, 
as proposed, the grant at authority to enforce the credit repair 
statute would not expand the Commission's powers, although the 
affirmative requlrenienta of the law would sinplity enforcement to 

3y including civil penalty authority in the Act, Congress 
would accord the Commission greater tleiibllity in selecting 
enforcement alternatives and would also, we believe, pronots more 
vigorous enforcement. Particularly in casas involving deliberate 
fraud, the power to require a company to disgorge its profits 
through imposition of a civil fine^ay be the only way to address 
adequately the violative conduct.'- Because civil penalty 
actions are brought and resolved in federal court, the final 
order ~ whether it involves injunctive relief, a civil fine, or 
more — is directly enforceable by the court. The contempt 
powers available to the court are a potent tool it compliance 
problems arise, 

: credit protection 
:emenr mechanisms. 
! authority to seek civil 
penalties for violations of the Equal Credit Opportunity Act and 
the Fair Debt Collection Practices Act under sections providing 
for administrative enforcement. Other sections of these statutes 
provide for the imposition of civil liability by authorising 
consumers to bring private damage suits. The Commisston's 
enforcement experience with these laws indicates that dilfarent 
enforcement approaches can sei've different but often complemen- 
tary enforcetnent goals. As a result, we believe that allowing 
the Commission to seek civil penalties for violations of this Act 
would assist enforcement efforts. 



;*ferred to in footnote 1 above was 
.rity, 

''" The credit repair business is often a transient one. When a 
company moves Eron state to state, the likelihood that individual 
consumers or local law enforcement authorities will succeed in 
bringing an action against It is substantially reduced. 



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180 

The Honorable Frank Annunzio — Fag* 10 ". 

Ba«lneaae8 Sublect to the Hci:; Section «03(dl 

E a ccadit repair organisation In Section 
ihe provisions of the proposed legislation, 
focuses on businesses selling credit repair or credit tnprovenant 
services, 1 .,^, services to r«i»ove adverse InEoraatlon fron con- 
sumers' credit bureau reports. The definition of a credit repair 
organization appears to be needlessly broad, however. It 
Includes entitles that, for a fee, provide services for the 
purpose of 'ootainlng an extension of consumer credit for a 
conaumet. . . ." This def n t on would include for example, 
autowatod mortgage loan snopp fig services and otiier Businessea 
that sell information about currently available terns and condi- 
tions of credit, Such businesses can provide an Inportsnt con- 
sumer service in a credit-oriented economy and should not be 
subjected to regulation In the absence of evidence that they 
cause consumer injury. We therefore recommend that the defini- 
tion of a credit repair organization be revised to eliminate 
reference to those who assist in obtaining credit extensions for 
consui-ners. Individual businesses that make false claims about 
their ability to obtain credit for consumers are, we believe, 
better dealt with on a case-by-casa basis under Section 5 of the 
Federal Trad* Commission hot or similar state consumer protection 

Me note that the proposed legislation presently exempts a 
number of Institutions and professions from the definition of a 
credit repair organization. Depository institutions, real estate 
brokers, and broker-dealers appear to be exempted because. In the 
ordinary course of business, they may assist consumers n obtain- 
ing credit. If Congress adopts the foregoing r^coiiunendabion to 
redefine a credit repair organization, these exemptions may be 
unnecessary. The Commission is not aware that such entities 
ordinarily sell services to consumers for the purpose of improv- 
ing their credit bureau reports. Me suggest that the exemptions 
for consumer reporting agencies and debt collectors be eliminated 
as well. Neither of these entities advises or assists consumers 
In improving credit bureau reports for a fee,^^ 



*-^ Mhen credit bureaus remove negative Information that Is 
inaccurate or obsolete they may Improve consumers' credit 
reports. Because this is not a service that credit bureaus may 
charge for but a right granted to consumers by the FCRA, credit 
bureaus would not fall within the definition of a credit repair 
organization. Services that credit bureaus are permitted to 
charge foe ace described In Section 612 of the FCRA. 



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The Elonotable Ftank Annunzio — Page 11 



Under this approach only c«o exei^tlons remain — nonproflc 
organisations and attorneys, ttonproflt organ 1 tat Ions, such as 
the consuvat credit counseling services operated by the National 
Foundation for Consum&i Credit aoMetlMes charge a saall fee Ear 
advising consunera about credit history probless. Kttocneya nay 
also advise oc assist their clients concerning their credit 
histories and their rights under the Fair Credit Reporting Act. 

In the Cownisslon's view It is preferable to avoid exeiap^ 
tlons when possible. Exemptions can create enforcement gaps.''^ 
They give a conpetltlve advantage to one group or profession over 
another. Regulations necessarily impose some buirilens on business 
and, if regulation is necessary, the underlying rational* ordi- 
narily should be equally applicable to all industry menbers. He 
suggest tiiecetore that Congress consider whether the definition 
of a credit repair organitation should provide for any exenptlons. 
Particularly if the bonding requirenent is elltilnated, as the 
Comiiiisslon has proposed, conplytog with the affirmative require- 
ments of the Act should not be unduly onerous. 

PcQhiblted Practices: Section ^OJlb} 



Section 404(b) of the t^roposed legislation prohibits 
Charging fees solely for retetcing a consumer to a retail seller 
who will or nay aiake credit available to the consumer on substan- 
tially the same terms as those available to the general public. 
If Congress revises the definition of a credit repair organiia- 
nion to exclude those who refer consumers to creditors for 
possible credit extension, it may wish to delete this provision 
as well, as it appears to be directed at practices associated 
with credit referral rather than with credit repair. 

In any event, the Comnission questions whether the practice 
that this section addresses necessarily Injures consuners.'"^ If, 
through the assistance of a credit repair organisation, i 



example, the attorney-at-law exemption to the Pair Debt 

on Practices Act was recently repealed because It had 

\ haven for attorneys who practiced debt collection rather 

iover, if this practice were Injurious, the Conalssion is 
:aLn why the injury would arise only in connection with 
titended by retail sellers as opposed to other categories 



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The Honorable Feank Annuniio 



aay wall d*Mi this a satvlce worth paying for. The critical 
issue, in ouc view. Is not whether the credit to be provided Is 
available to others on the sane terns oc even on raore favoEable 
terns, but whether the consumer understands what he or she is 
paying Cor. whether the credit is offered on terns that are 
desirable to the consumer will depend on the financial circun- 
stances and options available to that consumer. 

Thank yau again for soliciting the Conunisslon's views on the 
Credit Repair Organizations fVct. He hope that these comments will 
be useful in your deliberations. 



By direction of the Commiss 



\^p3^^,u, 2^'~'. 



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