Texas firms sue credit bureaus, counseling service, Texaco; allege conspiracy, monopoly, restraint of trade

Business Wire, Feb 1, 1996

DALLAS--(BUSINESS WIRE)--Feb. 1, 1996--The Masters of Money and Credit(TM) Corp. (MMCC) of Richardson, Texas, has filed a lawsuit in the 134th District Court in Dallas County against the nation's "big three" credit bureaus, the Consumer Credit Counseling Service of Greater Dallas, Texaco, Inc. and others complaining of a conspiracy to force the six-year-old "credit repair" firm out of business.

Bruce J. Danielson, founder and chairman of MMCC and The Masters System, Inc. (TMS) -- all of which are plaintiffs -- contend the defendants interfered with contracts and prospective business relationships; unlawfully conspired to injure the plaintiffs; restrained trade, and with the assistance of numerous credit grantors, have monopolized the market for consumer credit counseling and restoration services.

Kilgore & Kilgore, Inc., the Dallas law firm which recently won a $488 million judgment for Thermex Energy Corp. of Dallas in an antitrust action, filed the lawsuit, which has been assigned to Judge Anne Ashby's court.

The plaintiffs seek a jury trial and are asking for both actual damages and punitive damages. The suit was brought under the Texas Free Enterprise and Antitrust Act of 1983. Defendants in the suit include: -0-

    o  Consumer Credit Counseling Service of Greater Dallas, Inc.
       (CCCS);
    o  National Foundation for Consumer Credit (NFCC), and association
       of 600 to 850 credit counseling service agencies, based in
       Silver Spring, Md.;
    o  TRW, Inc. (also dba as TRW Information Systems & Services);
       corporate headquarters are in Cleveland, Ohio; credit
       operations headquarters, in Orange, Calif.;
    o  TRW employees, Diane Fleming, supervisor of the Special
       Handling Dept., and Kelly Currie, a consumer affair specialist;
    o  Trans Union Corp. of Chicago;
    o  Texaco, Inc., of White Plains, N.Y.;
    o  Equifax, Inc. (dba Equifax Credit Information System/CSC) of
       Atlanta; and
    o  CSC Credit Services of Houston, a member of the Equifax System.

Danielson and his firms specialize in credit restoration, credit counseling and mortgage loans and often provide clients with a "second chance" by correcting and restoring their credit files and by obtaining financing for them. MMCC and TMS must have access to the clients' credit reports from the various credit reporting agencies. The firms are empowered by each client to access the reports.

"However, the three major credit reporting agencies have boycotted the Richardson firms so that the agencies' favored credit counseling providers and co-conspirators, NFCC and CCCS, could obtain a monopoly in the credit counseling and restoration industry," the filing stated. MMCC and TMS have had to go to third party providers of the reports.

79 Percent of Files `Flawed'

"The credit bureaus are abusive," Danielson said. "They have admitted as much in their six consent orders with the Federal Trade Commission and the Association of U.S. Attorneys General. Following a four-month study, Consumer Reports magazine estimated as many as 79 percent of all U.S. credit files -- covering 180 million adults -- are flawed.

"In my opinion, only about 8 percent of those persons could be characterized as not creditworthy. Files on the vast majority simply contain a lot of inaccurate information," Danielson stated. "The strategy appears to be 'bad news sells,' when it comes to providing credit information to lenders. That certainly interferes with commerce."

Danielson argues that creditors pay each CCCS office a "gift" or "donation" (rebate) for collecting from their debtors, allegedly 8 percent to 15 percent of the monthly payment, generally unknown to the debtor. The negative information continues to be reflected on an individual's credit report for up to seven years after completion with a CCCS organization, which typically requires three-plus years. "CCCS agencies rarely tell clients about their options, such as bankruptcy, even though it may be their (clients) best option," the lawsuit states. Danielson said Texaco prefers that approach and refused to deal with his companies, saying it only deals with the client directly or with CCCS, even though MMCC and TMS have power of attorney, which the federal government accepts.

"The NFCC's member agencies did about $1.14 billion of business in 1993...despite its avowed charitable and educational purpose," Danielson noted. "The NFCC either explicitly or implicitly grants exclusive geographic monopolies to each of its licensees...and member agencies use the NFCC to set prices among members.

Conflicts of Interest Alleged

"The NFCC requires that 25 percent to 40 percent of the board of directors of all CCCS offices be officers from local banks and department stores...the very creditor grantors with whom they are supposed to negotiate on behalf of their customers or clients.

"The plaintiffs assert that the CCCS agencies, through the use of NFCC, have dominated the market for consumer credit counseling and budgeting services since at least the 1970s. By any reasonable estimate, they currently control in excess of 70 percent of the market nationally, and even more than that when considering debt counseling services.