Credit repair organizations (CROs) have been flooding debt collectors with questionable mass disputes for a while now. One CRO—Lexington Law and its related entities (collectively, Lexington Law)—have caught the attention of the Consumer Financial Protection Bureau (CFPB or Bureau). On Thursday, the CFPB announced that it filed a lawsuit against Lexington Law for violations of the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act.

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According to the 48-page complaint, Lexington Law relied on a marketing affiliate network that “used deceptive, bait advertising to generate referrals to Lexington Law’s credit repair service.” The Bureau focused on Lexington Law’s referral fees, stating that the organizations failed to observe the mandatory waiting period required by federal law. As summarized in the complaint, “fees can only be collected after a certain period has elapsed and it has been demonstrated that the promised results have been achieved.”

The complaint seeks an injunction against Lexington Law and its affiliates, the rescission or reformation of consumer contracts, refunds to consumers of monies paid, disgorgement for unjust enrichment, and payment of damages.

Lexington Law’s Lead Generation Program

The complaint provides a glimpse into how Lexington Law generates its large customer volume. Allegedly, the company uses a network of affiliates to generate its “massive quantities of leads.” The affiliates use telemarketing campaigns to market certain financial products (rent-to-own housing, mortgage, auto loans, or personal loans) and, when they get a consumer on the phone, they live-transfer the consumer to Lexington Law. This is called a “hotswap.”

The complaint states:

The Hotswap Partners also pitch Lexington Law’s and CreditRepair.com’s credit repair services, typically after telling the consumer that he or she has been denied a particular credit product or service, offering the consumer unfavorable terms on a loan, or telling the consumer that he or she will be eligible for the product or service, or for better terms on the product, if they first enroll in the credit repair service.

Some of the scripts that Lexington Law provided its hotswap affiliates include a statement that Lexington Law’s services “can just make the whole process of getting this loan funded easier,” and that “[Y]ou just need to get a few things taken care of with your credit in order to get qualified for a loan…that is exactly what Lexington specializes in.”

Editor’s Note: In April, a federal court compelled Lexington Law to produce its client communications related to lead generation for its mass credit dispute letters in a lawsuit filed by Ad Astra Recovery Services, Inc.

Misrepresentations by Hotswap Affiliates

The issue with Lexington Law’s lead generation program is that its hotswap affiliates gained their leads through misrepresentation, such as offering “illusory products or services” that the company did not actually offer and advertising “fake real estate ads, fake rent-to-own housing opportunities, fake relationships with lenders, false credit guarantees, and false and unsubstantiated statements about past consumer outcomes.”

One of Lexington Law’s largest lead generation affiliates would tell consumers on the phone that “their credit score was the only thing keeping them from their desired product.” This would follow with a lead-in to Lexington Law’s service to help increase the consumer’s eligibility for a product that did not exist.

According to the complaint, Lexington Law had knowledge that such misrepresentations were occurring and allowed the practices to continue.

insideARM Perspective

For quite some time, collection agencies and creditors have raised flags about practices of certain CROs that seemed to be harmful to consumers. Until now, regulators had not taken action.

With this complaint, the tides have turned. Some may be disappointed that the CFPB did not go further and target Lexington Law’s mass credit disputes; however, what the Bureau targeted could in fact help to alleviate that issue. Without its massive (and, according to the Bureau’s complaint, deceptive) lead generation program, Lexington’s source for these mass credit report disputes would not exist at its current scale.

There is also a question of whether Lexington Law’s business model can survive if the court sides with the Bureau on this matter. In addition to the high dollar value of the relief requested by the Bureau, the allegations themselves would require a big change in the way Lexington Law receives payment from consumers—specifically, following a waiting period and demonstrating that the company did what it promised.

It’s too early to tell what effect this lawsuit will have on the ARM industry, but one thing is for certain: all eyes are on this one.


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