The Consumer Financial Protection Bureau, under the Trump administration, has been a consumer watchdog in name only.
So it’s news that the bureau is once again doing its job.
The CFPB filed a lawsuit the other day against a pair of so-called credit-repair firms, alleging they used deceptive tactics to get consumers to sign up for their services. The companies also charged illegal fees, the suit says.
There are a few different things going on here that are interesting.
First, there’s the regulatory crackdown on an industry that preys on people in financial distress with claims that bad credit scores can be “repaired” with a little professional help. This is something consumers need to be very careful about.
Yes, inaccurate credit reports can be cleaned up. But, no, it’s not like anyone can wave a magic wand and make a legitimately bad credit score suddenly sparkle.
“A lot of these companies imply they can do more than they can,” said Linda Sherry, a spokeswoman for the advocacy group Consumer Action. “In most cases, that is absolutely impossible.”
Moreover, you don’t need to pay anyone to address credit-report errors. That’s something you can do yourself, for free. More on that below.
Any time authorities lower the boom on credit-repair firms that allegedly cross the line into predatory practices, that’s a good thing. Yet that raises the question: Why is the CFPB stepping up?
Rather, why is this CFPB stepping up?
It’s a question that shouldn’t have to be asked, but the bureau’s recent history makes it relevant.
Under President Trump’s appointees to run the watchdog agency — first Mick Mulvaney and now Kathy Kraninger — the CFPB has been decidedly lax in serving as consumers’ Avengers.
Kraninger recently said she would roll back Obama-era rules for payday lenders.
She also said she’s considering cutting off public access to the bureau’s searchable complaint database. The U.S. PIRG Education Fund said in a report last week that a record 257,000 complaints were posted in 2018.
Also last week, the CFPB unveiled a proposed rule change that would allow debt collectors to text and email people.
A recent study by the Consumer Federation of America found that the bureau's enforcement activity has plunged by 80% from 2015, when the CFPB was at the height of its powers. Average compensation to consumers is down by 96% per case.
So what should we make of the bureau’s lawsuit against Salt Lake City-based Lexington Law and CreditRepair.com?
The companies, their owners and various affiliates are accused of tricking people into signing up for their services and violating telemarketing laws by collecting fees from clients before producing results.
The suit says the companies charged clients up to $14.99 up front to begin the credit repair process, followed by monthly fees of as much as $129.95.
The companies “continue to charge monthly fees until consumers affirmatively cancel their Lexington Law or CreditRepair.com contracts,” the suit says.
It seeks compensation for people who did business with the firms, plus unspecified damages.
It often takes years to investigate and bring a case such as this, so it’s likely the probe of Lexington Law and CreditRepair.com began before Trump took office. Nevertheless, it’s Trump’s CFPB filing the lawsuit, so props for that.
I asked the bureau about the timing of the lawsuit, and what message is being sent to the credit repair industry and consumers. A spokeswoman declined to respond.
Eric Kamerath, a Salt Like City lawyer acting as spokesman for Lexington Law and CreditRepair.com, told me the companies are “a bit perplexed” by the CFPB’s action.
“In a system that already is weighted heavily against the consumer in favor of opportunistic debt collectors and opaque processes, why would the Consumer Financial Protection Bureau choose to prevent consumers from getting professional help?” he asked.
Kamerath said the firms deny using deceptive practices and have been cooperating with the bureau for more than four years. Why the CFPB is now going to court, he said, “is a mystery to us.”
Consumer advocates were equally baffled — not by the idea of the bureau enforcing the law but by a resurgent interest in consumer protection under current leadership.
“That’s a fair question,” said Andrew Pizor, a staff attorney with the National Consumer Law Center.
He speculated that the CFPB may be targeting credit repair firms because “there’s less industry pressure for the bureau to back off from companies that are scammier.”
Pizor also noted that “there are still people at the CFPB who have been there for a while and who still care about the mission.”
Sherry at Consumer Action speculated that the agency’s top brass felt some sort of gesture was necessary to counter months of bad press about how industry-friendly the CFPB has become.
“My guess is they want to show they’re doing something for consumers,” she said. “But rather than go after some powerful company like Wells Fargo, they’re only going after bottom feeders.”
Whatever the reason, most credit repair firms could stand more scrutiny.
Their pitch typically is to suggest — or outright claim — that someone with a low credit score can bring in hired guns to clean things up and improve their financial standing.
As I noted earlier, there are indeed ways to remove inaccurate or erroneous information from credit files, but nobody can erase the negative effects of unpaid bills, big debts or a bankruptcy.
Improving a low credit score requires time and effort. It means demonstrating for potential creditors that you’re a safe bet. One way to do that is to apply for a new credit card and pay all your bills on time.
You also can do for free what the credit-repair firms do to deal with any mistakes in your file. First, go to AnnualCreditReport.com to order a free copy of your file from each of the major credit bureaus — Experian, Equifax and TransUnion.
If you see anything amiss — debts that aren’t yours, for example — contact the credit bureau in writing and request a correction. The Federal Trade Commission provides a sample letter on its website to get you started.
By law, the credit bureaus must investigate any disputed info. If they can’t remedy the matter themselves, they will contact the creditor to confirm the obligation.
The credit bureau must inform you in writing about the results of its investigation and send you another free copy of your file showing that any mistakes have been addressed.
Even if the matter remains unresolved, you can request the fact that you disputed the obligation to be included in your file for other creditors to see.
“The whole credit-repair industry is a waste of money,” said Pizor at the National Consumer Law Center. “You’re paying for something you can do yourself.”
The CFPB is on the right track holding such companies accountable.