Alston & Bird Consumer Finance Blog


Misrepresentation and Deception: Government Enforcement Agencies Ready to Litigate

A&B ABstract:  The COVID-19 pandemic appears to be drafting the attention to consumer protection regulators to products that were active after the 2008 recession.

In the midst of the global pandemic, with unemployment rates surging to unprecedented levels, consumer protection regulators appear focused on areas where cash-strapped consumers may turn,  such as credit repair, payday loans, and mortgage and other debt relief.

Notably, these are the same areas that consumer protection regulators were active in during the post-2008 recession. For example, on May 22, 2020, the Consumer Financial Protection Bureau (CFPB) and Commonwealth of Massachusetts filed a lawsuit alleging that defendants misrepresented that they can offer solutions that will or likely will substantially increase consumers’ credit scores despite not achieving those results.

In addition, on May 19, 2020, the Federal Trade Commission (FTC) was granted a temporary restraining order and asset freeze against a payday lending operation alleging that it deceptively overcharged consumers millions of dollars and withdrew money repeatedly from consumers’ bank accounts without their permission.

These lawsuits are just two of many efforts that government enforcement agencies have undertaken recently to combat fraud and protect consumers. Businesses should be aware that agencies are actively pursuing litigation as a means to remedy potential consumer harm.

CFPB and Commonwealth of Massachusetts v. Commonwealth Equity Group d/b/a Key Credit Repair and Nikitas Tsoukales

The CFPB and Massachusetts allege that Commonwealth Equity Group d/b/a Key Credit Repair (KCR) and its president, Nikitas Tsoukales violated §§ 1031 and 1036 of the Consumer Financial Protection Act (CFPA), the Telemarketing Sales Rule’s (TSR) prohibition on deceptive and abusive telemarketing acts or practices, and the Massachusetts Credit Services Organization Law. 16 C.F.R. §§ 310.3 & 310.4; M.G.L. c. 93, §§ 68A-E (MA-CSO). KCR markets to consumers a service for supposedly removing harmful information from the consumer’s credit history, credit record, or credit scores or ratings.  Since 2011, KCR has collected at least $23 million in fees from tens of thousands of consumers through its telemarketing services.

The Complaint

According to the complaint, consumers pay KCR a “first work fee” upon enrolling with the company and then charges an additional monthly fee. KCR allegedly collects these fees from consumers before performing any service. KCR markets to consumers that “on average it can raise a person’s credit score by 90 points in 90 days” and that clients start “seeing removals of bad credit history in 45 days.”  However, “consumers did not see credit scores with an average 90-point increase in 90 days,” nor did they see “removals on their credit reports within 45 days” of enrolling with KCR in many instances.

The Complaint alleges that this scheme constitutes an abusive telemarking act because it is an improper advance fee to remove derogatory information from, or improve, a person’s credit history, credit record, or credit rating.

Further, the Complaint alleges that KCR’s conduct violates the CFPA because KCR allegedly misrepresented the material aspects of its services. Therefore, the CFPB and Massachusetts are seeking injunctive and monetary relief as well as civil monetary penalties.

FTC v. Lead Express, Inc., et al.

On May 11, 2020, the FTC filed an ex parte emergency motion for a temporary restraining order and sought other relief including an asset freeze against 11 payday lenders operating as a common enterprise through websites and telemarketing.  The FTC alleged that the entities were engaging in the deceptive, unfair, and unlawful marketing tactics in violation of the FTC Act, the TSR, the Truth in Lending Act (TILA) , and the Electronic Fund Transfer Act (EFTA).

The Complaint

According to the FTC’s complaint, despite claiming that consumers’ loans would be repaid after a fixed number of payments, the defendants typically initiated repeated finance-charge-only withdrawals without crediting the withdrawals to the consumers’ principal balances. Thus, consumers allegedly paid significantly more than what they were told they would pay. These misrepresentations violate Section 5(a) of the FTC Act (15 U.S.C. § 45(a)) as well as the TSR (16 C.F.R. § 310.3(a)(2)(iii)).  Additionally, the defendants allegedly made recurring withdrawals from consumers’ bank accounts without proper authorization which violates Section 907(a) of EFTA (15 U.S.C. § 1693e(a)) and illegally used remotely created checks, which under the TSR (16 C.F.R. § 310.4(a)(9)) are a prohibited form of payment in telemarketing.

The complaint also alleges that the defendants often failed to make required credit transaction disclosures in violation of Section 121 and 128 of TILA (15 U.S.C. §§ 1631 and 1638), and Sections 1026.17 and 1026.18 of Regulation Z (12 C.F.R. §§ 1026.17 and 1026.18).

The Court Order

On May 22, 2020, the District Court of Nevada granted an emergency motion for temporary restraining order against all eleven defendants. The order restrains the defendants from: (1) engaging in prohibited business activities in connection with advertising, marketing, promoting, or offering any loan or extension of credit, (2) releasing or using customer information, and (3) destroying, erasing falsifying documents relating to the business.  Furthermore, the defendants’ assets are frozen pending the show-cause hearing or further court order which will take place via videoconferencing on June 2, 2020.


With these two cases, government enforcement agencies support their statements that as the global pandemic continues, they are watching for deceptive or fraudulent practices in the financial services industry. Businesses should remain vigilant in their compliance with existing and new laws and regulations.