UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

THE FEDERAL TRADE COMMISSION and
THE COMMONWEALTH OF MASSACHUSETTS,

Plaintiffs,

v. 

SECOND FEDERAL CREDIT, INC., a corporation, and FRANK DEMAIO, individually and as an officer of the corporation,

Defendants.

CIVIL NO.

COMPLAINT FOR INJUNCTION AND OTHER EQUITABLE RELIEF

Plaintiffs, the Federal Trade Commission and the Commonwealth of Massachusetts for itself and as parens patriae on behalf of the residents of the Commonwealth of Massachusetts, for their complaint allege as follows:

1. Plaintiff Federal Trade Commission (“the Commission”) brings this action under Sections 13(b) and 19 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. 53(b) and 57b, and Section 410(b) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b), to obtain preliminary and permanent injunctive relief, restitution, rescission, disgorgement and other equitable relief for Defendants’ deceptive acts or practices in connection with the sale and offering for sale of credit repair services in violation of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), and the Credit Repair Organizations Act , 15 U.S.C. 1679 et seq.

2. Plaintiff Commonwealth of Massachusetts brings this action under Section 410(c) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(c), to obtain preliminary and permanent injunctive relief, restitution, rescission, disgorgement and other equitable relief for Defendants’ deceptive acts or practices in connection with the sale and offering for sale of credit repair services in violation of the Credit Repair Organizations Act, 15 U.S.C. 1679 et seq., and, as part of the same case or controversy, also brings this action pursuant to the Massachusetts Consumer Protection Act, M.G.L. c.93A, 2(a) and 4, to secure a permanent injunction and other equitable relief, including restitution and attorneys’ fees, against Defendants' violations of that Act.

JURISDICTION AND VENUE

3. This Court has jurisdiction of this matter pursuant to 28 U.S.C. 1331, 1337(a), 1345 and 1367; and 15 U.S.C. 53(b), 57b, 1679h(b), and 1679h(c)(1).

4. Venue in this district is proper under 28 U.S.C. 1391 and 15 U.S.C. 53(b).

THE PARTIES

5. Plaintiff, the Federal Trade Commission, is an independent agency of the United States Government created by statute. 15 U.S.C. 41 et seq. The Commission is charged, inter alia, with enforcement of Section 5(a) of the FTC Act, 15 U.S.C. 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. The Commission also enforces the Credit Repair Organizations Act. 15 U.S.C. 1679h(a). The Commission is authorized to initiate federal district court proceedings, by its own attorneys, to enjoin violations of the FTC Act and the Credit Repair Organizations Act in order to secure such equitable relief, including consumer redress, as may be appropriate in each case. 15 U.S.C. 53(b), 57b, and 1679h(b).

6. The Commonwealth of Massachusetts, by its Attorney General, Scott Harshbarger, is authorized to bring civil actions to enforce the Massachusetts Consumer Protection Act pursuant to M.G.L. c.93A, 4. The Commonwealth of Massachusetts is authorized to bring an action to enjoin violations of the Credit Repair Organizations Act and to secure such relief as may be appropriate in each case, including damages on behalf of the residents of the Commonwealth of Massachusetts. 15 U.S.C. 1679h(c)(1).

7. Defendant Second Federal Credit, Inc. is a Nevada corporation with its office and principal place of business located at 268 Main Street, Suite 305, North Reading, Massachusetts. Second Federal Credit, Inc. transacts or has transacted business in this District.

8. Defendant Frank DeMaio is president of Second Federal Credit, Inc. At all times material to this complaint, acting alone or in concert with others, he has formulated, directed, controlled or participated in the acts and practices of Second Federal Credit, Inc., including the acts and practices set forth in this complaint. Frank DeMaio transacts or has transacted business in this District.

COMMERCE

9. At all times relevant to this complaint, Defendants have maintained a substantial course of trade in the offering for sale and selling of credit repair services, in or affecting commerce, as “commerce” is defined in Section 4 of the FTC Act. 15 U.S.C. 44.

DEFENDANTS' BUSINESS PRACTICES

10. Since at least 1989, Defendants have advertised, promoted, offered for sale, and sold credit repair services to consumers throughout the Commonwealth of Massachusetts and, upon information and belief, elsewhere in the United States.

