FL-Florida

Florida

FL ST § 817.69

Part III. Credit Service Organizations

Title XLVI. Crimes (Chapters 775-899)

Chapter 817. Fraudulent Practices

Part III. Credit Service Organizations

817.69. Repealed by Laws 1973, c. 73-124, § 3

817.70. Repealed by Laws 1973, c. 73-124, § 3

817.7001. Definitions

As used in this part:

(1) "Buyer" means any individual who is solicited to purchase, or who purchases, the services of a credit service organization.

(2)(a) "Credit service organization" means any person who, with respect to the extension of credit by others, sells, provides, performs, or represents that he or she can or will sell, provide, or perform, in return for the payment of money or other valuable consideration, any of the following services:

1. Improving a buyer's credit record, history, or rating;

2. Obtaining an extension of credit for a buyer; or

3. Providing advice or assistance to a buyer with regard to the services described in either subparagraph 1. or subparagraph 2.

(b) "Credit service organization" does not include:

1. Any person authorized to make loans or extensions of credit under the laws of this state or the United States who is subject to regulation and supervision by this state or the United States or a lender approved by the United States Secretary of Housing and Urban Development for participation in any mortgage insurance program under the National Housing Act;

2. Any bank, savings bank, or savings and loan association whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation, or a subsidiary of such bank, savings bank, or savings and loan association;

3. Any credit union, federal credit union, or out-of-state credit union doing business in this state;

4. Any nonprofit organization exempt from taxation under s. 501(c)(3) of the Internal Revenue Code; [FN1]

5. Any person licensed as a real estate broker by this state if the person is acting within the course and scope of that license;

6. Any person collecting consumer claims pursuant to s. 559.72;

7. Any person licensed to practice law in this state if the person renders services within the course and scope of his or her practice as an attorney and does not engage in the credit service business on a regular and continuing basis;

8. Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission if the broker-dealer is acting within the course and scope of that regulation; or

9. Any consumer reporting agency as defined in the Federal Fair Credit Reporting Act, 15 U.S.C. ss. 1681-1681t.

(3) "Extension of credit" means the right to defer payment of debt or to incur debt and defer its payment offered or granted primarily for personal, family, or household purposes.

[FN1] 26 U.S.C.A. § 501(c)(3).

817.7005. Prohibited acts

A credit service organization, its salespersons, agents, and representatives, and independent contractors who sell or attempt to sell the services of a credit service organization shall not do any of the following:

(1) Charge or receive any money or other valuable consideration prior to full and complete performance of the services the credit service organization has agreed to perform for the buyer, unless the credit service organization has obtained a surety bond of $10,000 issued by a surety company admitted to do business in this state and has established a trust account at a federally insured bank or savings and loan association located in this state; however, where a credit service organization has obtained a surety bond and established a trust account as provided herein, the credit service organization may charge or receive money or other valuable consideration prior to full and complete performance of the services it has agreed to perform for the buyer but shall deposit all money or other valuable consideration received in its trust account until the full and complete performance of the services it has agreed to perform for the buyer;

(2) Charge or receive any money or other valuable consideration solely for referral of the buyer to a retail seller or to any other credit grantor, who will or may extend credit to the buyer if the credit that is or will be extended to the buyer is upon substantially the same terms as those available to the general public;

(3) Make, or counsel or advise any buyer to make, any statement that is false or misleading or that should be known by the exercise of reasonable care to be false or misleading, or omit any material fact to a consumer reporting agency or to any person who has extended credit to a buyer or to whom a buyer is applying for an extension of credit with respect to a buyer's credit worthiness, credit standing, or credit capacity; or

(4) Make or use any false or misleading representations or omit any material fact in the offer or sale of the services of a credit service organization or engage, directly or indirectly, in any act, practice, or course of business that operates or would operate as fraud or deception upon any person in connection with the offer or sale of the services of a credit service organization, notwithstanding the absence of reliance by the buyer.

817.701. Surety bonds; exemption

The requirement to obtain a surety bond and establish a trust account as provided in s. 817.7005(1) shall be waived for any salesperson, agent, or representative of a credit service organization where the credit service organization obtains such surety bond and establishes such trust account.

817.702. Statement to buyer

Upon execution of the contract as provided in s. 817.704 or agreement between the buyer and a credit service organization and before the receipt by the credit service organization of any money or other valuable consideration, whichever occurs first, the credit service organization shall provide the buyer with a statement, in writing, containing all the information required by s. 817.703. The credit service organization shall maintain on file for a period of 5 years an exact copy of the statement, personally signed by the buyer, acknowledging receipt of a copy of the statement.

817.703. Information statement

The information statement required under s. 817.702 shall include all of the following:

(1)(a) A complete and accurate statement of the buyer's right to review any file on the buyer maintained by any consumer reporting agency, as provided under the Federal Fair Credit Reporting Act, 15 U.S.C. ss. 1681-1681t;

(b) A statement that the buyer may review his or her consumer reporting agency file at no charge if a request is made to the consumer reporting agency within 30 days after receiving notice that credit has been denied; and

(c) The approximate price the buyer will be charged by the consumer reporting agency to review his or her consumer reporting agency file.

