CFPB sues software company; Alleges it encourages credit repair companies to charge illegal fees
On September 20, 2021, the CFPB issued a press release announcing that it had filed a lawsuit against a California-based software company, Credit Repair Cloud (Cloud), and its owner, Daniel Rosen, for allegedly helping companies illegal credit repair. The CFPB alleges that Cloud and Mr. Rosen violated the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA) by providing substantial assistance, including training, equipment and software to credit repair companies that use telemarketing to reach consumers and charge illegal advances.
The TSR prohibits credit repair companies that telemarket their service from requesting or receiving a fee until they have provided the consumer with a credit report that is more than six months old and shows the desired results. The CFPA prohibits any covered person from offering or providing a consumer with a financial product or service that does not comply with the Federal Consumer Finance Act.
In this context, based on publicity materials, Cloud’s website, Mr. Rosen’s podcast, and social media accounts managed by Cloud and Mr. Rosen, among other allegations, the lawsuit alleges that Cloud:
- Offers an all-in-one solution for starting and running a credit repair business, on the basis that only a computer, phone and software are needed.
- Provides over 100 sample dispute letters that the software automatically pre-populates with consumer information and templates for cloud customers to provide to consumers.
- Provides training on starting and running a credit repair business, including telemarketing, sales scripts, marketing collateral templates, and website templates.
- Outlines steps to challenge negative items on credit reports and encourage monthly consumer fees.
- Provides information to users via social media and hosts an annual credit repair conference.
- Encourages the use of telemark to sell credit repair services and provides sales scripts for these calls.
- Encourages and advises users to charge consumers on sign-up subsequent monthly fees, including an FAQ that states that the initial billing of fees is how all credit repair companies are paid.
- Provides a billing platform that allows users to charge upfront fees and encourages users to register for this platform.
The CFPB is asking the defendants for redress for aggrieved consumers, restitution of their unfair gains, an injunction to end their (allegedly) illegal conduct, and civil penalties. According to Acting Director David Uejio, “Credit Repair Cloud and Rosen broke the law. They actively help credit repair companies violate federal consumer protection laws. They have facilitated and encouraged credit repair companies to charge illegal advance fees, causing wider harm to consumers in the marketplace. The CFPB will not tolerate companies facilitating and profiting from violations by other companies of federal consumer protection laws.
insideARM point of view:
Although many in the accounts receivable management industry know how harmful certain credit repair companies can be to consumers, it might come as a surprise that the CFPB chooses to sue a software company for breach of TSA and CFPA. After all, software vendors usually provide a platform, and the end user usually decides how to use it.
It is important to note here that most of the allegations in the CFPB complaint came from publicly available resources: Cloud’s website, Mr. Rosen’s podcast, and a Facebook page where Mr. Rosen provides advice and comments frequently. . If the allegations are true, the CFPB complaint indicates that Cloud is not a typical software company, nor is Mr. Rosen a typical software company owner. Instead, the allegations suggest that Cloud and Mr. Rosen actively trained and encouraged their clients to violate consumer protection laws.
IIt seems that instead of prosecuting credit repair companies using cloud software (at least for now), the CFPB is going after what it perceives to be the root of the problem: the software company . The future will tell if the CFPB will use this approach in other areas.