11. Defendants have offered services to remove derogatory information from, or improve, consumers' credit histories, credit records, and credit ratings. Consumers have contacted Defendants and have been told by Defendants’ representatives that Defendants can remove bankruptcies, charge-offs, late payments, repossessions, foreclosures, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete. Defendants have made similar claims in their print advertisements. Before providing any of the promised services, Defendants’ representatives request and obtain at least partial payment for these services.

12. Defendants have claimed that they can improve consumers’ credit histories, credit records, or credit ratings by assisting them in establishing new credit profiles with credit bureaus by using a taxpayer identification number ("TIN") in place of their social security number for banking and credit purposes. Defendants have advised consumers to use the TIN, rather than their social security number, when applying for credit. Defendants have further advised consumers that use of the TIN in this manner is legal.

13. Typical and illustrative of Defendants’ claims about their credit repair services are the following:

a. "CREDIT REPAIR. NEW CREDIT FILE, 9 Digit Tin # [Taxpayer Identification Number]. Legally clear credit reports - Bankruptcy - Charge-Offs - Late Payments - Repo’s - Foreclosures - Public Records. 100% Clean File in 30 days. . . . Guaranteed Results. Qualify for Credit Cards, Mortgages. Bonded."

b. "CREDIT REPAIR. Legally remove negative accounts from Credit Bureau Records. Lates, repo’s, charge-offs, and foreclosures. Qualify for credit cards. Guaranteed Results!"

c. [Consumer: "I want to see if there is a way for me to get that bankruptcy off my report."] "Yes, we’ve been having extremely good luck with bankruptcies lately. . . . [W]e dispute any and all negative items that appear in the credit reports . . . [a]nd a lot of times, especially because the bankruptcy files have been put away . . . and they’re unverifiable, therefore, they have to be either removed or put into a better credit rating."

d. "If [a defaulted MasterCard account] is paid, it’s probably very easy to get off."

e. "What we do is remove negative information off of credit reports using a . . . legal method. . . . It’s called the Fair Credit Reporting Act. It’s a law that allows us to dispute the accuracy of anything on your credit report. . . . [I]f they do respond, it stays on there. But what we do is we keep redisputing until it comes out."

f. "[E]ither you just wait it out years and years and years or you come to somebody like us. Those are basically your two alternatives."

g. "We charge $100 per negative item. . . . We have a minimum of $400, with a $150 down. . . . And then we bill you monthly on the remaining balance. . . . So, say you have five negative accounts, we’d send you a contract for $500, you’d send us the $150, with the signed contract and then the -- we’d bill you monthly on the remaining."

14. Consumers have agreed to purchase Defendants’ services based on the representations set forth above, among others. Defendants have usually charged $400 or more for these services.

VIOLATIONS OF THE CREDIT REPAIR ORGANIZATIONS ACT

15. The Credit Repair Organizations Act, signed by the President on September 30, 1996, took effect on April 1, 1997, and has since that date remained in full force and effect.

16. Defendants are "credit repair organizations" as that term is defined in the Credit Repair Organizations Act. 15 U.S.C. 1679a(3).

17. The purposes of the Credit Repair Organizations Act, according to Congress, 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).

18. Section 404(b) of the Credit Repair Organizations Act prohibits credit repair organizations from charging or receiving any money or other valuable consideration for services that the credit repair organization has agreed to perform before such service is fully performed. 15 U.S.C. 1679b(b).

19. Section 404(a)(3) of the Credit Repair Organizations Act prohibits all persons from making or using any untrue or misleading representation of the services of the credit repair organization. 15 U.S.C. 1679b(a)(3).

20. Pursuant to Section 410(b)(1) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b)(1), any violation of any requirement or prohibition of the Credit Repair Organizations Act constitutes an unfair and deceptive act or practice in commerce in violation of Section 5(a) of the FTC Act. 15 U.S.C. 45(a).

COUNT ONE

(By Plaintiffs Federal Trade Commission and Commonwealth of Massachusetts)

21. In connection with the performance of services for consumers by a credit repair organization, as that term is defined in Section 403(3) of the Credit Repair Organizations Act, 15 U.S.C. 1679a(3), Defendants have charged or received money or other valuable consideration for the performance of services that the credit repair organization has agreed to perform before such service was fully performed. Defendants have thereby violated Section 404(b) of the Credit Repair Organizations Act. 15 U.S.C. 1679b(b).

