On August 30, 2017, the Consumer Financial Protection Bureau (CFPB) announced that it had filed a stipulated proposed final judgment in the U.S. District Court for the Central District of California in a case against a California-based credit repair company.
The lawsuit, which was initially filed in September 2016, alleges that the credit repair company (1) charged illegal advance fees to consumers; (2) misled consumers about the cost and effectiveness of its service; and (3) misled consumers about its “money back guarantee.” The CFPB alleged that these practices violated sections 1031(a), 1036(a), and 1054(a) of the Consumer Financial Protection Act of 2010 (CFPA), 12 U.S.C. §§ 5531(a), 5536(a), 5564(a), and the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101-6108, and its implementing regulation, the Telemarketing Sales Rule (TSR), 16 C.F.R. Part 310. The credit repair company allegedly charged over 50,000 consumers a total of over $20 million for credit repair services, returning only $1.5 million in refunds.
Under the TSR, it is prohibited to request and collect fees for credit repair services before providing consumers evidence that the promised services have been provided, to misrepresent material aspects of the efficacy of its services, to fail to disclose limitations on a guarantee, and to misrepresent the cost of services. Meanwhile, the CFPA provisions cited by the CFPB prohibit misrepresenting the efficacy of credit repair services.
Under the stipulated proposed final judgment, the credit repair company agreed to no longer advertise its service or work in the credit repair company, and the company also agreed to pay $150,000 in civil penalties.