Non Profit Credit Repair

Sections 1679-1679j, and that certain principles of the organisation were individually responsible under CROA.

Zimmerman's ruling passes a far-reaching ruling by CROA, which puts credit consulting firms on an equal footing with credit repair companies. Consequently, we are likely to see an increase in credit repair class-action which may be maiming to non-profit credit consultancies, especially those that are offering or providing financial support to re-negotiate, reconcile, reduce or otherwise change the conditions of consumers debt.

By CROA, a credit repair firm is understood to mean any individual, whether a lawyer or not, who uses inter-state trade or post to resell or supply a service for the explicit or implicit purposes of enhancing a consumer's creditworthiness. A number of actions and practice are prohibited by CROA, including: misrepresentation of service that a credit repair firm can render, 15 U.S.C. 1679b(a)(3); and involvement in or attempt to engage in cheating or deceiving any individual in relation to the credit repair firm's service, Id.

Loan repair firms may not obtain payment until a committed performance has been completed. Those activities must be provided under a signed agreement containing a declaration of confidentiality. The CROA can be asserted by the Federal Trade Commission ("FTC"), prosecutors and individual claimants in the courts (including collective actions).

Consumer can bring an action to claim the higher amount from the compensation already or actually received, penalty compensation, cost and attorney's fee for breaches of CROA. Andrew and Kelly Zimmerman, man and woman, participated in a DMP in 2001 at Cambridge Credit Consulting Corporation, a tax-exempt non-profit credit consulting firm, after hearing about Cambridge through broadcast, TV and web advertising.

The Zimmermans in 2003 charged Cambridge Credit Consulting Corporation, its founder John and Richard Puccio and several other affiliates with infringing CROA, a bill that typically governs those who provide credit repair service, in particular credit repair organisations, as well as the State Consumers Acts. First, the Regional Tribunal approved the defendant's application to reject the Zimmermanns' actions and found that the credit advisory office was exempted from CROA as a non-profit organisation.

Upon appealing against this ruling, the First Circuit Court reversed the rejection of the plaintiffs' national actions by the Circuit Court and remitted the case for re-examination. Cambridge Credit Counseling Corp. First Circuit determined that the legal exemption from CROA responsibility for "any charitable entity exempted from tax pursuant to Section 501(c)(3) of the Internal Revenue Code, 15 U.S.C. Section 1679(a)(3)(B)(i)" did not hold the Respondents to be tax exonerated solely because it was found by the Internal Revenue Service to be exempted from tax under Section 501(c)(3) of the Internal Revenue Code.

Instead, the First Circuit decided that in order to benefit from the legal exemptions, a company "must actually be a non-profit organisation and be exempted from tax under Section 501(c)(3) of the Internal Revenue Code". Consequently, the First Circuit judgment read far more into the law than Congress had planned, and possibly called on credit unions to provide evidence in the courts that they were actually working as non-profit-organisations.

The case was returned to the county courthouse after First Circuit was remanded in custody. On this occasion, the Regional Tribunal confirmed a number of DMP clients and gave the carpenters a lot of companionship at the plaintiff's desk in this collective lawsuit. During January 2008, the Regional Tribunal reviewed these conflicting claims and issued a summarized verdict to the claimants.

When awarding a summative judgement to the applicants, contrary to the 2004 judgement, the CFI found that the credit advice bureau and various other respondents, among them a back-office processing and marketer run by the Puccios, acted as credit repair companies within the scope of CROA because they'exceeded the limit from credit advice to credit repair with their continuing and persistent assurances to the consumer that their service could only contribute to improving customers' credit.

However, the Tribunal found that the credit bureau, which in the meantime had resolved the case with the claimants and is still tax-exempt, was not exempted under CROA's rules for non-profit organisations because, at the moment of the transaction with the claimants, it was 'actually and legally not acting as a non-profit'.

CROA' s credit advisory office and the defendant, as credit repair companies, had not fulfilled any of CROA' s conditions. Furthermore, the Regional Tribunal found that the accused had infringed CROA by invoicing advance payments to customers before they had fully provided the service that they had agreed to. Furthermore, with respect to CROA's rules addressed not only to credit repair companies but also to'any person', the CFI found that the Puccios and the defendant companies were responsible for'mak[ing] or us[ing] . ... providing a deceptive representation[s] of the service of[a] credit repair companies' under 15 U.S.C. § 1679b(a)(3) and for 'engage[ing] ...'.

in any] course of conduct that represents or leads to an attempted act of... cheating or deceiving any individual in relation to the offering or selling of the "credit repair organization's services" pursuant to 15 U.S.C. § 1679b(a)(4). For example, the tribunal found that the company accused made deceptive statements to customers that they would retain a non-profit credit consulting firm even though their bank account was actually assigned to a for-profit company.

