SAN DIEGO (CN) - Two people and their three companies paid Equifax for credit reports on millions of delinquent consumers, then sold the lists to bad actors in the "debt relief" business, the United States says in Federal Court.
The United States sued Robert M. Bailey Jr., Linda Giordano, and Direct Lending Source, Bailey & Associates Advertising, and Virtual Lending Source.
Giordano is president of all three companies and Bailey is their executive VP. Direct Lending is based in Key Largo, Fla.; Bailey & Associates is a Florida corporation with offices in El Paso and San Diego; and Virtual Lending is a Nevada corporation based in San Diego, according to the complaint.
The defendants "purchased over 17,000 prescreened lists containing the consumer report information of millions of consumers from Equifax," according to the complaint. "The lists included, among other things, consumers' credit scores and whether they were 30, 60, or 90 days late on their mortgage payments.
"Defendants sold these prescreened lists to third parties. For example, defendants sold over 2,400 lists to entities that target consumers in financial distress for loan modification, debt relief and foreclosure relief services. Some of the lists were sold to entities with names such as: 'Save Me From Foreclosure,' 'SOS Modification,' 'Stop Your Lender,' 'Virginia Foreclosure Preventing,' 'Making Homes Affordable, 'Fight Your Credit Co.,' and 'Debt Regret.'"
Equifax is not a party to the complaint.
People may not obtain consumer reports without a "permissible purpose," under the Fair Credit Reporting Act.
"The only permissible purpose for obtaining a prescreened list is to make a 'firm offer of credit or insurance.' A 'firm offer' is one that will be honored (subject to certain exceptions) if the consumer continues to meet the pre-selected criteria used to select them for the offer. Using prescreened lists to send solicitations for general marketing is not a permissible purpose," the United States says. (Citation omitted.)
It adds: "Defendants sold prescreened lists to a number of entities that have been the subject of actions or warnings by law enforcement, including Mason Capital Group LLC."
The California attorney general filed a criminal complaint in May 2010 accusing Mason Capital of taking at least $2.3 million in a "fraudulent loan modification operation," the complaint states. California accused Mason Capital of charging more than 1,500 homeowner up-front fees of $1,000 to $5,000 to get loan modifications, but "As alleged in the criminal complaint, in almost every case, no loan modification was completed as promised."
The defendants also sold prescreened lists to Nova Key LLC, which had been served with a cease-and-desist order from the state of Maryland, after taking $1.2 million in up-front fees in that state, Uncle Sam says.
In some cases, the defendants in the new case did not even know who ended up with the lists, the government says: "Defendants sold the prescreened lists at issue to list brokers and others, which in turn resold the lists to unidentified downstream entities. In these instances, defendants cannot identify the entity or individual that ultimately obtained the list. Defendants did not identify to Equifax the end-user of these consumer reports."
The government says it does not believe the defendants' claim "that they were obtaining prescreened lists to make 'firm offers of credit' because they were financing the fees charged to consumers for the loan modification or debt relief services described above. The offer to finance the fees was a sham used to engage in target marketing directly to financially distressed consumers, and, as such, is not a 'firm offer of credit,'" the complaint states.
The FTC seeks a permanent injunction and civil penalties for violations of the Fair Credit Reporting Act and the FTC Act.