Credit Repair Providers Settle CFPB Action for $2.7 Billion

A group of now-bankrupt companies which provided credit repair services entered into a $2.7 billion settlement with the CFPB to resolve a pending suit by the agency.

In 2019, the CFPB filed suit against a law firm and a group of technology services providers which operated several of the country’s largest credit repair businesses.  The CFPB alleged that the companies violated the Telemarketing Sales Rule (TSR), which provides that credit repair providers which offer their services through telemarketing may not charge “advance fees,” and may only receive payment from a consumer after a certain amount of time has passed and the promised results have been achieved.  Additionally, the CFPB alleged that the companies committed deceptive acts and practices by having lender partners refer customers to them by telling the customers that they needed to use the credit repair services in order to obtain better loan options from the lender.

In March 2023, the district court granted summary judgment in favor of the CFPB on the claim that the companies violated the TSR.  While arguments were pending before the court on the correct measure of damages for the TSR violations, all of the defendants filed for bankruptcy.  Against this background, the CFPB and the defendants ultimately chose to settle the case.

Under the settlement, the defendants agreed not to offer credit repair services through telemarketing for ten years and to other injunctive relief related to future marketing and lead generation for credit repair services.  Further, the companies must provide notice of the settlement to customers who are still enrolled in their credit repair services.

The defendants also agreed to pay approximately $2.66 billion in consumer redress and approximately $64 million in civil money penalties.  However, in light of their pending bankruptcies, the money owed will be treated as an unsecured claim against the bankruptcy estate and any payment of the settlement amounts will be subject to approval by the bankruptcy court.  The CFPB has indicated that it may instead offer payments to affected consumers through the agency’s victim compensation fund.