(2) A complete and accurate statement of the buyer's right to dispute directly with a consumer reporting agency the completeness or accuracy of any item contained in any file on the buyer maintained by the consumer reporting agency.

(3) A statement that accurate information cannot be permanently removed from the file of a consumer reporting agency.

(4) A complete and detailed description of the service to be performed by the credit service organization for the buyer and the total amount the buyer will have to pay, or become obligated to pay, for the services.

(5) A statement notifying the buyer of his or her right to proceed against the bond or trust account required under s. 817.7005.

(6) The name and address of the surety company which issued the bond, or the name and address of the depository and the trustee and the account number of the trust account.

817.704. Provisions of contract

(1) Each contract between the buyer and a credit service organization for the purchase of the services of the credit service organization shall be in writing, dated, signed by the buyer, and shall include all of the following:

(a) A conspicuous statement in boldfaced type, in immediate proximity to the space reserved for the signature of the buyer, as follows: "You, the buyer, may cancel this contract at any time prior to midnight of the fifth day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right";

(b) The terms and conditions of payment, including the total of all payments to be made by the buyer, specifying the amount of the payments to be made to the credit service organization or to some other person;

(c) A full and detailed description of the services to be performed by the credit service organization for the buyer, including all guarantees and all promises of full or partial refunds, and the estimated date by which the services are to be performed or the estimated length of time for performing the services; and

(d) The credit service organization's principal business address and the name and address of its agent in the state authorized to receive service of process.

(2) The contract shall be accompanied by a completed form in duplicate, captioned "Notice of Cancellation," that shall be attached to the contract, be easily detachable, and contain in boldfaced type the following statement written in the same language used in the contract:

NOTICE OF CANCELLATION

You may cancel this contract, without any penalty or obligation, within 5 days from the date the contract is signed.

If you cancel any payment made by you under this contract, it will be returned within 10 days following receipt by the credit service organization of your cancellation notice.

To cancel this contract, mail or deliver a signed dated copy of this cancellation notice, or any other written notice to:

(name of credit service organization) at

(address of credit service organization) ,

(place of business) not later than midnight

(date) .

I hereby cancel this transaction (date) .

(purchaser's signature) .

The credit service organization shall give to the buyer a copy of the completed contract and all other documents the credit service organization requires the buyer to sign at the time they are signed.

817.705. Waivers; burden of proof; penalties

(1) Any waiver by a buyer of any part of this part is void. Any attempt by a credit service organization to have a buyer waive rights given by this part is a violation of this part.

(2) In any proceeding involving this part, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

(3) Any person who violates this part is guilty of a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.

(4) This section does not prohibit the enforcement by any person of any right provided by this or any other law.

817.706. Actions for damages

(1) Any buyer injured by a violation of this part may bring an action for recovery of damages. Judgment shall be entered for actual damages, but in no case less than the amount paid by the buyer to the credit service organization, plus reasonable attorney's fees and costs. An award may also be entered for punitive damages.

(2) Any buyer injured by a violation of this part may bring an action against the surety bond or trust account of the credit service organization.

(3) The remedies provided under this part are in addition to any other procedures or remedies for any violation or conduct provided for in any other law.

817.71. Repealed by Laws 1973, c. 73-124, § 3

817.72. Repealed by Laws 1973, c. 73-124, § 3

817.73. Repealed by Laws 1973, c. 73-124, § 3

817.74. Repealed by Laws 1973, c. 73-124, § 3

817.75. Repealed by Laws 1973, c. 73-124, § 3

817.751. Repealed by Laws 1973, c. 73-124, § 3

817.76. Repealed by Laws 1973, c. 73-124, § 3

817.77. Repealed by Laws 1973, c. 73-124, § 3

817.771. Repealed by Laws 1973, c. 73-124, § 3

817.78. Repealed by Laws 1973, c. 73-124, § 3

817.79. Repealed by Laws 1973, c. 73-124, § 3

817.80. Repealed by Laws 1973, c. 73-124, § 3

Current with chapters in effect from the 2007 First Regular Session of the Twentieth Legislature through June 8, 2007

END OF DOCUMENT

77-AUG FLBJ 28

Florida Bar Journal

CREDIT REPAIR ORGANIZATIONS AFTER REGULATION Wolves in Nonprofits' Clothing?

July/August, 2003

77-AUG Fla. B.J. 28

Florida Bar Journal

July/August, 2003

*28 CREDIT REPAIR ORGANIZATIONS AFTER REGULATION

Wolves in Nonprofits' Clothing?

Marta Lugones Moakley [FNa1]

Copyright © 2003 by Florida Bar; Marta Lugones Moakley

Some time has passed since "credit repair" organizations emerged on the commercial landscape and led regulators to take notice in the 1980s. A product of modern American society's tendency to overspend and overfinance, credit repair organizations entice consumers with products and services that would "repair" a consumer's credit report in order to avoid future problematic and embarrassing rejections for credit. As with most advertised quick fixes, many products and services offered by credit repair organizations were not viewed by consumers as effective as had been initially marketed. Companies routinely advertised to take consumers out of debt in record time despite limited possibilities of doing so utilizing lawful means. Some even encouraged consumers to engage in fraudulent acts to accomplish such extraordinary results.

