A federal district court in Los Angeles has ordered a temporary halt to an allegedly deceptive "credit repair" scheme run by Mark Thomas Ellis and Gabrielle Ellis, doing business as Universal Credit Corporation. The order follows Federal Trade Commission charges that the defendants falsely represented to consumers across the nation that Universal Credit could remove negative information from their credit files, even when the information was accurate. The FTC also charged the defendants with making unauthorized withdrawals from consumers' checking accounts, and falsely implying that they had posted a bond to cover money-back guarantees.
The judge's temporary restraining order includes an asset freeze to preserve funds for possible consumer redress. The judge also appointed a receiver to manage the defendants' business operation. Ultimately, the FTC is seeking a court order permanently prohibiting the defendants' deceptive practices and requiring a monetary payment to be used for refunds for consumers.
Mark Thomas Ellis and Gabrielle Ellis reside in Laguna Hills, California.
According to the FTC complaint detailing the charges in this case, the Ellises operated and marketed credit improvement services nationwide, advertising on both television and radio. When consumers called the phone number in the ads, Universal Credit's salespersons allegedly promised that the firm could remove accurate, negative information from their credit reports in a relatively short time period, that their success rate approached 90 percent, and that consumers were protected by a money-back guarantee. The complaint alleges that Universal Credit salespersons told consumers that they would inundate credit reporting agencies with dispute letters until the credit reporting agencies missed the "reasonable time" deadline in the Fair Credit Reporting Act (FCRA) for reinvestigating disputed credit items.
According to the FTC, however, credit reporting agencies can include negative information on consumers' credit reports as long as it is accurate and verifiable, until that information is obsolete (the FCRA bars credit reporting agencies from reporting negative information older than seven years, except for certain information which can be reported for 10 years, including bankruptcies and government-issued student loans).
"Because the law allows the reporting of accurate, up-to- date credit information, consumers should be extremely suspicious of companies claiming that they can clean up consumer credit reports containing such data," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Moreover," Bernstein said, "the FTC's new Telemarketing Sales Rule, which went into effect on Dec. 31, 1995, prohibits credit repair firms from soliciting payment until they've fulfilled their promises to clean up consumers' credit reports. The sooner consumers know about this prohibition, the sooner fraudulent credit repair operations will be out of business." Universal Credit charged consumers from several hundred to a few thousand dollars, according to declarants in the FTC case.
Once consumers expressed interest in the credit repair services offered by Universal Credit, the FTC alleged, the salespeople routinely asked them for checking account information, purportedly for identification purposes or to speed the processing of their accounts, and promised consumers that their accounts would not be debited without their permission. The FTC charged, however, that the defendants debited consumers' accounts without authorization, and sometimes did so in spite of the fact that consumers had withdrawn their limited consent. According to the complaint, the defendants even altered the numbers on paper drafts, the amounts to be withdrawn, or other account information in attempts to collect money when consumers had taken steps to prevent Universal Credit from debiting their accounts. The FTC also charged the defendants with failing to provide refunds to dissatisfied customers, and falsely stating that they had posted a monetary bond for refund purposes with appropriate government authorities.
The Commission vote to file the complaint was 5-0. The complaint was filed in the U.S. District Court for the Central District of California, in Santa Ana. The FTC's Los Angeles Regional Office handled the investigation, and received assistance from the California Attorney General's office, the Los Angeles County Department of Consumer Affairs and the Better Business Bureau. The California Attorney General's office also filed a civil complaint against these defendants for violations of state law in the Los Angeles Superior Court on Feb. 9, 1996.
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.
The FTC has published, free of charge, a consumer brochure titled "Credit Repair Scams" which describes how to spot this type of fraud and suggests how consumers can check and correct mistakes in their credit reports.
Copies of the brochure and the complaint in this case are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest FTC news as it is announced, call the FTC's NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC's World Wide Web Site at: http://www.ftc.gov
(FTC File No. 962 3031)
(Civil Action No. 96-114-LHM(EEx))