puters that certain items would come off because the companies, credit companies, would not be able to meet the 30- day deadline.

Mr. HILER. Let me ask, you obviously have been impacted quite severely personally and in many other ways, I am sure by your efforts here and I really appreciate your coming before the subcommittee to tell us a little about your experience with this particular organization.

You have said that the type of legislation you would like to see is to completely prohibit and ban this type of activity. We, of course, up here are left with the responsibility to try to ensure that consumers cannot have fraud perpetrated upon them, but yet at the same time with Miss Arnold describing some of the people who were looking for help, advice and counsel, many times these folks are not going to know what the law is, who may not be quite up to speed.

They are under the wire. It would seem that there is a role for the private sector to play in saying we will help you understand the law and maybe help you in exercising your rights under the law, but I think that where this legislation is aimed at going is to insure that those consumers when they come into a credit repair or a legitimate credit repair organization know full well what their rights under the law are and know what it is possible to have happen.

This is where I think we have been pushing this bill, in the area of just a lot of disclosure so that the consumer, when they make a decision when to put down $250 or $400, know there is no magic that can be performed and much of what can be performed by the credit repair service can, in fact, be performed by themselves.

I know that is a little bit at odds with where you probably think the legislation should go.

Mr. ROBERTS. I personally believe many people who come through the door of credit repair agencies do not have the educational level or the ability to understand what the contract actually says and they are being totally misled by fast speaking con artists and this is exactly what is being done.

You can read a contract to a person and if the person does not understand what you are reading and sign their name, supposedly it is legal. That is why I said and I will say it again, credit repair should be outlawed. There should be no such thing.

Mr. HILER. Thank you.

Miss Arnold, how did you happen to get a job with this organiza

tion?

Ms. ARNOLD. A friend of mine was an acquaintance of the owner of the Philadelphia franchise. They were just opening a Philadelphia franchise. He knew I was looking for a job and put us together. The man offered me a job. From the Philadelphia franchise I was offered a job in the home office in Palmyra.

Mr. HILER. What are you doing now?

Ms. ARNOLD. I am a purchasing agent.

Mr. HILER. Thank you. I have no further questions.

Chairman ANNUNZIO. Thank you. Our staff director who has been part of most of the investigation has some questions.

Mr. PRINS. Mr. Roberts, in the course of the investigation by the FBI, or to your knowledge, was there a large number of envelopes

with checks received from consumers that turned up in the trash where the envelopes had been opened, the checks taken out and the credit profiles thrown in the trash?

Mr. ROBERTS. Yes, that is definitely true, that was done.

Mr. PRINS. How often was that done?

Mr. ROBERTS. That procedure was followed from November 1986 through February 1987.

Mr. PRINS. So we are talking about a considerable length of time?

Mr. ROBERTS. You are talking about 4 months. Four to five months that procedure was followed, yes.

Mr. PRINS. So the case would come into the office with the form filled out showing what the problem was and there would be a check in there, correct?

Mr. ROBERTS. That is correct. The check would be removed from the envelope, the rest of the material would be disposed of.

Mr. PRINS. Disposed of? Thrown in the trash?

Mr. ROBERTS. That is correct.

Mr. PRINS. To the best of your recollection, how many of these cases were thrown in the trash and the money removed?

Mr. ROBERTS. I really would not know the numbers on it.

Mr. PRINS. The FBI testified earlier that there was roughly $2.6 million taken from consumers in this scheme. Do you believe that to be an accurate figure?

Mr. ROBERTS. I believe the figure they gave was $2.3 million. No, I do not believe the $2.3 million as an accurate figure. I have reason to believe that the Grays destroyed approximately 1,500 to 2,000 files before the FBI was able to obtain the rest of the records. I would believe, judging the lifestyle of Mr. James Gray, Sr. that he would have needed more than the amount of money that he received from Credit-Rite to live the type of lifestyle that he did. Mr. PRINS. Miss Arnold, the Credit-Rite setup had two buildings in Palmyra, correct?

Ms. ARNOLD. Yes, sir.

Mr. PRINS. You worked in one of those buildings?

Ms. ARNOLD. Yes, sir.

