$2.7 Billion Settlement Pending Federal Court Approval: Fake Credit Repair and Debt Relief Scams

As consumers complain about the real-life challenges of keeping pace with the rising costs of living, key financial reports reveal that the challenges are as high and widespread as this summer’s scorching heat. In early August, the Federal Reserve Bank of New York released its quarterly report on household debt and credit. At mid-year, the nation’s total household debt rose to $17.06 trillion – a $2.9 trillion increase since the start of the pandemic recession in late 2019.

Little wonder then, that millions of consumers became susceptible to phone calls and advertising that promised financial relief. At the same time, businesses looking to make major profits from others’ financial woes have been busy. Chief among these financial predators are debt relief and credit repair firms that make promises, collect up-front fees and never deliver for consumers.

On August 28, the Consumer Financial Protection Bureau (CFPB) announced a $2.7 billion judgment against major members of this industry. An order now awaiting federal court approval would also ban these firms from telemarketing credit repair services for 10 years for illegal actions dating back as far as 2016.

“Americans across the country looking to improve their credit scores have turned to companies like CreditRepair.com and Lexington Law. These credit repair giants used fake real estate and rent-to-own opportunities to illegally bait people and pad their pockets with billions in fees,” said CFPB Director Rohit Chopra. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”

CFPB’s lawsuit charged its defendants with failure to perform legitimate credit monitoring services. Its legal challenges cited the Telemarketing Sales Rule (TSR) that requires fees for tele-marketed credit repair services be paid after – not before - the promised credit repair has been completed. The rule also requires that credit repair firms provide documentation that substantiates the promised results were achieved within six months. Additional counts in the complaint charged that the defendants used deceptive acts and practices in violation of the Consumer Financial Protection Act of 2010 (CFPA).

Two of the lawsuits’ defendants, Lexington Law and CreditRepair.com, are the largest credit repair brands in the country. The credit repair services are marketed and offered through a web of lesser known but related entities operated nationwide and had more than 4 million customers who were subjected to telemarketing. In 2022 alone, according to CFPB, the defendants had combined annual revenues of approximately $388 million.

To generate credit repair sales for Lexington Law and CreditRepair.com, defendants used a network of marketing affiliates that advertised a variety of products and services, often related to consumer credit products. Typically, according to CFPB, telephone agents pitched so-called credit repair services to the consumer, and later transferred calls to agents employed by a separate firm who would attempt to close the credit repair sale. This second firm would be paid by defendants for each sale closed with the deceptive practices that led consumers to believe only a single entity was involved.

Court approval of the settlement will:

• Ban the perpetrators from telemarketing for 10 years: The companies will be banned from telemarketing credit repair services or selling credit repair services that others marketed through telemarketing for 10 years. The companies will also be banned from doing business with certain marketing affiliates. These bans will attach to the companies even after the bankruptcy proceedings are complete.

• Require notices to consumers: The companies will be required to send a notice of the CFPB settlement to any remaining enrolled customers who were previously signed up through telemarketing. The notice will inform consumers of the CFPB’s lawsuit, the court’s summary judgment holding, the settlement, the consumer’s right to cancel their credit repair services, and the process for canceling the service.

• Impose a $2.7 billion judgment for redress: The order would impose a $2.7 billion judgment against the companies for redress. Due to the companies’ financial insolvency, the CFPB will determine whether the CFPB’s victims’ relief fund can be used to make payments to those harmed by the perpetrators.

• Impose more than $64 million in civil penalties: The order would impose a $45.8 million civil money penalty against Progrexion Marketing and a $18.4 million civil money penalty against the Heath law firm.

“Credit repair companies that offer quick fixes are often scams that disappear with consumers’ hard-earned money,” noted Pamela Hernandez, a regional manager with the Better Business Bureau.

Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at Charlene.crowell@responsiblelending.org.