USA v. PERFORMANCE CAPITAL MANAGEMENT

[David A. Szwak]

www.ftc.gov/os/2000/08/performcomp.htm

ALEJANDRO N. MAYORKAS
United States Attorney
LEON W. WEIDMAN
Assistant U.S. Attorney
Chief, Civil Division

Assistant United States Attorney
California Bar Number:
Room , Federal Building
300 North Los Angeles Street
Los Angeles, CA 90012
Telephone: (213) 894-
Facsimile: (213) 894-

Attorney for Plaintiff
United States of America

UNITED STATES DISTRICT COURT
FOR THE CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION

UNITED STATES OF AMERICA
Plaintiff
v.
PERFORMANCE CAPITAL MANAGEMENT, INC., a California corporation,
Defendant.

CIVIL NO.
COMPLAINT

Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission"), by its undersigned

attorneys, for its complaint alleges as follows:

JURISDICTION AND VENUE

1. This is an action arising under §§ 5(a), 9, 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a), 49, 53(b), and 56(a), and the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681-1681u, to secure permanent injunctive and other relief for violations of the FTC Act and the FCRA, to obtain monetary civil penalties for violations of the FCRA.

2. This Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337, 1345, and 1355, and under 15 U.S.C. §§ 45(a), 45(m)(1)(A), 53(b), 57b, and 1681s. This action arises under 15 U.S.C. § 45(a)(1), and 15 U.S.C. § 1681s.

3. Venue is proper in the United States District Court for the Central District of California under 28 U.S.C. §§ 1391(b-c) and 1395(a), and 15 U.S.C. § 53(b).

THE PARTIES

4. This action is brought by the United States on behalf of the Federal Trade Commission. The Commission is an independent agency of the United States Government given statutory authority and responsibility by the FTC Act, as amended, 15 U.S.C. §§ 41-58. The Commission is charged, inter alia, with enforcing § 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce, and the FCRA, 15 U.S.C. § 1681-1681u, which imposes duties upon consumer reporting agencies and those who furnish information to a consumer reporting agency or use information obtained from a consumer reporting agency.

5. Defendant Performance Capital Management, Inc. ("Performance Capital") is a for-profit corporation organized, existing, and doing business under the laws of the State of California. Its principal place of business is located at 2811 Main St., Irvine, California 92614.

DEFINITIONS

As used in this Complaint:

1. the Fair Credit Reporting Act or FCRA refers to 15 U.S.C. §§ 1681-1681u, as amended;
2. the term "consumer report" is defined as provided in Section 603(d) of the FCRA, 15 U.S.C. § 1681a(d);
3. the term "consumer reporting agency" is defined as provided in Section 603(f) of the FCRA, 15 U.S.C. § 1681a(f); and
4. the term "defendant" means Performance Capital Management, Inc.
DEFENDANT'S BUSINESS

6. Defendant maintains a course of trade in commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44, by purchasing consumer debt from the owners of the debt and attempting to collect the debt from consumers.

7. As part of its collection activities, defendant reports to consumer reporting agencies information about the debts it is attempting to collect. As such, defendant is subject to Section 623 of the FCRA, 15 U.S.C. § 1681s-2, which imposes a series of duties upon any entity that furnishes information to a consumer reporting agency.

VIOLATIONS OF THE FAIR CREDIT REPORTING ACT

FIRST COUNT

8. Section 623(a)(5) of the FCRA requires anyone furnishing information to a consumer reporting agency regarding a delinquent account placed for collection, charged to profit or loss, or subjected to any similar action, to provide to the consumer reporting agency, not later than 90 days after furnishing the information, the month and year of the commencement of the delinquency that immediately preceded the action.

9. In numerous instances, in the course and conduct of its business, defendant has reported information about debts to consumer reporting agencies using a date of delinquency other than the month and year of the delinquency that immediately preceded the action.

10. The acts and practices alleged in Paragraph 9 constitute violations of Section 623(a)(5) of the FCRA, 16 U.S.C. § 1681s-2(a)(5). Pursuant to Section 621(a)(1) of the FCRA, 15 U.S.C. § 1681s(a)(1), the acts and practices alleged in Paragraph 9 also constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

SECOND COUNT

11. Section 623(b)(1) of the FCRA requires furnishers of information to consumer reporting agencies to conduct an investigation when a consumer reporting agency forwards to the furnisher a notice of dispute in accordance with the provisions of Section 611(a)(2) of the FCRA, 15 U.S.C. § 1681i.

