On September 20, the CFPB filed a lawsuit in federal district court against a California-based software company and its owner for allegedly violating the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act of 2010 (CFPA) by providing substantial assistance or support to credit-repair businesses that use telemarketing and charge unlawful advance fees to consumers.

The company sold credit repair business software and other tools to credit repair companies that then provide services to consumers to remove derogatory information from, or improve, a consumer’s credit history, credit record, or credit rating.  The credit repair companies could use the software and other tools to charge upfront fees to consumers, which is a violation of the TSR. As a result, the CFPB’s complaint alleges violations of the TSR by the software provider based, in part, on the following:

• Encouraging and advising credit repair companies to use their software 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.

• Providing a billing platform that allows users to charge an upfront fee and encourages users to sign up for this platform.

The CFPB is seeking monetary relief for consumers, disgorgement of unjust gains, injunctive relief, and a civil money penalty.

Putting It Into Practice:  The Dodd-Frank Act made it unlawful for any person to knowingly or recklessly provide substantial assistance to a consumer financial services provider that engages in unfair, deceptive, or abusive acts or practices.  Further, such substantial assistance is deemed to be in violation of the law to the same extent as the person to whom such assistance is provided. Use of the “substantial assistance” enforcement mechanism is reemerging as a common way for the CFPB to go after parties that might not otherwise appear to have engaged directly in any illegal activity (we previously discussed this latest trend in earlier Consumer Finance & FinTech Blog posts here and here).