Sounding a cautionary note to the hypercompetitive credit report resale and monitoring industry, the U.S. Court of Appeals for the Ninth Circuit recently held that a reseller’s statements on its website and in television advertisements made it a “credit repair organization” under the federal Credit Repair Organizations Act (CROA), 15 U.S.C. sec. 1679 et seq. (Title IV of the Consumer Credit Protection Act).

The case, Stout v. FreeScore, LLC, No. 10-56887 (9th Cir., Feb. 21, 2014), is a putative class action which alleges that FreeScore, LLC d/b/a FreeScore.com, a consumer credit report reseller,  violated certain requirements of CROA and made misleading statements.  FreeScore successfully moved to dismiss the case, with the U.S. District Court ruling that FreeScore was not a credit repair organization because it “did not make any promises of credit improvement” but merely “promise[d] to provide a consumer with his or her credit score….”  On appeal, the Ninth Circuit reversed the District Court’s dismissal of the case and remanded it for further proceedings, finding that “FreeScore falls squarely within the CROA’s definition of a ‘credit repair organization.’” 

Section 1679a(3) of CROA defines a “credit repair organization” as “any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of — (i) improving any consumer’s credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).”

Following a majority of cases from other circuits, the Ninth Circuit held that a mere representation that one can or will sell, provide or perform a service for the purpose of providing advice to a consumer with regard to improving a consumer’s credit record, credit history or credit rating will render one a credit repair organization under CROA.  It is not necessary that any such service actually be sold, provided or performed.

In an opinion liberally peppered with excerpts from FreeScore’s advertisements and promotional statements, the Court of Appeals, seeking to ascertain a consumer viewer’s “overall net impression” of such statements, found that they explicitly and implicitly represented that FreeScore’s services “can improve or assist in improving a consumer’s credit record, history, or rating.” In light of this finding, the court denied effect to FreeScore’s written disclaimer that “FreeScore and its benefit providers are not credit repair service providers and do not receive fees for such services, nor are they credit clinics, credit repair or credit service organizations or businesses, as defined by federal and state law.”

Among the lessons to be learned from this case, credit report resellers and others should carefully review and edit any and all statements on websites and in advertisements and promotional materials to ensure that they cannot be construed as promising to improve, or to provide advice or assistance with regard to improving, consumers’ credit reports, histories or scores.