Subprime auto finance companies often tout that an ancillary benefit of providing financing to consumers with soft credit histories is it can be a path to resuscitating an individual’s credit profile through on-time payments.

This week, the Federal Trade Commission finalized a lawsuit against a “sprawling” credit-repair operation that was doing illegal things, including an alleged pyramid scheme.

The FTC said the proposed court action orders an end to these practices and more than $12 million in penalties against the owners and operators of Financial Education Services (FES), which also allegedly violated the Credit Repair Organizations Act.

The FTC first filed suit against FES in May 2022, alleging that the company “preyed on consumers with low credit scores by luring them in with the false promise of an easy fix and then recruiting them to join a pyramid scheme selling the credit repair services to others, costing them millions of dollars.”

The FTC’s complaint charged that FES and its owners, operators and associated companies deceived consumers about their credit-repair products and charged them up front for the service.

In addition, the pyramid scheme made overinflated income claims that consumers could make tens of thousands of dollars recruiting others into FES, according to the FTC.

Officials said the proposed settlements in the case will lead to more than $12 million being turned over to the FTC for use in providing refunds to affected consumers, as well as conduct prohibitions against the defendants as follows:

—Defendant Parimal Naik, along with Financial Education Services, Inc., United Wealth Services, Inc., VR-Tech, LLC, Youth Financial Literacy Foundation, and LK Commercial Lending LLC will be permanently prohibited from numerous forms of unlawful activities related to credit repair services and pyramid schemes and will be required to put a compliance monitoring system in place to ensure its employees and contractors do not violate the terms of the settlement. In addition, they will be required to turn over $5.5 million in cash

—Defendant Michael Toloff, along with VR-Tech Mgt, LLC, and Statewide Commercial Lending LLC will be permanently banned from providing any credit repair services, as well as being permanently banned from any involvement in multi-level marketing. In addition, they (along with relief defendant Gayle Toloff) will be required to turn over cash and the value of numerous cars, a boat, and multiple real estate properties, totaling millions of dollars.

—Defendant Christopher Toloff, along with CM Rent Inc., will be permanently banned from providing any credit repair services, as well as being permanently banned from any involvement in multi-level marketing. In addition, they will be required to turn over $1.7 million.

—Defendant Gerald Thompson will be permanently banned from providing any credit repair services, as well as being permanently banned from any involvement in multi-level marketing. In addition, he will be required to turn over $215,000.

The FTC vote approving the stipulated final orders was 5-0. The FTC filed the proposed orders in the U.S. District Court for the Eastern District of Michigan.

“These companies promised to clean up people’s credit but failed to deliver. Meanwhile, honest businesses make money selling products and services, not by recruiting, and the drive to recruit, especially when coupled with inflated income claims, is the hallmark of an illegal pyramid,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.

“The FTC is committed to stopping deceptive credit repair tactics and shutting down illegal pyramid schemes that prey on struggling consumers,” Levine said in the news release.