12. At the present time, PCM receives notices of dispute from consumer reporting agencies in the form of written consumer dispute verification forms. When PCM receives consumer dispute verification notices, it is the practice of PCM to compare the name, address, and information in PCM's computer database with the information provided on each consumer dispute verification form. Where the two match, PCM reports that it has verified as accurate the information in its files. The actual records of the original creditor are not reviewed, nor is the matter referred to the original creditor for the original creditor to verify the accuracy of the information.

13. Because PCM collects accounts that are often old, information in its computer files may not be accurate for a variety of reasons, including incorrect updating of addresses, errors in recording names and information, and problems with the original creditor's records. Accordingly, verifying information in the computerized PCM file does not constitute an "investigation" for purposes of Section 623(b) of the FCRA when a consumer disputes the accuracy of the information.

14. The acts and practices alleged in Paragraphs 12 and 13 constitute violations of Section 623(b) of the FCRA, 16 U.S.C. § 1681s(b). Pursuant to Section 621(a)(1) of the FCRA, 15 U.S.C. § 1681s(a)(1), the acts and practices alleged in Paragraph 17 also constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

THIRD COUNT

15. Section 623(a)(3) of the FCRA provides that if the completeness or accuracy of any information furnished by any person to any consumer reporting agency is disputed by a consumer, the information must be noted as disputed. This provision does not require disputes to be in writing.

16. In numerous instances, consumers have informed defendant over the telephone that they dispute information furnished by the defendant to a consumer reporting agency. It is the practice of the defendant to inform consumers who report disputes orally that they must dispute the accounts in writing. The defendant does not report oral disputes to the consumer reporting agencies to which it furnishes information.

17. The acts and practices alleged in Paragraph 16 constitute violations of Section 623(a)(3) of the FCRA, 1681 U.S.C. § 1681s-2(a)(3). Pursuant to Section 621(a) of the FCRA, 15 U.S.C. § 1681s(a)(1), the acts and practices alleged in Paragraph 13 also constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).

CIVIL PENALTIES AND INJUNCTION

VIOLATIONS OF THE FCRA

18. Each instance in which the defendant violated the FCRA since September 30, 1997, the date that the amended FCRA went into effect providing for civil penalties for violations of the law, constitutes a separate violation of the FCRA for which plaintiff seeks monetary civil penalties under Section 621 of the FCRA, 15 U.S.C. § 1681s.

19. Section 621 of the FCRA authorizes the Court to award monetary civil penalties of not more than $2,500 per violation for violations occurring after September 30, 1997.

20. Under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), this Court is authorized to issue a permanent injunction prohibiting the defendant from violating the FTC Act and the FCRA.

PRAYER FOR RELIEF

WHEREFORE, plaintiff requests that this Court, pursuant to 15 U.S.C. §§ 45(a), 45(m)(1)(A), 49, and 53(b), and 15 U.S.C. § 1681s, and pursuant to this Court's own equity powers:

1. Enter judgment against defendant and in favor of plaintiff for each violation alleged in this complaint;
2. Award plaintiff monetary civil penalties for each violation of the FCRA as alleged in this complaint;
3. Enjoin defendant from violating the FCRA and the FTC Act; and
4. Award plaintiff such additional relief as the Court may deem just and proper.
Respectfully submitted,

DATED:

FOR THE UNITED STATES OF AMERICA:
Of Counsel:
David Medine
Associate Director for Financial Practices
Federal Trade Commission
Washington, D.C. 20580

Peggy Twohig
Assistant Director for
Financial Practices
Federal Trade Commission

DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
for U.S. Department of Justice

ALEJANDRO N. MAYORKAS
United States Attorney

LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division

__________________________

Assistant United States Attorney

Attorneys for Plaintiff
United States of America

[David A. Szwak]

ALEJANDRO N. MAYORKAS
United States Attorney
LEON W. WEIDMAN
Assistant U.S. Attorney
Chief, Civil Division
Assistant United States Attorney
Room 7516, Federal Building
300 North Los Angeles Street
Los Angeles, CA 90012
Telephone: (213) 894-
Facsimile: (213) 894-

Attorneys for Plaintiff
United States of America

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
SOUTHERN DIVISION

UNITED STATES OF AMERICA
Plaintiff
v.
PERFORMANCE CAPITAL MANAGEMENT, INC., a California corporation
Defendant.