Consumers invested funds with credit repair organizations which-would have been better spent toward reducing their own mounting debt. Many consumers became disappointed when negative credit information remained on their credit reports for the usual legal time periods, which range from three to seven years for ordinary debts, and can be as much as 10 years for bankruptcies. In some instances, debt collectors continued to contact consumers, and the lack of a healthy credit history resulted in continued embarrassing rejections for financing and other extensions of credit.

In response to rampant consumer dissatisfaction, many enforcement agencies sponsored legislation to prevent such deceptive practices on the part of credit repair organizations. Some businesses implemented the legislative mandates and continued operations in a legitimate manner. However, numerous targeted businesses sought to identify loopholes in the new legislation and initiated changes in their organizational structure or certain key promotional tools that could exempt them from the new laws.

In order to make informed decisions, consumers should be aware of the evolving tactics used by credit repair organizations in their marketing and business practices. As is discussed below, it is important for consumers to identify "credit repair," even if it is not so termed, and understand the services for which they are contracting.

What Does Credit Repair Look Like?

Many organizations currently engaging in "credit repair" services no longer use the term. At first, businesses used the term due to its appeal to consumers with negative credit histories. However, "credit repair" has taken on negative connotations in recent years, akin to the much-maligned term "telemarketer." "Credit repair" companies have been the subject of many a consumer advocate's cautionary tale: They have been portrayed as scam artists who pitch quick financial stability only to eventually destroy credit ratings and perhaps force consumers into bankruptcy. Indeed, the practices of a few companies have given the entire industry a black eye--so much so that even bad actors have recently distanced themselves from the name "credit repair."

A typical credit repair scheme is predicated upon the use of marketing claiming that a consumer's bad credit will be repaired by purchasing a particular company's financial services. [FN1] Certain credit repair companies have claimed to erase errors on a consumer's credit report by *30 exploiting technicalities, while others have promised to provide a consumer with stellar credit by arranging for new federal tax identification numbers. Some engage in debt consolidation services and even employ elements of multi-level marketing. Certain organizations actually forego a hands-on financial services approach and simply provide limited services, such as mailing literature or holding a training seminar, in order to provide the tools to "repair" a consumer's credit. Prior to regulation, the hallmark of most credit repair organizations was the billing of advance fees to consumers before any credit repair services were provided.

Other iterations of credit repair schemes include advance fee secured or unsecured credit card promotions, which market such cards as a way to build up credit, but can often result in consumers paying hefty fees for credit card applications or worthless "pay as you go" cards. Other programs are billed as methods to rebuild credit and consolidate debt, but which often charge additional undisclosed and significant fees. Related schemes include mortgage assistance frauds, where, for a hefty advance fee, companies promise consumers assistance in saving a home from foreclosure, only to eventually fail to do so, all the while depriving the consumer of their legal rights.

Whereas some schemes are obviously fraudulent, others are deceptive or less conspicuously unfair. For example, where success in a plan has been predicated upon a consumer engaging in fraudulent acts such as assuming a name or using another's social security number, such business practices are clearly fraudulent. In addition, schemes that failed to provide adequate disclosures to consumer or demanded illegal advance fees resulted in consumer harm. [FN2]

The problem inherent within all such schemes is that, even if each company charges only a small amount of money as an advance fee to each consumer, the percentage or relative loss to the consumer is enormous. [FN3] The companies engaging in outright credit repair scams, however, are preying on some of the most vulnerable segments of the consuming public: those on fixed incomes, such as seniors; those with major debts, perhaps brought on by illness; and those who simply cannot afford their own bills, much less oppressive advance fees.

At the root of the problem is the tendency of these schemes to take a consumer's money and put it toward high and possibly unnecessary fees prior to any services being provided, when the consumer is desperately trying to make ends meet. In many instances, even the work of reputable credit repair organizations may be accomplished easily and economically by the consumer's directly dealing with creditors. [FN4] A consumer could be much better off placing whatever funds to which they have access toward the payment of already existing bills, rather than to a new creditor's advance fees.

The proliferation of such business practices by credit repair organizations caused investigations by law enforcement agencies at all levels of government. In addition to the traditional methods of enforcement available to agencies against such scams, new regulations were enacted in order to specifically address many of the abuses perpetrated on the consuming public by credit repair organizations.

Regulators' Response to Credit Repair Organizations

In order to combat the ill effects of credit repair organizations' business practices on consumers, regulators at the federal and state levels enacted a number of statutes addressing these practices, both on a broad and on a specific basis.

Traditionally, consumer protection regulation has consisted of barring trade practices which are misleading, deceptive, unfair, or unconscionable, or in any way restrict trade. Laws which have been employed in regulating credit repair organizations are discussed in detail below.

