Jim Flynn

Jim Flynn, Money & the Law

Going back a few years, the Consumer Financial Protection Bureau decided a good way to shut down marketplace activity damaging to consumers was to go after organizations that support the bad guys rather than going after the bad guys themselves. In that vein, the CFPB has successfully brought enforcement actions against companies processing credit card payments for bad guys.

Last month, in a lawsuit filed in federal court in California, the CFPB took on another supports-bad-guys target. This time around, the defendants are a company named Credit Report Cloud and its owner, David Rosen. According to the CFPB’s complaint, Credit Report Cloud provides products and services to people who want to go into the credit repair business.

According to the complaint, Credit Report Cloud’s marketing materials (which includes a website, a podcast and a book written by Rosen) say “all you need to start a credit-repair business is a computer, a phone and software.” And, “credit repair is the lowest cost and most profitable business you can launch.” And, “it is a very affordable startup,” costing “close to nothing.”

Credit Report Cloud does not itself sell credit repair services. Rather, it invites people to purchase its (frankly, rather impressive) business support tools in pursuit of the goal of becoming a “credit repair millionaire.” Credit Report Cloud customers receive comprehensive business management software; more than 100 ready to use credit reporting agency dispute letters; instructional materials (including a credit repair business “master class”); telemarketing sales scripts; website designs; and social media connections.

The CFPB’s lawsuit against Credit Report Cloud and Rosen is highly technical and is based on a federal law known as the Telemarketing and Consumer Fraud and Abuse Act. Per the CFPB’s complaint, Credit Report Cloud’s software and other business support products cause “at least some, and likely many” of Credit Report Cloud’s clients to violate this act by charging their credit repair customers unlawful advance fees. And under the act, anyone providing substantial assistance to a telemarketer engaging in conduct in violation of the act also violates the act.

As for Colorado’s regulation of credit repair businesses, this state has a statute called the Credit Services Organization Act and a companion statute called the Uniform Debt-Management Services Act. These two statutes attempt to put credit repair companies and debt management companies on a short regulatory leash.

(Credit repair companies try to clean up someone’s credit score by disputing allegedly inaccurate information in credit files. Debt management companies try to negotiate deferred and discounted payment arrangements between creditors and debtors.)

Both statutes require truthful disclosures; the use of written agreements spelling out what work will be done and what the charges will be for that work; prohibit upfront payments; and allow rescission of a contract for services for a short period after the contract is signed.

Jim Flynn is with the Colorado Springs firm of Flynn & Wright LLC. Contact him at moneylaw@jtflynn.com.

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