Mr. PRINS. Were you allowed to go into the other building? MS. ARNOLD. I was told not to. That was the "credit repair" building. They thought I was too nosey and things I would perceive and bring to their attention they told me were none of my business. I was told I was to remain in the office part.

I might have gone over a couple of times to take mail or pick something up, but that was all.

Mr. PRINS. How many employees were there in the Palmyra office?

Ms. ARNOLD. I am sorry. At what point in time? There were many changes.

Mr. PRINS. At the largest point in time, what was the largest number?

Ms. ARNOLD. When Credit-Rite, Inc. was at its largest part, I was not with them. I was with Mr. Roberts at USA Credit centers. I would have to take a guess at 20 people, maybe not that many.

Mr. PRINS. How many of those folks were classified as credit counselors?

MS. ARNOLD. The credit counselors really didn't work out of the home office. The credit counselors or sales people were actually part of the different franchises.

Mr. PRINS. Where were the folks that did the work that the consumers wanted in order to get their credit repaired? Where were they?

MS. ARNOLD. In the separate building.

Mr. PRINS. That is the building you were not allowed to go into? Ms. ARNOLD. That is correct.

Mr. PRINS. You were the director of operations?

Ms. ARNOLD. At Credit-Rite I was an operations manager. I was director of operations for USA Credit centers.

Mr. PRINS. Was anybody else besides Mr. Gray and the credit counselors allowed to go into the other building?

Ms. ARNOLD. No, the secretaries were there. When I went back toward the end of Credit-Rite there was only one person doing credit repair and there were several secretaries.

Mr. PRINS. Were all 9000 accounts worked out of that office? Ms. ARNOLD. Yes, sir. That is correct. It was a completely manual system. I requested and gave them information several times about computer systems, and if you looked at the paperwork it also says on the contract that methods are computerized for speed and efficiency and there was no computer.

There was no computerization whatsoever. The only thing computerized was the billing system to make sure the bills went out and checks came in.

Mr. PRINS. That was the function of the organization, get the money in and do nothing?

Ms. ARNOLD. That is correct.

Mr. PRINS. Mr. Roberts, was there a time, or perhaps Miss Arnold would know this, where a couple of folks were given their money back under the guarantee and Mr. Gray found out about it and got a little bit upset and gave you or Miss Arnold or someone a directive on how to deal with future guarantees?

Mr. ROBERTS. That was directed toward me. Mr. Gray was not in the office extensively at all. He was preoccupied.

Mr. PRINS. What was he preoccupied with?

Mr. ROBERTS. With his gambling and his horses and the Atlantic City casinos and other business enterprises. Donald Gray and I made a decision to refund some moneys to some of these people.

Donald had a stamp with his dad's name on it that he could stamp the check. I okayed it. We put through a few refunds that we thought should go out immediately.

He found out about it about 2 days later and came into the office and made a statement, under no circumstances whatsoever is one drop of money to go out of this office for refunds, period, and so forth.

Mr. PRINS. Mr. Roberts, when the checks in the envelopes came in with the consumer's sheet in there and the check, who opened those, where did they go?

Mr. ROBERTS. The checks were opened mainly by Mr. Gray's son, Jimmy, Jr., and he would make up deposits and run to the banks with the deposits. The checkbooks were kept by Mr. Gray. He had the only signature on the checking accounts.

Mr. PRINS. Who was responsible for filing the consumers' documents?

Mr. ROBERTS. The documents were supposed to have been taken from the office where the mail was opened to the other side, the side that I was discouraged from going over to and that Miss Arnold was forbidden to go over to.

From what I understand, they were handed to the "manager" of that side, a gal by the name of Julie Bernalli, I think, I am not sure. There was also an attorney Mr. Gray hired to work on that side and his son, Donald, was supposed to be working on that side but theoretically did not.

Mr. PRINS. Did you ever see anyone throw consumers' files into the trash?

Mr. ROBERTS. From November through February, November 1986 through February 1987, yes.

Mr. PRINS. Approximately how many did you see thrown in there?

Mr. ROBERTS. Hundreds.

