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Financial Services Law Insights and Observations

FTC settles with training companies that charged consumers to obtain credit cards

Federal Issues FTC Enforcement Credit Cards FTC Act Telemarketing Sales Rule

Federal Issues

On January 29, the FTC announced a settlement with two Nevada companies and two individuals (collectively, “defendants”), resolving allegations that the defendants violated the FTC Act, the Telemarketing Sales Rule, the Credit Repair Organizations Act, and the Consumer Review Fairness Act by charging consumers thousands of dollars to apply for numerous personal credit cards in order to pay for real estate investment training programs offered by other companies. According to the complaint, the training companies (many of which, the FTC claims, have been the subject of FTC enforcement actions for operating deceptive training schemes) pitch the defendants’ funding services to individuals who want to participate in the training companies’ programs and coaching about starting businesses or becoming real estate investors. However, the FTC claims that, in reality, the defendants are not lenders and do not actually provide any form of financing themselves. Rather, the defendants charge $3,000 or more to apply for multiple credit cards with total credit lines of at least $50,000 on behalf of the individuals—a practice known as “credit card stacking.” In addition, the FTC claims that the defendants inflated individuals’ annual incomes on credit card applications and told individuals they could anticipate earning around $100,000 if they used the training companies’ program, which individuals often purchased using credit cards they obtained from the defendants. Because most individuals did not earn the expected money, they incurred substantial credit card debt and experienced significant credit score declines.

The proposed settlement imposes a $2.1 million monetary judgment against the defendants, and permanently bans the defendants from, among other things, selling consumer credit services, misrepresenting the financial status of any consumer to a financial institution, engaging in business connected with the offer or sale of a credit repair service, and applying for or obtaining credit cards for consumers in exchange for a fee.

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