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The Federal Trade Commission and the Commonwealth of Massachusetts have taken action against fraudulent credit repair firms misrepresenting that consumers can clean up their credit reports even before they clean up their credit. Settlements negotiated with four Massachusetts companies and their principals resolve charges brought against them as part of "Operation Eraser," a federal-state crackdown on fraudulent credit repair firms. In each of these cases the FTC and the Commonwealth were co-plaintiffs, and the defendants were charged with violating the FTC Act, the Credit Repair Organizations Act (CROA), and the Massachusetts Consumer Protection Act by making deceptive claims about their ability to improve consumers' credit records by removing negative information from consumers' credit reports even when the information was accurate and not obsolete, and by charging advance fees for these services.

In addition to prohibiting future misrepresentations with regard to credit repair services, each of the settlements requires the defendants, among other things, to cease collection on all credit repair contracts with outstanding balances and notify those customers that their contracts are rescinded and that no further payments are due. Each of these four defendant companies will pay monetary relief, to be used for consumer redress, where feasible, with the remainder of the funds going to the Massachusetts Attorney General's Consumer Education Program.

"Operation Eraser," announced this past March, targeted 31 companies nationwide that promised consumers that they could restore their creditworthiness for a fee. Sometimes charging well over $1,000, these firms purported to guarantee consumers they could remove negative information from their credit reports -- even if the negative information was accurate and timely.

But, according to the FTC, these companies cannot remove legitimate negative information and, where there are actual errors in credit reports, consumers have the legal right to have those corrected for free. "Operation Eraser" was the first combined effort to utilize the CROA, a new federal law specifically targeting credit repair scams. Effective April 1, 1997, the new statute is enforced by the FTC and state Attorneys General. This law also allows consumers to bring lawsuits on their own in federal court and obtain damages, attorneys fees, and punitive damages.

The settlements with Second Federal Credit, Inc., and its president, Frank DeMaio; Credit Repair Network, and its principal officer Henry J. Frattaroli, Jr.; New England Financial, and its principal officer, Raymond J. Caluori; and Phillips Hall, Inc., doing business as Allied Credit Services, and its president, Howard Hall, prohibit the defendants from misrepresenting any fact concerning their ability to perform or provide any credit-related services or products for consumers, including debt consolidation; making misrepresentations in obtaining or arranging loans, or arranging any extension of credit; and misrepresenting any fact material to a consumer's decision to purchase any product or service. The settlements also prohibit any future violations of the CROA, and prohibit the defendants from violating the Massachusetts Consumer Protection Act. As part of the settlements, the defendants have agreed to pay the following amounts to be used for consumer redress, where feasible, with the remainder of the funds going to the Massachusetts Attorney General's Consumer Education Program: Credit Repair Network, $16,000; New England Financial, $5,000; Phillips Hall, Inc., $1,500; Second Federal Credit, $1,000. The settlement with Credit Repair Network also permanently bans the company and principal officer, Henry J. Frattaroli, Jr., from the sale of credit repair franchises in the future.

The FTC and the Commonwealth filed the settlements in U.S. District Court for the District of Massachusetts, in Boston, on July 6, 1998, and they were approved by the Court on July 16, 1998. The Commission votes to file the settlements were 4-0.

NOTE: The stipulated final judgments in all of these cases are for settlement purposes only and do not constitute an admission by the defendants of a law violation.

Copies of the settlements, the news release announcing "Operation Eraser," and a number of publications about consumer credit issues are available from the FTC's web site at and also from the FTC's Consumer Response Center, Room 130, 6th Street and 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.


Civil Action Nos.:
98-10348NG (Second Federal Credit, Inc.) FTC File No. X980041
98-10349NG (Credit Repair Network) FTC File No. X980040
98-10350NG (New England Financial) FTC File No. X980054
98-10351NG (Phillips Hall, Inc., dba Allied Credit Services) FTC File No. X980042

Contact Information

Media Contact:
Howard Shapiro,
Office of Public Affairs
Staff Contact:
Pamela Wood or John T. Dugan,
Boston Regional Office
101 Merrimac Street, Suite 810
Boston, Massachusetts 02114-4719