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The Telemarketing Sales Rule, the “TSR,” imposes strict limits on credit repair companies. For example, it bars collecting any fee unless the service is proven by a consumer report issued more than six months after the results are achieved. In practice, complying with this payment timing is extremely difficult. The choice many companies face is stark, stay in the industry and risk non-compliance, or exit. Credzu proposes a third option, an internet-only workflow with third-party escrow. This approach was presented at the 2021 Credit Convention in Clearwater, FL. Below is the outline of that talk with targeted excerpts.
This material is legal in nature and high impact. Our goal is not to provide financial, tax, or legal advice. It is to surface issues you should review with qualified counsel so you can protect your business. Pay close attention to the details and get guidance on them.
The founder of Credzu became interested in credit after returning from a tour in Iraq as a Special Agent with Army Counterintelligence. After encountering his own credit challenges, he pursued solutions that later matured into a business model designed to help others. With a counterintelligence mindset, legal compliance was paramount, yet genuine compliance often appeared elusive. Once the TSR’s application to credit repair became clear, the prior company was sold and Credzu was formed based on the belief that direct compliance is not feasible without a disinterested escrow layer. The aim was to preserve the industry by aligning it with the law.
The CROA and the TSR regulate many things. Here, the focus is credit repair services. Among the many rules, two provisions matter most to day-to-day operations. First, the CROA’s prohibition on upfront fees. Second, the TSR’s requirement to wait more than six months, and to document results with a consumer report, before receiving payment. Most other requirements are straightforward, do not make false claims, do not coach consumers to lie, provide required disclosures, and use a compliant contract. Those are manageable. The prepayment prohibitions, however, directly reshape your business model, and in the case of the TSR, they can overwhelm it.
Everyone in credit repair should know the CROA’s payment rule: “No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.” – 15 USC § 1679b(b).
Debate persists about how to apply this in practice. Can a company bill periodically for discrete, completed work, or must it complete everything promised in the contract before billing, given the CROA’s separate requirements for a “full and detailed description of the services” and “the total amount of all payments”? Those open questions affect how you structure scope, milestones, and invoices.
This requirement surprises many, and it means what it says:
“(a) Abusive conduct generally. It is an abusive telemarketing act or practice and a violation of this Rule for any seller or telemarketer to engage in the following conduct:
…
(2) Requesting or receiving payment of any fee or consideration for goods or services represented to remove derogatory information from, or improve, a person’s credit history, credit record, or credit rating until:
(i) The time frame in which the seller has represented all of the goods or services will be provided to that person has expired; and
(ii) The seller has provided the person with documentation in the form of a consumer report from a consumer reporting agency demonstrating that the promised results have been achieved, such report having been issued more than six months after the results were achieved. Nothing in this Rule should be construed to affect the requirement in the Fair Credit Reporting Act, 15 U.S.C. 1681, that a consumer report may only be obtained for a specified permissible purpose;”
– 16 C.F.R. § 310.4(a)(2)(ii).
It actually says that. As an aside, consider the last sentence regarding obtaining a credit report after service.
The TSR contains limited exceptions for certain inbound calls in response to general media advertising. In plain terms, calls are generally covered whether you dial or the consumer does. For credit repair companies, the usual inbound exception does not apply. If you operate a credit repair company, the TSR applies whether you call the customer or the customer calls you.
Liability can extend beyond the direct violator: “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.” Given that taking money before six months is a violation for credit repair companies, those who substantially assist them, such as software vendors, communications providers, marketing firms, and payment processors, have appeared in enforcement actions as well.
In the 1980s, credit repair proliferated along with consumer complaints. Headlines routinely described abusive practices. Credit repair became synonymous with consumer harm. That environment created the political momentum for regulation.
States across the country passed credit repair laws, with California acting as early as 1984 and Florida in 1987. Congress attempted federal legislation several times, and the CROA was enacted in 1996.
The FTC promulgated the TSR in 1995, with credit repair included from the start. It was immediately used through “Operation Payback,” a joint action with State Attorneys General. The cases included Giving You Credit (952 3136 / N.D. Ill., 96C 2088), Credit Doctor (962 3114 / D.D.C., 96 0687), and The Law Center (962 3037 / C.D. Cal., number not available at press time).
Broad enforcement activity did not reappear until about 2016. Several factors may explain the gap, including active use of the CROA after 1996, the creation of the CFPB in 2010 with overlapping authority to enforce the TSR, and non-public resolutions via CIDs and settlements. In short, the TSR was a sleeping giant that is now awake.
