Lexington Law Credit Repair Gets Hammered in Lawsuit Settlement. If You Sell Credit Repair – Wake Up!

Today the Consumer Financial Protection Bureau and Lexington Law, the largest credit repair operation in the United States, entered into a Stipulated Final Judgement and Order the Court must approve. I would be surprised if they didn’t.

I’m going to bold what I think are the most important revelations.

The proposed order says, “Plaintiff Bureau of Consumer Financial Protection (“Bureau”) commenced this civil action on May 2, 2019, to obtain injunctive and monetary relief and civil penalties. The suit alleges, among other things, that the Defendants violated the credit repair advance fee provision of the Telemarketing Sales Rule (TSR), 16 C.F.R. § 310.4(a)(2), by billing clients for credit repair services before the timeframes required by the advance fee provision had expired. On March 10, 2023, this Court issued an order agreeing with the Bureau’s position.

Credit repair organizations that market or sell their services over the phone, irrespective of whether they promise a specific result to consumers, must follow the TSR, including the advance fee provision.

That is, credit repair organizations that market or sell services over the phone may not request or receive payment of any fee for credit repair services until (i) the time frame in which they have represented all of the goods or services will be provided to that person has expired; and (ii) they have provided the person with documentation in the form of a consumer report from a consumer reporting agency demonstrating that the promised results have been achieved, such report having been issued more than six months after the results were achieved.

And no business may substantially assist a credit repair organization that it knows or consciously avoids knowing is engaged in an act or practice that violates the TSR, including by doing such things as providing back office support, technical know-how, lead generation, or data that supports their non-complaint credit repair practices or billing.

The Defendants and the Bureau have now agreed to settle the litigation. As part of the settlement, Lexington Law, CreditRepair.com, and Progrexion—the largest credit repair organizations in the United States—have agreed that, among other things, they will not violate the advance fee provision of the TSR, nor will they knowingly assist or support any company that is violating that provision.

Consumers considering using a credit repair company should be aware that it is illegal for a company to charge them for telemarketed credit repair unless it has been six months since the company achieved the promised results. Their consumer report has to show that the promised results were achieved six months earlier than they can be billed. Credit repair organizations accepting clients via inbound or outbound telemarketing must conform their billing practices to the full requirements of the TSR, including the advance fee provision of the TSR.

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You can read the court documents here and here.

But That’s Not All!

Today, the Consumer Financial Protection Bureau (CFPB) entered into a proposed settlement with a ring of corporate entities operating some of the largest credit repair brands in the country, including Lexington Law and CreditRepair.com. The agreement follows a ruling from the court that the companies collected illegal advance fees for credit repair services through telemarketing in violation of federal law. If approved, the settlement would impose a $2.7 billion judgment against the companies. The order will also ban the companies from telemarketing credit repair services for 10 years.

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

Lexington Law and CreditRepair.com are the largest credit repair brands in the country. The credit repair services are marketed and offered through a web of related entities in the Salt Lake City area, including PGX Holdings, Progrexion Marketing, and the John C. Heath, Attorney-at-Law PC law firm. During the time period relevant to the lawsuit, the companies operated nationwide and had more than 4 million customers who were subjected to telemarketing. In 2022, the defendants had combined annual revenues of approximately $388 million.

The CFPB previously sued the companies to halt their illegal conduct and seek redress and other relief. In March 2023, the district court ruled that the defendants violated the advance fee provision of the Telemarketing Sales Rule. The Telemarketing Sale Rule provides a range of protections for consumers related to telemarketing and sets payment restrictions for certain goods and services. It requires credit repair companies to wait until six months after they provide the consumer with documentation reflecting that the promised results were achieved, before they request or receive payment from the consumer.

Following the district court’s ruling, the companies filed for Chapter 11 bankruptcy protection. The companies represented that they had shut down about 80 percent of their business, including their call centers, and laid off about 900 employees in response to the court’s ruling.

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Enforcement Action

Under the Consumer Financial Protection Act (CFPA), the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices, and against institutions violating the Telemarketing Sales Rule.

If entered by the court, the settlement will, among other things:

  • Ban the perpetrators from telemarketing for 10 years: The companies will be banned from telemarketing credit repair services or selling credit repair services that others marketed through telemarketing for 10 years. The companies will also be banned from doing business with certain marketing affiliates. These bans will attach to the companies even after the bankruptcy proceedings are complete.
  • Require notices to consumers: The companies will be required to send a notice of the CFPB settlement to any remaining enrolled customers who were previously signed up through telemarketing. The notice will inform consumers of the CFPB’s lawsuit, the court’s summary judgment holding, the settlement, the consumer’s right to cancel their credit repair services, and the process for canceling the service.
  • Impose a $2.7 billion judgment for redress: The order would impose a $2.7 billion judgment against the companies for redress. Due to the companies’ financial insolvency, the CFPB will determine whether the CFPB’s victims relief fund can be used to make payments to those harmed by the perpetrators.
  • Impose more than $64 million in civil penalties: The order would impose a $45.8 million civil money penalty against Progrexion Marketing and a $18.4 million civil money penalty against the Heath law firm.
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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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