Nov. 16, 2010 -- In the wake of an ABC News investigation of the Better Business Bureau's controversial grading system, the national president of the BBB has apologized to consumers and business owners for "errors," and BBB leaders met Tuesday in a special session to discuss reforms to the system.
As detailed in a 20/20 report that aired Friday, the BBB is being accused by some in the business community as well as the Connecticut Attorney General of running a scheme in which A plus ratings are only awarded to those who pay membership fees, and low grades given to those who don't.
Alison Southwick, media relations manager for the BBB, said that as a result of today's meeting, the organization is "considering a critical course of action which requires further work and research before we announce our concrete next steps."
In an announcement on its web site, the BBB had said that the group's Executive Committee was gathering today to discuss "ways to improve the BBB's rating system."
"As has been pointed out in the media, we have made some errors, said Steve Cox, president and CEO of the Council of Better Business Bureaus. Cox said the BBB leadership is "taking a hard look at our ratings system to ensure that the information we provide is meaningful to consumers."
"It has been pointed out that some of our practices have not measured up to the standards consumers and business owners expect from the BBB, and for that we apologize," said Cox. "We can and will do better."
The ABC News report showed how a group of Los Angeles business owners paid $425 to the Better Business Bureau and were able to obtain an A minus grade for a non-existent company called Hamas, named after the Middle East terror group. In another case, the BBB also awarded an A minus rating to a non-existent sushi restaurant in Santa Ana, California and an A plus to a white supremacist website called Stormfront.
"They ran the credit card and within 12 hours they were an approved, accredited members," said the anonymous blogger who helped set up the bogus companies.
The report also showed that businesses with low ratings were told they could improve their ratings by paying the membership fee.
BBB Rating System 'Unworthy of Consumer Trust'
In his statement, Cox said that the BBB has "already taken steps to correct some of those errors and are putting processes in place to resolve them and prevent similar situations from occurring."
According to Cox, "While we want to recognize our shortcomings, any attempt to question the integrity of the entire BBB organization is completely and totally without merit."
"We have an uncompromised commitment and resolve to protect the general public and promote ethical business behavior." Cox stated.
"Right now, this rating system is really unworthy of consumer trust or confidence," said Connecticut attorney general Richard Blumenthal in an interview that was broadcast Friday on 20/20.
In an official demand letter sent to the national headquarters of the Better Business Bureau Thursday, Blumenthal called on the BBB to stop using its grading system, which he said was "potentially harmful and misleading" to consumers.
Cox defended the BBB accreditation and ratings systems, saying it was "not about generating money," said the A minus grade for Hamas was a mistake.
"[It's] an inaccurate statement that business people are able to buy A's," Cox said. "We have more than 500,000 non-accredited businesses who have A ratings," he added.
Better Business Bureau: Pay for Play?
Yet, as part of the ABC News investigation, an ABC News producer with a camera was present as two small business owners in Los Angeles were told by Better Business Bureau tele-marketers that their grades of C could be raised to A plus if they paid $395 membership fees.
Terri Hartman, the manager of a Los Angeles antique fixtures store, Liz's Antique Hardware, was told only a payment could change her grade, based on one old complaint that had already been resolved.
"So, if I don't pay, even though the complaint has been resolved, I still have a C rating?"
Hartman then read off her credit card number and the next business day the C grade was replaced with an A plus, and the one complaint was wiped off the record.
In a second case, Carmen Tellez, the owner of a company that provides clowns for parties was also told she had to pay to fix her C- grade, based on a two-year old complaint that she says had already been resolved.
The C minus became an A plus the very next day after she provided her credit card number for the $395 charge.
"If I'm paying for a grade, then how are the customers supposed to really trust the Better Business Bureau?" she asked.
Cox said the examples provided by ABC News were violations of sales policy and not a standard way of doing business.
"The BBB is not operating fraudulently," Cox said.
In his demand letter to the BBB, Attorney General Blumenthal said, "I am deeply concerned that certain BBB practices threaten its reputation and effectiveness as a reliable resource for consumers."
BBB media relations manager Allison Southwick said that the BBB had worked with Attorneys General across the country, including Blumenthal, to fight fraud. "We disagree with his characterization that BBB does not adequately disclose the fact that Accredited Businesses financially support BBB," said Southwick. "However, we are always interested in hearing from our partners in consumer advocacy and are pleased to accept constructive feedback from his office and other consumer advocates."
"We have made good progress in working with his office on these issues, and anticipate that we will satisfactorily address his concerns," said Southwick.