Companies can be held liable for misrepresenting ‘credit repair services’

Posted
by Charles Miller

Everyone knows the importance of establishing and maintaining strong creditworthiness. Increasingly, people with credit problems are seeking help from so-called “credit repair organizations.” However, some credit repair organizations engage in unfair business practices which can result in even greater financial hardship for consumers.

The purpose of the Federal Credit Repair Organizations Act is to protect the public from unfair or deceptive advertising and business practices by credit repair organizations. The law was enacted to ensure that consumers considering whether to pay for credit repair services from credit repair organizations are provided with the information necessary to make an informed decision. The Act lists certain prohibited practices, required disclosures and contract requirements, and provides for liability and penalties when a company fails to comply with the law.

Kevin Stout is pursuing a proposed class action against FreeScore, LLC (“FreeScore”), under the Credit Repair Organizations Act, 15 U.S.C. § 1679, et seq. (“CROA”). A federal district court in California dismissed Stout’s lawsuit after determining that FreeScore was not a “credit repair organization” as defined in the CROA. Stout appealed, and the Ninth Circuit Court of Appeals has reinstated his suit. The court of appeals held that that FreeScore is a “credit repair organization” for purposes of the CROA because FreeScore advertised a service, in return for the payment of money, for the implied purpose of providing advice or assistance to consumers with regard to improving the consumer’s credit record, credit history, or credit rating. Stout v. Freescore, LLC, No. 10-56887 (9th Cir. August 26, 2013)

FreeScore is an online “provider of credit scores, reports and consumer credit information.” Stout subscribed to services offered by FreeScore and initially enrolled at FreeScore.com for a free 7-day trial period. In order to enroll for membership, Stout was required to authorize FreeScore to debit his account at the monthly membership rate of $29.95. The fine print at the bottom of the enrollment page included a statement that “FreeScore and its benefit providers are not credit repair service providers …”

Stout alleges that FreeScore utilized its website and a television commercial to advertise its services and represent that it can or will sell, provide, or perform a service providing advice or assistance in connection with an individual’s credit. Moreover, Stout alleged that FreeScore used social networking websites such as Facebook and LinkedIn to promote its services; its Facebook profile featured the motto: “FreeScore.com. Life costs more without FreeScore . . . ,” and on both Facebook and LinkedIn, FreeScore described itself as “a leading provider of credit scores, reports and consumer credit information.”

Stout alleges that FreeScore is a “credit repair organization” as defined by the CROA because a person need only represent that it will sell or can sell, provide, or perform a service providing advice or assistance in connection with an individual’s credit to fall within that definition. Moreover, Stout argues that a disclaimer, as a matter of law, does not automatically exonerate deceptive activities. Finally, Stout asserts four claims for failure to comply with the CROA’s requirements and allegedly making misleading statements.

The district court reasoned that FreeScore was not a “credit repair organization” under the statute because “Defendant did not make any promises of credit improvement. Rather, it merely promises to provide a consumer with his or her credit score; it is up to the consumer to improve it.” The court also concluded that the term “any person” in the statute cannot be used to expand the statute’s coverage beyond the credit repair context.

Section 1679a(3) of the CROA defines a credit repair organization as:

[A]ny person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of –

(i) improving any consumer’s credit record, credit history, or credit rating; or

(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).

15 U.S.C. § 1679a(3). Congress also made the following findings:

(1) Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers.

(2) Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.

15 U.S.C. § 1679(a). In addition, the statute explains that the purposes of this subchapter are:

(1) To ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) To protect the public from unfair or deceptive advertising and business practices by credit repair organizations.

15 U.S.C. § 1679(b).

Disagreeing the district court, the Ninth Circuit held that FreeScore falls squarely within the CROA’s definition of a “credit repair organization.”

From the plain language of the statute, it is clear that under the CROA, a person need not actually provide credit repair services to fall within the statutory definition of a credit repair organization. Instead, the person need only represent that it can or will sell, provide, or perform a service for the purpose of providing advice or assistance to a consumer with regard to improving a consumer’s credit record, credit history, or credit rating.

Stout v. Freescore, LLC, No. 10-56887, citing Greene v. CCDN, LLC, 853 F. Supp. 2d 739, 752 (N.D. Ill. 2011) (“A person need not actually attempt to improve a consumer’s credit record, history, or rating in order to meet the statutory definition. Instead, an organization need only ‘represent’ that it can or will provide these services.”).

According to the court of appeals, FreeScore does more than merely provide credit reports. It advertises on its website that it provides a “merged” “easy-to- read Credit Report” which allows consumers to “[s]pot damaging inaccuracies on [their] Free Credit Report at a glance so [they] can quickly address incorrect information dragging down [their] Credit Scores,” that it will “keep an eye on [consumers’] Credit Reports at all three bureaus 24/7 so [they] don’t have to,” and that “[i]nstant email alerts notify you when critical changes appear on your Credit Report so you can make corrections fast!” Ben Stein states in FreeScore’s television commercial, “FreeScore.com even sends me an alert when there’s any change to my credit report.” FreeScore clearly states that the express purpose of credit monitoring, through services such as email alerts, is so that steps may be taken to improve credit: “Learning to manage your credit starts with getting informed about your credit.”

