Massachusetts District Court Dismisses Credit Repair Company’s Petition to Dismiss CFPB Case | Man’s pepper with trout

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A judge of a federal district court in Massachusetts refuse a petition by a credit repair company to dismiss a case brought by the Consumer Financial Protection Bureau (CFPB) and the State of Massachusetts alleging the company made false claims about customers’ ability to improve their credit ratings credit and demanded payment prior to full performance, in violation of the Telemarketing Selling Rule (TSR), 16 CFR § 310 et. seq., the Consumer Financial Protection Act (CFPA), 12 USC §§ 5531, 5536, and state law. Consumer Financial Protection Bureau and Commonwealth of Massachusetts v. Commonwealth Equity Group, LLC d / b / a Key Credit Repair and Nikitas Tsoukales, Case n ° 1: 20-cv-10991-RWZ (August 10, 2021)

Defendant Tsoukales ‘company, Key Credit Repair, offers assistance in removing negative information from customers’ credit reports and improving their credit rating. Customers find out about their services through the company’s website and advertising and call the company if they choose to engage in those services. Customers are required to pay a monthly fee before getting the results promised. On its website, the company promises to “correct unlimited negative conditions” from a credit report, achieve an “average increase of 90 points in 90 days” and “dramatically increase credit scores.” . The applicants allege that these representations are false. They further allege that, from 2016 to 2019 alone, Key Credit Repair registered nearly 40,000 consumers nationwide and, since 2011, has collected at least $ 23 million in fees from consumers.

In support of their motion to dismiss, the defendants argued that the TSR is secondary to the Credit Repair Organizations Act (CROA) and that any conflict between the law and the regulation should result in a preemption of conflict, so that the TSR should not apply. Finding that the TSR and the CROA were not in conflict, the court found this argument unconvincing. Identifier., at 2 o’clock.

Next, the defendants argued that the TSR violates the due process clause because its definition of “telemarketing” is vague and does not provide a fair opinion as to who is covered by the settlement. Identifier., to 4. The rule defines telemarketing as “a plan, program or campaign which is carried out to induce the purchase of … services … through the use of one or more telephones and which involves more than one telephone call interstate. Username at 4 o’clock quoting 16 CFR §310.2 (gg). The defendants asserted that the terms “plan”, “program” and “campaign” would apply to all salespeople and service providers who communicate with customers by telephone, while acknowledging that TSR exonerates the vast majority of the liability. companies, but expressly refuses to exempt credit repair organizations like Key Credit. Username. at 5 quoting 16 CFR §310.6 (b) (5). In rejecting this argument, the tribunal relied on Hoffman Estates v. Flipside, Hoffman Estates, 455 US 489, 495 (1992) which argued “[a] one who engages in clearly prohibited conduct cannot complain about the vagueness of the law as it applies to the conduct of others. Username.

The defendants further asserted that TSR’s definition of telemarketing imposes a content-based restriction on speech by placing a restriction on credit service providers as to when they receive payment for their services. The court disagreed, saying the restriction is on conduct – timing of payment, not word. Identifier., to 6.

The defendants also claimed that the Federal Trade Commission (FTC) overstepped its authority by enacting rules targeting their conduct, arguing that Congress intended to deal only with telemarketing calls unsolicited by FTC regulation. The court found the defendants’ interpretation narrow, holding that the definition does not require calls to be unsolicited, but only the use of a telephone – which can both make and receive calls. Identifier., to 6 (quoting 15 USC § 6016 (a) (1)).

Finally, the defendants argued that the CFPB exceeded its powers following the Supreme Court ruling in Sella Law LLC v. Consumer Financial Protection Bureau, 140 S. Ct. 2183 (2020). The court rejected this argument, citing Consumer Affairs Office End. Prot. vs. Citizens Bank, NA., 504 F. Supp. 3d 39, 51 (DRI 2020), which held, “[t]Although the Seila Law decision is still young, the two courts dealing with this issue have so far determined that an action for execution of the CFPB was pending at the time of the Seila Law can continue if the action is ratified by the director. The court concluded that the amended complaint, filed after the Seila Law decision, served as ratification of the action and, therefore, there was no ground for rejection on this ground.

This case highlights CFPB’s close monitoring of the credit repair industry and potential deceptive and abusive telemarketing practices. Troutman Pepper will continue to monitor this matter.


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