LIT UPDATE & COMMENTARY
DEC 6, 2023
The Unseen Crisis: Government Corruption and Financial Exploitation in Texas
The recent developments in Lexington, particularly the CFPB’s actions, may appear like a victory for consumers. But when placed in the broader context of systemic financial abuse, this is but a faint glimmer in an otherwise dark picture. While the CFPB’s publicity efforts might seem positive, they pale in comparison to the larger, more damaging forces at play — particularly in Texas.
At LIT and through our micro-blogs, we’ve spent years investigating corruption within the financial services sector. We’ve zeroed in on Texas as an epicenter of systemic fraud, where government agencies — both state and federal — have not only failed to protect citizens but have actively facilitated an unprecedented wave of financial theft.
Take the aftermath of the 2008 financial crisis as a starting point. Billions of dollars were allocated for restitution to victims of predatory loans and wrongful foreclosures, yet those funds rarely made it to the people who were hurt the most. Instead, they were siphoned off to the judiciary and placed into a general fund controlled by the state. This misallocation is just the tip of the iceberg.
Instead of protecting Texas homeowners, government agencies and the judiciary embarked on a relentless campaign of foreclosures. The consequences were catastrophic, leaving families devastated financially and emotionally. Many lost their homes, their life savings, and their sense of security — all while the system turned a blind eye to the very fraud that caused it.
Fast forward to the present day, and Texas remains a breeding ground for unregulated “credit repair” agencies. Lexington Law, a prominent example, is hardly an outlier in this landscape of exploitation. These entities routinely charge exorbitant fees for services that do little to benefit consumers and often violate the law. The rampant fraud in this space is staggering, and it’s compounded by the indifference of both state and federal regulators.
The truth is, the State of Texas, along with its government agencies, have played a central role in enabling one of the largest thefts of American citizens’ homes and assets in modern history. The fraud that has plagued Texans and many others across the country is not simply a failure of oversight — it’s a failure of the system itself.
We must ask: where was the oversight when the banks and lenders went unchecked? Where was the enforcement when judicial bodies facilitated wrongful foreclosures and failed to hold the perpetrators accountable? And now, as the CFPB faces potential closure under a new administration, how many more consumers will be left vulnerable to these same predatory forces?
The truth is that the problem extends far beyond Lexington Law. From payday lenders to debt settlement agencies, the entire industry is rife with unregulated entities preying on those already struggling. The systemic failure of both government bodies and financial institutions has allowed these abuses to persist, leaving millions to suffer.
At LIT, we will continue to expose these injustices and provide evidence of the widespread fraud perpetrated by both the private and public sectors. But we can’t do this alone. We need consumers, advocates, and lawmakers to recognize the scale of the crisis and demand accountability.
The time for reform is now. We must fight to close the loopholes that allow this kind of exploitation to thrive. We must ensure that restitution goes directly to the victims, not to the pockets of bureaucrats and corrupt institutions. And we must hold those responsible — from credit repair companies to judicial bodies — accountable for their role in this financial crime wave.
The CFPB is distributing $1.8 billion to 4.3 million consumers charged illegal advance fees or subjected to allegedly deceptive bait-and-switch advertising by a group of credit repair companies including Lexington Law and https://t.co/8N915R9h0A. https://t.co/scHWu1I3Oe
— consumerfinance.gov (@CFPB) December 5, 2024
CFPB Reaches Multibillion Dollar Settlement with Credit Repair Conglomerate
Largest credit repair brands in America, including Lexington Law and CreditRepair.com, perpetrated years long scheme to illegally harvest billions in fees
AUG 28, 2023 | REPUBLISHED BY LIT: DEC 23, 2023
DEC 23, 2023
Above is the date LIT Last updated this article.
WASHINGTON, D.C. – Today, the Consumer Financial Protection Bureau (CFPB) entered into a proposed settlement with a ring of corporate entities operating some of the largest credit repair brands in the country, including Lexington Law and CreditRepair.com.
The agreement follows a ruling from the court that the companies collected illegal advance fees for credit repair services through telemarketing in violation of federal law.
If approved, the settlement would impose a $2.7 billion judgment against the companies.
The order will also ban the companies from telemarketing credit repair services for 10 years.
“Americans across the country looking to improve their credit scores have turned to companies like CreditRepair.com and Lexington Law.
These credit repair giants used fake real estate and rent-to-own opportunities to illegally bait people and pad their pockets with billions in fees,”
said CFPB Director Rohit Chopra.
“This scam is another sign that we must do more to fix the credit reporting and scoring system in our country.”
Lexington Law and CreditRepair.com are the largest credit repair brands in the country.
The credit repair services are marketed and offered through a web of related entities in the Salt Lake City area, including PGX Holdings, Progrexion Marketing, and the John C. Heath, Attorney-at-Law PC law firm.
