NACSO vs. CFPB and FTC: An easy to understand explanation.

  • Robert Sigman
  • 2nd March, 2021
CFPB, FTC, NACSO, TSR

What is this page about? There is a serious case pending in federal court which will have a massive impact on credit service organizations and consumers who hire them. There’s an update to the case, discussed below. Before that, however, is some background and context. More importantly, we’re trying to explain it all in an easy-to-understand way.

How laws, rules, and agencies work.

Everything below pertains to federal laws, rules, agencies, and Courts. The following is a very basic, reduced explanation for the purpose of understanding this article.

Congress makes “laws.” Those laws can create agencies, such as in the case of the two agencies relevant here:

  • The Consumer Financial Protection Bureau.
  • The Federal Trade Commission.

Agencies, provided congress gave them the power to do so, can make “rules” and enforce them by filing lawsuits, etc.

From the 80s to the 90s (in a paragraph or so).

Fast forward a decade…

From the 90s to the 2000s (in a paragraph or so).

Fast forward 25 years…

Today; right now.

The agencies publicly went after two companies:

Lexington Law (credit repair):

cfpb-complaint-against-pgx-holdings-and-lexington-law

Boost My Score (tradelines)

FTC-complaint-against-BoostMyScore

In both cases, they used the TSR and CROA.

Excerpt from complaint against LexingtonLaw
Excerpt from complaint against BoostMyScore

The agencies privately pursued “civil investigation demands” which is like a private investigation that may lead to enforcement actions, using the TSR and CROA.

The agencies have made clear their intention to enforce the TSR and the CROA.

The credit repair industry clearly dislikes the TSR

NACSO is trying to fix the problem.

The National Association of Credit Service Organizations (NACSO) is an industry advocate. Some of their members were sued by the FTC/CFPB for violations of the TSR.

NACSO-amended-complaint-against-FTC-and-CFPB

Now, what might happen?

  • If the case is dismissed, it’s over (with some legal maneuvering which I doubt will happen because of the expenses involved).
  • If the dismissal is denied, it just means that it goes forward with a trial on the merits.

What do I think will happen?

  • The case will be dismissed, with prejudice (i.e., cannot refile, dead in the water, over), because NACSO doesn’t have the standing to bring the case and because the court lacks subject matter jurisdiction which expired 19 years ago.
  • The case may also be dismissed, without prejudice (i.e., can refile to perfect its complaint). Unlikely, at this point.

I prefer NACSO survives dismissal so that we can get an adjudication on the merits. Either way, this case will have massive ripple effects throughout the industry.

Final thought:

Implicit in NACSO’s argument is that “we don’t need this rule.” And, that’s factually accurate. After all, the FTC went 30 years without enforcing the TSR’s provision, while relying on the law, the CROA. As such, the appropriate method of attack (if NACSO fails) is to ask the FTC to amend the TSR on the basis that it solves a 1988 problem that no longer applies today.

CFPBs-Reply-to-MTD

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