Skip to main content

The Federal Trade Commission has negotiated settlements with two companies and their principals to resolve charges brought against them as part of "Operation Eraser," a federal-state crackdown on fraudulent credit repair firms. In the third case, a federal court entered a final judgment by default when the defendant failed to appear. In all of these cases, the FTC charged the defendants with violating the FTC Act and the Credit Repair Organizations Act (CROA) 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 one case, the FTC also alleged that the defendants promoted a particular practice -- called "file segregation" ­ as a way to create a new credit history for some of their customers. Typically, the consumer is advised to apply for an Internal Revenue Service (IRS) "Employer Identification Number," which has the same number of digits as a Social Security number, and to use that in lieu of a Social Security number when applying for credit, the FTC said. According to the Commission, consumers who follow the advice of "file segregation" operations are committing felonies -- it is illegal to make false use of a Social Security number and it also is illegal to make any false statement to a federally insured financial institution when seeking credit.

In addition to prohibiting future misrepresentations with regard to credit repair services, the proposed settlements with Midwest Management Associates, Inc., of Chicago, Illinois, and its principal officer, G. Andrew Watson; and AAA Credit Services and its principal, Angela Christie of Columbia, South Carolina, would require them to cease collection from consumers on all credit repair contracts with outstanding balances and notify those customers that their contracts are rescinded and that no further payments are due.

The order entered by the court against Dixie W. Cooley, the file segregation operator who failed to defend the FTC's suit, prohibits her from misrepresenting that file segregation is legal. The order also prohibits her from misrepresenting any other fact material to a consumers' decision to purchase any goods or services.

"Operation Eraser," announced this past March, targeted 31 companies that promised consumers that they could restore their creditworthiness for a fee. Sometimes charging more than $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 most of the time. "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 has been 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.

In addition to permanently banning the defendants from engaging in or assisting others engaged in the business of credit repair services, the proposed settlements with Midwest Management Associates, AAA Credit Services, and their principals, and the final order against Dixie Cooley prohibit them from misrepresenting any fact concerning their ability to perform or provide any credit-related services or products for consumers, including debt consolidation, obtaining or arranging loans, or arranging any extension of credit, and from misrepresenting any fact material to a consumer's decision to purchase any product or service. The defendants also would be prohibited from violating any provisions of the CROA in the future. Defendant G. Andrew Watson would be required to pay $25,000 in consumer redress under the terms of the proposed settlement with Midwest Management, and Dixie Cooley was ordered to pay $15,451.75 in consumer redress. Further, the proposed settlements with Midwest Management Associates and AAA Credit Services require the defendants to cease any effort to collect on outstanding accounts, and to rectify any adverse actions they may have initiated against consumers -- such as reporting late payments for the purported credit repair services to credit reporting agencies -- or because they initiated legal actions.

The proposed settlement with Midwest Management Associates, Inc., was filed in U.S. District Court for the Northern District of Illinois, Eastern Division. The Department of Justice, on behalf of the FTC, filed the proposed settlement with AAA Credit Services in the U.S. District Court for the District of South Carolina, Charleston Division. The Commission votes approving the filing of the proposed settlements were 4-0.

The final order against Dixie Cooley was entered by the U.S. District Court for the District of Arizona on August 19, 1998.

NOTE: The stipulated final judgments in the Midwest Management and AAA Credit Services cases are for settlement purposes only and do not constitute an admission by the defendants of a law violation. The judgments are subject to approval by the court and have the force of law when signed by the judge.

Copies of 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. Copies of the settlements and the default judgment will be available shortly. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(Midwest Management: Civil Action No.: 98-C-1218; FTC File No. X980035)
(AAA Credit: Civil Action No. 2:98-0546-12; FTC File No. X980044)
(Dixie W. Cooley: Civil Action No. CIV-98-0373-PHX-RGS; FTC File No. X980053)

Contact Information

Media Contact:
Howard Shapiro,
Office of Public Affairs
Staff Contact:
C. Steven Baker or Russell W. Damtoft
Chicago Regional Office