What Does the Veracity Credit Consultants Lawsuit Mean for the Credit Repair Industry?

Posted 2/28/2010 9:14:03 AM in Credit Repair Companies
It's a case that anyone operating in the credit repair industry will likely want to keep a close eye on. On February 22, Colorado Attorney General John Suthers announced that attorneys from his office's Consumer Protection Section had filed a lawsuit against Denver based Veracity Credit Consultants, a credit repair company providing services since 2003. The lawsuit alleges that Veracity violates federal and state laws prohibiting credit repair companies from charging for services before those services have been performed, making misleading statements in marketing materials, and not providing proper disclosure to consumers.This will be a particularly interesting case because unlike other credit repair companies that have recently been shut down by the FTC, on the surface, Veracity appears to be one of the more legally compliant companies out there. Their general billing practices look to be in line with what is typical among many of the largest credit repair companies and there are certainly far more blatant examples of misleading messaging among other companies in the industry. While there may be specific illegal activities that set Veracity apart from other credit repair companies that have raised the ire of the Attorney General, they aren't highlighted in the court documents (PDF).

Traditionally, when credit experts consider what it means to charge for credit repair services only after those services have been performed, it is not interpreted as meaning companies are unable to collect any payment until the entire process of repairing a person's credit report has been completed. Instead, it is interpreted as meaning that companies can itemize their services and, according to their contract between themselves and the customer, charge once each agreed upon service has been provided. So, in Veracity's case, this means that the initial "Membership Fee" is not charged until after certain steps have been performed to initiate the credit repair service such as reviewing the customer's credit report and developing a plan of action. The monthly fees are then charged each month after a month's worth of services have been provided.

In the court documents, Veracity is accused of violating the law by charging consumer the Membership Fee and Monthly Fees "prior to full and complete performance of the services Veracity has agreed to perform for the buyers."

Given the none of the other major credit repair companies offer a pricing model where consumers are not required to pay anything until all services have been performed, if the Attorney General wins their lawsuit, it could have much larger implications for Colorado residents. Not wanting to change their business model to comply with the Colorado Attorney General's interpretation of the law, this could result in other credit repair companies no longer being able to provide services in Colorado which would be an unfortunate circumstance for those residents looking to receive assistance with their credit repair efforts.