CFPB Reaches $2.7 Billion Settlement With Credit Repair Firms

America’s biggest credit repair companies could be forced to give up telemarketing.

That’s according to the Consumer Financial Protection Bureau (CFPB), which announced Monday (Aug. 28) that it had reached a proposed $2.7 billion settlement against credit repair brands such as Lexington Law and CreditRepair.com. 

The settlement follows a court ruling that the companies had collected illegal advance fees for credit repair services via telemarketing in violation of federal law. If approved, the settlement would ban the companies from telemarketing credit repair services for 10 years.

“These credit repair giants used fake real estate and rent-to-own opportunities to illegally bait people and pad their pockets with billions in fees,” CFPB Director Rohit Chopra said in a news release. “This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”

The CFPB had sued the companies in 2019, and won a court victory in March when a judge found the companies had violated the advance fee provision of the Telemarketing Sales Rule, which requires credit repair companies to wait until six months after they provide the consumer with documentation showing that the promised results were achieved before they request or receive payment from customers.

Following the district court’s ruling, the companies filed for Chapter 11 bankruptcy protection, the release said, and shut down about 80% of their business, including their call centers, and laid off about 900 workers.

The CFPB settlement comes at a time when research has found major gaps between credit use and credit accessibility. In other words, “credit simply is not available to all who might wish to obtain it, use it responsibly and advance along their financial journeys in a virtuous cycle that benefits consumers, the businesses they frequent and lenders,” PYMNTS wrote recently.

Research by PYMNTS and Sezzle documented in “The Credit Accessibility Series: BNPL’s Wide-Ranging Impact on Consumers and Merchants” showed that 42% of individuals said that they’d had issues due to low credit scores. Eight out of every 10 surveyed consumers said they had directly experienced financial hardship.

Of the consumers experiencing hardship, a majority, roughly 79%, had credit scores below 650 — a level that’s become a hallmark of younger generations.

“But a full 79% of the overall sample adversely affected by relatively low credit scores are credit marginalized, with roughly a third of the population credit avoidant — meaning they’re pretty much discouraged from applying for credit at all,” PYMNTS said.