On September 20, 2021, the CFPB issued a press release announcing it filed suit against a California-based software company, Credit Repair Cloud (Cloud), and its owner, Daniel Rosen, for allegedly assisting illegal credit repair businesses. The CFPB alleges that Cloud and Mr. Rosen violated the Telemarketing Sale Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA) by providing substantial assistance, including training, materials, and software to credit-repair companies that use telemarketing to reach consumers and charge unlawful advance fees.
The TSR prohibits credit-repair businesses that telemarket their service from requesting or receiving any fee until they have provided the consumer with a credit report that is over six months old and shows the desired results. The CFPA prohibits any covered person from offering or providing a consumer a financial product or service that does not conform to federal consumer financial law.
Against this backdrop, based on advertising materials, Cloud’s website, Mr. Rosen’s podcast, and social media accounts maintained by Cloud and Mr. Rosen, among other allegations, the lawsuit alleges that Cloud:
- Offers an all-in-one solution to start and run a credit repair business, on the basis that only a computer, phone, and the software are needed.
- Provides over 100 template-dispute letters that the software automatically pre-populates with consumer information and templates for Cloud clients to supply to consumers.
- Provides training on starting and running a credit repair business, including telemarketing, sales scripts, template marketing materials, and template websites.
- Lays out steps for disputing negative items on credit reports and encouraging charging consumers a monthly fee.
- Provides information to users via social media and hosting an annual credit repair conference.
- Encourages the use of telemarking to sell credit repair services and provided sales scripts for these calls.
- Encourages and advises users to charge consumers at enrollment with subsequent monthly fees, including an FAQ that states charging fees upfront is how all credit repair companies get paid.
- Provides a billing platform that allows users to charge an upfront fee and encourages users to sign up for this platform.
The CFPB seeks relief for harmed consumers from the defendants, disgorgement of their unjust gains, an injunction to stop their (allegedly) illegal conduct, and civil penalties. Per Acting Director David Uejio, “Credit Repair Cloud and Rosen have been breaking the law. They are actively assisting credit-repair businesses in violating federal consumer protection laws. They facilitated and encouraged credit-repair businesses to charge illegal advance fees, causing broader consumer harm in the marketplace. The CFPB will not tolerate companies facilitating and profiting from other companies’ violations of federal consumer protection laws.”
Although many in the accounts receivable management industry know how harmful some credit repair companies can be for consumers, it still might be a shock that the CFPB chose to pursue a software company for violations of the TSA and CFPA. After all, software companies typically provide a platform, and the end-user typically decides how to use it.
It’s important to note here that most of the allegations from the CFPB’s complaint came from publicly available resources: Cloud’s website, Mr. Rosen’s podcast, and a Facebook page on which Mr. Rosen provides advice and frequently comments. If the allegations are true, the CFPB’s complaint indicates Cloud is no typical software company, nor is Mr. Rosen a typical software company owner. Instead, the allegations suggest that Cloud and Mr. Rosen actively trained and encouraged their clients to violate consumer protection laws.
It seems that instead of pursuing the credit repair companies using Cloud's software (at least for now), the CFPB is going after what it perceives is the root of the problem- the software company. Time will tell whether the CFPB will use this approach in other areas.