COUNT TWO

(By Plaintiffs Federal Trade Commission and Commonwealth of Massachusetts)

22. In connection with the performance of services for consumers by a credit repair organization, as that term is defined in Section 403(3) of the Credit Repair Organizations Act, 15 U.S.C. 1679a(3), Defendants have made untrue or misleading representations to induce consumers to purchase their services, including, but not limited to:

a. The representation that Defendants can, through their services, improve substantially consumers’ credit records, credit histories, or credit ratings by removing bankruptcies, charge-offs, late payments, repossessions, foreclosures, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete; and

b. The representation that Defendants can, through their services, legally alter consumers’ identification to conceal adverse credit information from consumers’ credit records, credit histories, or credit ratings by obtaining TINs or Employer Identification Numbers ("EINs") for consumers to use, instead of their social security numbers, for credit purposes.

23. In truth and in fact, Defendants cannot:

a. Improve substantially consumers’ credit records, credit histories, or credit ratings by permanently removing bankruptcies, charge-offs, late payments, repossessions, foreclosures, and other negative information from consumers' credit reports, where such information is accurate and not obsolete; and

b. Legally alter consumers’ identifications to conceal adverse credit information from consumers’ credit records, credit histories, or credit ratings by obtaining EINs or TINs for consumers and having consumers use the EINs or TINs instead of their social security numbers.

24. Defendants have thereby violated Section 404(a)(3) of the Credit Repair Organizations Act. 15 U.S.C. 1679b(a)(3).

VIOLATIONS OF SECTION 5 OF THE FTC ACT

25. Section 5(a) of the FTC Act, 15 U.S.C. 45(a), prohibits unfair or deceptive acts or practices in or affecting commerce.

26. Misrepresentations of material fact constitute deceptive acts or practices prohibited by Section 5(a) of the FTC Act.

COUNT THREE

(By Plaintiff Federal Trade Commission)

27. In connection with the advertising, marketing, promotion, offering for sale, or sale of credit repair services, Defendants have made untrue or misleading statements to induce consumers to purchase their services, including, but not limited to, the representation that Defendants can improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, charge-offs, late payments, repossessions, foreclosures, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

28. In truth and fact, Defendants cannot improve substantially most consumers’ credit reports or profiles by permanently removing bankruptcies, charge-offs, late payments, repossessions, foreclosures, and other negative information from consumers' credit reports, even where such information is accurate and not obsolete.

29. Defendants have thereby violated Section 5(a) of the FTC Act. 15 U.S.C. 45(a).

COUNT FOUR

(By Plaintiff Federal Trade Commission)

30. In connection with the advertising, marketing, promotion, offering for sale, or sale of credit repair services, to induce consumers to purchase their services Defendants have, directly or by implication, made representations that Defendants can legally alter consumers’ identification to conceal adverse credit information from consumers’ credit records, credit histories, or credit ratings by obtaining EINs or TINs for consumers to use, instead of their social security numbers, for credit purposes.

31. In truth and in fact, Defendants cannot legally alter consumers’ identifications to conceal adverse credit information from consumers’ credit records, credit histories, or credit ratings by obtaining EINs or TINs for consumers and having consumers use the EINs or TINs instead of their social security numbers.

32. Defendants have thereby violated Section 5(a) of the FTC Act. 15 U.S.C. 45(a).

VIOLATIONS OF THE MASSACHUSETTS
CONSUMER PROTECTION ACT, M.G.L. c.93A, 2

(By Plaintiff Commonwealth of Massachusetts)

33. M.G.L. c.93A, 2(a) prohibits unfair or deceptive acts or practices in the conduct of trade or commerce pursuant to state and federal law.

34. Pursuant to 940 Code Mass. Reg. 3.16(4), a violation of any federal consumer protection statute within the purview of M.G.L. c.93A, 2 is deemed a violation of M.G.L. c.93A, 2. By engaging in the acts and omissions described in paragraphs 10 through 32, and thereby violating the Credit Repair Organizations Act, 15 U.S.C. 1679 et seq., and the FTC Act, 15 U.S.C. 41 et seq., in accordance with 940 Code Mass. Reg. 3.16(4), Defendants are in violation of M.G.L. c. 93A, 2(a).

35. Pursuant to the Massachusetts Credit Repair Organizations Act, M.G.L. c.93, 68E, "any violation of sections sixty-eight B to sixty-eight D, inclusive, shall constitute a violation of chapter ninety-three A."

