Consumers were conned out of at least $213 million by “scammers behind a sprawling credit repair pyramid scheme,” according to the US Federal Trade Commission (FTC). They will now “end practices” and pay $12 million, which is only a small portion of their illegal gains.
Financial Education Services (FES) and its owners, Parimal Naik, Michael Toloff, Christopher Toloff, Gerald Thompson, and a number of related businesses, reported even higher revenues in their initial complaint to the FTC.
The FTC estimated that the defendants’ illegal practices resulted in gross revenues of approximately $467 million in 2022.
The company was accused by the FTC of preying on customers who had low credit scores by promising them easy fixes that were not true. After that, customers were enlisted in the pyramid scheme to sell credit repair services to others.
The defendants are accused of charging customers upfront for their credit repair services and misleading customers about their products. The FTC mentioned that the pyramid scheme made exaggerated claims about income, claiming that participants could earn tens of thousands of dollars by enlisting others in FES.
The proposed settlements with the alleged scammers impose restrictions and will result in “more than $12 million being turned over to the FTC for use in providing refunds to affected consumers.”
$5.5 million must be paid by defendant Parimal Naik and his associated businesses. They must establish a compliance monitoring system and are prohibited from engaging in credit repair services and pyramid schemes-related illegal activities.
Other defendants face financial penalties ranging from $215,000 to $1.7 million in cash and assets, including “numerous cars, a boat, and multiple real estate properties, totaling millions of dollars,” as well as a permanent ban on credit repair services and multi-level marketing.
“These companies promised to clean up people’s credit but failed to deliver,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “The FTC is committed to stopping deceptive credit repair tactics and shutting down illegal pyramid schemes that prey on struggling consumers.”
Levine stated two years ago that the defendants “collected millions in junk fees as part of a pyramid scheme that peddled phony credit repair products,” and that this was the case.
It is alleged that customers were required to pay a one-time fee of $99 for the services, after which they were subjected to recurring monthly fees that could reach $89. In the scheme, agents made outlandish claims that they could earn bonuses worth tens of thousands of dollars and earn money back, including more than $1,000 per week.
“On the off chance that you have a 400-675 FICO rating and need a 700-800 FICO rating, David can Legitimately delete negative things… repos, dispossessions, late installments, clinical, understudy loans, expulsions, and then some,” one of the promotions about the help guaranteed.
Other defendants’ deceptive claims included promises to build a positive payment history, obtain credit-building products like secured credit cards, and significantly raise credit scores by 100-200 points within 30-90 days, frequently through dubious testimonials.
Fix your own credit
In another blog post, it is warned by the FTC that “only scammers say they’ll remove all negative information from your credit report.”
“Don’t believe ads that promise an easy fix. There are ways to fix mistakes on your credit report, but you can’t legally remove information that’s correct and up to date – and no one else can either, no matter what their ads promise,” the FTC said.
It is against the law for so-called credit repair businesses to charge customers up front before providing assistance, and they must first explain their legal rights and the total costs before beginning their work.
The FTC offered some direction and stated, “You can do the same things a credit repair company can legally do, and it will cost you little or nothing.”
Clients can get free credit reports from AnnualCreditReport.com. Online, Equifax, Experian, and TransUnion provide complimentary weekly reports. They can use a sample dispute letter to write to the credit bureau and the company that reported the information if they discover a mistake.
The FTC suggests paying bills on time, paying off debt, and not taking out new debt to build credit over time.
