Crackdown Hits 43 Phony Credit Firms That Turn Consumers into Felons

In a massive crackdown on operators who turn credit-challenged consumers into lawbreakers, the Federal Trade Commission (FTC) and National Association of Attorneys General (NAAG) announced today that 17 law enforcement agencies have filed 43 law enforcement actions against defendants who claim to help consumers obtain new credit histories through new identification numbers – a practice known as "file segregation."

Using the Internet and other media to make claims such as "BRAND NEW CREDIT FILE IN 30 DAYS," the suspect firms sell instructions about how consumers can substitute federally-issued, nine-digit employee identification numbers or taxpayer identification numbers for social security numbers and use them illegally to build new credit profiles that will allow them to get credit they may be denied based on their real credit histories. The FTC and NAAG cautioned that using a false identification number to apply for credit is a felony.

"The Internet and e-mail are spreading this scam far and fast," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "America Online reports that credit repair schemes represent one of the biggest categories of unsolicited commercial e-mail or spam. Fourteen of the FTC defendants advertised their services on Internet Web pages. These scams target very vulnerable consumers. They prey on people who are plagued by poor credit -- people who may be desperate to develop a clean credit history so they can get a loan, get a job or buy a car."

“This type of crime creates several victims,” said Drew Edmondson, Oklahoma Attorney General and chairman of the NAAG Consumer Protection Committee. “The unsuspecting consumers who only want to repair their credit are victimized, as are the businesses who grant credit based on falsified information and then are forced to increase prices. We as consumers must pay the higher prices to make up for their losses. The law enforcement actions already filed are just the tip of the iceberg compared to the suspected number of file segregation scams circulating the Internet and newspapers today. I speak for all attorneys general when I say we will continue to pursue these criminals.”

Bernstein added, "File segregation scammers tell consumers they can show them how to create a whole, new credit identity. They tell them their scheme is legal. In short, they lie to consumers, take their money, and turn them into lawbreakers. The fact is that it takes time to rebuild a good credit reputation. There is no legal way for consumers to alter their credit identification to conceal adverse information that is accurate and timely.”

In the cases announced today, the firms in question advertised their services in newspapers, magazines and on Internet sites. Using claims such as, “ERASE BAD CREDIT,” “ANYONE CAN HAVE A NEW CREDIT FILE INSTANTLY OVERNIGHT,” and “START ALL OVER AGAIN WITH BRAND NEW CREDIT,” the companies offered to show consumers how to develop new credit identities through file segregation.

Many of the ads claim that, “It’s 100% LEGAL...,” or “It’s not only legal, it’s your right.” For fees ranging from $29.95 to $200.00, the companies offer to sell consumers the instructions they need to apply to the Internal Revenue Service for employer or taxpayer identification numbers.

Consumers were typically counseled to use the new I.D. number in place of their social security number when applying for credit. They frequently were given advice about how to develop whole new credit profiles by doing such things as getting new driver’s licenses using the new I.D. number and advised about places that would give consumers “starter credit” using the new number. Using a false social security number -- such as a taxpayer I.D. number -- to apply for credit violates federal law and has been prosecuted vigorously by the IRS and U.S. Attorneys.

Fourteen complaints filed by the FTC, along with another three filed by the Department of Justice at the FTC’s request, allege violations of the Credit Repair Organizations Act and the FTC Act. The FTC and the Justice Department have asked U. S. District Courts to permanently enjoin the illegal claims and order consumer redress or civil penalties for the defendants.

In addition, 21cases were announced by the Attorneys General of Arizona, California, Connecticut, Delaware, Illinois, Kentucky, Minnesota, Missouri, Nevada, North Carolina, Ohio, Oklahoma, Oregon, and Pennsylvania. Finally, the Treasury Inspector General for Tax Administration (formerly the IRS Internal Security Division) announced that criminal search warrants had been executed in an additional five cases. Other law enforcement agencies participating in the joint effort, but not announcing cases today, include the Orange and Santa Clara County, California, District Attorneys, the San Diego, California, City Attorney, the United States Attorney for the District of New Jersey, and the Massachusetts, Michigan, Tennessee, and Wisconsin Attorneys General.

These cases were announced in conjunction with National Consumer Protection Week, a nationwide consumer education and law enforcement initiative sponsored by a broad coalition of public and private consumer protection advocates including the FTC, National Association of  Attorneys General, U. S. Postal Inspection Service, National Association of Consumer Agency Administrators, National Consumers League, and the American Association of Retired Persons. Activities across the country will focus on five different types of credit fraud that can affect consumers in every walk of life. The week, whose theme is “Credit Fraud -- Know The Rules, Use The Tools,” aims to raise awareness about credit scams and teach consumers how to protect themselves.

NOTE: The Commission files a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendant has actually violated the law. The case will be decided by the court.

Copies of complaints and consumer education materials about credit fraud are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.