The High Cost of Bad Credit

The allure of credit repair as a profession, and its susceptibility to dubious practices, was on display last May, when attorneys, investigators and data specialists from the F.T.C., accompanied by local law enforcement, showed up at the headquarters of Financial Education Services, in the upscale Detroit suburb Farmington Hills. The F.T.C. claimed F.E.S. was running a “sprawling, bogus credit-repair scheme” that promised to significantly improve customers’ credit scores by permanently removing negative information from their credit reports. The company had taken in nearly half a billion dollars in gross revenues, according to federal prosecutors, all of it spent on “worthless credit-repair services,” as the F.T.C. put it. (F.E.S. has denied the allegations.)

F.E.S. had built a network of more than 400,000 credit-repair sales agents across the country. The agents recruited new agents and clients through social media and telemarketing. “If you have 400-675 credit score and want a 700-800 credit score, David can LEGALLY erase negative items … repos, foreclosures, late payments,” one post declared in typical fashion. Another: “My credit score went up 140 points, from a 530 to a 670, in my first 30 days, allowing me to purchase a new home!” Few agents made much of a living, according to an F.T.C. analysis — the average weekly income was just over $2.25, or $117.36 per year. (In one recent year, less than 1 percent of the agents averaged more than $300,000.)

In 2020, as pandemic-era stimulus payments to low-income households created boom times for credit repair, F.E.S.’s customer base rose to nearly 900,000. Revenues soared to $134 million from $73 million the year before, according to court filings. After the F.T.C.’s unannounced visit to the Farmington Hills office, Samuel Levine, the director of the agency’s Bureau of Consumer Protection, vowed in a news release to “continue to pursue firms that prey on families’ economic pain.”

When I first read the F.T.C.’s lengthy complaint, the scale of the operation came as a complete surprise, though I had reported at length on the firm and its business model. A few months earlier, I visited an office storefront run independently by two F.E.S. agents and situated between a community health clinic and a used-car lot on the Near West Side of Chicago. A vinyl banner for the used-car lot next door read, “NO CREDIT BAD CREDIT, WE FINANCE.” Inside, there were colorful upright banners, with GROWTH and WEALTH in block letters arranged sideways. I interviewed a handful of their recruits, including a couple who joined in the hopes of earning enough money to buy a home. After the F.T.C. investigation emerged, they stopped working as F.E.S. agents and declined to be named in this article — “We’d rather not put ourselves out there like that,” one of them told me.

This February, at F.E.S.’s annual convention, held in Orlando, the theme was “Rise,” according to a report by a court-appointed monitor, and an F.E.S. founder, Parimal Naik, presented $100 bills to winners of a “Money Ball” drawing. (Naik declined to comment for this article.) The monitor noted, too, that among the 500 people in attendance, at least 95 percent of the attendees were either Black or Latino.