The Better Business Bureau, which has been under fire for boosting the ratings of businesses that became dues-paying members, said Thursday that it would alter its rating process.
"For nearly 100 years, the BBB has stood for public trust, and we are taking these steps to maintain that trust," said Steve Cox, chief executive of the Council of Better Business Bureaus in Washington.
"Given the feedback, we feel it is our duty to take immediate steps to address the concerns raised and enhance our ability to help consumers easily and quickly find trustworthy businesses," Cox said.
The nonprofit organization said it would review its accreditation practices and the way it deals with complaints against businesses. It said it would bring in a third party to assist in its review.
Last week ABC News reported that a group of Los Angeles business owners that had been critical of the BBB pulled a sting operation by paying dues for fake companies, including one named after the Palestinian organization Hamas, which the U.S. government considers a terrorist group.
The fake businesses were accepted by the BBB and given ratings, according to the report. Hamas got an A-minus.
It was not the first time the BBB had been under fire for its rating system.
In 2009, The Times' David Lazarus wrote in a column that non-BBB restaurants owned by famed chef Wolfgang Puck had poor BBB ratings, whereas less-well-known eateries that had paid about $300 in dues were graded A-plus.
The letter-grade ratings, which the organization's site says reflect whether businesses are "operating in a trustworthy manner," are based on a variety of factors, including complaints lodged against businesses and how long they have been operating, BBB spokeswoman Alison Southwick said. The fact that a business was willing to become what it termed an "accredited" member of the organization was considered a factor in its favor, she said.
"We've never hidden the fact that one of the factors that goes into your rating is whether or not you're accredited," Southwick said Wednesday. "The reason we gave points for accreditation is that accredited businesses are vetted and they agree to uphold our standards."
The organization apologized for accepting the fake businesses.
Joe Ridout, spokesman for the advocacy group Consumer Action, said the BBB would have to change its practices if it wanted to keep the public's trust.
"Certainly it undermines the BBB's mission to inform and protect consumers if they allow companies to buy their way into a good reputation," Ridout said. "The grading system is corrupted by how much money has changed hands."
Ridout welcomed the BBB's attention to the problem, but said time would tell how meaningful the changes would be. He urged the organization to make its process for evaluating businesses transparent and to avoid automated systems for providing the grades.
Scott Hauge, head of the trade group Small Business California, said the BBB's policies had long been unfair to small businesses and misleading to consumers.
"It's almost like they're shakedown artists," Hauge said, that pressured businesses to pay up or risk poor ratings.
He said businesses could still be hurt by unfair grades that would remain on the BBB's website while the system was being revamped.
"In the interim, they should pull all the ones that they haven't done any research on," Hauge said.
In a press release, Cox said the BBB would make changes to the process for accrediting companies as soon as possible. He said it would stop giving higher grades to accredited members within a week.
The BBB also promised to make it easier for businesses to see complaints that had been filed against them, whether or not they are paying members. In the past, business owners had complained that it was difficult, if not impossible, to review and address complaints if they had not paid dues to the organization.
Carmen Tellez, who owns a Whittier company that provides clowns and face-painters for parties, said she was hounded for two years to join the BBB by telemarketers who would not reveal any complaints against her company and implied her business would be graded poorly unless she paid up.
"They should not just focus on how consumers can trust them but also focus on how businesses can trust them," Tellez said.
Her business, Charmandhappy.com, went from a C-minus to an A-plus within 24 hours after the BBB received her payment of $395.
"I felt I wasn't going to get a better grade unless I paid," Tellez said. "To me, it's like a modern-day business-style gangster."
Southwick did not comment on Tellez's complaint, but said in response, "That is absolutely not how we want business owners to feel after coming away from a telephone conversation with the BBB."
She said the organization would soon establish a site for businesses to report aggressive sales tactics by telemarketers pushing memberships.