You may have heard or read about the lawsuit filed against Daniel Rosen and Credit Repair Cloud™ on September 20, 2021. Credit Repair Cloud™ is a company that primarily sells its credit repair software that generates dispute letters to individuals and companies that are in the credit repair business. Should this lawsuit against Credit Repair Cloud ™ stop you from getting into the credit repair business? Read on.

The lawsuit was filed in federal court in California, where Credit Repair Cloud™ is headquartered, by the Consumer Financial Protection Bureau (CFPB). The CFPB alleges that Credit Repair Cloud™ violated the Telemarketing Sales Rule (TSR) and the Consumer Financial Protection Act (CFPA) by providing substantial assistance or support to credit repair businesses that use telemarketing and charge unlawful advance fees to consumers.

What This Lawsuit is About - Telemarketing

Let’s first understand what the CFPB is specifically saying about what Credit Repair Cloud™ has been doing. Credit Repair Cloud™, according to the allegations in the suit, apparently has been teaching, coaching, or otherwise informing its clients (the people that buy their software), to use telemarketing (whether they themselves do the telemarketing or they hire a telemarketing company) to get clients.

When you use telemarketing to market credit repair services and get clients that opens up a whole new set of laws called the Telemarketing Sales Rule or TSR. When you use telemarketing to gain clients in the credit repair business you may not charge an advance fee. And you may not charge any fees at all until you can produce a credit report dated 6 months after the results were achieved, showing that those results were indeed achieved.

Does this lawsuit say that no credit repair companies can charge upfront fees? No, it does not. But you still need to understand the laws pertaining to upfront fees. What the Credit Repair Organizations Act (CROA) states is that you can charge a nominal account activation fee. You can only charge more than a nominal account activation fee if your company is a bank, credit union, licensed attorney, or 501(c)3 non-profit. But again, if you are doing telemarketing you cannot charge any upfront fees.

How Does This Lawsuit Affect Credit Repair Companies

How does that affect everyone else in the credit repair business? Well, if you don’t use telemarketing and you follow all the other laws pertaining to the credit repair business, it doesn’t affect you at all. But this should be a warning to all credit repair companies or individuals in the credit repair business that you must know the law before you jump into credit repair. In fact, you should have advice from an attorney that knows credit repair law.

Also, know that there are many far more effective ways of generating customers than by using telemarketing. In fact, telemarketing may be the worst customer lead there is. You have no credibility and there is no trust between your company and the prospect. We teach our Agents several other ways of generating far better customers prospects that turn into great customers.

Should This Lawsuit Scare You Away From the Credit Repair Business?

These are serious allegations. So, if you are in the credit repair business or are contemplating getting into the credit repair business should this scare you off? No, not at all. But it should wake you up to the fact that the credit repair business is highly regulated, and you need to know what you can and cannot do when operating a credit repair business.

There is a Better Way to Start a Credit Repair Business Anyway

For years I’ve been making videos and writing blogs about the challenges of starting a credit repair business on your own. And, in just about every video or blog, I’ve warned about knowing and following the law. But in addition to that, why would you want to spend the time, energy, effort, and money to set up everything for a startup credit repair business on your own? The software, the merchant services, pulling credit, websites, AND getting an attorney to advise you on the law. Especially when there’s a much faster, less expensive, less time-intensive, and safer and legal way to start a credit repair business.

Our business model and technology platform provides clients with a simple DIY dispute process. They can either print the letters from their customer portal or have our company mail them. In addition, we are not directly providing credit repair services, and as an Advisor we don't directly collect the fees for the service. Because of this business model, we are CROA and RESPA-compliant. And, you can start for less than $300!

lawsuit against credit repair cloud
Image by Michal Jarmoluk from Pixabay

And, regarding this lawsuit against Credit Repair Cloud ™, we advise you on what you can and cannot do from a legal standpoint. Our company has a team of attorneys that is making sure we are following every aspect of federal and state law. In fact, we don’t let you do things that violate the law. That’s to benefit you but it’s also to benefit our other Agents out there and the company as a whole.

So, if you want to learn how to start a credit repair business, the lawsuit against Credit Repair Cloud ™ should not scare you away. But it should make you look much harder at how you do it. I’ve been working with our parent company for 10+ years and I’m telling you that there’s no better business opportunity in the credit improvement space than what we have.

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This article which was originally posted in 2021 is updated regularly and was last updated in July 2023.