Recent matters include Prime Marketing (2016), Lexington Law (2017 and 2019), Top Tradelines (2019), BoostMyScore (2019), Commonwealth Equity Group (2020), and numerous civil investigative demands. As industry counsel Robby Birnbaum observed, “The Biden administration has re-energized the CFPB. …They are looking for cases.”
When the CROA arrived, both bad actors and good actors were frustrated, for very different reasons. Bad actors faced targeted tools against fraud. Good actors faced strict limits despite trying to do the right thing. Many attempted creative workarounds. Most failed, and litigation often expanded the reach of the law. That history is instructive for today’s TSR landscape.
Courts have applied the CROA to parties that merely represent they perform covered services, even if they do not actually perform them, including credit score providers, car dealerships, credit counseling, lawyers, debt settlement, financial services, and lenders. See Stout v. Freescore, LLC, 743 F.3d 680 (9th Cir. 2014), Wojcik v. Courtesy Auto Sales, 2002 WL 31663298 (D.Neb. Nov. 25, 2002), Polacsek v. Dedicated Consumer Counseling, Inc., 413 F. Supp. 2d 539 (D. Md. 2005), FTC v. Gill, 265 F.3d 944, 950 (9th Cir. 2001), Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir. 2009), PARKER v. 1-800 BAR NONE, Case No. 01 C 4488, (N.D. Ill. Feb. 11, 2002), In re National Credit Mgmt. Group, L.L.C., 21 F. Supp. 2d 424, 457-58 (D.N.J. 1998).
There is no CROA exemption for lawyers. If the definition fits, CROA applies. See Iosello v. Lexington Law Firm, 2003 U.S. Dist. LEXIS 14591 at *17-19 (N.D. Ill. Aug. 7, 2003); Rannis v. Fair Credit Lawyers, Inc., 489 F. Supp. 2d 1110, 1116 (C.D. Cal. 2007); FTC v. Gill, 71 F. Supp. 2d, 1030, 1038 (C.D. Cal. 1999).
Escrow must be genuine and third-party. Labeling payment processing as “escrow” does not avoid the CROA’s up-front fee bar, and exercising control, even through a third party, can be treated as possession. See Estrella v. Freedom Financial Network LLC, 778 F. Supp. 2d 1041, 1046 (N.D. Cal. 2011); Jhass Grp. L.L.C. v. Ariz. Dep’t of Fin. Institutions, 238 Ariz. 377 (Ariz. Ct. App. 2015). You also cannot act as your own escrow, because a disinterested third party is the point.
Court focus is on the whole transaction. Bundling “free” services with a paid product can still be compensation for services. See F.T.C. v. RCA Credit Servs., LLC, 727 F.Supp.2d 1320, 1333 (M.D. Fla. 2010).
Courts and agencies apply substance over form. If payments are tied to services and are not tax-deductible, they are fees under the CROA. See Polacsek v. Dedicated Consumer Counseling, Inc., 413 F. Supp. 2d 539, 549 (D. Md. 2005).
Only bona fide nonprofits with 501(c)(3) status qualify. Faking nonprofit status fails. See Zimmerman v. Cambridge Credit Counseling Corp., 409 F.3d 473, 478 (1st Cir.2005); Walker v. Clearpoint Fin. Solutions, Inc. (In re Walker), 414 B.R. 787, 792 (Bankr. M.D. Fla. 2009); Baker v. Family Credit Counseling Corp., 440 F.Supp.2d 392, 404 (E.D.Pa.2006).
CROA clearly covers “retrospective” repair. “Prospective” counseling can be outside CROA, but coverage turns on your representations. If you represent that your service will improve credit, CROA may apply. See Hillis v. Equifax Consumer Servs., Inc., 237 F.R.D. 491 (N.D.Ga.2006); Plattner v. Edge Solutions, Inc., 422 F.Supp.2d 969 (N.D.Ill.2006); Wojcik v. Courtesy Auto Sales, Inc., No. 01-506, 2002 WL 31663298, 2002 U.S. Dist. LEXIS 22731 (D.Neb. Nov. 25, 2002).
