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Financial Services Law Insights and Observations


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  • FTC secures TRO against credit repair scheme

    Federal Issues

    On May 31, the FTC announced that the U.S. District Court for the Eastern District of Maryland granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. According to the FTC’s complaint, the operation targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding its credit repair services; (ii) selling a product that purportedly sends rent payment information to credit bureaus even though “this information is not generally part of consumers’ credit score and many credit bureaus don’t accept this kind of information directly from consumers”; (iii) charging illegal advance fees; (iv) failing to provide consumers required information such as refund and cancellation policies; and (v) recruiting consumers to sell credit repair products to other consumers as part of a pyramid scheme even though few consumers ever received the promised earnings (and many consumers actually lost money as agents). Beyond the temporary restraining order, the FTC is seeking a permanent injunction, monetary relief, and other equitable relief.

    Federal Issues FTC Enforcement Consumer Finance Credit Repair Fees Courts FTC Act CROA TSR UDAP Deceptive

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  • FTC temporarily halts unlawful credit repair operation

    Federal Issues

    On May 6, the FTC announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices. According to the FTC’s complaint, the operation violated the FTC Act, the CROA, and the TSR by, among other things; (i) making misrepresentations regarding credit repair services; (ii) making misrepresentations regarding a money-making opportunity associated with a government benefit related to Covid-19; (iii) making untrue or misleading representations to consumers, which included increasing their credit score; (vi) charging for the performance of credit repair services that the defendants agreed to perform prior to such services being fully performed; (v) making untrue or misleading statements with respect to their sales pitch on credit worthiness, credit standing, or credit capacity to consumer reporting agencies, creditors, and potential creditors; and (vi) charging illegal advance fees. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, the appointment of a receiver, immediate access to business premises, an asset freeze, and other equitable relief.

    Federal Issues FTC FTC Act TSR CROA UDAP Enforcement Deceptive

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  • Illinois AG sues credit repair companies for deceptive practices

    State Issues

    On January 13, the Illinois attorney general announced that he filed two separate suits in the Circuit Court of Cook County against two credit repair companies and three individuals who allegedly engaged in deceptive and fraudulent practices when promoting credit repair services to consumers and collecting debts in violation of the Consumer Fraud and Deceptive Business Practices Act, the Credit Services Organization Act, and the Collection Agency Act.

    In the first complaint, the AG alleges a credit repair agency is not registered in Illinois as a credit services organization, and that it, along with its owner, a co-defendant, has not filed the statutorily required $100,000 surety bond with the Secretary of State’s office. The AG’s complaint alleges that the company charges unlawful upfront fees while making false promises that it will increase consumers’ credit scores. When the defendants fail to live up to these promises, they subsequently refuse to refund the money that consumers paid for the credit repair services they did not receive.

    In the second complaint, the AG makes the same allegations against a different credit repair company, its owner, and a former employee. In addition, the second complaint also alleges that the company operates as a debt collection agency, but does not possess the requisite state license as a collection agency. Further, the complaint claims that, among other things, the defendants extract payments for “completely fabricated” payday loan debt from consumers who do not actually owe on the loans by using threats and other abusive and harassing collection tactics.

    The AG seeks a number of remedies including injunctive relief prohibiting all defendants from engaging in any credit repair business, and prohibiting the second company and its owner and employee from engaging in any debt collection business; rescission of consumer contracts; and restitution to all affected consumers.

    State Issues Courts Advertisement Enforcement State Attorney General Consumer Protection Fraud Credit Repair Licensing Restitution Rescission CROA Consumer Complaints Debt Collection

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  • FTC settles with credit repair companies

    Federal Issues

    On January 17, the FTC announced it had reached settlements with a number of defendants alleged to have operated “an unlawful credit repair scam that has deceived consumers across the country.” According to the FTC’s complaint, the defendants purportedly made false representations to consumers regarding their abilities to improve credit scores, falsely promised to remove any negative entries on the consumers’ credit reports, illegally collected upfront fees from consumers before the services were fully performed, and used threats and coercion to intimidate consumers from disputing charges. The FTC alleged these misleading statements and illegal actions violated TILA, the FTC Act, the Telemarketing Act, and the Credit Repair Organizations Act, among other things. Additionally, the FTC claimed that the defendants “routinely engage in electronic fund transfers from consumers’ bank accounts without obtaining proper authorization, and use remotely created checks to pay for credit repair services they have offered through a telemarketing campaign, in violation of the TSR.” The defendants, without admitting or denying the allegations, agreed to settlements that ban the defendants from offering credit repair services through “advertising, marketing, promoting, offering for sale, or selling,” impose a total monetary penalty of nearly $14 million, and require several defendants to turn over the contents of bank and merchant accounts as well as investment and cryptocurrency accounts. See the settlements here, here, and here.

    Federal Issues Agency Rule-Making & Guidance Settlement Enforcement FTC FTC Act TILA TSR CROA Telemarketing Sales Rule Telemarketing and Consumer Fraud and Abuse Prevention Act Credit Repair

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  • U.S. Supreme Court Rules Credit Repair Organizations Act Does Not Override Arbitration Agreements


    On January 10, the U.S. Supreme Court ruled (8-1) that the Credit Repair Organizations Act (CROA) does not override the Federal Arbitration Act’s (FAA) broad requirement that arbitration agreements be enforced according to their terms. CompuCredit Corp. v. Greenwood, No. 10-948, 2012 WL 43514 (Jan. 10, 2012). This case involves a proposed class of consumers alleging CompuCredit violated the CROA when it marketed and provided a no-deposit credit card to consumers with poor credit and then charged fees against the credit limit. CompuCredit sought to compel arbitration to enforce the terms of the card agreement, which mandated individual arbitration of disputes. The district court and Ninth Circuit both sided with the proposed class, finding the arbitration clause in conflict with the CROA’s “right to sue” provision and therefore void. On appeal, the consumer respondents urged the Supreme Court to follow the Ninth Circuit and hold that because the CROA requires a disclosure that a consumer has the right to sue a violating credit repair organization, and because the CROA prohibits waiver of any right given under the CROA, the right to file suit cannot be waived by an arbitration agreement. The Supreme Court rejected the Ninth Circuit’s line of reasoning and reversed, holding instead that (i) the FAA establishes a liberal policy requiring enforcement of arbitration agreements according to their terms, (ii) the CROA is silent on arbitration and its disclosure provisions do not create a right to sue that overrides the broad FAA mandate, and (iii) Congress could have specifically prohibited arbitration provisions in the CROA.

    Credit Cards Arbitration U.S. Supreme Court CROA

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