The CFPB announced on July 8 that it had entered into a settlement with Georgia-based debt relief and ‘credit repair’ company Burlington Financial Group for attracting customers with false promises that the company would eliminate credit-card debt and improve credit scores in violation of a variety of financial industry regulations, chief among them the Consumer Financial Protection Act (CFPA) of 2010 and the Telemarketing and Consumer Fraud & Abuse Prevention Act.
The CFPB’s complaint, filed jointly with the State of Georgia, alleges that Burlington Financial Group promised customers - through a variety of telemarketing strategies - that it had the ability to make use of a “debt validation” program through the Fair Debt Collection Practices Act (FDCPA) that could not only improve customers’ credit scores and history, but also eliminate debt as well. This supposed program was ultimately constituted of nothing more than debt relief and financial *advisory* services that operated in violation of the CFPA. The CFPB alleged that Burlington’s program categorically misled customers and often left them with higher debt, poorer credit scores than before, and even led to bankruptcy in some cases. Despite this failure to follow through on their promises of debt relief, Burlington collected in excess of $30 million in advance fees from its customers. As part of the settlement, the owners and upper management of Burlington Financial Group were ordered to pay a total of $150,000 in civil penalties and are disallowed from participating in future debt relief, credit repair, or financial advisory service companies in the future.
This case, and others like it, serve as a warning to other unscrupulous financial servicers as well as advertisers. Why advertisers? Because Burlington attracted the majority of its customers through telemarketing, direct mailing, and online media. The company would typically begin its advertising process through direct mailers, often targeting the elderly or low-income areas, and claim to be able to settle debts with creditors and pool the saved balances into a ‘refund check’ through a fictitious ‘refund processing center’. If a customer expressed interest and reached out, they would be contacted by high pressure telemarketers who would misrepresent the danger of moving forward on debt relief options without Burlington’s assistance. Once on the hook, prospective customers were expected to enter into a payment plan for Burlington’s services, which involved sending the company a large monthly payment, while Burlington negotiated with creditors.
In actuality, Burlington was doing nothing of the kind and its upper management was quietly pocketing the money. The CFPB estimated that - out of the $30 million in advance fees that customers paid - $8 million made its way into the CFO’s bank account. Burlington had no way of tracking its customers’ credit scores or histories and rarely made an effort to alleviate its customers’ debt problems. Throughout the process, the company would point both old and new consumers to its professionally maintained and active website consisting of promises in regards to its credit improvement process and supposed ‘success stories’ from past adherents to its system, which simply did not exist.
Whether similar ‘credit repair’ companies are gaming the financial industry in a similar way remains to be seen, but the CFPB’s message is clear: fraudulent companies who renege on promises to customers in this industry will ultimately wind up in the crosshairs of federal government regulators. And that’s a place no one wants to find themselves.