• The Federal Credit Repair Organizations Act

The Federal Credit Repair Organizations Act (CROA) is a consumer protection statute enacted September 30, 1996. The CROA is a subchapter of the Consumer Credit Protection Act. [FN5] The CROA was enacted because "[c]ertain advertising and business practices of some companies engaged in the business of credit repair services have worked *32 a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters." [FN6]

A credit repair organization, as defined by the CROA, is any person who uses an instrumentality of interstate commerce or the mails to provide services that improve a consumer's credit, or provide advice or assistance to any consumer regarding his or her credit. [FN7] Credit repair organizations are barred from making statements which are untrue or misleading with respect to a consumer's credit, [FN8] such as statements that encourage the alteration of a consumer's identification. [FN9] Credit repair organizations are barred from employing untrue or misleading representations of their services, [FN10] and from engaging in any business practice that constitutes or results in the commission of fraud. [FN11]

The major practical ramifications of this act include a requirement for credit repair organizations to provide consumers with a written contract [FN12] containing significant disclosures, [FN13] cancellation rights for consumers, [FN14] and a bar on advance payments for credit repair services. [FN15] Such protections may not be waived by consumers, and any attempt by a credit repair organization is in itself a violation of CROA. [FN16]

CROA contemplates and authorizes both administrative enforcement as well as private rights of action. [FN17] Civil liabilities include actual [FN18] and punitive damages, [FN19] as well as attorneys' fees and costs for the prevailing party in a successful action to enforce liability. [FN20] The remedies available to the enforcing authority are those set forth in the Federal Trade Commission Act, [FN21] which is discussed in detail below. States are specifically authorized by the provisions of CROA to directly enforce its provisions. [FN22]

The CROA has proven a useful tool in prosecuting a wide variety of offenders. Numerous FTC, state, and private actions have been filed pursuant to the act. [FN23] Courts have broadly construed the requirement that organizations receive "valuable consideration" for services, so that the CROA has been applied to creditors who are not the initial entity that extended credit to the consumer. [FN24] The CROA has also been applied to banks, despite a specific exclusion in §1679a(b)(iii), because the prohibitions apply to the broad term "persons," which includes banks. [FN25]

However, an important exemption from the definition of "credit repair organization" in the CROA, and one that has indeed become crucial in the evolution of credit repair organizations covered by the act, relates to "any nonprofit organization exempt from taxation under §501(c)(3) of title 26." [FN26] Various states had enacted similar statutes to the CROA, with exemptions that mirror those in the federal legislation. Florida is one of those states.

• The Florida Credit Service Organizations Act

The Florida Credit Service Organizations Act (FCSOA) [FN27] was enacted in 1987 to regulate certain trade practices in the area of credit repair and to guard against unfair and unconscionable contracts between credit service organizations and consumers. The major tenets of the FCSOA include the requirement that a written statement be provided to consumers, [FN28] the regulation of contract provisions, [FN29] a prohibition against any consumer waivers of any protections provided by the act, [FN30] a provision for criminal penalties for violations of the act, [FN31] as well as a provision for actions for damages. [FN32] FCSOA prohibits the charging of consumers prior to the performance of services by a credit services organization, with the slight exception that if the provider maintains a surety bond and trust account, consumers may be billed prior to the performance of services. [FN33] In addition, credit services organizations may not charge any money solely for the referral of the buyer to a retail credit services seller if the terms available to the buyer are "substantially the same" as the terms available to the general public. [FN34] In addition to containing general prohibitions against misrepresentations in the sale of credit services, the FCSOA prohibits any credit service organization from advising a consumer to make a misleading or deceptive statement in order to obtain credit. [FN35]

FCSOA only addresses practices by "credit service organizations," which are defined as any person who sells, provides, performs or represents, or advises, certain services will improve a consumer's credit record, history, or rating, or who will obtain an extension of credit for a buyer. [FN36] A number of exemptions to the definition of "credit service organizations" are found in the statute, primarily for regulated entities such as banks insured by the Federal Deposit Insurance Corporation, [FN37] broker-dealers registered with the Securities and Exchange Commission, [FN38] or attorneys who do not engage in the credit service business on a regular and continuing basis. [FN39]

As is the case in the federal act, nonprofit organizations are exempt from the FCSOA. [FN40] Therefore, as a practical matter, credit repair organizations regulated in Florida are for-profit corporations providing credit services which are not otherwise regulated.

• Industry Response

Some credit repair organizations sought to change the way they define their business practices to conform with the new legislative mandates, while others sought to maintain their business practices *33 intact. Some have begun promotions of regulated credit repair services as "free," by linking the ostensibly free services to other noncredit services requiring substantial advance payments. This relatively transparent tactic has been adequately prosecuted by agencies under CROA and FCSOA, as well as other statutes. [FN41] In addition, unsuccessful challenges have been made to CROA and other regulation of the credit repair organizations on First Amendment grounds. [FN42]

A more attractive loophole has surfaced in the guise of a corporate change. Certain organizations that have been regulated against and even successfully prosecuted under the CROA and FCSOA are now operating as charities, having successfully applied for the Internal Revenue Services' §501(c)(3) exemptions.

