CFPB Alleges That Service Provider Helped Credit-Repair Businesses Charge Illegal Fees

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On September 20, the CFPB filed a lawsuit in federal

district court against a California-based software company and its
owner for allegedly violating the Telemarketing Sales Rule (TSR)
and the Consumer Financial Protection Act of 2010 (CFPA) by
providing substantial assistance or support to credit-repair
businesses that use telemarketing and charge unlawful advance fees
to consumers.

The company sold credit repair business software and other tools
to credit repair companies that then provide services to consumers
to remove derogatory information from, or improve, a consumer’s
credit history, credit record, or credit rating. The credit repair
companies could use the software and other tools to charge upfront
fees to consumers, which is a violation of the TSR. As a result,
the CFPB’s complaint alleges violations of the TSR by the
software provider based, in part, on the following:

  • Encouraging and advising credit repair companies to use their
    software to charge consumers at enrollment with subsequent monthly
    fees, including an FAQ that states charging fees upfront is how all
    credit repair companies get paid.
  • Providing a billing platform that allows users to charge an
    upfront fee and encourages users to sign up for this platform.

The CFPB is seeking monetary relief for consumers, disgorgement
of unjust gains, injunctive relief, and a civil money penalty.

Putting It Into Practice: The Dodd-Frank Act
made it unlawful for any person to knowingly or recklessly provide
substantial assistance to a consumer financial services provider
that engages in unfair, deceptive, or abusive acts or practices.
Further, such substantial assistance is deemed to be in violation
of the law to the same extent as the person to whom such assistance
is provided. Use of the “substantial assistance”
enforcement mechanism is reemerging as a common way for the CFPB to
go after parties that might not otherwise appear to have engaged
directly in any illegal activity (we previously discussed this
latest trend in earlier Consumer Finance & FinTech Blog posts
here and here).

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