Lexington Law and Creditrepair.com Enter $2.7 Billion Settlement with CFPB

Earlier this week, the Consumer Financial Protection Bureau (CFPB) reported that they reached a settlement with Lexington Law in the PGX Holdings bankruptcy case. As you may recall, we submitted a request for an Advisory Opinion seeking CFPB guidance regarding communication with consumers who have been represented by these bankrupt or defunct law firms. As a result of “going out of business”, many consumers who believed they had legal representation no longer do, or may never have been represented by an attorney at all. This unusual situation created a serious problem for both consumers and creditors rights attorneys, prompting our request for clarity.

Despite the settlement, the CFPB’s actions and the resulting consent order do not resolve the issue of  “any remaining enrolled customers”, which of course is our main concern. Arguably, legal representation by the law firms in question continues (in a purely legal capacity); since in lawsuits filed with the court, it takes the judge in the case to remove counsel or grant leave for counsel to withdraw.

Based on our experience, most advisory opinion requests go unanswered. In the past, the CFPB has utilized enforcement actions, FAQs, press releases, and blog posts among other items to demonstrate expectations. However, in this case they fail to offer specific guidance and clarity for the issue we raised. Member firms should consider both their ethical duties not to communicate with represented parties and their parallel duties under the FDCPA and comparable state laws, and make their own, independent decisions as to how they should proceed. We will continue to work with the CFPB and seek further direction or guidance from them.

While it must still be approved by the court, the proposed settlement provides, inter alia:

• 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.
  
  
• The bans will apply beyond completion of the pending bankruptcy.
  
  
• 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.
  
  
• The final order would impose a $2.7 billion judgment against the companies for redress. However, in light of the defendants’ insolvency, the CFPB will determine whether its victims relief fund can be used to make payments to those harmed by the perpetrators.
  
  
• 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.

We applaud the CFPB’s enforcement actions and proposed stipulated judgment in this case. There is no room in the debt collection ecosystem for institutions that take advantage of consumers. NCBA members and consumers, however, would greatly benefit from an advisory opinion outlining guidance and clarity as to what constitutes a “reasonable period of time” for a consumer’s attorney to respond under Section 805(a)(2) of the FDCPA.