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The Hidden Scam: Credit Repair Companies Face a $3.1 Billion Lawsuit

In a surprising turn of events, credit repair companies, rather than debt collection agencies, maybe scamming consumers and complicating the debt collection process.



The Consumer Financial Protection Bureau (CFPB) is seeking a staggering $3.1 billion judgment against credit repair companies Lexington Law and CreditRepair.com, accusing them of wrongfully charging consumers for their services and overwhelming debt collection agencies with frivolous and false disputes.


The CFPB filed a lawsuit in a Utah federal court, alleging that the two credit repair companies charged customers illegally between March 8, 2016, and March 31, 2023. In total, they have taken approximately $3.1 billion from over four million consumers, violating the Telemarketing Sales Rule. The CFPB argues that it is time for these companies to return the funds they illegally charged, cease their illegal billing practices, and pay penalties as a result of their misconduct. If granted, the $3.1 billion judgment would be the largest in the bureau's history for a contested action.


According to the CFPB, these credit repair companies have been violating federal law by charging a $15 fee when consumers sign up for services, followed by recurring monthly fees starting within about two weeks. Federal law states that credit repair companies must demonstrate that they have achieved results before charging clients and allows consumers to withhold payments when credit repair is not achieved. However, these companies allegedly failed to comply with federal law, robbing consumers of their ability to withhold payment and charging them hundreds of dollars in illegal upfront fees.


In addition to scamming consumers, these credit repair companies have caused problems for debt collection agencies that are trying to help business owners collect legitimate debts owed to them. By inundating these agencies with baseless and false disputes, credit repair companies have been hindering the debt collection process. In many cases, these tactics have backfired against the debtor. When credit repair companies submit completely frivolous disputes and request that debt collection agencies cease and desist communication with the debtor, they limit the ability of the debt collection company to resolve the matter amicably.


This obstructive behavior not only complicates the debt collection process but also has the potential to harm the debtor's financial standing in the long run.


In conclusion, the CFPB's lawsuit against credit repair companies Lexington Law and CreditRepair.com exposes an alarming issue in the financial industry, where credit repair companies appear to be the real scammers rather than debt collection agencies. These companies have allegedly charged consumers illegal fees and obstructed debt collection processes by inundating agencies with frivolous and false disputes. With the CFPB seeking a historic $3.1 billion judgment, the outcome of this case could significantly impact the credit repair industry and bring much-needed attention to these deceptive practices. Consumers are advised to be cautious when dealing with credit repair agencies and to seek legal recourse if they have been wronged by such companies.

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Disclaimer: Any and all information is not intended to be, nor is it, legal advice. Please consult your attorney for information concerning allowable rates of interest.

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