A common, and illegal, tactic employed by scam credit repair organizations is called ‘file segregation.’ These companies have flooded the mail, internet, radio, and TV with ads claiming that using ‘legal forms from the federal government’ you can exercise your ‘one-time right’ to apply for a new Social Security number.
Bingo, you’re a new person with a clean credit history, right? Wrong – unlike other scams in which you may be an innocent victim, this scam makes you a perpetrator of fraud against the government. If you try ‘file segregation’, you could face fines or even a prison sentence.
File segregation operators advise the consumer to apply to the IRS for an Employer Identification Number ("EIN"). Consumers are told to use the EIN in lieu of their Social Security number when applying for credit, in order to create a completely new credit file in which the old debts will not appear. The scheme essentially involves an attempt to hide one's identity from creditors by getting credit with the EIN and a name and address that differ slightly from accurate identifiers.
Both the person selling such a scheme and consumers who follow the scheme are violating the law. The CROA bars any person from making or counseling any consumer to make any untrue or misleading statement with the intent to alter the consumer's identification in order to hide accurate credit information. Consumers following such advice may be committing felonies.
Several aspects of a credit repair service's program could lead you to commit fraud. It is a federal crime to:
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