Credit Repair Debt Relief Industry

Will This Court Opinion Hamper the Suit Filed by Credit Repair Groups Against CFPB?

Written by Steve Rhode

Recently I wrote about the valiant effort of the National Association of Credit Services Organizations (NACSO) to get some clarity from the Court regarding the unfavorable language of the Telemarketing Sales Rule (TSR).

It appears the intention of the lawsuit filed against the Consumer Financial Protection Bureau (CFPB) is to invalidate the part of the TSR that requires credit repair groups to wait six months before getting paid.

The suit filed makes arguments why credit repair groups are unfairly being targetted or victimized by relying on the TSR over the Credit Repair Organizations Act, which does not have such a provision.

The suit filed by NACSO stated, “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.”

A smart industry insider pointed out this previous post in 2017, “Court Ruling Upholds Business-Killing Telemarketing Rule.”

That article stated this issue of the TSR v. CROA was dealt with as part of a previous suit. The article stated, “These arguments fell on deaf ears. First, the court found persuasive an earlier decision (Tennessee v. Lexington Law Firms) which held that even though CROA was specifically enacted to govern credit repair, there was no evidence that Congress intended for the telemarketing activities of credit repair companies not to be simultaneously regulated by the TSR.”

That article got me hunting for a Court opinion on this issue and I did locate the unpublished opinion that spent some time dealing with this exact issue.

Court Opinion States

‘The CROA, enacted September 30, 1996, provides that “[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(b). In Defendant’s view, this provision conflicts with the advance fee provision of the TSR, which provides that a credit repair company cannot collect payment until the company has provided documentation of the efficacy of its services at least six months after the company’s “promised results have been achieved.” 16 C.F.R. § 310.4(a)(2)(ii). Defendant argues that the CROA should trump the TSR because (1) the CROA was enacted after the TSR, and, (2) a valid statute always supersedes a conflicting regulation. (Mot. at 11–12.)

There is a dearth of case law addressing the interaction between the CROA and the TSR. In fact, the only decision addressing the interplay between the CROA and the TSR identified by the parties or found by the Court is Tennessee v. Lexington Law Firms, No. 3:96-0344, 1997 WL 367409, at *6 (M.D. Tenn. May 14, 1997). In that case, the defendant contended that the CROA (recently enacted at the time) was specifically enacted to govern credit repair agencies, and therefore, based on the TSR’s “more general wording,” Congress “must not have intended credit repair services” be governed by the TSR. Id. The court disagreed and held that, though the CROA “undoubtedly governs” credit repair agencies, “there is no language in that statute indicating that Defendant’s telemarketing activities may not simultaneously be regulated by the [TSR].” Id. The Court finds the court’s analysis persuasive.

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Just as the court in Lexington Law Firms held, the Court here finds that Defendant’s argument fails at the outset, because contrary to Defendant’s contention, the CROA and the TSR do not conflict. The CROA prohibits all credit repair agencies from charging advance fees, see 15 U.S.C. § 1679b(b), while the TSR prohibits all telemarketers who participate in credit repair services from charging advance fees until six months after the promised results have been achieved, see 16 C.F.R. § 310.4(a)(2); see also Dee Pridgen & Richard M. Alderman, Consumer Credit and the Law, § 2A:12 Credit Repair Organizations Act (Nov. 2016) (“Echoing and effectively broadening the provision in the [TSR], the CROA bans the taking of any advance fees by credit repair organizations before their services have been fully performed. The CROA, however, applies to all credit repair sales, not just those that are telemarketed, so its scope is more comprehensive than the FTC rule.” (footnote omitted)). In other words, when a business is both a credit repair agency and a telemarketer, it is required to comply with both the CROA and the TSR. On the other hand, if a credit repair agency does not qualify as a telemarketer, then it need not comply with the TSR—only the CROA is applicable.

Under the CROA, even if a credit repair agency is not a telemarketer, it may not collect payment for its services until the services are completed. See 15 U.S.C. § 1679b(b). If that credit repair agency is also a telemarketer, however, then it may not collect services until its services are completed and it has provided documentation to the consumer at least six months after the services are completed evidencing the agency’s efficacy. See 16 C.F.R. § 310.4(a)(2). Thus, the two provisions may be complied with concurrently; they do not conflict. See Radzanower v. Touche Ross & Co., 426 U.S. 148, 155 (1976) (“It is not enough to show that the two statutes produce differing results when applied to the same factual situation, for that no more than states the problem.”). “The courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.” Cal. ex rel. Sacramento Metro. Air Quality Mgmt. Dist. v. United States, 215 F.3d 1005, 1012–13 (9th Cir. 2000) (quoting Morton v. Mancari, 417 U.S. 535, 551 (1974)). Accordingly, the Court finds that Plaintiff’s first claim under the advance fee provision does not fail as a matter of law on this ground.

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Whether Plaintiff’s Interpretation of the TSR Comports with the FTC’s Interpretation

Defendant’s next argument is that the FTC has chosen not to enforce the advance fee provision, though it is the agency charged with promulgating the TSR. (Mot. at 14– 16.) However, while Defendant’s argument identifies litigation from another jurisdiction where the FTC initially chose to prosecute under the advance fee provision then later voluntarily dismissed its claim, the argument fails to provide a legal basis on which this Court could dismiss Plaintiff’s claim. Thus, the Court finds Defendant’s argument unavailing.

Whether the Advance Fee Provision Applies to Defendant

Next, Defendant argues that the advance fee provision does not apply to companies like Defendant, because the provision “was meant to apply to ‘bogus’ credit repair establishments.” (Mot. at 16.) Defendant points to information released by the FTC that indicates the purpose of the TSR was to curtail “bogus credit services.” (Id.; see also Def.’s RJN, Ex. C at 63 (“This prohibition is directed at the deceptive marketing and sale of bogus credit repair services; it is not directed at the non-deceptive telemarketing of secured credit cards or legitimate credit monitoring services.”).) In its Motion, Defendant alleges that the advance fee provision specifically targets credit repair agencies that fraudulently dispute negative credit items on a consumer’s report that only temporarily benefit a consumer’s credit score, (Mot. at 16); but Defendant provides no authority for the proposition that this is the only conduct to which the advance fee provision is intended to prevent. (See id.) Thus, though Defendant argues that it “does not engage” in this specific form of fraudulent conduct, (Mot. at 17), other than Defendant’s selfserving argument, there is no evidence currently before the Court that the advance fee provision was not intended to prevent other forms of fraudulent conduct. In fact, the FTC literature indicates that its purpose is much broader than Defendant’s suggested scope: to curtail “bogus credit services” in general. (See Def.s’ RJN, Ex. C at 63.) Whether Defendant acts deceptively, and thus, may be considered a “bogus” credit service, is one of the disputes in this litigation. Accordingly, Defendant cannot escape liability by itself concluding that it does not participate in deceptive conduct and, therefore, the TSR does not apply to it. Accordingly, the Court finds Defendant’s argument unpersuasive.’

You can read the Court’s opinion here.

I have no idea on how the court is going to rule but this previous Court document provides an alternative point of view on the same situation.

Courts are unpredictable so we will just have to wait and see what the outcome is.




About the author

Steve Rhode

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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