Recently, PGX Holdings, Inc. (PGX), one of the nation’s largest consumer credit repair companies, and twelve affiliates have entered into Chapter 11 bankruptcy under pressure from a potential $3 billion CFPB judgment for violations of federal consumer protection laws.

In May 2019, the CFPB filed a complaint in Utah federal district court against a group of related credit repair companies for alleged violations of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA).  The primary focus of the Bureau’s complaint was the defendants’ alleged CFPA violations.  According to the complaint, to obtain referrals of consumers, the defendants relied on a network of “marketing affiliates” who primarily advertised consumer credit products or services.  The CFPB alleges that one of more of such affiliates did not actually offer or provide the advertised products or services but instead “offered illusory products or services to lure in consumers and market credit repair services.”  Specifically, the CFPB alleges that in an effort to generate payments from the defendants for leads, such affiliates falsely represented to consumers that they were required to use the defendants’ credit repair services in order to obtain the advertised credit products or services or that the credit repair services would enable them to obtain or create a high likelihood of obtaining the advertised credit products or services.

With regard to the Bureau’s TSR claims, the Bureau alleges that the defendants violated the TSR by charging advance fees before providing consumers with documentation reflecting that the promised results have been achieved.  The CFPB demanded nearly $3 billion in restitution and refunds and adherence with various requirements based on the district court’s summary judgment ruling in favor of the CFPB on the TSR claims.  The CFPB’s CFPA claims are still pending.

The companies sought more financing and more time for the case but ultimately were unable to obtain financing in a larger committed amount, with a longer maturity, or with longer milestones than the financing available to them through debtor-in-possession financing in the bankruptcy proceeding.  The case was assigned to U.S. Bankruptcy Judge Craig T. Goldblatt in the U.S. Bankruptcy Court for the District of Delaware.  An initial court hearing has been scheduled.

The summary judgment ruling in favor of the CFPB and corresponding bankruptcy serves as yet another example of the ongoing issue of large-scale credit repair organizations that purport to assist consumers engaging in unlawful conduct.