The Consumer Financial Protection Bureau (CFPB) entered into a proposed settlement with a consortium of the largest credit repair organizations in the United States. The action comes as a response to a court ruling that found the companies guilty of unlawfully collecting advance fees for credit repair services through telemarketing, a violation of federal law. The proposed settlement could see the companies hit with a staggering $2.7 billion judgment.
The CFPB filed a lawsuit against the companies, and in March, a U.S. District Court in Utah judge ruled that they violated the Telemarketing Sales Rule. That complaint exposed a complex web of corporate entities, based primarily in Salt Lake City, Utah, which collectively operate some of the nation's most prominent credit repair brands. Among them are Lexington Law, CreditRepair.com, Progrexion PGX Holdings, Progrexion Marketing, and the law firm of John C. Heath, Attorney-at-Law PC. With a combined annual revenue of approximately $388 million in 2022, these companies have drawn in over four million customers nationwide through their credit repair services.
During the relevant time frame, the entities indulged in fraudulent practices, using misleading real estate and rent-to-own opportunities to attract customers. Their scheme was designed to exploit the desperation of consumers seeking to improve their credit scores, ultimately funneling billions of dollars in illegal fees into the pockets of the corporate conglomerate.
“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 in a release. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”
The proposed settlement, if approved, carries several key provisions, including,
- 10-Year Telemarketing Ban: The companies involved would be prohibited from engaging in telemarketing related to credit repair services for a decade. This ban would extend to any credit repair services marketed through telemarketing by others, effectively curbing their exploitative practices.
- Consumer Notices: The companies must notify remaining customers enrolled through telemarketing about the CFPB settlement. The notice would include information about the lawsuit, the court's judgment, the settlement, the option to cancel services, and the cancellation process.
- $2.7 Billion Redress: The proposed settlement enforces a $2.7 billion judgment against the companies to compensate victims of their unlawful practices. Given the companies' financial insolvency, the CFPB is exploring the possibility of using the victims' relief fund to pay affected consumers.
- Civil Penalties: The settlement would impose significant civil money penalties, including $45.8 million against Progrexion Marketing and $18.4 million against the Heath law firm, reflecting the gravity of their violations.
This settlement follows the CFPB's initial legal action to halt the companies' exploitative behavior and seek restitution for affected consumers. The district court's ruling in March 2023 established that the companies had violated the Telemarketing Sales Rule by collecting advance fees before providing the promised results.
In response to the court's decision, the companies sought refuge under Chapter 11 bankruptcy protection. They reportedly downsized their operations by shutting down around 80% of their business and laying off approximately 900 employees.