Mr. PRINS. Who threw them in?

Mr. ROBERTS. Different people in the office.

Mr. PRINS. So it was kind of an accepted practice, you took the money out of the envelope and threw everything else in the trash? Mr. ROBERTS. Those were the orders. That is the orders I followed even though I knew it was wrong.

Mr. PRINS. Miss Arnold, do you agree that that is what happened?

Ms. ARNOLD. I was not aware or part of any of that. The only thing I could add to that statement is that there were bags of, I thought, trash that were sitting on the floor in one of the buildings. I was told that they were not to go out to the street, that they were documents that needed to go to the other office which I believe was in Ben-Salem and they were to be shredded. We were not to put them out on the street for trash.

I don't know whether they contained client files or not.

Mr. PRINS. We know the money came in and was deposited and the consumers' documents were deposited in the trash. But you said that there were a number of counselors that worked in the organization. Did the counselors actually counsel or was their sole job to sell the service over the phone, either one of you.

MS. ARNOLD. They were strictly sales people. Since I was the operations manager and I was to open the franchises and train the people, I was instructed to pass on the verbage, and that being that we call these sales people counselors and do not ever call them sales people because some of the people that come in to see us or to make themselves available to the service are people who have bought from sales people too many times and are therefore in the straits that they are in, in order to make them want this kind of service. So we were supposed to guise them as counselors.

Mr. PRINS. Let's talk a little bit about selling this service to the consumer. They would come in and meet with the counselor. They would fill out a credit profile and then the counselor, as I understand it, would look over that profile to determine how much the charge was going to be based on the amount of work and how bad their credit was.

What was the normal charge that a consumer was asked to pay for this service?

Mr. ROBERTS. Six hundred and fifty dollars was the normal charge no matter if there were two items on the record or 19 on the record.

Mr. PRINS. Did you ever have a sale, a special 1 day only type of thing, if you sign right now, we will give you a discount?

Mr. ROBERTS. I would not be able to answer that. I personally did not do anything like that. I don't know if franchise offices did that or not.

Mr. PRINS. Wasn't it a fact that counselors were told and instructed to get the consumer to sign by using the line that normally we charge $800, but we are having a special and since your work is not going to be that bad, if you sign today, we can give you a discount of $200 and you only have to pay $600 or $650?

Mr. ROBERTS. That statement is true, but $650 was the regular price. Telling them it was $800 was the sales pitch. The regular price was $650 and the majority of contracts I ever saw were written for $650.

Mr. PRINS. OK. You had roughly 9,000 people that you were servicing, 9,000 consumers who had paid their money in hopes of getting their credit repaired. Of those 9000, how many do you, Mr. Roberts and you, Ms. Arnold, have personal knowledge of whose credit was in fact repaired?

Mr. ROBERTS. One.

Ms. ARNOLD. I don't know of any.

Mr. ROBERTS. Mr. Gray used one credit profile to show everybody. That is the only one I ever saw that was complete.

Mr. PRINS. Ms. Arnold?

MS. ARNOLD. I don't know of any.

Mr. PRINS. I'm sorry?

MS. ARNOLD. I don't know of any.

Mr. PRINS. Of the 9000 under contract?

Ms. ARNOLD. No, sir.

Mr. PRINS. Mr. Gray, who ran the company-was he a good credit risk? Did he have good credit?

Mr. ROBERTS. Well, I thought he did. In the trial it came out through testimony that his credit report was atrocious.

Mr. PRINS. Did he ever try to get it repaired.

Mr. ROBERTS. He told me-in the beginning of my statement I stated the reason he opened the company up is because he suffered a bankruptcy and that he had gone out and repaired his own credit, which I said in my statement was not true, which I found out at the trial.

Mr. PRINS. Here was a man franchising credit repair operations and couldn't get his own credit repaired.

Mr. ROBERTS. He couldn't do his own, that is correct, sir.

Mr. PRINS. I guess that is like a mechanic who franchises garages and can't even repair his own car; is that a good analogy?

Mr. ROBERTS. Perfect.

Mr. PRINS. Let me ask you one final question because Mr. Annunzio wants to move on to the next panel.