In the Matter of Second Federal Credit, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

THE FEDERAL TRADE COMMISSION and
THE COMMONWEALTH OF MASSACHUSETTS
Plaintiffs

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

CIVIL NO. 98-10348NG

STIPULATED FINAL JUDGMENT FOR PERMANENT INJUNCTION AND CONSUMER REDRESS

Plaintiffs, the Federal Trade Commission ("the Commission") and the Commonwealth of Massachusetts ("the Commonwealth") (collectively, "Plaintiffs") have filed their complaint pursuant to Sections 13(b) and 19 of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 53(b) and 57b; Sections 410(b) and (c) of the Credit Repair Organizations Act, 15 U.S.C. §§ 1679i(b) and (c); and the Massachusetts Consumer Protection Act, M.G.L. c.93A, § 2(a), charging Defendants Second Federal Credit, Inc. and Frank DeMaio ("Defendants") in this action with violations of Section 5 of the FTC Act, 15 U.S.C. § 45; the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq.; and the Massachusetts Consumer Protection Act. M.G.L. c.93A, § 2.

Plaintiffs and Defendants have agreed to the entry of this Stipulated Order for Permanent Injunction and Consumer Redress ("Order") by this Court in order to resolve all matters of dispute between them in this action.

NOW, THEREFORE, Plaintiffs and Defendants having requested the Court to enter this Order, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED as follows:

FINDINGS

1. This Court has jurisdiction over the subject matter of this case and over the parties consenting hereto.

2. This is an action by Plaintiffs instituted under Sections 13(b) and 19 of the FTC Act, 15 U.S.C. §§ 53(b) and 57b; Sections 410(b) and (c) of the Credit Repair Organizations Act, 15 U.S.C. §§ 1679i(b) and (c); and the Massachusetts Consumer Protection Act. M.G.L. c.93A, § 2(a). Pursuant to these sections of the FTC Act, the Credit Repair Organizations Act, and the Massachusetts Consumer Protection Act, Plaintiffs have authority to seek the relief they have requested.

3. On February 26, 1998, Plaintiffs filed their complaint for a permanent injunction and other equitable relief in this matter, and moved for an ex parte Temporary Restraining Order ("TRO") pursuant to Rule 65 of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 65. An ex parte Temporary Restraining Order was entered on March 2, 1998, and a preliminary injunction hearing was scheduled for March 12, 1998. By order dated March 9, 1998, the Temporary Restraining Order was extended and the preliminary injunction hearing was rescheduled for March 23, 1998.

4. The Complaint states a claim upon which relief may be granted against Defendants under Sections 5 and 19 of the FTC Act, 15 U.S.C. §§ 45 and 57b; the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq.; and the Massachusetts Consumer Protection Act. M.G.L. c.93A, § 2.

5. Entry of this Order is in the public interest.

6. Defendants have waived all rights to seek appellate review of, or otherwise challenge or contest the validity of, this Order.

7. This Order does not constitute and shall not be interpreted to constitute an admission by Defendants that they have engaged in violations of the FTC Act, the Credit Repair Organizations Act, or the Massachusetts Consumer Protection Act.

8. Defendants have waived all claims under the Equal Access to Justice Act, 28 U.S.C. § 2412.

DEFINITIONS

1. "Document" is synonymous in meaning and equal in scope to the usage of the term in Federal Rule of Civil Procedure 34(a), and includes writings, drawings, graphs, charts, photographs, audio and video recordings, computer records, and other data compilations from which information can be obtained and translated, if necessary, through detection devices into reasonably usable form. A draft or non-identical copy is a separate document within the meaning of the term; and

2. "Person" means any individual, group, unincorporated association, limited or general partnership, corporation, or other business entity.

I. PROHIBITED BUSINESS ACTIVITIES

IT IS THEREFORE ORDERED that Defendants Second Federal Credit, Inc. and Frank DeMaio, and their officers, agents, servants, employees, attorneys, and all persons or entities directly or indirectly under their control or under common control with them, and all other persons or entities in active concert or participation with them, with respect to the sale of any services or products, are hereby permanently restrained and enjoined from:

A. Misrepresenting that Defendants can improve substantially consumers' credit reports or profiles by permanently removing bankruptcies, liens, judgments, charge-offs, late payments, foreclosures, repossessions, and other negative information from consumers' credit reports;

B. Misrepresenting any fact concerning Defendants' ability to perform or provide any credit-related products or services for consumers, including but not limited to consolidating debt, obtaining or arranging a loan, or obtaining or arranging any extension of credit;

C. Misrepresenting that the building of a new credit record by applying for credit using an employer identification number (EIN) or a taxpayer identification number (TIN) instead of a social security number is legal; and

D. Misrepresenting any fact material to a consumer's decision to purchase Defendants' services or products.

II. CREDIT REPAIR ORGANIZATIONS ACT

A. Violating 15 U.S.C. § 1679b(b) by charging or receiving any money or other valuable consideration for services that the credit repair organization has agreed to perform before such services are fully performed; and

B. Violating 15 U.S.C. § 1679b(a)(3) by making or using any untrue or misleading representation of the services of a credit repair organization.

