On September 22, 2016, the Consumer Financial Protection Bureau (CFPB) filed a complaint in the U.S. District Court for the Central District of California against a credit repair company for allegedly making misleading representations and charging illegal fees. The case, CFPB v. Prime Marketing Holdings, LLC, No. 2:16-cv-7111 (C.D. Cal.), is an important reminder of the restrictions and obligations applying to credit repair companies and other entities offering similar services.
The complaint alleges that defendant Prime Marketing Holdings (PMH) violated the Consumer Financial Protection Act (CFPA) and the Telemarketing Sales Rule (TSR) by:
- Charging unlawful fees. PMH allegedly required customers to pay an initial consultation fee and a set-up fee, despite advertising the consultation as “free.” PMH also allegedly represented to customers that, following the consultation, they would only be charged monthly fees if they affirmatively continued services after 60 days, when in reality it charged them monthly fees until the customers affirmatively canceled their contracts. The complaint asserts that this alleged conduct, in addition to being misleading, was unlawful because PMH was a telemarketer and therefore was prohibited by the TSR from requesting or collecting fees for credit repair services until it provided the customer with documentation showing that the promised credit repair results had been achieved.
- Misrepresentation of the efficacy of PMH’s services. PMH allegedly represented to consumers that it would be able to remove almost any negative information from a consumer’s credit report, regardless of whether that information was current or accurate. It also represented that it could improve customers’ credit scores by an average of more than 100 points. The complaint alleges that PMH lacked a reasonable basis to make either of these claims, and thus that these material misrepresentations violated both the TSR and the CFPA’s prohibition on deceptive acts or practices.
- Failing to disclose limitations of guarantee. PMH also allegedly represented that it offered a money-back guarantee and implied that the guarantee applied to increases in consumers’ credit scores. In fact, that guarantee was limited to the removal of one disputed item within six months of the contract, and customers were generally required to pay for six months of services before they could invoke the guarantee. This conduct allegedly violated the TSR as well.
The CFPB’s complaint seeks damages for injured consumers, civil money penalties, and a permanent injunction to halt these allegedly unlawful practices.
The CFPB has not historically focused on credit repair companies in its enforcement actions, though it has occasionally brought suits based on similar claims against debt relief companies (for example, see the complaints in CFPB v. Mission Settlement Agency, No. 1:13-cv-3064 (S.D.N.Y. May 7, 2013), and CFPB v. Orion Processing, LLC, No. 1:15-cv-23070 (S.D. Fla. Aug. 17, 2015)). But the agency’s suit against PMH and the consumer advisory it issued last week warning customers about credit repair scams may signal a renewed interest in these types of claims. Institutions offering credit repair services should review the complaint and consumer advisory to ensure that none of the complained-of practices are taking place in their own organizations.