The national Better Business Bureau on Tuesday expelled the 77-year-old Southern California chapter following an investigation into complaints of pay-to-play practices and other problems.
The Council of Better Business Bureaus, the Arlington, Va.-based group overseeing all 113 bureaus, said it has cut off services to BBB of the Southland, which can no longer use the organization's name and logo.
The council declined to detail its internal investigation, but cited news reports alleging the Southern California group gave preferential rankings to businesses that paid for membership.
"We hold businesses to high standards for honesty, transparency, fairness and integrity, and we hold ourselves to those same standards," said Carrie A. Hurt, president and chief executive of the council. "Over a period of more than two years, BBB of the Southland failed to resolve concerns about compliance with several standards required of BBBs, including standards relating to accreditation, reporting on businesses and handling complaints."
BBB of the Southland was the nation's largest bureau, overseeing about 18,000 member businesses across Orange, Los Angeles, Riverside and San Bernardino counties.
In a telephone interview Tuesday, Kiry Peng, the former head of BBB of the Southland, admitted that his group had made mistakes with the handling of some applications, but he denied wrongdoing.
"There was never a pay-for-play culture here at this BBB," he said. "Quite frankly I'm perplexed and appalled by the position that the council is taking."
The Better Business Bureau is a national nonprofit group that compiles business reliability reviews and accepts consumer complaints.
The national BBB has set up a website at la.bbb.org to accept complaints and serve member businesses remotely. Katherine Hutt, a spokeswoman for the council, said the plan is to establish a new physical location in Southern California.
"We are absolutely not abandoning the L.A. market," she said. "But it's going to take us a while to work out all the bugs."
Most of the Better Business Bureau's funding comes from dues-paying accredited businesses, which are allowed to use the group's logo and take advantage of dispute-resolution services.
The national group cited a 2010 ABC News investigation in which several fake businesses, including one named after the Islamic militant group Hamas, were accredited and given ratings after paying dues to BBB of the Southland. The group's longtime head, William Mitchell, resigned in 2011 under a cloud of controversy.
The national organization conducted an internal investigation before voting to expel BBB of the Southland based on "recurrent noncompliance" with organizational standards. The CBBB board denied an appeal filed by the local group.
BBB of the Southland is the first bureau to be expelled since Miami's outpost was ousted about 25 years ago.
Peng said Tuesday that some companies did get higher ratings when they became accredited, but he contends that was a policy of the national organization, which the BBB denies.
BBB of the Southland plans to continue operating as an independent nonprofit under a new name, Business Consumer Alliance. The organization, which has about 80 employees, will offer similar services as before but broaden its focus to companies across North America.
Peng said he wants to create a more user-friendly system, akin to Yelp, which he could not do under the BBB.
"We will continue to operate under a similar business model, but we won't be confined to the arbitrary boundaries forced upon us under the BBB system," he said.
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