During the time period relevant to the lawsuit, the companies operated nationwide and had more than 4 million customers who were subjected to telemarketing.
In 2022, the defendants had combined annual revenues of approximately $388 million.
The CFPB previously sued the companies to halt their illegal conduct and seek redress and other relief.
In March 2023, the district court ruled that the defendants violated the advance fee provision of the Telemarketing Sales Rule.
The Telemarketing Sale Rule provides a range of protections for consumers related to telemarketing and sets payment restrictions for certain goods and services.
It requires credit repair companies to wait until six months after they provide the consumer with documentation reflecting that the promised results were achieved, before they request or receive payment from the consumer.
Following the district court’s ruling, the companies filed for Chapter 11 bankruptcy protection.
The companies represented that they had shut down about 80 percent of their business, including their call centers, and laid off about 900 employees in response to the court’s ruling.
Enforcement Action
Under the Consumer Financial Protection Act (CFPA), the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices, and against institutions violating the Telemarketing Sales Rule.
If entered by the court, the settlement will, among other things:
Ban the perpetrators from telemarketing for 10 years:
The companies will be banned from telemarketing credit repair services or selling credit repair services that others marketed through telemarketing for 10 years.
The companies will also be banned from doing business with certain marketing affiliates. These bans will attach to the companies even after the bankruptcy proceedings are complete.
Require notices to consumers:
The companies will be required to send a notice of the CFPB settlement to any remaining enrolled customers who were previously signed up through telemarketing.
The notice will inform consumers of the CFPB’s lawsuit, the court’s summary judgment holding, the settlement, the consumer’s right to cancel their credit repair services, and the process for canceling the service.
Impose a $2.7 billion judgment for redress:
The order would impose a $2.7 billion judgment against the companies for redress.
Due to the companies’ financial insolvency, the CFPB will determine whether the CFPB’s victims relief fund can be used to make payments to those harmed by the perpetrators.
Impose more than $64 million in civil penalties:
The order would impose a $45.8 million civil money penalty against Progrexion Marketing and a $18.4 million civil money penalty against the Heath law firm.
Consumers seeking information on how to dispute inaccurate information on their credit report or ways to improve their credit score can learn more through the CFPB’s online guides and tools. Consumers can also submit complaints about financial products or services by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).
Employees of companies who they believe their company has violated federal consumer financial laws are encouraged to send information about what they know to whistleblower@cfpb.gov.
Bandit Lawyer Gannon the Misfirin’ Cannon Touts Unregistered TX Debt Mgt Xpert Credit Repair Service – Laws In Texas https://t.co/FCK9soaPMH
— lawsinusa (@lawsinusa) December 23, 2023
CREDIT REPAIR
[UPDATE] Government Lawsuit Vs. Lexington Law
SEP 7, 2023 | REPUBLISHED BY LIT: DEC 23, 2023
DEC 23, 2023
Above is the date LIT Last updated this article.
In May 2019, the Consumer Financial Protection Bureau (CFPB) filed a major lawsuit against Lexington Law, one of America’s largest credit repair services.
The lawsuit claimed that Lexington Law employed deceptive marketing practices and violated consumer protection laws.
Let’s look at the details.
Key Takeaways
Lexington Law was accused of deceptive marketing. Lexington Law representatives posed as lenders and urged people to repair their credit to qualify for loans, among other practices.
The case will affect the entire credit repair industry. Other credit repair companies will have to change their practices to avoid similar actions.
The case was resolved in August 2023.
The court imposed a $2.7 billion judgment and over $64 million in civil penalties against Lexington Law and its partner companies.
Update: May 2022
The CFPB’s lawsuit against Lexington Law has progressed at a slow pace.
Lexington Law filed a Motion for Partial Summary Judgment on August 20, 2021.
The Motion claimed that the TSR does not apply to Lexington’s services and that the CFPBs interpretation of the TSR is an unconstitutional restraint on free speech.
On Nov 15, 2021, the CFPB responded, claiming that the TSR does clearly apply, that the use of the term “credit repair” is an implied promise to improve the customer’s credit and that the TSR regulates actions, not speech.
The CFPB filed a Motion for Partial Summary Judgment on Dec. 10, 2021, pointing out what it claimed were clear violations of the TSR.
Lexington replied on Dec. 30, claiming that they do not promise a specific result and are thus exempt from the rule. They also denied that Lexington is a telemarketer, as all marketing calls were made by a marketing affiliate, not by Lexington.
The CFPB replied on Jan 18, repeating its allegations.
The issue is now with the court, and we can expect further exchanges and court proceedings before it is resolved.
The impact of this case will go far beyond Lexington Law.
