WASHINGTON – Federal officials announced a crackdown on 43 businesses – including one in Maryland – that offer to clean up bad credit histories by helping people get taxpayer ID numbers that can be used as fake Social Security numbers.
The Treasury Department has estimated that such “file segregation” scams — in which consumers use bogus Social Security numbers to create a new credit identity — may have resulted up to $400 million in fraudulently obtained loans.
Treasury officials were joined Tuesday by the Federal Trade Commission, the Justice Department and 21 state attorneys general to announce that they were taking action against 43 businesses that the government claims offer file segregation services.
Among those charged was New Start, a Sykesville business that the FTC said sold credit repair manuals that promised consumers a legal way to get a clean credit report.
Court documents filed Friday in U.S. District Court in Baltimore said New Start had been selling its manuals at least since July. The manual instructed consumers how to get ID numbers from the Internal Revenue Service that could be used in place of Social Security numbers to open bank accounts and obtain loans, according to the documents.
New Start and its principals could not be reached for comment Tuesday on the charges. But on its Internet site, which offers the deluxe package for $29.95, the company claims that file segregation is “correct, accurate and 100 percent legal.”
“You will not be making up a number (that would be illegal),” the New Start site said. “You will be using a totally different legal identifying number… This is not credit repair, but a totally new way to create a new credit file from scratch.”
But Jodie Bernstein, director of the FTC Bureau of Consumer Protection, said there is nothing legal about offers like New Start’s.
“File segregation is against the law. And the promises to create a new credit identity are lies,” she said.
Bernstein said that not only are consumers cheated out of the hundreds of dollars they spend to get the information, but that the scammers “turn them into felons by counseling them to use look-alike Social Security numbers.”
She said the FTC is not prosecuting victims of the file segregation scams, even if they used bogus ID numbers in place of their own Social Security numbers to get credit. It is focusing instead on the companies because, “You get more wallop … if you put these folks out of business first,” she said.
The Maryland Attorney General’s Office was not part of the group announcing the crackdown Tuesday, but it is investigating consumer complaints about credit history fraud, said Jamie St. Onge, director of the office’s consumer education unit.
“The FTC has jurisdiction over everything and they didn’t need us,” St. Onge said.
She said the FTC wields more power because it can go after scammers in federal court, as opposed to state court.
Steve Baker, director of the FTC Chicago office, agreed, noting that a national injunction carries more weight than a state action.
“Even if you win in state court, then somebody can just move across the state line and start up business again,” he said.
Baker said the FTC tried to include as many state attorneys general as possible, but some did not participate. He could not say why Maryland did not participate.
The Treasury Department has been investigating file segregation schemes since 1994 and says it has uncovered more than $1.85 million in fraudulent credit doled out in those cases alone.