Additionally, the court of appeals found that FreeScore affirmatively represents that its services can or will improve, or help to improve, a consumer’s credit record, history, or rating. On its FICO information page, FreeScore clearly asks, “So how can you deal with or improve a FICO® score?” The page continues, “Many people take years to micromanage their accounts, attempting to repair a damaged credit score, and many find that the best solution is preventative credit maintenance.” The page concludes, “Learning to manage your credit starts with getting informed about your credit. That means utilizing services like credit monitoring to find out what may be changing in your credit history report; those changes can have an immediate effect on your credit score.” Accordingly, FreeScore represents both explicitly and implicitly that its services can improve or assist in improving a consumer’s credit record, history, or rating.

Furthermore, the court of appeals noted that FreeScore offers services aimed at improving future creditworthy behavior with prospective promises of improved credit. It advertises on FreeScore.com that consumers must “ensure [their] Credit Report is clean,” “[s]pot damaging inaccuracies” on their credit reports, and “start [their] climb to financial freedom” by utilizing the services it offers. Its television commercial advertises that consumers who use FreeScore will be able to “fix errors on [their] credit report,” and that credit scores can determine.

FreeScore argued that it only made representations that it could provide information regarding a consumer’s credit, and not that it could “improve” a consumer’s credit. However, the court of appeals determined that FreeScore’s advertisements clearly go beyond merely providing information about one’s credit:

FreeScore even goes so far to recommend a course of action to consumers, as its advertisements tell consumers to use FreeScore.com to “[s]pot damaging inaccuracies,” and use “[i]nstant email alerts” which notify them when “critical changes appear on [their] Credit Report so [they] can make corrections fast!” It is therefore not just the data that FreeScore is selling; it is advice to the consumer on what the consumer can or should do with that data. The overall net impression communicated by FreeScore.com is that in order to “repair a damaged credit score,” the “best solution” is to “utilize[e] services like credit monitoring,” which “can have an immediate effect on your credit score.”

Stout v. Freescore, LLC, No. 10-56887.

Finally, the Ninth Circuit also held that the fact that FreeScore has a self-serving disclaimer that it is not a credit repair organization does not cure the representations it made that it offers services that could improve a consumer’s credit. See also Zimmerman v. Puccio, 613 F.3d 60, 72 (1st Cir. 2010) (holding that defendants cannot advertise that it would help improve clients’ credit ratings, but escape liability under CROA by inserting a disclaimer in its contract about the relevance of its services to the credit rating of its clients).

Consumer Laws Protect Victims of Credit Reporting Agencies

When it comes to protecting and providing accurate credit information, there are several laws in place to help consumers. The Credit Repair Organizations Act can provide you with relief if you have been the victim of unfair or deceptive advertising and business practices by credit repair organizations.

The Fair Credit Reporting Act is a federal law that regulates the collection, dissemination, and use of consumer information, including consumer credit information. Consumers can invoke their rights under the FCRA to review and correct their credit reports. A large portion of consumer credit reports contain errors. One study, released by the U.S. Public Interest Research Group in June 2004, found that 79% of the consumer credit reports surveyed contained some kind of error or mistake.

If a consumer can show that a company’s failure to comply with the law was “willful,” the consumer may recover the greater of either actual damages or a statutory minimum of $100 to maximum of $1000, plus possible punitive damages, as well as reasonable attorney’s fees and costs. The recovery for a negligent violation is for the consumer’s actual damages plus attorney’s fees. A consumer may file a suit in state or federal court to enforce the act. A lawsuit must be filed within two years from discovery of the violation or five years from the date of the violation, whichever is earlier.

Victim of Misrepresentation by a Credit Reporting Agency?

If you feel you have been the victim of a credit reporting agency’s willful failure to comply with the law or a if you feel you have been the victim of misrepresentations by a so-called credit repair organization, you need to speak to a lawyer about your potential legal rights. You need an experienced and knowledgeable law firm that can guide you through the legal process and obtain maximum compensation on your behalf.

Heygood, Orr & Pearson approaches every case with the assumption it will be tried to a jury. Our attention to detail ensures that our clients achieve maximum results for their claim.

Heygood, Orr & Pearson is AV-rated, the highest legal and ethical rating available from the leading law firm rating service. Two of our partners, Michael Heygood and Jim Orr are Board Certified in Civil Trial Advocacy Law by the National Board of Trial Advocacy and all of our partners are Board Certified in Personal Injury Trial Law by the Texas Board of Legal Specialization. They have all been voted by their peers as “Super Lawyers” in the state of Texas for several years in a row.*

For a free legal consultation about your legal rights, contact us by calling our toll-free number at 1-877-446-9001, or by filling out the free case evaluation form located on the top of this page.

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Michael Heygood, James Craig Orr, Jr. and Eric Pearson were selected to the Super Lawyers List, a Thomson Reuters publication, for the years 2003 through 2014.