Consumer Agency Awards $1.8 Billion in Refunds to More Than 4 Million Americans

December 6, 2024 TruthUSA

Affected customers will receive the payments between Dec. 5 and Jan. 6.

The Consumer Financial Protection Bureau (CFPB) is distributing nearly $2 billion in refund checks to people scammed by credit repair services.

CFPB said in a Dec. 5 statement that 4.3 million consumers were charged “illegal advance fees or subjected to allegedly deceptive bait-and-switch advertising by a group of credit repair companies including Lexington Law and CreditRepair.com,” adding that the $1.8 billion payout was the largest-ever distribution from the agency’s victims relief fund.

The companies had offered services like fixing a person’s bad credit score by getting negative and false information on their credit reports deleted.

However, Lexington Law and CreditRepair.com “exploited vulnerable consumers who were trying to rebuild their credit, charging them illegal junk fees for results they hadn’t delivered,” said CFPB Director Rohit Chopra. The agency had filed a lawsuit against the companies in 2019.

The lawsuit accused them of charging consumers during sign-up and then on a monthly basis, both of which were not legally allowed.

Federal law requires that certain telemarketed credit repair services must not collect any upfront payment from customers. Instead, they have to first provide documentation to customers that the promised results have been achieved, then wait six months to collect the fees.

The agency also alleged that the companies used “deceptive, bait advertising” to get referrals for their business.

In August last year, the U.S. District Court for Utah ordered the companies to pay $2.7 billion in penalties. After the court ruling, the companies filed for bankruptcy.

CFPB will now distribute $1.8 billion to customers who were charged the advance fees or were victims of the misleading advertising.

The money will be distributed to affected customers between Dec. 5, 2024, and Jan. 6, 2025, with the payment amounts depending on how much was paid to CreditRepair.com and Lexington Law.

“The amount you receive, however, may not cover all of the fees you paid,” CFPB said. “If funds remain after the distribution is complete, additional checks may be sent to consumers who cashed their initial check.”

Prior to bankruptcy, the companies had over 4 million customers nationwide. They collected around $388 million in annual revenues in 2022.

Following the court ruling, the companies shut off roughly 80 percent of their business and laid off about 900 workers. The companies have been banned from engaging in telemarketing credit repair services for 10 years.

CFPB has taken similar action against other credit repair companies. In August, it filed a proposed order against Credit Repair Cloud and its CEO Daniel A. Rosen.

The agency accused the company of “providing substantial assistance or support to credit repair businesses that charge illegal advance fees to consumers.” The order imposed a $1 million penalty on the company and a $2 million penalty on the CEO.

The U.S. Federal Trade Commission (FTC) has also gone after fraudulent credit repair operations.

In August, the settlement of an FTC suit against Financial Education Services, a company that allegedly ran a pyramid scheme, led to permanent bans on the company’s operators.

“The company preyed on consumers with low credit scores by luring them in with the false promise of an easy fix and then recruiting them to join a pyramid scheme selling the credit repair services to others, costing them millions of dollars,” the agency said.

The NYC Department of Consumer and Worker Protection warns people that any service that requires an upfront fee for credit repair is likely a scam.

Some of these services offer to create a new credit identity that gives the individual a new Social Security number. The department pointed out that such actions are illegal.

Another sign of fraud is when the service offers to remove negative information from a credit report. “No one can legally remove negative information from a credit report that is accurate,” the agency said.

“Most negative information generally stays on your report for seven years while bankruptcy information can remain on the report for 10 years.”

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