Banking and Finance Law Daily Credit repair company files motion to dismiss CFPB’s claims
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Monday, July 29, 2019

Credit repair company files motion to dismiss CFPB’s claims

By Nicole D. Prysby, J.D.

A credit repair company and its subsidiaries argued that CFPA and TSR claims against them should be dismissed, because they are not liable for the conduct of sales affiliates, who allegedly misled consumers about financial products and credit repair services.

PGX Holdings, Inc. has filed a motion to dismiss Consumer Financial Protection Act claims, saying that the complaint is based on an invalid premise of liability: that the defendants unlawfully helped a network of sales affiliates mislead consumers about the services they could provide. The defendants argued that liability cannot lie for the conduct of unidentified affiliates; there are no actionable statements by any of the defendants to permit liability for deceptive conduct; indirect liability is not permissible and agency liability is not adequately alleged; and the complaint fails to sufficiently plead any defendant knowingly provided substantial assistance to support a claim under either the CFPA or the Telemarketing Sales Rule (TSR) (Bureau of Consumer Financial Protection v. Progrexion Marketing, Inc., July 19, 2019, Porter, J.).

Background. In May, the Consumer Financial Protection Bureau filed a five-count complaint against PGX Holdings, Inc. (the owner of Progrexion Marketing Inc., Progrexion Teleservices Inc., CreditRepair.com Inc., and EFolks LLC) and John C. Heath, Attorney At Law, PLLC d/b/a Lexington Law over what it says were "deceptive acts and practices" in violation of the CFPA and the TSR (see Banking and Finance Law Daily, May 3, 2019). The Bureau claimed that PGX Holdings Inc., through its subsidiaries, the Progrexion Defendants, unlawfully helped a network of sales affiliates mislead consumers about the services it could provide. The complaint alleged that the Progrexion Defendants substantially assisted affiliate HSP1 by doing four things: providing advice and content for the affiliate’s telemarketing scripts, advice regarding its websites and other marketing vehicles, the means and mechanisms for live-transferring consumers between the affiliate and Progrexion, and payment for each lead that resulted in a Lexington Law or CreditRepair.com sale.

Motion to dismiss. PGX Holdings motioned to dismiss the complaint on a number of grounds. First, that the Bureau seeks to hold the Progrexion Defendants liable for misrepresentations allegedly made by affiliates such as HSP1. The complaint alleges that HSP1 held itself out falsely as a financing source, when it had no money to lend, and then introduced disappointed consumers to credit repair with overblown guarantees of success. The CFPB did not join HSP1 and the Progrexion Defendants themselves are not alleged to have made any deceptive statements. Other counts assert direct liability, but do not identify any specific actionable statements by the Progrexion Defendants. Because the complaint’s allegations concern alleged false statements, Rule 9(b)’s heightened pleading requirements apply and the Bureau may not rely on vague allegations that do not even identify the Progrexion Defendant that made alleged misrepresentations, says the defendants.

To the extent that they seek to hold PGX Holdings liable for misrepresentations by an "affiliate," those claims should also fail because the complaint does not sufficiently identify the person who allegedly engaged in the deception. The complaint also appears to allege that the Progrexion Company defendants are indirectly liable, because they made statements through an affiliate acting on Progrexion’s behalf. However, neither the CFPA nor the TSR allow for liability where one is the beneficiary of someone else’s conduct. CFPB asserts that HSP1 and other affiliates are agents of the Progrexion defendants but neither the CFPA nor the TSR embrace agency liability. Even if they did, CFPB does not identify any express grant of authority and there is no basis to find that Progrexion Marketing impliedly authorized HSP1 to act corruptly.

For similar reasons, claims that the Progrexion defendants "substantially assisted" HSP1’s deceitful acts in violation of the CFPA or TSR should fail, the company says in the motion. The CFPB fails to allege that someone at a Progrexion Company knew that HSP1 lied about the existence of fictitious loans or guaranteed their delivery. The allegations do not show how any of the purported assistance from Progrexion to HSP1 was in furtherance of the challenged conduct: HSP1’s alleged misrepresentations about its products.

PGX Holdings also argued that the complaint relied on allegations of acts dating back to 2012, but claims relating to conduct before March 8, 2016, should be dismissed as untimely. They also argued that the complaint relies on impermissible group pleadings and obscures which party it alleges to have violated the TSR or which PGX Holdings allegedly assisted in misstatements under the CFPA and TSR.

Finally, the motion asserts that the complaint must be dismissed because the CFPB’s structure is unconstitutional, in that the director’s for-cause removal provision unconstitutionally restricts the President’s duty to control and supervise the Executive Branch. In addition, Congress’ inability to review the Bureau’s budget unconstitutionally blocks its appropriations and oversight authority.

The parties filed a joint motion to request a 14-day extension for the Bureau to respond, and a seven-day extension for the defendants to file a reply brief.

The case is No. 2:19-CV-00298-BJS.

Attorneys: Thomas M. Hefferon (Goodwin Procter LLP) for Progrexion Marketing, Inc., PGX Holdings, Progrexion Teleservices and Efolks, LLC.

Companies: CreditRepair.com Inc.; EFolks LLC; PGX Holdings, Inc.; Progrexion Marketing Inc.; Progrexion Teleservices Inc.

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