The Consumer Financial Protection Bureau (CFPB) settled with some of the largest credit repair companies on Monday, including Lexington Law and CreditRepair.com. This action is the latest example of the CFPB cracking down on the credit repair industry.
Credit repair companies’ settlement
The settlement found that the companies charged customers illegal "advance" fees, violating federal laws related to telemarketing. If the settlement is approved, the companies face a $2.7 billion judgment and a ten-year ban on telemarketing credit repair services.
The settlement comes just as U.S. consumers grapple with record levels of credit card debt.
“These credit repair giants [CreditRepair.com and Lexington Law] used fake real estate and rent-to-own opportunities to illegally bait people and pad their pockets with billions in fees,” said CFPB Director Rohit Chopra in a statement. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”
The companies will also pay $64 million in civil penalties if the settlement goes forward. About four million customers were charged improper fees.
The two credit repair companies are bankrupt
In an ironic twist , the two companies named in the settlement are now themselves bankrupt.
PGX Holdings, Inc., the parent company of Lexington Law and CreditRepair.com, secured a $12 million loan in June to help it reorganize in bankrupcy. The Utah-based PGX has stopped monthly billing for about 80% of its customers. The company also laid off 900 of its 1,200 employees.
Could you get compensation?
If you signed up for services through a telemarketing campaign by Lexington Law or CreditRepair.com, you may be entitled to compensation. The companies are required to reach out to clients who may have been harmed, so be sure to check you mail or email. This notification will also explain how you can cancel services with the companies.
Given that the PGX companies are in bankrupcy and the proposed settlement is so large, the CFPB may need to tap the Civil Penalty Fund to compensate consumers.
If your credit needs repair
If your credit score has fallen into the "fair" or "bad" categories, you need to take action. A good credit score can save you money on a mortgage or car loan, for example. It's tempting to think that a credit repair company can act as a quick fix for your problems, but many charge money for things you can do yourself. For example, you can check your credit report frequently and contest any inaccurate information. You can contact credit and try to negotiate a payment plan.
If you still want help, look first to non-profit credit counseling organizations. These counseling agencies tend to be more reputable than for-profit credit repair companies. And if you think you may be a victim of a credit repair scam, you may file a complaint with the CFPB.
Ellen writes on environmental, social and governance (ESG) investing and sustainability. She was an ESG manager and analyst at Calvert Investments for 15 years, focusing on climate change and consumer staples. She served on the sustainability councils of several Fortune 500 companies, led corporate engagements, and filed shareholder proposals.
Prior to joining Calvert, Ellen was a program officer for Winrock International, managing loans to alternative energy projects in Latin America. She earned a master’s from University of California in international relations and Latin America. She is fluent in Spanish and Portuguese.
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