Consumers who were unfairly charged illegal fees by two major credit repair companies will soon receive a refund check, as announced by the Consumer Financial Protection Bureau on Thursday.
The CFPB has pledged to distribute $1.8 billion to 4.3 million individuals who fell victim to illegal advance fees imposed by Lexington Law and CreditRepair.com, both of which utilized telemarketing to offer credit repair services.
“Lexington Law and CreditRepair.com took advantage of vulnerable consumers seeking to improve their credit by charging them unauthorized fees for services they never provided,” stated CFPB Director Rohit Chopra in a press release.
What are credit repair services?
Credit repair services assist consumers in enhancing their credit scores by handling the process of disputing outdated or incorrect information on credit reports and ensuring that errors are rectified. These services may cost upwards of $100 per month, with no guaranteed outcomes.
Credit repair services typically search for various errors on a person’s credit report, such as unauthorized accounts or outdated negative information. These tasks can often be performed independently by consumers.
Refunds stem from 2019 lawsuit
The refund initiative announced by the CFPB is a result of a 2019 lawsuit filed against the owners of Lexington Law and CreditRepair.com, both based in Salt Lake City. The lawsuit alleged violations of the Telemarketing Sales Rule by requiring upfront fees from customers before providing any services. According to federal law, telemarketing credit repair companies cannot accept payment until six months after demonstrating results to clients.
The lawsuit also accused the companies of using deceptive advertising tactics to lure individuals into signing up for their services.
Following the CFPB’s victory, the companies were ordered in 2023 to pay $2.7 billion in restitution to customers, along with additional fines. Additionally, the court imposed a 10-year ban on the companies from telemarketing credit repair services. Subsequently, the companies filed for Chapter 11 bankruptcy and closed down a significant portion of their operations, including call centers, accounting for approximately 80% of their business.
The refunds, averaging $435 per consumer, will be disbursed from the CFPB’s victims relief fund, financed by penalties imposed on companies for violating consumer protection laws. Chopra emphasized the CFPB’s dedication to ensuring consumer restitution, even in cases where offending companies have ceased operations or declared bankruptcy.
Who gets a refund
Eligible consumers can anticipate receiving their refund checks by January without needing to take any action. Individuals who believe they qualify for a refund but have not received payment by mid-January can reach out to JND Legal Administration, responsible for managing payments and addressing consumer inquiries regarding this case on behalf of the CFPB.
Alternatives to credit repair services
Instead of expending significant sums on credit repair services, consumers can undertake credit repair independently by following many of the same procedures that credit repair companies employ on behalf of clients.
Consumers can access their credit reports at no cost from the three major credit reporting agencies: Experian, Equifax, and TransUnion. Utilizing each agency’s dispute mechanisms, individuals can challenge inaccuracies or fraudulent activities in their reports. It’s also essential to scrutinize unverifiable data, such as debts to defunct companies, as even accurate information lacking substantiation can potentially be removed.