CIVIL NO.
CONSENT DECREE

WHEREAS: Plaintiff, the United States of America, has commenced this action by filing the Complaint herein; defendant has waived service of the Summons and Complaint; the parties have been represented by the attorneys whose names appear hereafter; and the parties have agreed to settlement of this action upon the following terms and conditions, without adjudication of any issue of fact or law and without defendant admitting liability or fault for any of the matters alleged in the Complaint;

WHEREAS: Defendant is a debtor in a Chapter 11 bankruptcy case pending in this District; and

WHEREAS: James J. Joseph is the duly appointed and acting Chapter 11 Trustee for the defendant;

THEREFORE, on the joint motion of plaintiff and defendant, it is hereby ORDERED, ADJUDGED, AND DECREED as follows:

FINDINGS

This Court has jurisdiction of the subject matter and of the parties.
The Complaint states a claim upon which relief may be granted against the defendant under Sections 5(a)(1), 9, 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a)(1), 49, 53(b) and 56(a), and under the Fair Credit Reporting Act, 15 U.S.C. § § 1681-1681u. Entry of this Final Judgment is in the public interest;
The Commission has the authority under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 57(b), and Section 621 of the Fair Credit Reporting Act, 15 U.S.C. § 1681s, to seek the relief it has requested.
The alleged activities of the defendant are in or affecting commerce, as that term is defined in 15 U.S.C. § 44.
DEFINITIONS

As used in this Consent Decree:

1. the "Fair Credit Reporting Act" refers to 15 U.S.C. §§ 1681-1681u, as amended;
2. the term "defendant" means Performance Capital Management, Inc.;
3. the term "consumer reporting agency" is defined as provided in Section 603(f) of the FCRA, 15 U.S.C. § 1681a(f);
4. the term "account" means any debt or other obligation being collected by the defendant; and
5. the term "trustee" means James J. Joseph as Chapter 11 trustee for the defendant.
ORDER

I.

IT IS THEREFORE ORDERED that defendant, its successors and assigns, shall pay to plaintiff a civil penalty, pursuant to Section 621(a) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s(a), in the amount of two million dollars ($2,000,000). Based on financial statements and other information filed with the U.S. Bankruptcy Court, Central District of California, Santa Ana Division, by Performance Capital Management, Inc., and by the trustee, payment of the foregoing monetary settlement is waived.

II.

IT IS FURTHER ORDERED that defendant, its successors and assigns, and its officers, agents, servants, employees and attorneys, and all persons in active concert or participation with any one or more of them who receive actual notice of this Consent Decree by personal service or otherwise, are hereby enjoined, directly or through any corporation, subsidiary, division or other device from:

A. failing to provide correct delinquency dates, as required by Section 623(a)(5) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(a)(5), for accounts that defendant reports to consumer reporting agencies;
B. failing to properly investigate consumer disputes, as required by Section 623(b) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(b), when consumer reporting agencies refer disputes to the defendant pursuant to Section 611(a)(2), 15 U.S.C. § 1681i(a)(2) . In order to comply with Section 623(b) when a consumer disputes the accuracy of information reported by the defendant to a consumer reporting agency, defendant shall either verify the information with the original account records within the time period set forth in the Fair Credit Reporting Act or take all necessary steps to delete the information from the files of all consumer reporting agencies to which the information was reported. In any situation where the defendant either knows that no original records exist, or is informed by the original creditor that no records exist, the defendant shall, within five business days after receiving the consumer dispute, notify all consumer reporting agencies to which the information has been provided that the information is to be deleted from the file of the consumer who has disputed the account;
C. failing to report accounts as "disputed" to consumer reporting agencies as required by Section 623(a)(3) of the Fair Credit Reporting Act, 15 U.S.C. § 1681s-2(a)(3), when consumers dispute accounts either in writing, orally, or by electronic means; and
D. failing to comply in any other respect with the Fair Credit Reporting Act.
III.

IT IS FURTHER ORDERED that defendant, its successors and assigns, shall, within thirty (30) days of the entry of this Consent Decree, provide a copy of this Consent Decree and the Fair Credit Reporting Act to each of defendant's officers and management-level employees, and secure from each such person a signed statement acknowledging receipt of a copy of this Consent Decree and the Fair Credit Reporting Act; and, within ten (10) days of complying with this paragraph, file an affidavit with the Court, and serve the Federal Trade Commission, by mailing a copy thereof to the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, setting forth the fact and manner of their compliance, including the name and title of each person to whom a copy of the Consent Decree has been provided.

