On August 8, the CFPB filed a proposed order to resolve its 2021 lawsuit (previously discussed here) against a California-based software company and its CEO for their role in helping credit repair businesses charge illegal advance fees to customers in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act.
In its amended complaint , the CFPB argued that the company and its CEO provided significant support to credit repair companies that leverage telemarketing to reach consumers and charge unlawful advance fees. This support included offering a system that generated and tracked disputes and integrated a billing system, in addition to providing training, marketing tools, and model websites.
Notably, the CFPB sued the CEO in his individual capacity due to his control over the company, the substantial assistance he provided to credit repair companies to violate the law, and his knowledge or reckless disregard that these actions were taking place. The CEO's contributions included training credit repair companies on his company’s system, providing sample scripts, and advising them on how and when to collect fees from consumers.
If the court approves the proposed order, it will impose a $1 million civil penalty on the software company and $2 million civil penalty on the CEO.
Additionally, the order will mandate that both the CEO and the company:
- Implement a comprehensive compliance program to determine whether the credit repair businesses that used the defendants’ services are telemarketing and charging illegal advance fees.
- Remove from company’s software, websites, training and marketing materials, blog posts, books, other publications, and templates including any reference to the solicitation of potential customers for credit repair services by telephone or videoconferencing and any language or software feature that recommends that the company’s customers charge consumers monthly fees for credit repair services.
- Notify companies using its tools and services that they cannot charge illegal upfront fees and monitor whether companies are complying.
Putting It Into Practice: The Consumer Financial Protection Act makes 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. Typically, the Bureau raises “substantial assistance” claims to extend its jurisdictional reach where other theories of liability are unavailable. What is notable here, however, is that the Bureau brought the claim against a third-party service provider, which are typically not the target of Bureau enforcement actions. There are two likely reasons. First, the credit repair and debt relief space has been a frequent target of federal regulators (see our discussion here, here, and here). And second, the defendants knew that the companies to whom they were providing their product were violating the law, and they actively helped facilitate that behavior.