Soon, customers who paid unlawful fees to two major credit repair companies will be receiving refunds, as announced by the Consumer Financial Protection Bureau (CFPB) on Thursday.
The CFPB disclosed that it will be distributing $1.8 billion to 4.3 million consumers who were improperly charged upfront fees by Lexington Law and CreditRepair.com, companies known for using telemarketing to pitch their credit repair services.
“Lexington Law and CreditRepair.com took advantage of consumers striving to rebuild their credit, collecting illegal fees for services they did not deliver,” CFPB Director Rohit Chopra commented in a press release.
Let’s dive into what credit repair services actually do. These services are designed to help consumers boost their credit by correcting outdated or incorrect information on credit reports. The process can be tedious, involving detailed follow-ups to ensure errors don’t resurface, and can set you back over $100 each month without any promise of success.
Typically, credit repair firms scan for inaccuracies such as incorrect accounts or outdated negative information on a person’s credit report. Most of this work can usually be done by individuals themselves.
The refunds announced trace back to a lawsuit from 2019, which targeted two Salt Lake City companies behind Lexington Law and CreditRepair.com. The CFPB charged these firms with breaching the Telemarketing Sales Rule by demanding fees before services were provided. Legally, credit repair companies using telemarketing can only collect payment after proving results over six months.
Additionally, the lawsuit accused the companies of misleading advertising tactics to enroll consumers.
A district court sided with the CFPB, and by 2023, the firms were ordered to pay $2.7 billion to affected customers, along with other civil penalties. They were also barred from offering telemarketing credit repair services for a decade. According to the CFPB, the companies have since filed for Chapter 11 bankruptcy and have significantly downsized, closing around 80% of their operations, including customer service centers.
The amounts sent to consumers, averaging at $435, will be sourced from the CFPB’s victims relief fund, which is bolstered by penalties businesses incur for violating consumer laws. “This unprecedented $1.8 billion payout underscores the CFPB’s dedication to consumer restitution, even when the offending companies shutter or declare bankruptcy,” stated Chopra.
Eligible consumers can expect to receive their refund by January. No action is required on their part to claim the payment. However, if someone believes they qualify but doesn’t receive a payment by mid-January, they can reach out to JND Legal Administration, the entity managing the refunds and addressing consumer inquiries on the CFPB’s behalf.
For those looking to improve their credit scores, pricey credit repair services aren’t a necessity. Many consumers can undertake similar steps on their own, effectively acting on their own behalf.
Free credit reports from the three major credit bureaus—Experian, Equifax, and TransUnion—serve as the starting point. Consumers can then utilize each bureau’s dispute processes to highlight errors or fraudulent activities. It’s also a good practice to flag unverifiable information, like debts to defunct companies, since such data might be eliminable if not provable.