• IRS §501(c)(3) Exempt Organizations

Section 501(c)(3) organizations are tax-exempt organizations organized and operated exclusively for the purposes enumerated in §501(c)(3) of the Internal Revenue Code and whose earnings do not inure to any private shareholder or individual. Section 501(c)(3) organizations are those that are religious, educational, charitable, scientific, or literary in nature; those that conduct testing for public safety; those that foster national or international amateur sports competition; or work toward prevention of cruelty to children or animals. Certain credit repair organizations who previously have been subject to regulation and violated the advance fee provisions of the CROA and FCSOA have successfully applied for §501(c)(3) status by touting themselves as purveyors of consumer education. [FN43] Other legitimate credit counseling agencies have also attained this status as providers of consumer educational services. [FN44]

Although the move to nonprofit status may seem puzzling in an industry which frequently relies on aggressive marketing tactics and high client fees, the corporate change can be quite beneficial to the particular company's bottom line. Because many creditors will pay recovery fees, which are also called "fair share" payments, exclusively to nonprofit organizations, [FN45] the credit repair organizations can receive a sizable increase in funds per consumer. Fair share payments are provided by creditors to the debt consolidators for providing an avenue for debt collection other than the usual charge-offs and collection agency referrals. Such arrangements may benefit consumers in that they may avoid a creditor's reporting of negative credit information. Fair share payments constitute a small portion of a consumer's monthly payment, usually between seven percent to 15 percent of the payment. [FN46] In contrast, collection agency fees can be as much as 50 *34 percent of any recovered amount. Therefore, credit repair organizations who change their corporate status have two avenues from which to make money, although both streams originate from the consumer's funds: direct fees to the consumer, and kickback payments from the creditors. Some credit repair organizations have reorganized as §501(c)(3) organizations in order to continue certain deceptive practices as well as to increase profits.

In the face of such evasive tactics employed by some in the credit repair industry, the question emerges whether the loopholes in present statutes necessitate the enactment of new legislation. Before this question may be answered, an analysis of additional consumer protection statutes is appropriate.

• The FTC Act

The FTC act succinctly declares that "[u]nfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful." [FN47] The standard for deception used by the FTC has evolved over the years. [FN48] A practice is deceptive if "there is a representation, omission or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment." [FN49]

The FTC act has been enforced against a great number of business practices in numerous industries, and the credit repair services area is no exception. In addition, the broad ban on unfair or deceptive acts has also led the way to a wealth of rules and regulations [FN50] and significant judicial precedent. [FN51] This broad ban was adopted quite deliberately in order to encompass the limitless "human inventiveness" in the field of unfair business practices. [FN52] Remedies available under the act include administrative remedies in the form of cease and desist orders, [FN53] civil penalties, [FN54] and consumer redress. [FN55]

The broad statutory language in the FTC act allows for successful prosecution of companies which may have changed slightly their business practices to exploit loopholes in more tightly worded legislation. For example, if a not-for-profit credit repair organization is charging consumers advance payments and failing to deliver services to the consumer, the FTC act's prohibitions against "deceptive" or "misleading" practices could be enforced against this conduct, even if a prosecution pursuant to CROA is unsuccessful based on its specific prohibition against advance payments. Of course, any conduct found to be in violation of the CROA would also be in violation of the FTC act. [FN56]

• The Florida Deceptive and Unfair Trade Practices Act

Also available to regulators and consumers is the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), [FN57] which is Florida's "little FTC act." FDUTPA's provisions are broad in scope and general in terms, yet also succinct: "Unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful." [FN58] In deciding whether an act or practice may be deemed deceptive under FDUTPA, due consideration and great weight must be given to the interpretations of the FTC. [FN59]

FDUTPA applies to activities and practices in "trade or commerce." [FN60] FDUTPA specifically includes the conduct of any trade or commerce, including "any nonprofit or not-for-profit person or activity." [FN61]

A violation of FDUTPA is defined as any violation of FDUTPA, or may be predicated upon violations of any rules promulgated pursuant to the FTC act, any standards of unfairness or deception set forth by the FTC or the federal courts, or any law, statute, or other provision which proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices. [FN62] Local ordinances are specifically not preempted by FDUTPA, [FN63] and, in fact, may form the basis for per se violations of FDUTPA. Therefore, consumers as well as enforcing authorities have at their disposal a great amount of statutory and decisional precedent in order to make a successful claim pursuant to FDUTPA.

