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WBK Industry News - Federal Regulatory Developments

CFPB Files Settled Actions Against Credit Repair Companies

The CFPB has filed two complaints and proposed final judgments against four California-based credit repair companies and three individuals for allegedly illegal and deceptive practices, including charging unlawful advance fees and misrepresenting their services to consumers.  Under the proposed final judgments, the defendants face civil money penalties of more than $1.5 million, and $500,000 in relinquished funds to the U.S. Treasury.

In the complaints, the CFPB alleges that the defendants charged illegal advanced fees, failed to disclose limits on money-back guarantees, and misled consumers about the benefits they would receive from the company’s services.

Federal law prohibits credit repair companies from charging fees for services upfront.  Despite this, the defendants allegedly did charge consumers three types of upfront fees: (1) an initial consultation fee to review consumer’s credit reports; (2) a one-time set-up fee; and (2) monthly fees.  This totaled hundreds of dollars per consumer in upfront fees.

The defendants also allegedly offered money-back guarantees for certain services, but did not disclose that the guarantees had limitations.  One of these limitations was that customers would be required to pay for six months of the company’s services before being able to benefit from the guarantee.

The CFPB’s final allegation was that the defendants made unsubstantiated claims that the services could remove negative entries on consumers’ credit reports resulting in substantial increases to credit scores, by failing to make clear that this could only happen in limited circumstances.  The CFPB asserted that this was a misrepresentation of the services provided, a further violation of federal law.

The proposed judgments were filed at the end of June with the U.S. District Court for the Central District of California.  The first judgment, for $1.5 million, was approved by the presiding judge three days later, and is now fully effective.  In addition to the civil money penalties, the defendants in that action will now be prohibited from doing business within the credit repair industry for five years.  The second proposed judgment for $500,000 in relinquished funds to the U.S. Treasury has not yet been approved by the presiding judge, but if approved, the judgment will carry the same five year prohibition from doing business in the industry.

The two proposed final judgments can be found here:

http://files.consumerfinance.gov/f/documents/201706_cfpb_Barens-Proposed-Stipulated-Final-Judgment-and-Order.pdf.

http://files.consumerfinance.gov/f/documents/201706_cfpb_Johnson-Proposed-Stipulated-Final-Judgment-and-Order.pdf.