Scammed: Credit Repair A Ripoff?

Sean Hanes is packing up his American dream and moving on. 48 Hours Investigates Correspondent Peter Van Sant reports.

"I am a hard worker," he says. "I love my family. I take pride in what I do. I just want to provide for my family."

But he can't afford to live in the southern California town where he and his wife Patti were raising their four kids.

Two years ago, things were different. Sean, a mailman, owned his own home.

But the Haneses were struggling. Years back, they had declared bankruptcy. They were deep in debt. Their credit rating was in ruins.

So the Haneses turned to a credit repair company called ICR Services.

ICR, based in Lavonia, Mich., is one of the biggest in the growing field of credit repair.

Their secret?

According to the company's founder, Bernie Pavone, ICR has a special computer program that can make everything from bad loans to bankruptcies disappear - if there are technical inaccuracies like a misspelled name or wrong address.

In a commercial for ICR, Pavone says the computer program "searches for erroneous information and forces the credit reporting agencies to correct or remove them. There's not a program on earth like this. It's the only one of its kind."

ICR even offers a 110 percent money-back guarantee.

So the Haneses forked over about $500 for the service – nearly all their savings.

Says Sean, "I thought I was doing something right to improve my credit."

Six months passed. "They took my money," says Sean. "They went away. That's it. They ripped me off."

When they tried to get the money back, says Patti, "Every time I would try to talk to somebody, I'd get a different story."

Adds Sean, "They said that we didn't follow the proper steps."

For Sean and his family, he says, "It's been hard. I'm not going to blame everything on ICR, but it was the start of things. You know: $500 – and then bad things happen and then bad things go, it's like a domino effect."

The Haneses had put themselves in a deep financial hole. Unable to afford their house payments, they've decided to move.

Government investigators say there are tens of thousands of people like the Haneses, people at the end of their financial ropes who have trusted ICR and companies like it to repair their credit, only to find that they've been ripped off. And while ICR insists it's operating legally, the Federal Trade Commission says it has never seen a legitimate credit repair company.

Viola Watson used to be an ICR insider. Her title: presidential sales representative. She saw firsthand how her boss, Bernie Pavone, lives: the Bentley, the waterfront condo in Michigan; the $2 million California mansion.

But, despite the money, Viola says she quit when she realized how many ICR customers were getting scammed.

The customers would fill out forms, she says, adding, "The check would get cashed, but the paperwork is nowhere to be found. From where I stand, I call that fraud."

Viola also learned that Pavone spent 21 months in federal prison for counterfeiting and credit card fraud.

Viola was sued for violation of contract when she left. She says her conscience gave her no other choice. The company claimed she was working for a competitor, which she denies.

48 Hours Investigates reviewed dozens of consumer complaints, and two class action lawsuits against ICR, one of which ICR recently settled for $5.5 million. When we also learned that the company is currently under investigation by both the Federal Trade Commission and the Department of Justice, we called Bernie Pavone for an interview…

He hung up on us.

So 48 Hours Investigates went undercover. And on a drizzly Saturday morning in Wilmington, Del., we caught up with Bernie Pavone. He was there to recruit new credit repair customers, and new salesmen. Both mean more money for him.

A 48 Hours Investigates producer signed up as a new sales rep.

To sell ICR's service, you don't need any financial experience - just ICR's exclusive software program.

But according to John Smith, who runs the Georgia Governor's Office of Consumer Affairs, "This $200 million software program? I've never seen it. I've never seen the results… What I heard was a lot of double talk, and I didn't hear anything specifically describing what their software is or actually how it works."

Smith's office was first alerted to ICR more than a year ago by consumer complaints. And then there was ICR's ad in the Atlanta yellow pages.

"It says 'Approved by the Georgia Office of Consumer Affairs,' and that's simply not true," he says.

So that ad is a lie?

"That," Smith confirms, "is a lie."

Smith's office has accused the company of unfair and deceptive business practices.

"I think they are predatory, and I think they should be stopped," he declares.

48 Hours Investigates' undercover operation continued. Our producer recruited his first customer (also a 48 Hours employee). Together, they met with Tim McCormack, a regional sales rep in Wilmington.

When these folks are telling people they can get bankruptcies removed, what does John Smith say?

"That's just not true," he says flatly. "They cannot do what they're saying they're doing legally. That is only a temporary fix, those things are going to be right back on there."

We tracked down Bernie Pavone at another recruiting session in New York. It was time to confront him directly. But when he saw our camera, he walked away in a hurry.

So our undercover producer, Miguel Sancho, got on stage and asked why.

He asked Pavone, "Don't you think you have some important questions you should answer?"

Pavone replied, "And I'm happy to answer them. I would be so happy to answer them, Miguel. As a matter of fact, I've already called my publicist, and we're going to set up an appointment and get all your questions answered."

But that never happened. Instead, ICR sent 48 Hours a statement. In it, they say the company doesn't repair people's credit, but instead "helps people remove erroneous information from their credit reports." The company also says it is cooperating with the FTC investigation.

"I consider them no better than the guy down the street who steals your wallet out of your pocket and runs away with 500 bucks," concludes Sean. "That's what they did. They ripped us off."

At dawn one day, the Hanes family hit the road to Wyoming and a fresh start, hoping to put some miles between them and their bad memories of ICR.