III. MASSACHUSETTS CONSUMER PROTECTION LAWS AND REGULATIONS

A. Violating M.G.L. c. 93A, § 2(a) and M.G.L. c. 93, § 68B, by charging or receiving money or other valuable consideration from consumers prior to full, complete and satisfactory performance of services Defendants have agreed to provide;

B. Violating M.G.L. c. 93A, § 2(a) and 940 C.M.R. §§ 3.05(1) and 3.16(2) by unfairly and deceptively representing that:

1. 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

2. Consumers can remove negative information from consumers' credit reports, even if such information is accurate and not obsolete; and

C. Violating M.G.L. c. 93A, § 2(a) and 940 C.M.R. §§ 3.05(1) and 3.16(2) by failing to disclose that consumer reporting agencies do not typically remove accurate and non-obsolete credit information from consumers' credit reports once such information has been verified.

IV. CONSUMER REDRESS AND DAMAGES

IT IS FURTHER ORDERED that Defendants Second Federal Credit, Inc. and Frank DeMaio shall pay to the Commonwealth the sum of one thousand dollars ($1,000) no later than five business days after entry of this Order.

In the event of any default on any obligation to make payment under this Part, interest, computed pursuant to 28 U.S.C. § 1961(a), shall accrue from the date of default to the date of payment.

The funds paid by Defendants Second Federal Credit, Inc. and Frank DeMaio pursuant to this Order shall be deposited into a redress fund, administered by the Commonwealth, to be used for equitable relief including but not limited to consumer redress and any attendant expenses for the administration of any redress fund. If Plaintiffs determine, in their sole discretion, that redress to purchasers is wholly or partially impracticable, any funds not so used shall be paid to the United States Treasury or to the Commonwealth in lieu of redress. Defendants shall be notified as to how the funds are disbursed but shall have no right to contest the manner of distribution chosen by Plaintiffs. Plaintiffs in their sole discretion may use a designated agent to administer consumer redress. Plaintiffs and Defendants Second Federal Credit, Inc. and Frank DeMaio acknowledge and agree that this judgment for equitable monetary relief is solely remedial in nature and is not a fine, penalty, punitive assessment, or forfeiture.

Any funds reverting to the Commonwealth pursuant to this section shall be deposited in the Attorney General's Local Consumer Aid Fund for the purpose of translating consumer education materials into different languages.

V. RIGHT TO REOPEN

IT IS FURTHER ORDERED that within three (3) business days after the date this Order is entered, Defendants shall submit to Plaintiffs a truthful sworn statement in the form shown on Exhibit A of this Order that shall reaffirm and attest to the truthfulness, accuracy and completeness of the financial statements signed by Defendants on March 17, 1998. The financial statements themselves will not be filed with this Order. Plaintiffs' agreement to this Order is expressly premised upon the financial conditions of Defendants as represented in the financial statements referenced above, which contained material information upon which Plaintiffs relied in negotiating and agreeing upon this Order. If, upon motion by Plaintiffs, this court finds that Defendants failed to file the sworn statement required by this part of the Order, or filed a financial statement that failed to disclose any material asset, or materially misrepresented the value of any asset, or made any other material misrepresentation in or omission from the financial statements, Plaintiffs may request that the judgment herein be reopened for the purpose of requiring monetary redress or obtaining other equitable relief; provided, however, that in all other respects this judgment shall be final and remain in full force and effect, unless otherwise ordered by this Court; and provided further, that proceedings instituted under this Part are in addition to and not in lieu of any other civil or criminal remedies as may be provided by law, including, but not limited to, contempt proceedings, or any other proceedings Plaintiffs may initiate to enforce this Order.

