Today's Trends in Credit Regulation

Are You a Credit Repair Organization?
By Catherine C. Worthington

Navigating state and federal law governing credit repair services organizations is tricky business. Step one would be to figure out whether you are a credit repair organization. The U.S. Court of Appeals for the Ninth Circuit recently found that a company that did not actually provide any credit repair services was a "credit repair organization" under the federal Credit Repair Organizations Act. The court explained that even though that company only represented that it can or will sell, provide, or perform services for the purpose of providing advice or assistance to consumers with regard to improving consumers' credit record, credit history, or credit rating, the company was a credit repair organization. Here's what happened.

Kevin Stout subscribed to the online services of FreeScore, LLC. FreeScore is an online "provider of credit scores, reports and consumer credit information." FreeScore advertises its services on television. In order to receive any service offered by FreeScore, a consumer must first authorize a charge or debit from his or her bank account. An initial upfront fee is required, and then each member is charged a monthly fee. Stout filed a putative class action against FreeScore, alleging violations of the CROA. The trial court dismissed the case, finding that FreeScore was not a "credit repair organization" under the statute because it did not make any promises of credit improvement. Rather, it merely promised to provide a consumer with his or her credit score.

The Ninth Circuit reversed the trial court's decision. Analyzing the plain language of the statute, the appellate court concluded that FreeScore fell within the CROA's definition of "credit repair organization." The appellate court found that "a person need not actually provide credit repair services to fall within the statutory definition of a credit repair organization. Instead, the person need only represent that it can or will sell, provide, or perform a service for the purpose of providing advice or assistance to a consumer with regard to improving a consumer's credit record, credit history, or credit rating." According to the court, FreeScore's website and TV commercial represented that its services can or will improve, or help improve, a consumer's credit record, history, or rating. The appellate court noted that FreeScore's website clearly states that the express purpose of credit monitoring - through FreeScore's services such as email alerts notifying the consumer when changes appear on his or her credit report - is so that steps can be taken to improve credit. The appellate court also noted that FreeScore's advertisement goes beyond providing information about consumers' credit, noting that the advertisement also sells FreeScore's advice to the consumer on what he or she can or should do with that credit information. According to the appellate court, "[t]he overall net impression communicated by is that in order to 'repair a damaged credit score,' the 'best solution' is to 'utilize services like credit monitoring,' which 'can have an immediate effect on your credit score.'"

This case reminds companies that the provision of credit repair services is not the only way to fall under a statute's definition of a credit repair organization. Businesses need to be aware of how their advertisements and websites tout their services - if you make representations online or in advertisements that your services may help consumers improve their credit record, history, or rating, then your company may be a credit repair organization, at least under the federal CROA.

Stout v. FreeScore, LLC, 2014 U.S. App. LEXIS 3323 (9th Cir. (C.D. Cal.) February 21, 2014)

Catherine C. Worthington is a Managing Editor of CARLAW, HouseLaw, and PrivacyLaw and is a lawyer in the Maryland office of Hudson Cook, LLP. She can be reached at 410-782-2349 or by e-mail at

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