The Consumer Financial Protection Bureau reached a proposed $2.7 billion settlement with a group of corporate entities which operate the two largest credit repair companies in the country, Lexington Law and CreditRepair.com.
The agreement, announced Aug. 28, came after the U.S. District Court for the Central District of Utah ruled in March that the companies violated the Telemarketing Sales Rule, which requires companies to wait six months after they provide consumers with documentation showing that the promised results were achieved before requesting or receiving payment.
Under the CFPB agreement, the companies will be banned from telemarketing credit repair services for 10 years. Following the ruling, Lexington Law filed for Chapter 11 bankruptcy protection, saying that they had responded to the ruling by shuttering approximately 80 percent of their business, including their call centers, and laid off approximately 900 employees. The CFPB said it would determine whether the agency’s victims relief fund could be used to make payments to victims.
“In accordance with the Court’s new interpretation, Lexington has ceased the billing practices that were the subject of the litigation,” Lexington Law stated in a press release earlier this summer. “The sudden change in business model has led to a dramatic reduction in revenue, which in turn has necessitated extensive layoffs that has had an impact on its employee base. This abrupt disruption has created Lexington’s move towards restructuring, a move that will allow it to continue advocating for consumers that need the professional assistance the firm can provide.”
Lexington Law and CreditRepair.com are marketed and offered through a number of related companies in the Salt Lake City area, including PGX Holdings, Progrexion Marketing and the John C. Heath, Attorney-at-Law PC law firm. The CFPB fined Progrexion Marketing $45.8 million and levied an $18.4 million penalty against the Heath law firm.
“Americans across the country looking to improve their credit scores have turned to companies like CreditRepair.com and Lexington Law,” said CFPB Director Rohit Chopra. “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. This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”