Trump Administration Sued Debt Collectors. California Should Take Note

It wasn’t front-page news when the U.S. Consumer Financial Protection Bureau sued two of the biggest credit repair companies in America: Lexington Law and CreditRepair.com.

But it got the attention of consumer advocates and should get the attention of lawmakers.

These companies are accused of illegally charging consumers upfront for credit repair services and of using deceptive marketing to lure clients.

There are hundreds of credit repair companies in California. Many of these companies prey on consumers who are desperate to improve their credit score.

For years, consumer advocates have asserted that these credit repair companies are a waste of time and money. In fact, most of what these repair companies claim to do, consumers can do themselves for free.

These companies are overpromising and not delivering, and are charging the consumer a fee and locking them into a monthly contract that can cost over $100 a month.

Every consumer group says the same thing regarding credit repair: improving your credit score requires time and effort.

The best way to improve credit is to pay all your bills on time and pay down your debt. As president of an association of debt collectors, I know that spending hundreds of dollars on credit repair companies is a waste of money and it can end up hurting your credit score.

We at the California Association of Collectors work with consumers who are in debt, and we know that abuse by credit repair consumer is on the rise. Complaints against credit repair companies have jumped dramatically.

Hundreds of Credit Repair Organizations Operate in California

According to the nonprofit U.S. Public Interest Research Group Education Fund, complaints against credit repair services, credit reporting, and consumer reports made up 43% of the total complaints since 2018.

It is a bit ironic that the Trump administration’s Consumer Financial Protection Bureau is now holding them accountable, when California could step in.

The state of California also has the ability to oversee these repair companies under the California Credit Services Act. Unfortunately, the act was written in 1984 and has not been updated since.

The Act requires a credit service organization to obtain a certificate of registration from the Department of Justice. Unfortunately, none of this information is readily available and there is no public listing for credit repair organizations.

Hundreds of credit repair organizations are operating in California and targeting consumers. People have no way to know if the credit repair companies that pop up with a basic internet search are legitimate. Are these bad actors like Lexington Law? We don’t know.

Assemblyman Tim Grayson, a Democrat from Concord, has proposed Assembly Bill 699 to update and modernize the Credit Services Act. We support this effort.

AB 699 would give the consumer greater transparency and disclosure of costs in order to protect them from credit repair scams. It would also make it clear what services are provided by these credit service organizations.

Unfortunately, once the bill was introduced, Lexington Law hired a high-powered lobbying firm to oppose the bill. The bill is on hold. But given the federal lawsuit, it is our hope that the Legislature and the Attorney General will work to update the California Credit Services Act and bring more transparency to this industry before more California consumers fall victim to these scams.

About the Author

Courtney Reynaud is president of the California Association of Collectors, Courtney.Reynaud@gmail.com. She wrote this commentary for CalMatters.