Bankrupt Credit Repair Companies Reach a $2.7 Billion Settlement With CFPB Over Improper Fees – Forbes Advisor

Some of the nation’s largest credit repair companies, including Lexington Law and CreditRepair.com, would be banned from telemarketing credit repair services for the next 10 years under a settlement reached with the Consumer Financial Protection Bureau.

“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,” said CFPB Director Rohit Chopra, in an August 28 news release announcing the proposed settlement.

The deal, if given final approval, would impose a $2.7 billion judgment and more than $64 million in civil penalties. Earlier this year, in a lawsuit filed by the CFPB, a federal judge in Utah ruled the companies illegally collected fees, through telemarketing, before their services were completed.

The companies were accused of luring customers with ads for loans or rent-to-own homes, then telling them they could get better opportunities if they improved their credit.

“This scam is another sign that we must do more to fix the credit reporting and scoring system in our country,” Chopra added.

Credit Repair Companies in Case Now Bankrupt

In March, the federal judge ruled that the companies had violated the Telemarketing Sales Rule, which prohibits credit repair companies from collecting payments until six months after documenting for a customer that they have delivered the promised results.

The companies filed for Chapter 11 bankruptcy protection after the court’s ruling, resulting in a shutdown of about 80% of their businesses, as well as about 900 layoffs, according to the CFPB. The debt relief companies once had more than 4 million customers, the bureau said.

“Due to the companies’ financial insolvency, the CFPB will determine whether the CFPB’s victims relief fund can be used to make payments to those harmed by the perpetrators,” the agency said.

What if You Were a Customer?

If you were a customer of the credit repair companies named in the lawsuit, you will likely receive a notice soon about next steps. The proposed settlement requires the companies to notify affected customers of the settlement and their right to cancel services, as well as how to do so.

If you believe you were wrongly charged by a credit repair provider, you can file a complaint on the CFPB’s website.

If you believe there is an error on your credit report, you can always directly dispute it with the credit reporting agency involved.

There are some cases in which the dispute might be too large or cumbersome to handle on your own, and that’s when a credit repair provider might come in handy. But make sure you thoroughly research the top-rated credit repair companies before making a decision.