On June 18, 2014, the United States District Court for the Eastern District of Texas entered a Stipulated Order for Permanent Injunction and Civil Penalty Judgment (the “Order”) against RMCN Credit Services, Inc. and its two principals (“RMCN”) and in favor of the United States. On October 12, 2011, the United States filed an action against RMCN, alleging that RMCN violated the Credit Repair Organizations Act of 1997. After almost three years of litigation, RMCN agreed to settle and the Order was entered by the Court this week.
RMCN’s Alleged Violations of the Credit Repair Organizations Act
The complaint filed against RMCN alleged two distinct violations of the Credit Repair Organizations Act. First, the complaint alleged that RMCN charged consumers a “retainer” fee before performing any credit repair services, in violation of the law. Pursuant to the Credit Repair Organization Act, “credit repair organizations [are prohibited] from charging or receiving any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform before such service is fully performed.” Despite this advanced fee ban, RMCN would charge consumers fees generally ranging from $900 to $2000, and charged an additional fee of $89 to $109 on a monthly receiving basis before fully performing the promised services.
The complaint also alleged that RMCN led “consumers to believe that RMCN operates within the law and it is legal for RMCN to dispute credit report information that is accurate.” According to the complaint, RMCN allegedly informed consumers that federal law permitted RMCN to dispute negative information on the consumer’s credit report regardless of its accuracy, and promoted its services with the slogan “prove it or remove it.” These alleged representations were not accurate, and violated the Credit Repair Organization Act’s prohibition on making “any untrue or misleading statement, or any statement which, upon the exercise of reasonable care, should be known by the credit repair organization . . . to be untrue or misleading, with respect to any consumer’s credit worthiness, credit standing, or credit capacity to any consumer reporting agency.”
The Order bars RMCN and its principals from making untrue or misleading statements to consumer reporting agencies and charging consumers advance “retainer” fees prior to fully performing the promised services. To the extent that consumers of RMCN were charged “retainer” fees, RMCN must send letters to those existing customers, informing them of the Order and offering a right to cancel their respective contracts with RMCN. RMCN is further prohibited from making any false or misleading statements with respect to its credit repair services in the future. The Order imposes a $2.35 million civil penalty against RMCN and its principals. The judgment will be suspended provided that RMCN timely pays $400,000 to the United States.
Credit repair companies must be cautious in how they advertise both their services and their right to collect fees from customers. Readers of this blog are well aware of the fact that various United States agencies have been actively enforcing advertising and consumer protection regulations. As such, it is important that credit repair companies consult with legal counsel to avoid regulatory investigations, lawsuits and substantial civil penalty awards.