The court of appeals reversed the dismissal of Stout’s
putative class action against FreeScore under the Credit Repair Organizations
Act (CROA). The district court concluded that FreeScore is not a “credit repair
organization” as defined in the CROA. The court of appeals reversed because
FreeScore, “through the representations it made on its website and in its
television advertising, offered a service, in return for the payment of money,
for the implied purpose of providing advice or assistance to consumers with
regard to improving the consumer’s credit record, credit history, or credit
rating.”
FreeScore is an online “provider of credit scores, reports
and consumer credit information.” Its
website says a lot about the
importance of staying out of financial trouble, the importance of knowing one’s
credit score to staying out of financial trouble, etc. E.g.:
See your Credit Report & FREE
Credit Scores online today and start your climb to financial freedom… Now more
than ever, you need to ensure your Credit Report is clean. Lending standards
are extremely strict. Poor Credit Scores and a damaged Credit Report could put
your dreams of home ownership, a new car or even a new career on hold today –
and haunt you for years to come. You can’t afford to bury your head in the dirt
when it comes to your credit any longer.
I’m omitting a lot, but it goes on in this vein extensively,
and juxtaposes these statements with offers to enroll in its service so that
users can “see what lenders see,” “[G]et your complete credit picture,”
etc. FreeScore’s reports allegedly allow
users to spot errors “so you can quickly address incorrect information,” “[g]et
your Scores to negotiate your best mortgage, auto and loan interest rates,”
etc. TV ads tout FreeScore as some sort
of way to address the problem of being hounded by creditors, though the direct
statements are in the vein “you can’t fix errors on your credit report if you
haven’t seen it… [K]nowing your credit score could be the difference between
being down there, and being up here.”
The tagline: “Life costs more without FreeScore.”
FreeScore also talks a bunch about FICO scores, including
[H]ow can you deal with or improve
a FICO® score? It’s a long process that starts with knowing more about all the
details of your overall financial situation. Many people take years to
micromanage their accounts, attempting to repair a damaged credit score, and
many find that the best solution is preventative credit maintenance. Learning
to manage your credit starts with getting informed about your credit. That
means utilizing services like credit monitoring to find out what may be
changing in your credit history report; those changes can have an immediate
effect in your credit score.
FreeScore requires an initial fee (which must be authorized
at the time of an initial 7-day “free” trial), plus $29.95/month. The fine print at the bottom of the
enrollment page that Stout used stated that FreeScore provided tools for
monitoring credit information, but that “FreeScore and its benefit providers
are not credit repair service providers and do not receive fees for such
services, nor are they credit clinics, credit repair or credit services
organizations or businesses, as defined by federal and state law.” The enrollment page also enumerated the
“benefits” of membership, and explained that “Knowing All 3 Credit Scores Gives
You the Power to Negotiate the Best Rates Possible.”
The district court held that FreeScore wasn’t a “credit
repair organization” because it didn’t promise to improve consumers’
credit. It promised to provide a credit
score, but it was up to the consumer to improve it.
The court of appeals first turned to the plain language of
the CROA, which was part of a statute that Congress intended courts to construe
broadly to fulfill its remedial purpose.
The CROA defines a credit repair organization as:
[A]ny person who uses any
instrumentality of interstate commerce or the mails to sell, provide, or
perform (or represent that such person
can or will sell, provide, or perform) any service, in return for the
payment of money or other valuable consideration, for the express or implied purpose of –
(i) improving
any consumer’s credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to
any activity or service described in clause (i). (emphasis added)
Congress also found that consumers had been harmed by
certain advertising and business practices of some credit repair companies,
particularly consumers “of limited economic means and who are inexperienced in
credit matters.” The purposes of the
statute were to ensure that prospective clients were provided with the
information necessary to make informed decisions, and to protect the public
from “unfair or deceptive advertising and business practices by credit repair
organizations.”
FreeScore “falls squarely within the CROA’s definition.” A covered person need not actually provide
credit repair services to do so.
Instead, it 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.”
FreeScore’s ads represented that it provided a service “for
the purpose of assisting a consumer in improving the consumer’s credit record, history
or rating.” Citing an FTC case, the
court held that the proper inquiry was to examine the “overall net impression”
of an ad “to determine what message a viewer may reasonably ascribe to
it.”
Here, FreeScore did more than provide credit reports. It advertised that its report allows consumers
to “[s]pot damaging inaccuracies on [their] Free Credit Report at a glance so
[they] can quickly address incorrect information dragging down [their] Credit
Scores,” that it will “keep an eye on [consumers’] Credit Reports at all three
bureaus 24/7 so [they] don’t have to,” and that “[i]nstant email alerts notify
you when critical changes appear on your Credit Report so you can make
corrections fast!” The TV ad similarly claimed “FreeScore.com even sends me an alert
when there’s any change to my credit report.” “FreeScore clearly states that
the express purpose of credit monitoring, through services such as email
alerts, is so that steps may be taken to improve credit: ‘Learning to manage
your credit starts with getting informed about your credit.’”
Further, FreeScore affirmatively represented that its
services could improve, or help improve, consumers’ credit record, history, or
rating. FreeScore’s FICO page asks, “So
how can you deal with or improve a FICO® score?” It continues, “many find that the best
solution is preventative credit maintenance.” The page concludes, “Learning to
manage your credit starts with getting informed about your credit. That means
utilizing services like credit monitoring to find out what may be changing in
your credit history report; those changes can have an immediate effect on your
credit score.” Thus, FreeScore claimed
both explicitly and implicitly that its services could improve or assist in
improving consumers’ credit records. Of
course, FreeScore’s “self-serving disclaimer” was ineffective, given its own
representations.
Comment: The FTC’s rule is that lawyerly parsing of the kind
that might avoid a perjury conviction isn’t enough for an ad. Juxtaposing so many words about improving
credit scores with FreeScore’s services clearly implies that the service will
help raise scores.
The court continued: “FreeScore offers services aimed at
improving future creditworthy behavior with prospective promises of improved
credit. It advertises on FreeScore.com that consumers must ‘ensure [their]
Credit Report is clean,’ ‘[s]pot damaging inaccuracies’ on their credit
reports, and ‘start [their] climb to financial freedom’ by utilizing the
services it offers.” Its TV ad stated that consumers who used FreeScore would
be able to “fix errors on [their] credit report,” and that credit scores can
determine whether consumers can “get a loan, a better interest rate, or a new
job.”
FreeScore said it only promised to provide information, not
to “improve” a consumer’s credit. But
FreeScore’s ads clearly went beyond providing information. It even recommended a course of action to
consumers: use FreeScore.com to “[s]pot damaging inaccuracies,” and use
“[i]nstant email alerts … so [they] can make corrections fast!” FreeScore wasn’t just selling data—it was
giving advice about what consumers could or should do with the data. “The overall net impression communicated by
FreeScore.com is that in order to ‘repair a damaged credit score,’ the ‘best
solution’ is to ‘utilize[e] services like credit monitoring,’ which ‘can have
an immediate effect on your credit score.’”
(Note that the “immediate effect” language might look to a lawyer like
it was referring to the errors, but
that’s not what a reasonable consumer targeted by such services would likely
take away.)
Other cases have found similarly with respect to defendants
that promised things like “personal credit analysis.” As with those defendants, “FreeScore, while
not actually providing credit repair services, has represented 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,
history, or rating.” Literal alteration
of historical records isn’t required to be a credit repair organization.
FreeScore’s ads gave the net overall impression that its services would improve
consumers’ credit.
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