The practices employed by credit repair organizations described herein, pursuant to FTC and decisional precedent, are deceptive, patently unfair to the consumer and, at times, unconscionable. Moreover, charities are not exempt from the provisions of FDUTPA, and indeed are regulated by federal, state, and local governments, including the IRS. Certain states have specifically designated charity bureaus within the office of the attorney general or exercise oversight over charitable trusts. [FN64] Charities are subject to full regulation in Florida under FDUTPA. Charities are subject to subpoenas, and must provide regulators with financial information, including information on what percentage of money goes to a charity's stated purpose. [FN65]

Even in cases involving nonprofit organizations or charities, a consumer need not await an enforcement action by the attorney general to ensure restitution: A private right of action exists under FDUTPA. [FN66]

• Other Applicable Provisions of Federal and Florida Law

Several federal statutes address different iterations of deceptive trade practices employed by certain credit repair organizations. Various specific acts within the Consumer Credit Protection Act and the Truth in Lending Act, other than the CROA itself, may be invoked to protect consumers in the area of credit protection and debt consolidation. [FN67] The Telemarketing and Consumer Fraud and Abuse Prevention Act [FN68] has been employed to thwart illegal advance fee card promotions. [FN69] The Federal Racketeer Influenced Corrupt Organizations (RICO) Act [FN70] has also been employed in cases concerning a variety of credit repair services. [FN71] Statutes criminalizing mail fraud have been applied to debt consolidation cases. [FN72]

There are also numerous other enforcement provisions of the Florida Statutes that address emergent issues in the area of credit repair. For example, the Florida Free Gift Advertising Law [FN73] restricts the use of *35 the word "free," to include such terms as "awarded," "prize," "absolutely without charge," "free of charge," to only those items that are, in fact, free. [FN74] The statute may be enforced by the commissioner of agriculture or the attorney general for injunctive relief. There is no private right of action pursuant to this statute.

The Consumer Collection Practices Act seeks to protect consumers from unscrupulous practices of debt collectors. [FN75] Other civil statutes that may be applicable are the Civil Theft Statute [FN76] and the Florida RICO Act. [FN77] Both statutes may be enforced by the Department of Legal Affairs, but also provide for a private right of action.

The law related to business organizations in Florida contains a number of enforcement provisions which regulate the practices of not-for-profit corporations. F.S. §617.0503(2) outlines the Department of Legal Affairs' investigatory authority as to corporate documents. Section 617.1403(1)(a) sets forth the grounds for judicial dissolution of a corporation by an action brought by the Department of Legal Affairs, which covers instances where a corporation has obtained its articles of incorporation through fraud, or has continued to exceed or abuse the authority conferred upon it by law. The section also provides grounds for dissolution by a member of the corporation or by a creditor. [FN78]

F.S. §617.2003 provides that the Department of Legal Affairs may institute proceedings to revoke the articles of incorporation or charter, to prevent its improper use, or for disgorgement of improperly received profits upon receipt of a complaint from a consumer that the corporation has engaged in illegal activity. [FN79]

Conclusion

Not every nonprofit corporation is a reputable organization. Whether deceptive or unfair business practices are employed by a profit or non-profit corporation, they are and will continue to be illegal.

As with most scams, consumer education is the single most effective tool in thwarting credit repair swindlers. Consumers should beware that these deceptive practices are to their detriment, and that they should research the histories and reputability of not-for-profit corporations with the same care and vigor that they research a for-profit entity. Consumers need to understand that contracting with any credit repair, credit services or debt consolidation company requiring advance fees for its services may prove disastrous to their credit.

Advance fees have been couched as "deposits" under a contract for services, or as fees that will be returned only after successful completion of the credit repair program (the term "successful" being strictly defined by the credit repair organization). *36 Advance fees may also be payments for books, pamphlets or other materials used in the credit repair organization's program, which must be made prior to receiving any such materials. Moreover, the prices of these materials are usually grossly inflated. Most often, contracts for credit repair services do not contain full disclosures of a consumer's rights and responsibilities and fail to disclose all fees and payments (including any fair share payments). Such practices are not favorable to consumers and are employed by less than reputable companies, whether or not they are §501(c)(3) organizations.

At this time, there are no loopholes to the meaningful regulation of credit repair organizations. Even though there have been attempts to evade the provisions of CROA and FCSOA, new legislation is not necessary to combat any attempts by scam artists to avoid the penalties of current laws--existing legislation is broad and encompassing so as to adequately protect the consuming public from such threats. Cooperation among the various regulators at the federal and state levels continues to improve so that enforcement agency partnerships and information sharing on cases is reaching synergistic levels.

Florida consumers can take heart: The proper tools are in place to combat credit repair scams. With the current statutory and decisional precedent, as well as the vigilance of law enforcement agencies at the federal and state levels, consumers will be able to thwart a purported charity's attempts at deception and unfairness.

[FNa1]. Marta Lugones Moakley is an assistant attorney general in the economic crimes division of the Office of the Attorney General. She holds an A.B. in English, magna cum laude, from the University of Miami and a J.D. from Georgetown University Law Center . She is admitted to practice in New York and Florida .

[FN1]. The Federal Trade Commission and other law enforcement agencies have taken part in coordinated enforcement actions to address a wide variety of credit repair schemes described herein, including credit repair scams, advance fee credit card schemes and debt negotiation. See, e.g., Federal Trade Commission, News Release, FTC, States Give "No Credit" to Finance-Related Scams in Latest Joint Law Enforcement Sweep, September 5, 2002.