36. Defendants have violated M.G.L. c.93, 68B, by engaging in various unfair and deceptive practices, including but not limited to:

a. Charging or receiving money or other valuable consideration from consumers prior to full, complete and satisfactory performance of such services Defendants agreed to perform or provide, or failing to obtain a surety bond in the amount of not less than $10,000; and

b. Making or using untrue or misleading representations in the offer or sale of the services of a credit services organization and engaging in the course of business intended to defraud or deceive a consumer in connection with the offer or sale of such services.

37. By virtue of the foregoing, Defendants have violated M.G.L. c.93A, 2(a).

38. In the course of selling credit repair services to consumers, Defendants have violated M.G.L. c.93A and 940 Code Mass. Reg. 3.05(1) and 3.16(2) by unfairly and deceptively representing that:

a. Consumers can remove unwanted or disputed entries from consumers’ credit reports, including bankruptcies and charge-offs, even if such entries are accurate and not obsolete; and

b. Consumers can remove negative information from consumers’ credit reports, even if such information is accurate and not obsolete.

39. In the course of selling credit repair services to consumers, Defendants have violated M.G.L. c.93A, 2 and 940 Code Mass. Reg. 3.05(a) and 3.16(2) by failing to disclose that consumer reporting agencies typically do not remove accurate and non-obsolete credit information from consumers’ credit reports once such information has been verified.

40. The defendants knew or should have known that their above-described acts and practices are in violation of M.G.L. c.93A, 2(a) and regulations promulgated thereunder.

CONSUMER INJURY

41. Consumers have suffered or are likely to suffer monetary loss as a result of Defendants' unlawful acts or practices. Absent injunctive relief by this Court, Defendants are likely to continue to injure consumers and harm the public interest.

THIS COURT'S POWER TO GRANT RELIEF

42. Sections 13(b) and 19 of the FTC Act, 15 U.S.C. 53(b) and 57b, and Sections 410(b) and 410(c) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(b) and 1679h(c), empower this Court to issue a permanent injunction against Defendants’ violations of the Credit Repair Organizations Act and the FTC Act and, in the exercise of its equitable jurisdiction, to order such ancillary relief as preliminary injunction, rescission, restitution, disgorgement of profits resulting from Defendants’ unlawful acts or practices, and other remedial measures.

43. Section 4 of the Massachusetts Consumer Protection Act, M.G.L. c.93A, 4, empowers this Court to grant injunctive and such other relief as the Court may deem appropriate to halt and redress violations of the Massachusetts Consumer Protection Act. This Court, in the exercise of its equitable jurisdiction, may award other ancillary relief to remedy injury caused by Defendants' law violations.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs request that this Court, as authorized by Section 410(c)(1) of the Credit Repair Organizations Act, 15 U.S.C. 1679h(c)(1); Sections 13(b) and 19 of the FTC Act, 15 U.S.C. 53(b) and 57b; M.G.L. c.93A, 4; and pursuant to its own equitable powers:

a. Award Plaintiffs such preliminary injunctive and ancillary relief as may be necessary to avert the likelihood of consumer injury during the pendency of this action and to preserve the possibility of effective final relief;

b. Permanently enjoin Defendants from violating the Credit Repair Organizations Act, the FTC Act and M.G.L. c.93A, 2(a);

c. Award such relief as the Court finds necessary to redress injury to consumers resulting from Defendants' violations of the Credit Repair Organizations Act, the FTC Act and M.G.L. c.93A, 2(a), including, but not limited to, damages for the residents of the Commonwealth of Massachusetts, rescission of contracts, civil penalties, the refund of monies paid, and the disgorgement of ill-gotten monies; and

d. Award Plaintiffs the costs of bringing this action, including reasonable attorneys’ fees, as well as such other and additional relief as the Court may determine to be just and proper.

Respectfully Submitted,

DEBRA A. VALENTINE
General Counsel
Federal Trade Commission

ANDREW D. CAVERLY
Acting Regional Director
Boston Regional Office

PAMELA J. WOOD, Mass. Bar Reg. No. 533590
JOHN T. DUGAN, Mass. Bar Reg. No. 565776
Attorneys, Boston Regional Office
Federal Trade Commission
101 Merrimac Street, Suite 810
Boston, Massachusetts 02114
(617) 424-5960

SCOTT HARSHBARGER
Attorney General
Commonwealth of Massachusetts

ANTHONY RODRIGUEZ
Mass. Bar Reg. No. 562626
Assistant Attorney General
Office of the Attorney General
1 Ashburton Place
Boston, Massachusetts
(617) 727-2200, X2980