SALT LAKE CITY — Vivint Smart Home is on the hook for $20 million in penalties and restitution following a settlement announced Thursday with the Federal Trade Commission over the company's illegal use of customer credit information.
Under the settlement, Vivint will pay a $15 million civil penalty and an additional $5 million to compensate injured consumers.
In a complaint filed by the U.S. Department of Justice on behalf of the FTC, the commission alleged that Vivint violated the Fair Credit Reporting Act by improperly obtaining credit reports in order to qualify potential customers for financing for its smart-home monitoring and security products. The FTC also alleged that Vivint violated the FTC's Red Flags Rule by failing to implement an identity theft prevention program, which is required of certain companies that regularly use or obtain credit reports.
"Vivint's sales staff stole people's personal information to approve others for loans," Daniel Kaufman, acting director of the FTC's Bureau of Consumer Protection, said in a press release. "For misusing consumer credit reports and other sensitive data, and harming people's credit, this company will pay $20 million."
Lehi-based Vivint uses door-to-door sales representatives to sell the company's home security and internet-connected smart-home devices.
In a statement, Vivint characterized the credit information abuses as "historical" and said it had already begun implementing changes before the settlement announcement.
"We are pleased to have resolved this matter related to certain historical practices," a Vivint spokesperson said in a statement. "We had already taken steps before the FTC began its review to strengthen our compliance policies, and will continue to make this a focus going forward. We are deeply committed to operating with integrity and delivering exceptional service to our customers."
The FTC alleges that some Vivint sales representatives were using a process known as "white paging," which involves finding another consumer with the same or a similar name on the White Pages app and using that consumer's credit history to qualify the prospective unqualified customer. Vivint sales representatives also sometimes asked customers to provide the name of someone they knew who had better credit, such as a relative, then added that innocent third-party as a co-signer to the account without their permission, and used their credit history to qualify the prospective customer, according to the complaint.
If customers qualified using these deceptive tactics later defaulted on their loans, Vivint referred the innocent third party to its debt buyer, potentially harming that consumer's credit and subjecting them to debt collectors, the FTC alleged. Many consumers whose credit reports were misused by Vivint sales representatives complained to the FTC that they were victims of identity theft after being contacted by Vivint's debt collectors.
The company was founded in Provo by Todd Pedersen, a former BYU student, getting its start as an alarm company in 1999 but later evolving into the smart-home market and rebranding as Vivint in 2011. In 2012, New York City private equity giant Blackstone Group acquired the company for $2 billion.
In January of this year, Vivint was acquired by a special interest acquisition company in a deal valued at some $4.2 billion.
FTC Commissioner Rohit Chopra said Vivint sales reps were engaged in a "a disturbing pattern of pervasive fraud that Vivint's leadership did little to stop" and that the illegal credit practices ran from 2016 to 2019 and were part of an effort to drive up the company's market value.
Chopra said the Vivint practices were not unlike the fake accounts scandal that rocked Wells Fargo several years ago and cost the San Francisco-based banking giant billions of dollars.
"Like in the Wells Fargo fake accounts scheme, Vivint knew about the alleged fraud but did little to address the problem," Chopra said in a statement. "It appears that management turned a blind eye to the scam, because the company could pump up its sales figures in ways that would help score a higher valuation when going public."
Earlier this year, Vivint paid $3.2 million to resolve allegations of employees making false statements to secure financing for customers buying its home security systems.
In that matter, federal authorities contended that from 2017 to 2020, some sales representatives used their own money to cover the cost of initial payments for customers who sought financing to buy Vivint products, while making false and misleading statements to banks providing the financing that made it appear as if the borrowers made the payments.
The U.S. Department of Justice said the claims resolved in the January settlement are allegations, and there has been no determination of liability.
Vivint Smart Home bought the naming rights for the Utah Jazz home arena in downtown Salt Lake City, formerly known as EnergySolutions Arena, in 2015. Financial details for the 10-year deal were not disclosed.