Some of the practices that the CFPB states are illegal are widespread in the credit repair industry (like charging upfront fees), and if the court finds against Lexington Law, the industry will have to make fundamental changes in the way it operates.
An article from the Credit Repair Lawyers of America goes as far as to state that “This case will provide a definitive direction for paid credit repair or it will tank the industry.”
Update 2: April 2023
On April 18, 2023, reports stated that the CFPB had filed a motion with the court seeking a $3.1 billion judgment against defendants Lexington Law and CreditRepair.com on behalf of consumers. The filing states:
“Between March 8, 2016, and March 31, 2023, defendants took approximately $3.1 billion from more than four million consumers in violation of the Telemarketing Sales Rule,” the CFPB wrote in its motion.
“The time has come for defendants to return that money to the consumers they unlawfully charged, cease their illegal billing practices, and pay penalties for their misconduct.”
Update 3: Resolution
On August 28, 2023, the CFPB announced that it had entered into a proposed settlement with Lexington Law. The settlement will have to be approved by the court.
The settlement imposes a $2.7 billion judgment and over $64 million in civil penalties against Lexington Law and its partner companies. The group behind Lexington Law is also banned from any telemarketing activities for 10 years.
Lexington Law has filed for Chapter 11 bankruptcy protection, laid off 900 employees, and shut down 80% of its operations.
It is not clear how much of the fine will be paid or whether Lexington Law, CreditRepair.com, and their related companies will remain in business.
Complaint Recap: CFPB Vs. Lexington Law
If you are not familiar with the deceptive marketing allegations against Lexington Law, let me give you a quick recap.
Or you can read a more extensive Lexington Law Review that goes into much greater detail for each allegation.
The Consumer Financial Protection Bureau (CFPB) alleged that Lexington Law paid third parties to find customers for them. One of these ‘Affiliates’ or ‘Introducers,’ who is referred to as HSP1 in the complaint, advertised for “rent to own homes” and home loans for people with bad credit. However, they did not have any homes to rent or any money to loan.
When wannabe homeowners would call HSP1, they were told that they did not qualify for a loan because of bad credit (without a credit report being run).
Consumers were told that if they signed up for Lexington Law credit repair services, they would qualify for a (non-existent) home loan with HSB1 in the near future.
CFPB laid out multiple allegations of employees and executives at Lexington Law possibly actively helping HSB1 further their deceptive marketing practices or at the least actively turning a blind eye.
The Problem With The CFPB Complaint
Lexington Law has hired an expensive group of lawyers to take on the Consumer Financial Protection Bureau. Those lawyers took one look at the complaint against their client and rolled their eyes.
While I think with an amended complaint some of these charges may stick or induce a settlement, the original complaint is kind of a mess. The motion to dismiss filed by Lexington Law argues that the ‘allegations of deception are too vague to support relief.’
Notably, whatever the truth or falsity of the Complaint, CFPB does not complain in the slightest about how any of the Defendants, particularly Lexington Law and CreditReport.com, treated those consumers referred for credit repair help.
In any event, as explained below, these fraud claims cannot be sustained against any party here—CFPB did not join (or, sue) HSP1— under either Rule 8 or Rule 9(b).
Defendants are not alleged to have made any deceptive statements, only one introducer (HSP1) is the subject of any specific allegations, and all of the allegations of deception are too vague to support relief.
The actual complaint is against multiple companies including Lexington Law (who is actually a DBA).
Strangely, each of the charges in the complaint is made against the group as a whole, much like a blanket. However, the law does not work like that, each company is a separate entity, and each charge will have to be explicitly proven against each entity.
Defendants’ Motion to Dismiss the Complaint
In fact, one of the companies listed in the complaint is never mentioned in any of the charges or supporting facts for the charges.
Fortunately, in America, you can’t be convicted just for the company you keep.
The facts have to prove you were involved and did something wrong, and the CFPB complaint fails to lay out each entity’s role in the violations.
Consequently, the Lexington Law legal team has filed a motion for oral arguments for the purposes of the charges being dismissed.
What Lexington Law Said By Saying Nothing At All
In regards to the count that Lexington Law charged fees for services that had not been rendered, they simply denied the charge.
However, in a 42-page motion for dismissal, Lexington Law does not deny the charges of deceptive marketing practices or any of the other consumer-described abuses.
The entire motion is focused on legal maneuvering and lawyering to force CFPB to clean up this complaint and drop the unsupported charges.
While I understand that this motion to dismiss is not an admission of the facts, it is not uncommon for these sorts of motions to include a blanket denial of the charges, so people like me don’t overly read into the motion.
Lexington Law seems to argue, ‘So what? Even if this stuff happened, your complaint doesn’t properly allege that Lexington Law did anything LEGALLY wrong.’
And there is a big difference between legally wrong and ethically wrong…
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