FTC says credit repair business doubled as pyramid scheme
For the second time this month, the FTC pursued a credit repair operation that it said combined false promises to quickly and dramatically boost people’s credit scores with the offer of a false opportunity to make money selling credit repair services. In the latter case, the FTC claims that the supposed money-making opportunity was a pyramid scheme.
The complaint alleges that Michigan-based Financial Education Services (FES), five related companies and owners Parimal Naik, Michael Toloff, Christopher Toloff and Gerald Thompson defrauded consumers of more than $213 million. At the request of the FTC, a federal court froze the assets of the defendants, appointed a receiver and ordered a halt to the allegedly illegal operations pending further proceedings in the case.
The FTC says FES, which also does business as United Wealth Services, uses social media, telemarketing and a nationwide network of sales agents to promote its credit repair services in Spanish and English. He claims he can boost people’s credit scores by hundreds of points in a short time by permanently removing negative information – like collection accounts and late payments – from their credit reports and adding positive information. .
But, according to the FTC, FES does neither. For example, to supposedly remove negative information, FES emails customers non-editable form letters to print, sign, and send to the credit bureaus. The letters dispute all or most of the negative items in the customers’ credit reports. But disputes — without supporting documents — rarely result in the removal of articles, according to the FTC.
The complaint says FES charges people $99 upfront for its services, and recurring fees of up to $89 per month. It is illegal for a credit repair company to charge people before they have fully performed the services it promises. Additionally, according to the complaint, the FES is not giving people important information required by the Credit Repair Organizations Act (CROA), including signed contracts that disclose the services it will provide, the total cost of its services and its refund and cancellation policies. .
The complaint alleges that the credit repair program and the pyramid scheme are closely related. The FTC says FES pressures customers who inquire about its credit repair services to become “FES agents.” The company says agents can earn tens of thousands of dollars a month by selling FES services to other consumers and recruiting those consumers to become FES agents themselves. And, he details a complex system in which FES agents are said to become eligible for ever-increasing commissions and bonuses by creating a “downline” of recruits who, in turn, sell FES services and recruit new ones. agents to do the same.
But, according to the FTC, FES’ alleged business opportunity requires its agents to pay FES $299 upfront to participate in the business, plus $89 per month thereafter for FES’s credit repair services, even if they don’t need it. And, according to the FTC, in classic pyramid scheme style, FES encourages bringing new agents into the business rather than selling credit repair services. The complaint charges that few, if any, are earning the promised income, and many are losing money.
The complaint accuses the company’s practices of violating the FTC, CROA and the Telemarketing Sales Rule. This follows the FTC’s complaint earlier this month accusing The Credit Game and its owners of operating a fraudulent credit repair operation that also presented a bogus business opportunity. There, the FTC said the “opportunity” was essentially for people to hand over their government COVID-19 benefits to defendants to learn how to start their own credit repair businesses.
If it seems like we’re taking a hard look at money-making schemes that target people in financial difficulty or trying to get ahead, that’s right. Looking ahead, it should be noted that the Commission launched regulations in February to tackle misleading or unfair marketing using income claims. If finalized, the rule would allow the FTC to seek redress for defrauded consumers and seek stiff penalties against all multi-tiered merchants and other bad actors who exploit people’s hopes for economic advancement. Stay tuned.