Credit-repair services promise to help consumers fix their credit scores, but there’s only so much they can do. They can help clear up inaccurate or outdated information on a consumer’s credit report, but they can’t erase legitimate dings.
But the Consumer Financial Protection Bureau alleged that a group of related L.A. credit-repair companies didn’t make that clear and misled consumers about how much their credit scores might improve.
On Tuesday, the companies’ former owners and a business associate agreed to pay $2 million to settle the CFPB’s allegations, which also included claims that the companies improperly charged fees before showing that credit-repair work had been done.
The bureau alleged the bad practices took place at a handful of firms — including Commercial Credit Consultants, Accurise, Park View Legal and Prime Credit Consultants — from 2009 to 2014, the year some of the companies were sold to a private equity firm.
Blake Johnson and Eric Schlegel, the former owners of some of the firms, will pay a combined penalty of $1.53 million but did not admit wrongdoing as part of the settlement.
“We decided, with great reluctance, to settle this investigation in order to avoid the further time and expense of a legal battle over an enterprise that we sold several years ago,” Johnson and Schlegel said in a statement. “The investigation already had dragged on for more than two years.”
Arthur Barens and his company Park View Law Inc., which did business with Johnson and Schlegel’s firms, will pay $500,000.
Barens likewise said he opted to settle rather than try to fight the CFPB. He called the bureau’s allegations a “technical argument,” rather than something spurred by actual consumer harm.
“I’m not aware of any complaints they received,” he said. “Unintentionally, a regulation may have been violated. But there was no showing of any wrongdoing or any consumer that was armed.”
In their statement, Johnson and Schlegel also questioned why the bureau’s charges stem not from alleged violation of the Credit Repair Organizations Act, a federal law aimed specifically at credit-repair firms, but from federal rules for telemarketing firms.
The CFBP does not have the authority to enforce the Credit Repair act, bureau spokesman Sam Gilford said, but it can enforce telemarketing rules that bar firms from engaging in a wide variety of behavior.
Those prohibitions include misrepresenting the effectiveness of goods and services and charging for credit-repair services in advance.
The companies, the bureau alleged, gave customers the impression that they could remove negative items from credit reports — late payments or defaulted loans, for instance — without making it clear that those items can be removed only if they are inaccurate or outdated.
The companies also told customers that their credit scores could be improved by an average of 100 points but did not actually collect credit score information that could have justified that claim, according to the bureau.
What’s more, the companies charged prohibited fees. The federal telemarketing rules say companies cannot charge for credit-repair services until they can prove they performed those services. To do that, companies must provide customers with a credit report six months after services have been rendered.
The companies in this case, though, charged an up-front consultation fee of $59.95, a one-time “set-up” fee of several hundred dollars and then an ongoing monthly fee of $89.99 until customers canceled the service, according to settlement documents.
In their statement, Johnson and Schlegel said they felt “blindsided” by the CFPB’s reliance on the telemarketing rules.
They said they had never heard of those rules being used to go after credit-repair companies and that the idea that credit-repair firms must wait at least six months to charge their customers “conflicts not just with best practice but, as far as we know, all practice in the credit-repair industry.”
Linda Sherry, a spokeswoman for advocacy group Consumer Action, said credit-repair companies are generally a bad deal.
Companies often promise to help renegotiate debt or get negative information removed from credit reports, she said, but consumers don’t need an outside company to do it.
“Consumers can do a lot of this stuff on their own and may be better served if they do so,” she said. “You can definitely dispute items on your credit report that are not accurate — and you should.”
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