VI. CEASE COLLECTIONS, NOTICES TO CONSUMERS, CORRECT CONSUMER REPORTS, AND TREATMENT OF LAWSUITS FILED AGAINST CONSUMERS

A. Cease all collection efforts on accounts arising from contracts signed between Defendants and their credit repair clients prior to the date this Order is entered, if any such efforts have been undertaken;

B. Within ten (10) days after the date this Order is entered, or within ten (10) days of receiving payment, return to credit repair clients all payments, if any, that have been or may be received by Defendants, directly or indirectly, since the date the Temporary Restraining Order and Asset Freeze was entered, on accounts arising from contracts signed between Defendants and the clients prior to the date this Order is entered. Include with each such returned payment a notice to the client stating that as a result of an agreement between Defendants, the Federal Trade Commission, and the Commonwealth of Massachusetts settling allegations that Defendants misrepresented their ability to repair credit reports, those clients' contracts are rescinded and no further payments are due;

C. Within ten (10) days after the date this Order is entered, mail notices to all credit repair clients, if any, who have payments that are due or may become due on contracts signed prior to the date this Order is entered. Such notices shall state that as a result of an agreement between Defendants, the Federal Trade Commission, and the Commonwealth of Massachusetts settling allegations that Defendants misrepresented their ability to repair credit reports, those clients' contracts are rescinded and no further payments are due;

D. Within ten (10) days after the date this Order is entered, mail notices to all consumers, if any, to whom Defendants represented that it was legal to use a Taxpayer Identification Number or Employer Identification Number in place of a social security number for credit or other purposes. Such notices shall state that as a result of an agreement between Defendants, the Federal Trade Commission, and the Commonwealth of Massachusetts settling allegations that Defendants misrepresented the legality of the use of a Taxpayer Identification Number in place of a social security number for credit purposes, Defendants are notifying consumers that in fact it is not legal and that consumers who use Taxpayer Identification Numbers or Employer Identification Numbers in this manner may be violating federal and state laws;

E. Within thirty (30) days after the date this Order is entered, provide a list of names and addresses of clients, if any, on whom Defendants, their agents or representatives, have reported negative credit information, to:

1. all credit reporting agencies to whom Defendants, their agents or representatives, have previously reported credit information, and

2. all other credit reporting agencies designated by Plaintiffs; and direct those credit reporting agencies to remove all negative credit information provided by Defendants, their agents or representatives from those clients' reports;

F. Within thirty (30) days after the date this Order is entered, move for voluntary dismissal of legal actions filed by Defendants against consumers, if any, in which Defendants seek to recover money allegedly owed by consumers for the provision of credit repair services, and notify the court(s) in such motions that voluntary dismissal is sought pursuant to an agreement between Defendants, the Federal Trade Commission, and the Commonwealth of Massachusetts settling allegations that Defendants misrepresented their ability to repair credit reports;

G. Within thirty (30) days after the date this Order is entered, file motions to vacate judgments obtained against consumers, if any, in any court pursuant to legal actions filed by Defendants against consumers in which Defendants sought to recover money allegedly owed by consumers for the provision of credit repair services, and notify the court(s) that the motions to vacate are sought pursuant to an agreement between Defendants, the Federal Trade Commission, and the Commonwealth of Massachusetts settling allegations that Defendants misrepresented their ability to repair credit reports; and

H. Within sixty (60) days after the date this Order is entered, provide (1) the names and addresses of those clients to whom payments were returned and/or notices were sent pursuant to Subparagraphs B, C, and D above, if any; (2) a copy of the list of clients' names and addresses provided to credit reporting agencies pursuant to Subparagraph E above, if any; (3) copies of the motions to dismiss filed pursuant to Subparagraph F above, if any; and (4) copies of the motions to vacate filed pursuant to Subparagraph G above, if any, to: Director, Boston Regional Office, Federal Trade Commission, Suite 810, 101 Merrimac Street, Boston, Massachusetts 02114.

VII. MONITORING PROVISIONS

IT IS FURTHER ORDERED that, in order to facilitate Plaintiffs' monitoring of compliance with the provisions of this Order, Defendants shall, for three (3) years after the date of entry of this Order:

A. Notify Plaintiffs in writing, within thirty (30) days after service of this Order, of current residences, addresses, and employment statuses, including the names and business addresses of their current employers, if any;

B. Notify Plaintiffs in writing within thirty (30) days of any change in their residential addresses or telephone numbers and provide such new addresses and numbers;

C. Notify Plaintiffs in writing within thirty (30) days of any change in employment status; such notice shall include the names, addresses, and telephone numbers of their new employers, a statement of the nature of the businesses of their employers, and statements of duties and responsibilities in connection with the business;

D. Notify Plaintiffs in writing at least thirty (30) days prior to the effective date of any proposed change in the structure of any business entity owned or controlled by either of them, such as creation, incorporation, dissolution, assignment, sale, creation or dissolution of subsidiaries, or any other changes that may affect compliance obligations arising out of this Order;

E. Upon reasonable written notice from the Commission or the Commonwealth, permit duly authorized representatives of Plaintiffs access during normal business hours to the offices of any company under the control of either of them, wherever located, to inspect and to copy all documents belonging to either of them and all documents of any company owned or controlled by either of them in whole or in part, relating in any way to any credit repair conduct subject to this Order;

