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.
Troutman Pepper State Attorneys General Team
Ashley Taylor – Co-leader and Firm Vice Chair Ashley is co-leader of the firm’s nationally ranked State Attorneys General practice, vice chair of the firm, and a partner in its Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He helps his clients navigate the complexities involved with multistate attorneys general investigations and enforcement actions, federal agency actions, and accompanying litigation. |
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Clay Friedman – Co-leader Clayton is a partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and co-leader of the State Attorneys General practice, multidisciplinary teams with decades of experience crafting effective strategies to help deter or mitigate the risk of enforcement actions and litigation. |
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Judy Jagdmann Judy is a partner in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice, based in the Richmond office. She brings experience serving as chair and commissioner of the Virginia State Corporate Commission (VSCC) from 2006 through 2022, which includes regulating the utilities, insurance, banking, and securities industries. She also served as Virginia’s attorney general from 2005-2006. |
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Stephen Piepgrass Stephen leads the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. He focuses his practice on enforcement actions, investigations, and litigation. Stephen primarily represents clients engaging with, or being investigated by, state attorneys general and other state or local governmental enforcement bodies, including the CFPB and FTC, as well as clients involved with litigation, with a particular focus on heavily regulated industries. |
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Michael Yaghi Michael is a partner in the firm’s State Attorneys General and Regulatory Investigations, Strategy + Enforcement (RISE) Practice Groups, nationwide teams that advise clients on consumer protection enforcement matters and other regulatory issues. |
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Samuel E. “Gene” Fishel Gene is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) practice, based in the Richmond office. He brings extensive regulatory experience, having most recently served as senior assistant attorney general and chief of the Computer Crime Section in the Office of the Attorney General of Virginia, and as special assistant U.S. attorney in the Eastern District of Virginia for 20 years. |
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Chuck Slemp Chuck advises clients on a wide range of complex issues that frequently involve government actions, including investigations, inquiries, regulatory matters, and litigation. With a distinguished background in the law and public service, he served as chief deputy attorney general of Virginia before joining the firm. In addition to overseeing the Department of Law and Division of Debt Collection, Chuck managed a team of attorneys who handle complex litigation and investigations. He also directed the attorney general’s legislative affairs and represented the attorney general in various capacities. |
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Tim Bado Tim is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, where he represents corporations and individuals facing potential civil and criminal exposure. Tim’s experience in government investigations, enforcement actions, and white-collar litigation spans a number of industries, including financial services, pharmaceutical, health care, and government contracting, among others. |
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Chris Carlson Chris Carlson represents clients in regulatory, civil and criminal investigations and litigation. In his practice, Chris regularly employs his prior regulatory experience to benefit clients who are interacting with and being investigated by state attorneys general. |
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Blake R. Christopher Blake collaborates with clients on matters related to government contracting, investigations, and disputes. His senior-level government experience generates valuable insights and strategies for clients across a variety of industries. |
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Natalia Jacobo Natalia is an associate in the firm’s Regulatory Investigations, Strategy and Enforcement (RISE) practice. She focuses her practice on two primary areas: government contracting and state attorney general work. |
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Namrata Kang Namrata (Nam) is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group, based in the Washington, D.C. office. She routinely advises clients on a wide variety of state and federal regulatory matters, with a particular emphasis on state consumer protection laws relating to consumer financial services and marketing and advertising. |
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Michael Lafleur Michael is an associate in the firm’s Regulatory Investigations, Strategy, and Enforcement Practice Group. Based out of the firm’s Boston office, Mike has deep experience in litigation, investigations, and other regulatory matters involving state-level regulators and state attorneys general. |
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Susan Nikdel Susan is an associate in the firm’s Consumer Financial Services Practice Group, and focuses her practice on consumer financial services matters. She has defended several of the nation’s largest and most influential financial institutions in individual and class action litigation involving the Telephone Consumer Protection Act (TCPA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and other consumer privacy statutes. |
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Trey Smith Trey is an associate in the firm’s Regulatory Investigations, Strategy + Enforcement Practice. He focuses his practice on helping financial institutions and consumer facing companies navigate regulatory investigations and resulting litigation. |
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Daniel Waltz Daniel is a member of the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group and State Attorneys General team. He counsels clients in connection with navigating complex government investigations, regulatory compliance, and transactions, involving state and federal government contracting obligations. Drawing on his broad experience as a former assistant attorney general for the state of Illinois, Daniel is a problem solver both inside and outside the courtroom. |
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Stephanie Kozol Stephanie is Troutman Pepper’s senior government relations manager in the state attorneys general department. |