Several credit repair companies settled with the Federal Trade Commission last week as regulators crack down on misleading financial services practices. Dealerships should educate customers about these scams and make sure borrowers are improving their credit profiles legally.
The settlements relate to a complaint filed last June that alleges the credit repair providers "targeted consumers with false promises of substantially improving consumers' credit scores."
Among the promises made? Removing negative items such as delinquencies and hard credit inquiries from consumer credit reports.
The companies also charged upfront fees for services, which is illegal. One of the companies covered by the settlement, Grand Teton Professionals, swindled consumers out of at least $6.2 million since 2014.
"These companies promised to clean up people's credit, but failed to deliver," Andrew Smith, director of the FTC's Bureau of Consumer Protection, said in a statement. "If anyone says they can remove accurate and current information from your credit report, that's probably a credit repair scam."
Such fraud activity is on the rise, and regulators are taking note. Synthetic identity fraud, frequently used to defraud auto lenders, often masquerades as credit repair. Fraud detection specialist PointPredictive noted a new fraud wave that hit auto lenders in December was likely linked to a rise in credit repair schemes.
More than $5.5 million in auto loan applications were linked to the fraud outbreak, in which borrowers applied using synthetic identities crafted with manipulated Social Security numbers.
Several other credit repair companies, which operated in Wyoming, New Jersey and Colorado, were named in the FTC settlement. The companies were charged with violating the FTC Act, several provisions of the Credit Repair Organizations Act, the Telemarketing Sales Rule, the Consumer Review Fairness Act, the Truth in Lending Act and the Electronic Funds Transfer Act. Many were required to pay millions of dollars to the federal agency.
Dealership F&I managers should advise customers against doing business with credit repair agencies. There are several legal methods of improving credit scores, including using tools from credit bureaus to incorporate alternative data and working with customers to manage debt. Helping customers qualify for a vehicle loan or lease they can afford will help them build up credit legally, and it will increase customer loyalty as they work toward their dream car.