CFPB sues software company and its owner for allegedly aiding credit repair companies that charge illegal advances | Ballard Spahr LLP

The CFPB has filed a lawsuit in a federal district court in California against Credit Repair Cloud (CRC), a software company, and its owner, in which the Bureau alleges that the defendants provided substantial assistance to repair companies credit card charging illegal advance fees in violation of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA). In addition to the injunction, the lawsuit seeks monetary relief, including refunds, restitution, restitution or compensation for unjust enrichment, and civil monetary penalties.

According to the complaint, CRC sells software to people who want 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 offers training programs on how to start and run a credit repair business as well as other resources including telemarketing sales scripts, sample marketing materials and website templates. The CRC Owner participates directly in CRC training programs, offers guidance to potential CRC users through blog posts on the CRC website, and emails potential and current CRC users directly to market CRC training programs and provide advice on how to remove items from consumers. ‘ credit reports.

The CFPB alleges that the defendants encouraged CRC users to charge consumers upon sign-up, with monthly fees thereafter, and that the practices promoted by the CRC result in CRC users charging advance fees in violation of the TSR. It also alleges that the defendants knew or 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 violated TSR’s prohibition against providing substantial assistance or support to a salesperson or telemarketer where the person providing such assistance or support knows or consciously avoids knowing that the salesperson or telemarketer is engaging in conduct that violates TSR. The Bureau also alleges that by violating the TSR, the defendants violated the CFPA provision which makes it “unlawful for any person or covered service provider to offer or provide to a consumer a financial product or service that does not comply with federal law.” on consumer finance. , or otherwise commit an act or omission in violation of any federal consumer financial law. The CFPB alleges that CRC users offering credit repair services are “covered persons” and that defendants are “service providers” because they provide a material service to CRC users through their participation. the design, operation or maintenance of the provision of services by users. credit repair services.

This is an interesting enforcement action as it reflects an effort by the Bureau to prosecute a service provider, rather than credit repair organizations that allegedly violate the law. We suspect the Bureau believed it would be more effective to bring a single action against the service provider assisting multiple credit repair agencies, rather than attempting to individually prosecute each of the parties directly involved in the alleged wrongdoing. .

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