The largest credit repair brands in the country are facing a $2.7 billion judgment following a court ruling that they collected illegal advance fees for credit repair services.
Lexington Law and CreditRepair.com were accused of using telemarketing practices that violate federal law. Besides the fine, the firms will be barred from telemarketing credit repair services for ten years.
"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 Rohit Chopra, director of the Consumer Financial Protection Bureau, in a news release.
“This scam is another sign that we must do more to fix the credit reporting and scoring system in our country,” Chopra said.
Firms file for bankruptcy protection
Following a federal district court’s ruling in March, the companies filed for Chapter 11 bankruptcy protection. They represented that they had shut down about 80 percent of their business, including their call centers, and laid off about 900 employees in response to the court’s ruling.
The companies marketed their services through a web of related entities in the Salt Lake City area, including PGX Holdings, Progrexion Marketing, and the John C. Heath, Attorney-at-Law PC law firm.
The Telemarketing Sales Rule provides a range of protections for consumers. It requires credit repair companies to wait until six months after they provide the consumer with documentation reflecting that the promised results were achieved, before they request or receive payment from the consumer.
As part of the proposed settlement, 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.
Consumers seeking information on how to dispute inaccurate information on their credit report or ways to improve their credit score can learn more through the CFPB’s online guides and tools. Consumers can also submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).