Consumer watchdog sues two credit-repair firms over fees, practices

The nation’s consumer watchdog agency on Thursday sued the owners of two large credit-repair companies, accusing them of taking unlawful fees from consumers and engaging in deceptive and abusive sales tactics.

In a complaint filed in U.S. District Court in Utah, the Consumer Financial Protection Bureau accuses CreditRepair.com and Lexington Law, their owners and various affiliated entities, of violating telemarking laws by collecting fees from consumers before they were legally permitted to do so. The lawsuit also alleges that deceptive methods were used to get customers to sign up for credit-repair services at both firms.

The bureau is seeking to stop the upfront fees, end deceptive representations used through marketing the services and obtain relief for harmed consumers, the complaint states.

Signage is displayed inside the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., U.S., on Monday, March 4, 2019.

Andrew Harrer | Bloomberg | Getty Images

Under federal law, companies can only charge fees for credit-repair services once the promised results have been achieved and proven with a credit report six months later.

The lawsuit says that at the time of enrollment with Lexington Law or CreditRepair.com, consumers are charged a fee for a copy of their credit report and told that the fee — which has ranged from $9.99 to $14.99 since July 2011 — is required to begin the credit-repair process, the complaint says. Ongoing monthly fees range from $79.95 to $129.95.

The complaint also says that both Lexington Law and CreditRepair.com relied on a shared network of marketing affiliates that used deceptive tactics to get consumers to enroll.

For example, the lawsuit says, from at least 2012 through 2017, an unnamed partner (identified as “HSP1”) allegedly offered consumers low-interest mortgages, access to rent-to-own housing or other products and service, none of which it actually could do. The suit says the unnamed firm was simply an affiliated call center with the purpose of transferring potential clients to Lexington Law.

More than 100,000 consumers signed up for Lexington Law’s credit-repair services through that unnamed firm’s efforts, the complaint says.

The lawsuit claims the defendants either knew about the misrepresentations or had “reckless indifference” to them or an awareness of the high probability of their existence.

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“Despite this knowledge, the … defendants continued to sign up consumers through the affiliate or participated in the affiliate’s deceptive conduct,” the complaint states.

The two firms plan to fight the accusations.

“We find ourselves a bit perplexed,” said Eric Kamerath, a spokesman for the companies. “In a system that already is weighted heavily against the consumer in favor of opportunistic and opaque processes, why would the [bureau] choose to prevent consumers from getting professional help?”

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Kamerath also said the lawsuit is premised on “an unannounced, incorrect and unworkable change in interpretation of an arcane billing provision that is outdated, previously unenforced and contradicted by the Credit Repair Organizations Act.”

“We have been providing information to the CFPB for over four-and-a-half years,” Kamerath said. “During that time, we have made frequent requests to meet and discuss any concerns the bureau has with respect to billing or other practices.

“Why the agency chose to wait until now to reveal its interpretation of the rule is a mystery to us.”

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