Beware of Credit Repair Scams

| Filed under: 

Consumers across the country have fallen prey to credit repair who prepare and file lawsuits against debt collectors for allegedly accessing the consumer’s credit reports without a permissible purpose allowed by federal law.

In order to prevent being taken in by this scam, consumers need to understand the limitations on their right to privacy which only partially protects their credit reports.

The Fair Credit Reporting Act (“FCRA”) establishes approximately ten (10) permissible purposes for which someone can access the consumer’s protected credit information.   If the company who obtained the consumer’s credit report obtained the information for a reason other than one of these ten permissible purposes, the consumer may have a right to sue the company.

Persons who have a permissible purpose to obtain a credit report include persons who:

 “[intend] to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer”

Fair Credit Reporting Act, 15 U.S.C. Section 1681b(a)(3)(A).

This provision frequently allows debt collectors to access otherwise protected credit information.

Recently, many consumers without assistance of a licensed lawyer have sued debt collectors for accessing their credit reports without a permissible purpose.   Based upon reading the complaints in the consumers’ lawsuits, it is impossible to conclusively determine whether the consumers have a meritorious case or not.  But, these lawsuits are very suspicious and at least one federal court appears to share my suspicion.

Experienced consumer lawyers typically address the ten permissible purposes and allege facts that tend to negate that the defendant who obtained the credit report had a permissible purpose.

People who pay credit repair scam operators frequently have at least several past due accounts which remain past due.  If the accounts have been sold or assigned to a debt collector, each of these debt collectors probably have a permissible purpose to access the consumer’s protected credit information.

In Covington v. Absolute Collection Service, a magistrate judge for the United States District Court of the Middle District of North Carolina summarized his findings in this case along with thirteen (13) other related cases.

The Court sent orders to the fourteen plaintiffs who purportedly filed their own lawsuits directing the plaintiffs to appear in court and explain why their cases should not be dismissed because they failed to properly serve the defendants with the summons and complaint.

Only one of the plaintiffs appeared in court.   The court summarized this lone plaintiff’s testimony as follows:

“[h]e denied preparing, signing, or filing any documents in his case (or authorizing anyone else to take such action), but did acknowledge that he talked to someone he knew only as ‘Musa’ about improving his credit record.

The Court called Mr. Covington’s lawsuit a “sham lawsuit” before dismissing it because Mr. Covington failed to properly serve the complaint as required by law despite being reminded by the Court.

In another case, King v. Equable Ascent Financial, LLC, the United States District Court for the Middle District of North Carolina recently dismissed a similar lawsuit filed by Mr. King.

In King, the consumer alleged that Equable Ascent, a rather large debt collector, violated the FCRA by accessing his credit report.  The consumer alleged that he:

“has never had any business dealings or any accounts with, made application for credit from, made application for employment with, applied for insurance from, or received a bona fide offer of credit from”

defendant Equable Ascent.  The Court emphasized that the consumer did not allege, that “he had no delinquent accounts” or allege other facts which would tend to negate the inference that Equable Ascent was attempting to collect a debt owed by the consumer.

Consumers often do not know who owns their charged off accounts or which debt collectors have attempted to collect the account.   Unless the consumer saved the dunning letters that the consumer received, this history is often difficult to reconstruct.

Under federal law, creditors and debt collectors do not have to provide consumers a notice that the consumer’s account was sold or assigned to a debt collector.   Some states require a written notice.  For example, Florida law requires a written notice but the statute was recently gutted to allow debt collectors an unspecified “reasonable time” to provide consumers a written notice of the assignment rather than requiring debt collectors to notify the consumer within thirty days.

Even the credit reports are often not very helpful.   Debt collectors often access credit reports without reporting the account information to the credit reporting agency.   When a debt collector reports account information, the consumer can review the account information to assure that the debt collector is attempting to collect an account which belongs to the consumer.

Credit reports obtained from the consumer credit reporting agency typically identify the companies that accessed the consumer’s credit information within the past two years.   But, the credit reporting agencies are not required to identify the original creditor for the account that they are attempting to collect nor are the credit reporting agencies required to disclose this important information in the consumer’s credit report.

The King Court acknowledged that it is often difficult for consumers to know why another person obtained their credit report.   The King Court observed that:

“[c]ertainly there will be cases where the consumer has had some contact with the person or entity obtaining the report and will be able to draw inferences  or make allegations on the basis of those contacts.”

Consumers who sue debt collectors for impermissible access should have a good faith basis for alleging that they do not owe the defendant debt collector any money.

Consumers should save the dunning letters that they receive from debt collectors and maintain logs of their incoming telephone calls and provide these documents to an experienced consumer rights attorney to refer to when they review the consumer’s credit reports.

Consumers should run away from the “credit repair” person who recommends that they sue a debt collector for obtaining the consumer’s credit report or any other lawsuit.  “Credit repair” counselors are seldom licensed to practice law in any state and are not qualified to represent or provide legal advice to consumers.

Consumers who believe that companies may have accessed their credit information without a purpose allowed under the Fair Credit Reporting Act should consult with an experienced consumer rights lawyer.   For a free list of consumer lawyers who are licensed to practice law in your state, go to NACA.Net/find-attorney, enter your state, press search and then identify a lawyer whose practice description includes “credit reports / unauthorized use (privacy invasion).”

About the Author:

Donald E. Petersen is an Orlando, Florida consumer lawyer whose practice is limited to representing consumers in Fair Debt Collection Practices Act (“FDCPA”), Telephone Consumer Protection Act (“TCPA”), Fair Credit Reporting Act (“FCRA”), bankruptcy discharge violation, and other consumer rights cases.  Mr. Petersen also defends consumers against debt collection lawsuits.   Mr. Petersen frequently writes about consumer issues on www.FDCPA.me and has been a NACA member since 2001.