A few days after the Federal Trade Commission imposed penalties related to credit repairThe Consumer Financial Protection Bureau (CFPB) also took similar action on the same issue last week.
The CFPB has filed a proposed order to settle its lawsuit against Credit Repair Cloud and CEO Daniel Rosen for providing substantial aid or assistance to credit repair companies that charge consumers improper advance fees.
Officials said the proposed order, if issued by the court, would impose a $2 million civil penalty against Rosen and a $1 million civil penalty against Credit Repair Cloud.
The order would also require the company and Rosen to take steps to ensure that credit repair companies that use Credit Repair Cloud stop charging consumers improper advance fees.
The CFPB summarized that Credit Repair Cloud is a California-based company founded by Rosen. Since 2013, Credit Repair Cloud has been selling software and other tools to help others start and run credit repair businesses, according to the CFPB.
Officials explained that a credit repair company provides consumers with goods or services that purport to remove derogatory information from credit reports or otherwise improve a person’s credit history, credit report or credit score.
The CFPB noted that credit repair companies that use telemarketing are subject to the Telemarketing Sale Rule, which prohibits charging fees until the company has provided the consumer with a credit report that shows the promised results and that was prepared more than six months after those results were achieved.
The agency alleged that Credit Repair Cloud and Rosen “substantially” assisted credit repair companies that telemarketed to consumers and charged them improper advance fees. The companies provided users with a system that, among other things, generated and tracked disputes, provided an integrated billing system, and provided training, marketing tools and model websites.
The CFPB also alleged that Rosen was personally liable for Credit Repair Cloud’s violations because he controlled Credit Repair Cloud, participated in its substantial support activities, and knew about or negligently ignored its occurrence.
Officials said Rosen’s “substantial” assistance included training credit repair companies on how to use the Credit Repair Cloud system, providing sample scripts and advising on how and when to collect fees from consumers.
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against individuals who violate consumer financial protection laws, including the Telemarketing Sales Rule.
If the court issues such an order, the defendants are required to:
– Pay a $3 million civil penalty: Rosen would have to pay a $2 million civil penalty and Credit Repair Cloud would have to pay a $1 million civil penalty. Both amounts would be deposited into the CFPB’s victim relief fund, called the Civil Penalty Fund.
— Stop supporting companies that illegally charge advance fees: The order would permanently prevent Credit Repair Cloud and Rosen from providing substantial support to companies that use telemarketing to sell credit repair services and charge advance fees. Credit Repair Cloud and Rosen would also be required to remove from their tools and services any language related to telemarketing and charging monthly fees for credit repair services.
—Inform businesses that use Credit Repair Cloud’s tools and services that they cannot charge illegal upfront fees and monitor whether businesses comply: Credit Repair Cloud and Rosen would be required to send all businesses that use Credit Repair Cloud a notice that includes specific examples of illegal telemarketing and upfront fees. They would also be required to monitor whether Credit Repair Cloud users engage in telemarketing and charge upfront fees.
“Credit Repair Cloud and its CEO Daniel Rosen enabled credit repair companies to collect illegal fees from insolvent consumers,” CFPB Director Rohit Chopra said in a press release. “We will continue our work to hold individual executives accountable when they violate federal law.”
