A federal district judge in Massachusetts entered a nearly $51 million judgment against Commonwealth Equity Group LLC (d/b/a Key Credit Repair) and its CEO after granting summary judgment in favor of the Consumer Financial Protection Bureau (CFPB) and Massachusetts Attorney General (AG) Andrea Campbell. The lawsuit alleged that the company violated federal and state consumer protection and telemarketing laws. The company and CEO were found jointly liable for $31.7 million in restitution and each ordered to pay more than $19 million in penalties.
Filed in May 2020, the complaint by the CFPB and the Massachusetts AG accused Key Credit Repair and Nikitas Tsoukales, its founder and CEO, of violating the federal Consumer Financial Protection Act (CFPA), the Massachusetts Consumer Protection Act, the federal Telemarketing and Consumer Fraud Prevention Act, and the the Federal Trade Commission’s Telemarketing Sales Rule (TSR). The complaint alleged that the company and Tsoukales made false representations that Key Credit’s actions would remove all negative items from consumers’ credit reports and substantially improve their credit scores, and requested payment in advance of full performance. The TSR claims derived from the fact that the credit repair services allegedly were offered to consumers via telemarketing and tele-sales. According to the CFPB’s statement on the lawsuit, Boston-based Key Credit Repair enrolled nearly 40,000 consumers nationwide from 2016 through 2019.
The District Court found that the company charged customers between $99.95 and $289.95 as a “first-work fee” within two weeks after enrollment and subsequently charged monthly service fees of between $99.95 and $189.95, requested payment information and scheduled the first payment during the initial call, and required customers to authorize automatic payments.
The District Court also found that the company lacked reasonable bases for its promises that customers would experience a 90-point credit score increase within 90 days, and its promises to fix “unlimited negative items” in a consumer credit file.
In ruling against the company, the District Court determined that:
- Defendants violated the TSR’s advance-fee provision by (a) failing to provide a specified end date for performance and (b) charging consumers before delivering promised results;
- The company’s representations concerning the 90-point credit score increase and fixing unlimited negative items on a credit record were deceptive in violation of the CFPA and the Massachusetts Consumer Protection Act; and
- Defendants violated the Massachusetts Credit Services Organization Act by failing to (a) disclose the total cost of a credit services product to a consumer before accepting payment or (b) provide consumers with notice of their statutory right to proceed a surety bond or trust account and related information.
The company and Tsoukales were held jointly and severally liable for $31.7 million in restitution — the sum of all first-work fees and recurring monthly fees collected from January 2011 through March 2022. The defendants were also required to pay $19.1 million in penalties, with the company and its CEO each separately assessed $9.57 million in penalties.
Why It Matters
For products and services marketed in a manner that falls under the TSR, the decision illustrates the substantial regulatory risk attendant with charging consumers fees before providing measurable and quantifiable results in return. Notably, the court also rejected defendants’ contention that the TSR’s advance-fee provision did not apply to their arrangements with their customers because the company offered no timeframe for providing its services. The decision also demonstrates the astronomical penalties that may be at issue under the broad remit of state and federal consumer protection laws, and the compound manner in which restitution and penalties associated with violations of such laws may accrue.