Credit Repair Companies Reach $2.7 Billion Settlement With CFPB

The Consumer Financial Protection Bureau (CFPB) proposed a settlement with a group of companies operating some of the largest credit repair brands in the country, requiring them to pay a fine of $2.7 billion and banning them from telemarketing credit repair services for 10 years.

The move follows a court ruling that the companies, including Lexington Law and CreditRepair.com, collected illegal advance fees through telemarketing, violating federal law. The Consumer Financial Protection Bureau sued the two credit repair companies for charging customers illegally between March 8, 2016, and March 31, 2023.

More Than 4 Million Consumers Impacted

In accordance with federal law, credit repair companies must demonstrate results before charging clients, and consumers may withhold payments if they are not satisfied with the results.

Consumers were charged hundreds of dollars in illegal upfront fees by these companies after they failed to comply with federal law. More than four million consumers paid $3.1 billion to the companies. They were charged $15 sign-up fees, followed by recurring monthly fees within two weeks.

“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. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country."

Customers Referred to "Hotswap" Partners

As part of the scheme, customers who called a number from an advertisement were transferred to outside contractors who claimed to help customers obtain loans or rent-to-own homes. Customers were advised to work with Lexington Law to improve their credit and get better loan options or rent-to-own home options.

Eventually, customers were connected to either Lexington Law or CreditRepair.com, where they received a credit report. They were then provided with a 20-page contract, part of which states that the company “cannot guarantee and you are not paying for a particular credit report outcome or result; you are paying only for Lexington's (or Creditrepair.com's) efforts on your behalf."

Redress May Be Through Victims Relief Fund

The district court ruled defendants violated the advance fee provision of the Telemarketing Sales Rule in March 2023. This rule provides consumers with a range of protections regarding telemarketing and restricts payment for certain products and services.

In order to receive payment from consumers, credit repair companies must wait six months after they provide documentation indicating the promised results were achieved.

The settlement will ban the companies from telemarketing for 10 years, and require them to send a notice of the CFPB settlement to any remaining enrolled customers who were previously signed up through telemarketing. It also requires the company to pay $64 million in penalties and $2.7 billion for redress.

The CFPB will decide whether it can use its victims' relief fund to make payments to those who were harmed by the companies after they filed for Chapter 11 bankruptcy. In response to the verdict, the companies claimed to have shut down 80% of their operations, including call centers, and laid off approximately 900 employees.