Recently, the Consumer Financial Protection Bureau (CFPB) targeted a slate of credit repair companies, alleging that the group was engaged in practices outside the norms established by law and regulation. More specifically, the CFPB alleged the group was turning to marketing affiliates to advertise services, and these affiliates were turning to deceptive advertising measures, among other issues.
The deceptive advertising measures alone would be enough for the CFPB to take notice, but it doesn’t stop there; the CFPB also alleges that the credit repair companies charged consumers up front for their services. Federal law requires a certain time elapse between providing credit repair services and charging for these services, and charging up front allows no such time lapse to take place.
The CFPB expanded on its allegations, claiming the marketing affiliates the defendants used would offer a range of products or services, like rent-to-own housing contracts, and then once the customers acted on these additional services, refer them to the credit repair services as potential customers. Sometimes, the allegations note, these affiliates would even directly mislead customers by telling them the only way to access a desired service like a mortgage was to first engage the defendants’ credit repair service to improve their overall credit profile.
Moreover, the CFPB alleges, the marketing affiliates would use false advertising and the offer of products and services that didn’t even exist as part of overall misrepresentations to the customer. The CFPB also alleged that the defendants knew about the illegal practices engaged in by the marketing firms, yet did nothing to sever their relationship with the firms in question.
Finally, the CFPB’s allegations note that the defendants charged consumers immediately after they signed up for the group’s credit repair services. Such a move, if true, would be a direct violation of the Telemarketing and Consumer Fraud and Abuse Prevention Action, as well as the Telemarketing Sales Rule, which implemented the Telemarketing and Consumer Fraud and Abuse Prevention Action in the first place. The Telemarketing Sales Rule requires those who offer credit repair services to wait in seeking payment until after the time frame has expired for the seller to provide the services in question. Also, services need to wait to bill customers until after documentation of promised results has also arrived as part of the Telemarketing Sales Rule.
Under normal conditions, the Federal Trade Commission would normally handle enforcement of the Telemarketing Sales Rule, but in some cases—and this case in particular—the CFPB steps in to use its own statutory authority to engage in enforcement actions. This particular case falls under the CFPB’s jurisdiction as well thanks to the involvement of consumer financial products or services. Since a violation of the Telemarketing Sales Rule, under the terms of the Telemarketing and Consumer Fraud and Abuse Prevention Action when committed by a group subject to the CFPB a violation of the CFPB’s own rules on a de facto basis, the CFPB can use its own direct enforcement authority in the matter, which it has done here.