[FN2]. See, e.g., United Companies Lending Corp v. Sargeant, 20 F. Supp. 2d 192 (D. Mass 1998) (subprime mortgage lender's original fee was unfair and deceptive trade practice and broker not entitled to brokerage fee); Federal Trade Commission v. Gill, 265 F.3d 944 (9th Cir. Cal. 2001) (requirement of down payment for services at conclusion of initial consultation illegal); Federal Trade Commission v. American Standard Credit Systems, Inc., 874 F. Supp. 1080 (C.D. Cal. 1994) (company's failure to disclose consumers could only obtain credit cards by paying processing fees, meeting qualifying criteria and providing a bank account deposit held a deceptive practice).

[FN3]. It is important to note that even though credit repair contracts may not make fiscal sense for consumers (i.e., are a bad deal), they are not, on those grounds alone, illegal. However, such circumstances provide grounds for regulation, such as the regulation of advance fees, but do not merit the proscription of fees in toto. See, e.g., 15 U.S.C. §1679b(2); In re National Credit Management Group, L.L.C., 21 F. Supp.2d 424, 459 (D.N.J. 1998).

[FN4]. However, reputable companies sometimes can negotiate much lower interest rates for consumers and require a budget, which can be quite helpful to consumers with large debt.

[FN5]. 15 U.S.C. §1601 et seq.

[FN6]. 15 U.S.C. §1679(a)(2).

[FN7]. 15 U.S.C. §1679a(3).

[FN8]. 15 U.S.C. §1679b(a)(1).

[FN9]. 15 U.S.C. §1679b(a)(2).

[FN10]. 15 U.S.C. §1679b(a)(3).

[FN11]. 15 U.S.C. §1679b(a)(4).

[FN12]. 15 U.S.C. §1679d.

[FN13]. 15 U.S.C. §1679c.

[FN14]. 15 U.S.C. §1679d(b)(4) and 15 U.S.C. §1679e.

[FN15]. 15 U.S.C. §1679b(b).

[FN16]. 15 U.S.C. §1679f(a), (b).

[FN17]. See e.g., Roe v. Gray, 165 F. Supp.2d 1164 (D. Colo. 2001) (private action).

[FN18]. 15 U.S.C. §1679g(a)(1).

[FN19]. 15 U.S.C. §1679g(a)(2).

[FN20]. 15 U.S.C. §1679g(a)(3).

[FN21]. 15 U.S.C. §41 et seq.

[FN22]. 15 U.S.C. §1679h(c).

[FN23]. See, e.g., In re National Credit Management Group, L.L.C., 21 F. Supp.2d 424 (N.J. 1998); Federal Trade Commission v. Gill, 265 F.3d 944 (9th Cir. Cal. 2001).

[FN24]. Bigalke v. Creditrust Corp., 165 F. Supp.2d 996 (N.D. Ill. 2001) (business purchasing delinquent debts at a discount from various financial institutions and then collects from debtors subject to the CROA).

[FN25]. Vance v. Nat'l Benefit Ass'n, 1999 WL 731764, at *3-4 (N.D. Ill. Aug. 30, 1999), cited in Bigalke, 165 F. Supp.2d at 999.

[FN26]. 15 U.S.C. §1679a(3)(B)(i). Other exemptions include any creditor assisting the consumer to restructure an existing debt as well as banks and credit unions. 15 U.S.C. §1679a(3)(B).

[FN27]. Fla. Stat. ch. 817, pt. III, the Credit Service Organizations Act (2002).

[FN28]. Fla. Stat. §817.702.

[FN29]. Fla. Stat. §817.704.

[FN30]. Fla. Stat. §817.705(1).

[FN31]. Fla. Stat. §817.705(2).

[FN32]. Fla. Stat. §817.706. Actual damages and punitive damages may be awarded under the act.

[FN33]. Fla. Stat. §817.7005(1).

[FN34]. Fla. Stat. §817.7005(2).

[FN35]. Fla. Stat. §817.7005(3).

[FN36]. Fla. Stat. §817.7001(2)(a).

[FN37]. Fla. Stat. §817.7001(2).

[FN38]. Fla. Stat. §817.7001(8).

[FN39]. Fla. Stat. §817.7001(7).

[FN40]. Fla. Stat. §817.7001(4).

[FN41]. See discussion infra.

[FN42]. In re National Credit Management Group, L.L.C., 21 F. Supp.2d (D. N.J. 1998).

[FN43]. Id.

[FN44]. Although consumer credit counseling agencies have been successful at applying for §501(c)(3) status, they are not exempt from Florida sales and use taxes as "social welfare" agencies. Consumer Credit Counseling Service of the Florida Gulf Coast, Inc. v. State Department of Revenue, 742 So. 2d 259 (Fla. 2d D.C.A. 1997).

[FN45]. This practice constitutes an attempt at self-regulation by the credit industry. Most major credit card providers and lenders will only pay recovery fees to §501(c)(3) organizations and/or companies who have otherwise shown reputable business practices.

[FN46]. There has been a scaling back in the percentage of fair share payments by creditors. See Credit Counseling Firms Threatened By Kickback Cuts, CBS Marketwatch.com, October 7, 2002.

[FN47]. 15 U.S.C. §45(a)(1).