Puccios was finally adjudicated by the County Supreme Court and awarded $256,527,000 in compensation to the claimants on our certificated class's account, which related only to compensation payments and not penalty payments, which are then tripled under CROA. Puccios relied on the fact that they did not come within the scope of CROA because their credit advisory firm was not a 'credit repair organisation' within the meaning of the law.

The parties also submitted that the Regional Tribunal had made a mistake in holding them responsible for involvement in frauds under Section 1679b(a)(4). The Puccios eventually reasoned in their main reasoning, which was based on their material responsibility according to 1679b(a)(3), that the county tribunal did not in fact award them according to the rule "misleading representation", Id.

As an alternative, if the county tribunal found them guilty under (a)(3), the Puccios reasoned that the county tribunal again made a mistake by drilling the company mist. First Circuit confirmed the granting of a preliminary ruling by the County Supreme Court to the claimants and concluded that "credit advice to improve creditworthiness behaviour in the foreseeable future is the central credit repair facility.

At Hillis, the County Tribunal (located in the 11th county) distinguished between the claim to repair or retrospectively remedy past credit issues and the claim to enhance creditworthiness in the present, and because the credit repair organisation's scope of application relates to the provision of a service whose objective is to enhance a consumer's creditworthiness, creditworthiness or credit ratings, CROA's credit repair business needs did not cover a service that "provides only potential credit counsel ing to customers or informs customers so that they can inform them that they are providing potential credit counsel to consumers".

" Instead, the First Circuit referred to the County Tribunal as saying that the alleged'forward-looking orientation' of customer creditworthiness claims'does not lessen the apparent signal to borrowers that these service providers could change the impact of their credit histories on their creditworthiness. The credit record changes continuously, depending on the continuous power of the user.

Through the prospective improvement of credit behaviour, a customer seeks to enhance an already established credit file, credit histories and/or credit ratings with a more favourable balance sheet, historical or valuation in the market. When it found that several of the other respondents were also credit repair companies, the First Circuit upheld the Puccios Regional Court's decision under Section 1679b(a)(3) on the basis that their customers were misled because they thought they were doing transactions with a not-for-profit entity even though their bank account was in fact fully served by a for-profit entity.

First Circuit did not raise the issue of'fraud or deception' in relation to the offering or selling of the credit repair company's service. First Circuit seems to be leaving little room for credit advice agents to make available to the consumer LMPs that fall outside the CROA' s remit.

In addition, there has already been a ruling in this series of cases that provides for a two-part test for good faith, tax-exempt, not-for-profit credit advice agents to commit these agencies: 1 ) be recognised by the IRS as exempted from the Federal Revenue Act pursuant to Section 501(c)(3) of the Internal Revenue Code; and 2 ) effectively function as a good faith charitable organisation.

Consequently, the First Circuit requests that a not-for-profit association, which could otherwise be served by CROA, comply with this two-part review in order to be exempted from the statutes. In simple terms, the doors are now open to collective actions aimed at credit advisory firms - regardless of tax-exempt or non-profit nature - relying on nothing more than the delivery of DMP schemes by the firms (linked to the training and advice they provide).

Specifically, a claimant may make such an assertion against a good faith, tax-exempt, not-for-profit credit advisory firm, and then the firm must not only demonstrate that the IRS has recognised its 501(c)(3) legal personality, but that it actually operates as a good faith, not-for-profit organisation if it is to be considered exempted from CROA compliance.

Briefly, credit rating firms need to establish whether they can and should meet the needs of CROA or whether they want to depend on non-profit freedom. Whilst the FTC and the Attorneys General may not be standing in line to take CROA enforcements against trusted non-profit organisations, the plaintiff's cash will be likely, especially because the fines per customer for CROA breaches are so high and because, if they succeed, they can reclaim their attorneys' costs.

Whilst this case was poorly championed and contained tremendous facts of supposed misconduct that did not resemble the activities of today's legit credit advisory firms, even those of Cambridge itself, the Tribunal took a comprehensive approach to the concept of a credit repair organisation and thus the size of CROA.

Loan advisors are now faced with the unanticipated challenges of an interpretative approach that puts them within the ambit of a law that should be applicable to credit advisory independent service providers. This judgment increases the risks, in particular for credit advisory firms operating in the first circuit (including Maine, Massachusetts, New Hampshire, Puerto Rico and Rhode Island), that their operations, in particular their LMPs and less than full reimbursement programmes,

CROA reporting can lead to CROA reporting and collective redress, requiring them - at great cost - to demonstrate that they are indeed acting as good -believing non-profit organisations (to be exempted from CROA, especially for what has happened in the past), or else to meet CROA needs on a prospective basis.

In spite of a declared waiver for tax-exempt non-profit organisations in CROA, the wide application of the law passed by the First Circuit can, unfortunately, result in a surge of legal disputes against lawful non-profit credit advisors who offer priceless help to those who are in difficulty financially.