The U.S. District Court for the District of Massachusetts recently denied a credit repair organization’s motion for partial summary judgment and granted the Consumer Financial Protection Bureau (CFPB or Bureau) and the Commonwealth of Massachusetts’s motion for summary judgment in a case alleging violations of the Telemarketing Sales Rule (TSR), the Consumer Financial Protection Act (CFPA), and Massachusetts state law. The significant penalties and restitution ordered in this case highlight the severe consequences of non-compliance with federal and state regulations governing credit repair services.

The lawsuit accused Key Credit Repair of: (1) making false representations that it could remove all negative items from consumers’ credit reports and substantially improve their credit scores; and (2) requesting payment in advance of full performance. For example, between 2016 and 2018, the following claim appeared on Key Credit Repair’s website: “90+ Point Average Credit Score Increase In The First 90 Days,”; however, the court found it was not able to identify any customers who gained a ninety-point increase in their credit scores within ninety days. Additionally, Key Credit Repair allegedly charged between $99.95 and $289.95 as a “First-Work Fee” five days to two weeks after enrollment and also charged monthly service fees of between $99.95 and $189.95. Key Credit Repair’s monthly charge was a static fee that did not change and was not related to the credit improvements achieved for customers.

In its summary judgment order, the court determined that Key Credit Repair’s practice of charging upfront fees before delivering promised results violated the TSR. Specifically, the court found the TSR “dictates that telemarketers who represent to a consumer that they will remove derogatory information may not charge that consumer any fees before providing measurable and qualified results in return.” Additionally, the representations about their services’ ability to improve credit scores were found to be deceptive and in violation of the CFPA. “In sum, Defendants’ statements regarding achieving substantial increases in consumers’ credit scores are unsubstantiated and as express claims, are considered inherently likely to mislead consumers.” The court also found that these practices violated Massachusetts General Laws Chapter 93A, which prohibits unfair or deceptive acts or practices in the conduct of any trade or commerce in Massachusetts.

The court ordered legal restitution of $31,723,003 to consumers and civil penalties of $9,570,091 against Key Credit Repair and its owner, finding: “The defendants’ practices were not only deceptive but also in clear violation of established federal and state regulations designed to protect consumers.”