[FN48]. Administrative and decisional precedent shows a recession from the standard of "tendency or capacity" to mislead. See Amrep Corp. v. FTC, 768 F.2d 1171, 1179 (10th Cir. 1985); United Companies Lending Corp. v. Sargeant, 20 F.Supp.2d 192 (D. Mass. 1998). See also FTC v. Sperry & Hutchinson Co., 405 U.S. 233 (1972).

[FN49]. Southwest Sunsites, Inc. v. FTC, 785 F.2d 1431, 1435 (C.A. 9 1986), citing Cliffdale Associates, Inc., 3 CCH Trade Reg.Rep. ¶ 22,137 (1984), and Amrep Corp. v. FTC, 768 F.2d 1171, 1179 (10th Cir. 1985).

[FN50]. See, e.g., the Telemarketing Sales Rule. 16 C.F.R. §310.3. The Telemarketing Sales Rules has been cited in civil enforcement actions involving credit repair organizations. In re National Credit Management Group, L.L.C., 71 F. Supp.2d 424 (D.N.J. 1998).

[FN51]. A thorough study of the seminal cases in this area cannot be undertaken adequately herein. However, many of the violations of other statutes cited herein are per se violations of the FTC act as well.

[FN52]. Federal Trade Commission v. Sperry & Hutchison Co., 92 S. Ct. 898 at 903 (1972), quoting H.R.Conf. Rep. No. 1142, 63d Cong., 2d Sess., 19 (1914).

[FN53]. 15 U.S.C. §45(b).

[FN54]. 15 U.S.C. §45(1), (m)(1)(A), (m)(B).

[FN55]. 15 U.S.C. §53(b). This section provides for restitution and disgorgement as well.

[FN56]. 15 U.S.C. §1679h(b); see, e.g., FTC v. Gill, 265 F.3d at 950.

[FN57]. Fla. Stat. §501.201 et seq. (2002).

[FN58]. Fla. Stat. §501.204(1) (2002).

[FN59]. See §501.204(2); see also Urling v. Helms Exterminators, Inc., 468 So. 2d 451 (Fla. 1st D.C.A.1985); Millennium Communications & Fulfillment, Inc. v. Office of Attorney General, 761 So. 2d 1256, 1263 (Fla. 3d D.C.A. 2000).

[FN60]. "Advertising, soliciting, providing, offering, or distributing, whether by sale, rental, or otherwise, of any good or service, or any property, whether tangible or intangible, or any other article, commodity, or thing of value, wherever situated." §501.203(8).

[FN61]. Fla. Stat. §501.203(8).

[FN62]. Fla. Stat. §501.203(3).

[FN63]. Fla. Stat. §501.213(2).

[FN64]. For example, New York and New Hampshire have charity bureaus. Other state attorneys general, such as California 's, oversee a registry of charitable trusts.

[FN65]. This right of regulators has been under attack in recent cases. Charities have argued that the First Amendment to the U.S. Constitution protects them from having to turn over such information. The Supreme Court is set to decide this issue this term in Madigan v. Telemarketing Associates, Inc., et al. No. 01-1806 (U.S. filed June 5, 2002).

[FN66]. Fla. Stat. §501.211; see, e.g., Macias v. HBC of Florida, 694 So. 2d 88 (Fla. 3d D.C.A. 1997); Rollins, Inc. v. Heller, 454 So. 2d 580 (Fla. 3d D.C.A. 1984).

[FN67]. 15 U.S.C. §1601 et seq., including the Truth in Lending Class Action Relief Act of 1995; Fair Debt Collection Practices Act.

[FN68]. 15 U.S.C.A. §6101 et seq.

[FN69]. People of State of New York by Vacco v. Financial Services Network, USA, 930 F. Supp. 865 (W.D.N.Y. 1996).

[FN70]. 18 U.S.C. §1961 et seq.

[FN71]. See, e.g., Stewart v. Associates Consumer Discount Company, 1 F. Supp.2d 469 (E.D. Pa. 1998) (motion to dismiss for failure to state a claim denied where borrower brought class action against debt consolidation company); Lawson v. Nationwide Mortgage Corp., 628 F. Supp. 804 (D.D.C. 1986) (RICO claim applied to case involving personal debt consolidation loan).

[FN72]. U.S. v. Bertin, 254 F. Supp. 937 (D. Md. 1966).

[FN73]. Fla. Stat. §817.415..

[FN74]. The provision does exempt any necessary transportation or delivery charges paid directly to the U.S. Postal Service or other regulated public carrier. §817.415(4).

[FN75]. Fla. Stat. §559.72; see Schauer v. General Motors Acceptance Corp., 819 So. 2d 809 (Fla. 4th D.C.A. 2002).

[FN76]. Fla. Stat. §812.035.

[FN77]. Fla. Stat. §895.05.

[FN78]. Fla. Stat. §617.1403(2) et seq. Grounds include deadlock on the part of the directors for the former action and insolvency for the latter.

[FN79]. Fla. Stat. §617.2003 requires that the consumer submit prima facie evidence of the alleged conduct and submit sufficient money to cover court costs and expenses of the Department of Legal Affairs.