National Association of Credit Services Organizations Sues CFPB

Recently I wrote about the desire for the National Association of Credit Services Organizations members to raise money to sue the Consumer Financial Protection Bureau (CFPB).

Well it seems they raised the necessary funds they were looking for from members to sue the CFPB. Actually an attorney with the law firm Greenspoon Marder did as the attorney for the association. Coincidentally, Robby Birnbaum is the president of NACSO and an also an attorney for Greenspoon Marder.

What follows are excerpts from the suit NACSO Non-Profit Business League, Inc. v.CFPB. Any comments I might have will be in [ ].

“NACSO is a non-profit national association that strives to educate its members, which include credit repair organizations, so they are able to provide their much needed and desired services to help consumers while supporting and facilitating the compliance with reasonable laws and regulations to safeguard those consumers. However, the CFPB recently has sought to enforce against NACSO’s members an overreaching, unconstitutional, and inapplicable regulation contrary to law thereby making this lawsuit necessary. Credit repair organizations are governed by the legislatively enacted Credit Repair Organizations Act. Yet, the CFPB has recently sought to apply and to enforce a provision of a Telemarketing Sales Rule that is not promulgated under the Credit Repair Organizations Act, which rule prohibits NACSO’s members from being paid for their services until at least six months after those services have been rendered. This arbitrary six month waiting period eviscerates the ability of NACSO’s members to be paid for work already performed and puts the full burden of the consumer’s credit status on the credit repair organizations, long after the credit repair services were provided.”

“NACSO seeks judicial review of the prohibition on a credit repair organization to be able to request or receive payment for services it already rendered for a minimum six-month period of time after those services are rendered as set forth in the Telemarketing Sales Rule, 16 C.F.R. § 310.4(a)(2)(ii) (the “TSR”), and a declaration that the TSR: (a) exceeds the statutory authority conferred by the Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. §§ 6101 et seq. (the “Telemarketing Act”); (b) conflicts with the Credit Repair Organizations Acts, 15 U.S.C. §§ 1679 et seq. (“CROA”); and (c) is an illegal and unenforceable violation of the First Amendment rights of credit repair organizations that improperly impairs fully-protected speech because it is content-based and cannot withstand scrutiny.”

“The CFPB has enforced, and continues to show that it intends to enforce, the TSR against credit repair organizations, including members of NACSO. Along these same lines, the CFPB is encouraging consumer reporting agencies to not investigate “disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant.” See https://files.consumerfinance.gov/f/documents/cfpb_credit-reporting-policy-statement_caresact_ 2020-04.pdf (last visited, May 7, 2020).”

[The referenced letter is titled “Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act”. It begins by stating “The Bureau of Consumer Financial Protection (Bureau) recognizes the serious impact the COVID-19 pandemic is having on the financial well-being of many consumers and on the operations of many supervised entities, including actors in the consumer reporting system, and the challenges of this unique and rapidly evolving situation.”

The quoted section in the NACSO complaint states in full “The Bureau reminds furnishers and consumer reporting agencies that they may take advantage of statutory and regulatory provisions that eliminate the obligation to investigate disputes submitted by credit repair organizations and disputes they reasonably determine to be frivolous or irrelevant. The Bureau will consider the significant current constraints on furnisher and consumer reporting agency time, information, and other resources in assessing if such a determination is reasonable.” – Source

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“In both instances, the CFPB continues to financially burden NACSO members based on the content of their speech, which reflects the CFPB’s preference and attempts to unlawfully silence the speech of credit repair organizations in violation of the First Amendment.”

The complaint states the Telemarketing Sale Rule (TSR) was implemented in 1994 to protect “consumers necessary protection from telemarketing deception and abuse.”

The suit by NACSO states “Importantly and as it relates to the compensation for the sale of goods or services in the context of “abusive telemarketing acts or practices,” the FTC was not given authority to regulate the time or manner in which a “person engaged in telemarketing” is so compensated, but rather was given the limited authority to regulate “disclosures…the Commission deems appropriate, including the nature and price of the goods and services.” 15 U.S.C. § 6102 (a)(3).”

The complaint alleges the Federal Trade Commission (FTC) has not sought to enforce the TSR six-month payment exclusion against credit repair organizations. “Notwithstanding, the CFPB believes it is authorized to enforce the TSR against credit repair organizations pursuant to the Consumer Financial Protection Act of 2010, 12 U.S.C. §§ 5301 et seq. See 12 U.S.C. § 5581(b)(5).”

The Credit Repair Organizations Act (CROA) is said to have been enacted in 1996, after the TSR. And here is where clarity is needed according to NACSO. They are asking the Court to make a determination if the regulations in the TSR have any impact on credit repair organizations. A key issue is the TSR delay of payment for services versus the CROA wording that says “[n]o credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.” 15 U.S.C. § 1679b.”

“Thus, a credit repair organization that is in full compliance with CROA—a federal statute passed by the democratically elected branches of government—may be deemed by the CFPB to nonetheless be in violation of the TSR—a rule promulgated by unelected officials— depending upon when the credit repair organization requests or receives compensation for its services.”

[And here is where the politics all gets murky. The TSR was enacted under the Clinton administration time in office. The CFPB is currently going after credit repair organizations during the Trump administration time in office. On the NACSO conference call I heard it was presented that members should contact their Congressional representatives and ask them to contact the White House to get them to intervene.

NACSO was successful in getting members of Congress to write a letter to the CFPB on November 7, 2019, and asking them to reconsider the TSR and CROA issue. The complaint references the letter by saying “as recently as November 7, 2019, members of Congress confirmed this intent by communicating their understanding to the CFPB that not only did “the Federal Trade Commission, which enforces CROA, instruct[] credit repair organizations (CROs) and consumers that CROA is the law of the land with respect to billing regulations, but also, “with regard to CROs, the TSR is no longer operative[.]”

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The letter is signed by four Repubican members of Congress: Blaine Luetkemeyer (R-MO), Denver Lee Riggleman III (R-VA), Ann Wagner (R-MO), and Ted Budd (R-NC). All of the signers are member of the House of Representatives.]

The complaint filed by NACSO hopes the Court will declare “the TSR violates the United States Constitution and is, thus, unenforceable.

Additionally, the suit asks for “A declaration that the promulgation of the TSR unlawfully exceeds the delegated statutory rulemaking authority under the Telemarketing Act, and conflicts and was superseded by CROA, which renders the TSR invalid and unlawful.”

And if the Suit is Successful

I get it, clarity is desired but one line in the suit could through the entire debt relief industry into a state of chaos if the Court actually issues “A declaration that the TSR violates the United States Constitution and is, thus, unenforceable.” That opens the door wide open for other debt relief activities that it covers to go back to the abusive practices of the past.

As the FTC states, “The Telemarketing Sales Rule, which requires telemarketers to make specific disclosures of material information; prohibits misrepresentations; sets limits on the times telemarketers may call consumers; prohibits calls to a consumer who has asked not to be called again; and sets payment restrictions for the sale of certain goods and services.”

Invalidating the TSR in full will have a seemingly unlimited series of unintended consequences that will point back to NACSO and this suit. It will be easy by many to then vilify NACSO and it’s members as being anti-consumer and wanting to be abusive.

My personal opinion is I get the clarity NACSO was going for and I think the point about clarity is reasonable. But tossing out the entire TSR for the benefit of credit repair organizations seems like a bad political move. But what the hell do I know?

You can read the full suit here.

We will just have to wait, monitor, and see what the Court decides to do. I’ll keep you posted.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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