Monthly billing is not the test, post-service billing is. Two readings exist. One CROA section says “before such service is fully performed,” which raises the question whether billing can occur as discrete services are completed, even daily or by task. Another section requires contracts to state “the total amount of all payments” and a “full and detailed description of the services,” which suggests completion of all promised work before billing. The FTC and CFPB have asserted that billing cannot occur until credit improvement is achieved, an interpretation not found in the CROA’s text or case law. The DOJ has gone further, arguing that post-dated checks and collecting card data, even if not processed, can be “valuable consideration” and violate the CROA’s up-front fee bar. See Stout v. FreeScore, LLC, 743 F.3d 680, 684 (9th Cir. 2014); U.S. v. Cornerstone Wealth Corporation, Inc., Civil Action No. 3:05-CV-2147-D, 19 (N.D. Tex. Aug. 16, 2007); United States of America v. RMCN Credit Services, Inc. et al (Settlement). For Cornerstone specifics, search PACER Case 3:05-cv-02147-D, Document 22, pages 22–23.
The CROA history shows that loophole hunting tends to fail and often broadens enforcement. With TSR enforcement active now, companies face the same fork in the road. Pursue loopholes, or pursue compliance. The TSR’s six-month payment delay is much harder to absorb than the CROA’s “work then pay,” so structural changes, not tricks, are required.
Background, the CFPB does not enforce the CROA, but it does enforce the TSR, and most recent TSR credit repair cases are CFPB matters. Lexington Law moved to dismiss on constitutional grounds, among others. That argument failed, and after related litigation the Supreme Court left the Bureau in place. The TSR remains enforceable.
The CROA is a statute that says “do work, then get paid.” The TSR is a regulation that says “do work, wait six months, then get paid.” Defendants have argued the statute supersedes the regulation. In a Prime Marketing ruling, citing Tennessee v. Lexington Law Firms, No. 3:96-0344, 1997 WL 367409, at *6 (M.D. Tenn. May 14, 1997), the court agreed there is no statutory language barring simultaneous application of both regimes. The court concluded that “the CROA and TSR do not conflict.” The reasoning is straightforward, if a company is both a credit repair agency and a telemarketer, it must comply with both; if it is not a telemarketer, only the CROA applies.
The TSR does not apply to bona fide nonprofits. Bona fide is the key. The same fake-nonprofit problems that failed under the CROA will fail here.
Face-to-face exemptions exist, but sending a notary or stranger to “meet” the rule does not qualify. The person must be part of your company and able to discuss the offering in a substantive way. See Federal Trade Commission v. United Debt Counselors, LLC, et al., Civil Action No. 4:17-cv-143. In that case, the FTC argued that those notary meetings did not meet the exemption.
The TSR applies to interstate telemarketing. Because you cannot control whether a call crosses state lines, relying on an “intrastate only” model is risky.
Attorneys are not exempt from the TSR. “The TSR, in turn, contains no applicable exception for the practice of law or attorneys.”
The TSR reaches both products and services tied to credit repair: “Requesting or receiving payment of any fee or consideration for goods or services represented to remove derogatory information from, or improve, a person’s credit history, credit record, or credit rating.”
Credit repair faces a serious cash-flow problem, because the rule requires a six-month wait and proof of results before fees can be collected. History shows loopholes rarely work and often backfire. The industry needs a compliant structure, not a workaround.
The TSR does not cover internet transactions, even if the internet uses telephone lines. See 800-JR Cigar, Inc. v. GoTo.com, Inc., 437 F.Supp.2d 273, 294 (D.N.J.2006). The word “internet” does not appear in the TSR. The TSR does regulate Voice over Internet Protocol, VoIP, but not the internet itself. See 68 FR 4580–01, at 4632–33 (January 29, 2003); United States v. Dish Network, L.L.C., 75 F. Supp. 3d 942, 956 (C.D. Ill. 2014). As the FTC summarized, “This amendment proceeding is limited in scope to the direct regulation of those telemarketers and sellers covered by the TSR… The Commission, therefore, cannot extend the prohibition to Internet based transactions, as suggested by some advocates.” – 80 FR 77520 (Dec. 14, 2015).
On credzu.com, consumers, credit repair companies, and escrow agents work inside one internet-only platform. Consumers and providers connect, coordinate services, and sign CROA-compliant agreements. Escrow agents hold consumer funds until services are complete, aligning incentives with both CROA’s bar on up-front fees and the TSR’s timing requirements.
We deliver TSR avoidance and CROA alignment through an internet-only, third-party escrow system that reflects the intent of consumer protection rules. You deliver real value to consumers. Together, we can elevate outcomes across the credit repair industry.
Lexington Law Motion to Dismiss (PDF) | SCOTUSblog analysis of CFPB decision | Prime Marketing ruling on CROA and TSR (PDF) | FTC v. United Debt Counselors complaint (PDF) | Can you obtain the TSR-required credit report?
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