What is all this CFPB stuff?
Why are they picking on Credit Repair Cloud?
What does this have to do with you?
Yeah, great questions!
In order to understand the answer to those questions, you have to understand three things:
- The credit repair provision of the Telemarketing Sales Rule (TSR).
- The “substantial assistance” provision of the TSR.
- Credit Repair Cloud’s business model.
Let’s go over those quickly.
The credit repair provision of the TSR.
The TSR aggressively regulates credit repair. We’ve written a very detailed outline of that issue, which you should read.
Here’s what you need to know:
The TSR says that if you use phones to sell credit repair products or services, you cannot charge consumers until:
- 6-months after you completed your services.
- You obtained a credit report as proof.
That is a very reduced version of what it says, but the specific details aren’t important for this post.
Bottom line, it is an “abusive” practice if you take credit repair fees before 6-months after you completed your work.
The “substantial assistance” provision of the TSR.
The credit repair provision of the TSR is not limited to credit repair companies.
If anyone substantially assists a credit repair company that is violating the TSR, then that person is also violating the TSR.
“It is a deceptive telemarketing act or practice and a violation of this Rule for a person to provide substantial assistance or support to any seller or telemarketer when that person knows or consciously avoids knowing that the seller or telemarketer is engaged in any act or practice that violates §§ 310.3(a), (c) or (d), or § 310.4 of this Rule.”16 CFR § 310.3 (b)
Credit Repair Cloud’s business model.
Credit Repair Cloud sells credit repair software to credit repair companies.
It’s the largest credit repair software company in the world.
There are some estimates that the company services between 10,000 and 20,000 credit repair companies.
Here’s step one of the problem:
How many of those companies comply with the credit repair provision of the TSR, outlined above?
Probably close to 0.
Here’s step two of the problem:
Credit Repair Cloud is (allegedly) substantially assisting credit repair companies that are violating the TSR.
The Civil Investigative Demand.
On April 13, 2020, the Consumer Financial Protection Bureau (CFPB) served Credit Repair Cloud with a Civil Investigative Demand (CID).
The purpose of the CID was outlined as follows:
Credit Repair Cloud sought to “set aside” the CID. This means they attempted to use administrative procedures to have the CID basically go away.
The CFPB administratively “ruled” on this issue and declined. This means the CID stayed in full force.
On a side note, you may not have to comply with a CID, but the alternative is getting sued by the agency that issued the CID.
That’s exactly what happened.
In their press release, the CFPB states:
The Consumer Financial Protection Bureau (CFPB) today filed a lawsuit in federal district court accusing a California-based software company and its owner of providing assistance to illegal credit-repair businesses. The CFPB alleges that Credit Repair Cloud and CEO Daniel Rosen have violated the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA) by providing substantial assistance or support to credit-repair businesses that use telemarketing and charge unlawful advance fees to consumers.CFPB Press Release
You can download the complaint (i.e., the lawsuit) here.
Here’s a summary of the complaint:
- Paragraphs 8 through 10 explain the relationship between credit repair and the TSR, namely that charging credit repair fees before 6 months is illegal.
- Paragraphs 11 through 30 describe the relationship between Credit Repair Cloud and its users, namely that it substantially assists them with credit repair.
- Paragraphs 31 through 35 describe how Credit Repair Cloud’s users were violating the TSR, namely taking up front fees.
- Paragraphs 36 through 50 describe how Credit Repair Cloud went beyond substantial assistance by encourgaging telemarketing violations.
- Paragraphs 51 through 55 allege Credit Repair Cloud’s actions were knowing and intentional.
- Paragraphs 56 though 65 lay out definitions to be used the “counts” in the complaint.
- Paragraphs 61 through 74 contain “Count I” alleging that Credit Repair Cloud has violated the TSR by substantially assisting credit repair companies that violated the TSR.
- Paragraphs 75 through 80 contain “Count II” which is the same as Count I but directed at Danial Rosen directly.
- Paragraphs 81 through 87 contain “Count III” which is an allegation that Credit Repair Cloud violated the Consumer Financial Protection Act, as well.
What this means for you.
The 6-month rule was once thought of as inactive, antiquated, and unenforceable, etc. Nevertheless, it is alive and well.
If you are a credit repair company that uses phones to sell your product or service, you are subject to the TSR and it is illegal for you to accept payment until you’ve completed your services, waited for 6-months, and obtained a credit report proving that you did what you promised in the contract.
Additionally, if you provide a product or service to credit repair companies and if those companies are violating the TSR (which is very likely the case), then you are also (likely) in violation of the TSR.
Ultimately, the entire industry needs to seek compliance and engage a solid plan to move into compliance.
The good news?
An option already exists. It’s called Credzu (credzu.com).
You may have heard the speech at CreditCon 2021 in Clear Water, FL (which you can see here).
You may have heard about Credzu in the news (which you can see here).
Either way, to learn more about how Credzu can help you move from legal liability to legal compliance, contact us!