On August 8, the CFPB filed a proposed order to resolve its 2021 lawsuit (previously discussed here) against a California-based software company and its CEO for their role in helping credit repair companies charge their customers illegal advance fees in violation of the Telemarketing Sales Rule and the Consumer Financial Protection Act.
In its amended complaint, the CFPB argued that the company and its CEO provided substantial assistance to credit repair companies that use telemarketing to reach consumers and demand unlawful advance fees. This assistance included offering a dispute generation and tracking system and an integrated billing system, as well as providing training, marketing tools, and model websites.
Specifically, the CFPB sued the CEO in his individual capacity because of his control of the company, the substantial assistance he provided to credit repair companies in violating the law, and his knowledge or reckless disregard of those actions. The CEO’s contributions included training credit repair companies on his company’s system, providing sample scripts, and advising on how and when to collect fees from consumers.
If the court approves the order, it will impose a civil penalty of $1 million on the software company and a civil penalty of $2 million on the CEO.
In addition, the order stipulates that both the CEO and the company:
- Implement a comprehensive compliance program to determine whether the credit repair companies that used the defendants’ services are engaging in telemarketing and charging illegal advance fees.
- Remove from the Company’s software, websites, training and marketing materials, blog posts, books, other publications, and templates any reference to soliciting prospective customers for credit repair services by telephone or video conference, and any language or software features that recommend that the Company’s customers charge consumers monthly fees for credit repair services.
- Notify companies that use its tools and services that they must not charge illegal upfront fees and monitor whether the companies comply.
Put into practice: Under the Consumer Financial Protection Act, it is unlawful for anyone to knowingly or recklessly provide substantial assistance to a consumer financial services provider that engages in unfair, fraudulent, or abusive acts or practices. Typically, the Bureau makes claims of “substantial assistance” to expand its jurisdiction when other theories of liability are unavailable. What is notable here, however, is that the Bureau brought the action against a third-party provider that is not typically the target of Bureau enforcement actions. There are likely two reasons for this. First, the area of loan rehabilitation and debt relief has been a frequent target of federal regulators (see our discussion here, here, and here). And second, the defendants knew that the companies they were providing their product to were violating the law, and they actively encouraged that conduct.
