(CN) – A federal judge in Miami barred two credit-repair companies from requiring advance payment for services and from telling customers that accurate negative information will be removed from their credit reports.
The orders came out of a settlement between the companies, Legal Credit Repair Center and Ace Group, and the Federal Trade Commission. In October 2008, the FTC sued the companies and three individuals as part of “Operation Clean Sweep,” a crackdown on companies offering to clean up consumer credit reports.
Legal Credit Repair Center and Ace Group made customers pay $59.95 upfront, and then demanded another $59.95 a month for services, according to the FTC’s lawsuit.
The companies sent letters to credit-reporting agencies disputing negative credit information on behalf of customers, and then claimed that their actions removed negative credit information from reports, even if the information was accurate, the government claimed.
U.S. District Judge Patricia Seitz barred the companies from promising customers that the bad credit information will be removed from their credit reports. One order is against Ace Group, Legal Credit Repair Center, Gerald Roth and Michael Singer. The other is against Melvin Kessler, who filed for Chapter 7 bankruptcy.
The orders cite violations of the Credit Repair Organizations Act and include a $20.6 million judgment against company heads, which will be suspended if the individuals agree to make lower payments or are found financially unable to pay.
A press release issued by the FTC said nationwide credit-reporting companies are required to provide a free copy of an individual’s credit report once a year, and federal law mandates that errors be corrected at no charge.