A Texas-based credit repair organization has agreed to settle Federal Trade Commission allegations that it violated federal law by making misrepresentations to consumer reporting agencies and charging consumers up-front fees before providing its services.

In its complaint filed in October 2011, the FTC charged that RMCN Credit Services, Inc. and its individual owners, Doug and Julie Parker, violated the federal Credit Repair Organizations Act (“CROA”) by charging up-front fees for a six-month program to improve consumers’ credit ratings and by making numerous false statements to credit bureaus disputing the accuracy of negative information in consumers’ credit reports.  In letters to credit bureaus designed to appear as if they were from consumers, but which RMCN did not show consumers, the firm typically disputed all negative information in credit reports, regardless of the information’s accuracy.

The FTC alleged RMCN, one of the nation’s largest credit repair companies, continued to send these deceptive dispute letters to credit bureaus even after the company received detailed billing histories or signed contracts from creditors proving the credit reports were accurate.  RMCN also allegedly falsely told consumers in its marketing materials that federal law allowed it to dispute accurate credit report information, and that credit bureaus must “prove it or remove it.”  It also charged consumers up to $2,000 before providing any service, which also was in alleged violation of the CROA.

The court order bars RMCN and its owners from violating any provision of CROA, and specifically from making untrue or misleading statements to consumer reporting agencies and charging consumers advance fees for credit repair services.  The order prohibits all of the defendants from sending letters to consumer reporting agencies or creditors unless consumers review and attest to the accuracy of the letters.  It also requires RMCN to send letters to all existing customers notifying them of the FTC’s suit and offering them a right to cancel their contract with RMCN and owe no money to the company.  In addition, the order prohibits defendants from making misrepresentations regarding the sale of any goods or services to consumers, including the sale of financial-related products or services.

The order imposes a $2.35 million civil penalty against all of the defendants, which will be partially suspended based on an inability to pay, after they tender a total of $400,000, in two installments, within nine months of when the court enters the order.  Finally, for 10 years the company must submit regular reports to the FTC to ensure it is complying with the terms of the order.

This action signals increased attention by the FTC to credit repair organizations and the CROA.  Companies involved in credit reporting should carefully review the requirements of the CROA, including to ensure that entities that do not intend to be classified as credit repair organizations do not fall under the ambit of the CROA.  Troutman Sanders has extensive experience representing credit reporting agencies and in litigating cases under the CROA, and it will continue to monitor any regulatory developments in this space.