The CFPB has filed a lawsuit in a California federal district court against Credit Repair Cloud (CRC), a software company, and its owner, in which the Bureau alleges that the defendants provided substantial assistance to credit-repair businesses charging unlawful advance fees in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). In addition to injunctive relief, the lawsuit seeks monetary relief, including refunds, restitution, disgorgement, or compensation for unjust enrichment, and civil money penalties.
According to the complaint, CRC sells software to individuals seeking to start and operate credit-repair businesses. The software allows CRC users to track and organize consumer information and activity, including consumer payments for credit-repair services. CRC also provides training programs on how to start and run a credit-repair business as well as other resources, including telemarketing sales scripts, template marketing materials, and template websites. CRC’s owner participates directly in CRC training programs, offers advice to prospective CRC users through blog posts that are posted on CRC’s website, and sends emails directly to prospective and current CRC users to market CRC’s training programs and provide tips on how to remove items from consumers’ credit reports.
The CFPB alleges that the defendants have encouraged CRC users to charge consumers at enrollment, with monthly fees thereafter, and that the practices encouraged by CRC result in CRC users charging advance fees in violation of the TSR. It also alleges that the defendants have known or have consciously avoided knowing that CRC users were telemarketing and charging advance fees in violation of the TSR.
The CFPB alleges that, based on such conduct, the defendants have violated the TSR’s ban on providing substantial assistance or support to a seller or telemarketer when the person providing such assistance or support knows or consciously avoids knowing that the seller or telemarketer is engaged in conduct that violates the TSR. The Bureau also alleges that, by violating the TSR, the defendants have violated the CFPA provision that makes it “unlawful for any covered person or service provider to offer or provide to a consumer a financial product or service not in conformity with Federal consumer financial law, or otherwise commit any act or omission in violation of a Federal consumer financial law.” The CFPB alleges that the CRC users offering credit-repair services are “covered persons” and that the defendants are “service providers” because they provide a material service to CRC users through their participation in designing, operating, or maintaining the users’ provision of credit-repair services.
This is an interesting enforcement action because it reflects an effort by the Bureau to pursue a service provider, rather than the credit-repair organizations that are allegedly violating the law. We suspect that the Bureau believed it would be more efficient to bring a single action against the service provider assisting several credit-repair organizations, rather than attempting to individually pursue each of the parties directly involved in the alleged wrongdoing.