IV.

IT IS FURTHER ORDERED that defendant shall, within sixty (60) days following the date of entry of this Consent Decree, submit to the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, a full and complete description of how defendants have complied and are complying with this Consent Decree.

V.

IT IS FURTHER ORDERED that, for a period of three (3) years from the date of entry of this Consent Decree, defendant, its successors and assigns, shall, within three (3) business days of receipt of written notice from the Commission, permit representatives of the Commission:

(A) Access during normal business hours to any office or facility of the defendant;
(B) Access to all computerized databases;
(C) To inspect and copy (or have copied by a contract copying agency) all documents at the company's offices or facilities relevant to any matter within the Commission's jurisdiction; and
(D) To interview the officers and employees of the defendant. The person interviewed may have counsel present if he or she so desires.
VI.

IT IS FURTHER ORDERED that defendant, its successors and assigns, shall notify the Associate Director for Financial Practices, Bureau of Consumer Protection, Federal Trade Commission, 600 Pennsylvania Ave. N.W., Washington, D.C. 20580, at least thirty (30) days prior to any change in defendant's business, including, but not limited to, merger, incorporation, dissolution, assignment, and sale, which results in the emergence of a successor corporation, the creation or dissolution of a subsidiary or parent, or any other change which may affect defendant's obligations under this judgment.

VII.

IT IS FURTHER ORDERED that this Court shall retain jurisdiction of this matter for the purposes of enabling any of the parties to this Consent Decree to apply to the Court at any time for such further order or directives as may be necessary or appropriate for the interpretation or modification of this Consent Decree, for the enforcement of compliance therewith, or for the punishment of violations thereof, or as justice may require.

VIII.

IT IS FURTHER ORDERED that James J. Joseph shall not be liable for any breach of this Consent Decree in any capacity other than in his capacity as Chapter 11 trustee. Neither the trustee nor the law firm with whom he is associated shall be subject to any personal liability for the obligations arising from or imposed by this Consent Decree. The trustee's obligations to perform under this Consent Decree shall terminate as of the date he ceases to act as Chapter 11 trustee and he shall have no liability for any act of the defendant or its successors and assigns or its officers, agents, servants, employees and attorneys after such date.

JUDGMENT IS THEREFORE ENTERED in favor of plaintiff and against defendant, pursuant to all the terms and conditions recited above.

Dated this ______ day of ____________, 2000.

UNITED STATES DISTRICT JUDGE

The parties, by their respective counsel, hereby consent to the terms and conditions of the Consent Decree as set forth above and consent to the entry thereof. Defendant waives any rights that may arise under the Equal Access to Justice Act, 28 U.S.C. § 2412, amended by Pub. L. 104-121, 110 Stat., 847, 863-64 (1996).

FOR THE UNITED STATES OF AMERICA
DAVID W. OGDEN
Acting Assistant Attorney General
Civil Division
U.S. Department of Justice
EUGENE M. THIROLF
Director
Office of Consumer Litigation

___________________________

ELIZABETH STEIN
Attorney
Office of Consumer Litigation
Civil Division
U.S. Department of Justice
Washington, D.C. 20530
ALEJANDRO N. MAYORKAS
United States Attorney
Central District of California
LEON W. WEIDMAN
Assistant United States Attorney
Chief, Civil Division


___________________________

Assistant United States Attorney
United States of America
Room 7516, Federal Building
300 North Los Angeles Street
Los Angeles, CA 90012


FOR THE FEDERAL TRADE COMMISSION:

___________________________
David Medine
Associate Director for Financial Practices

___________________________
Peggy Twohig
Assistant Director for Financial Practices

___________________________
William Haynes, Attorney

___________________________
Shoba Kammula, Attorney
Federal Trade Commission
Washington, D.C. 20580

FOR THE DEFENDANT
PERFORMANCE CAPITAL MANAGEMENT, INC.

James J. Joseph, As Chapter 11 Trustee
for the Estate of Performance Capital Management, Inc.

Anne E. Wells, As attorney for James J. Joseph, Chapter 11 Trustee for the Estate of Performance Capital Management, Inc.