F. Refrain from interfering with duly authorized representatives of Plaintiffs who wish to interview, upon reasonable written notice, the employers, agents, and employees of Defendants (who may have counsel present) relating in any way to any credit repair conduct subject to this Order;

G. Upon thirty (30) days written notice by any duly authorized representative of Plaintiffs submit written reports (under oath, if requested) and produce documents with respect to any conduct subject to this Order;

H. Appear on fifteen (15) days notice for deposition with respect to any conduct subject to this Order;

I. Within ten (10) days of the entry of this Order, provide to all current employees who are engaged in the selling or are offering to sell goods or services related to the improvement of any consumer's credit standing or creditworthiness a copy of this Order and secure from each such employee a signed, dated statement, in writing, acknowledging receipt of such copy, which statement shall be maintained and made available to Plaintiffs for inspection and copying upon request;

J. Within ten (10) days of their first day of employment, deliver to all future employees who are engaged in selling or are offering to sell goods or services related to the improvement of any consumer's credit standing or creditworthiness a copy of this Order and secure from each such employee a signed, dated statement, in writing, acknowledging receipt of such copy, which statement shall be maintained and made available to Plaintiffs for inspection and copying upon request; and

K. Maintain for a period of five (5) years after the last date of dissemination and, upon request, make available to Plaintiffs for inspection and copying, with respect to any representation covered by this Order:

1. All advertisements and promotional materials containing the representation;

2. All materials that were relied upon in disseminating the representation;

3. All tests, reports, studies, surveys, demonstrations, or other evidence in their possession or control that contradict, qualify, or call into question the representation, or the basis relied upon for the representation, including complaints and other communications with consumers or with governmental or consumer protection organizations; and

4. All lists of purchasers of goods or services related to the improvement of any consumer's credit standing or creditworthiness.

Provided further, that Plaintiffs may otherwise monitor Defendants' compliance with this Order by all lawful means available, including but not limited to the use of investigators posing as consumers, potential investors, suppliers and other entities.

VIII. CLIENT LISTS

IT IS FURTHER ORDERED that Defendants Second Federal Credit, Inc. and Frank DeMaio, and their officers, agents, servants, employees, attorneys, and all persons or entities directly or indirectly under their control or under common control with them, and all other persons or entities in active concert or participation with them, are hereby permanently restrained and enjoined from selling, renting, leasing, transferring, or otherwise disclosing the name, address, telephone number, social security number, or other identifying information of any person who paid any money to Defendants, at any time prior to the date this Order is entered, in connection with the provision of credit repair services. Provided, however, that Defendants may disclose such identifying information to a law enforcement agency or as required by any law, regulation, or court order.

IX. RETENTION OF JURISDICTION

IT IS FURTHER ORDERED that this Court retains jurisdiction of this matter for all purposes.

The parties agree and stipulate to entry of the foregoing Order as a Final Judgment in this action.

DATED:_______________
SECOND FEDERAL CREDIT, INC.,
By:
FRANK DEMAIO
President

DATED:_______________
FRANK DEMAIO, individually and as an officer of the corporation

DATED:_______________
BRUCE TURGISS
Mass. Bar Reg. No. 550398
Attorney for Defendants
3 Woodside Lane
Burlington, MA 01803
(781) 272-0730

DEBRA A. VALENTINE
General Counsel
Federal Trade Commission

ANDREW D. CAVERLY
Acting Regional Director
Boston Regional Office

DATED:_______________
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

DATED:_______________
ANTHONY RODRIGUEZ
Mass. Bar Reg. No. 562626
Assistant Attorney General
Office of the Attorney General
1 Ashburton Place, 19th Floor
Boston, Massachusetts 02108
(617) 727-2200, X2980

IT IS SO ORDERED, this _____ day of _____________, 1998.

________________________________
Honorable Nancy Gertner
United States District Judge

EXHIBIT A

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

THE FEDERAL TRADE COMMISSION and
THE COMMONWEALTH OF MASSACHUSETTS
Plaintiffs

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

CIVIL NO. 98-10348NG

SECOND DECLARATION OF FRANK DEMAIO

I, Frank DeMaio, hereby state that the information contained in the financial statements and related papers provided to the Federal Trade Commission and the Commonwealth of Massachusetts on behalf of myself individually and Second Federal Credit, Inc. on March 17, 1998 was true, accurate and complete at such time. Copies of the aforementioned financial statements and related papers are attached hereto as Appendices A and B.

I declare under penalty of perjury that the foregoing is true and correct.

Executed on ____________________

_______________________________
FRANK DEMAIO
Individually and as an officer of
Second Federal Credit, Inc.