Reid v. Commonwealth Equity Group LLC

Filing 14

OPINION entered by Judge Sue E. Myerscough on 8/9/2017. The Defendant's Motion to Dismiss Plaintiff's Class Action Complaint, d/e 8 is GRANTED IN PART. Counts II, III, and VI are DISMISSED WITHOUT PREJUDICE for failure to state a claim. Counts I and IV are deemed voluntarily dismissed by the Plaintiff. The Plaintiff is granted leave to file an amended complaint on or before September 7, 2017. (SEE WRITTEN OPINION) (MAS, ilcd)

E-FILED

Friday, 11 August, 2017 01:27:37 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
JEROME REID, on behalf of
himself and others similarly
situated,
Plaintiff,
v.
COMMONWEALTH EQUITY
GROUP, LLC d/b/a KEY CREDIT
REPAIR,
Defendant.

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No. 17-cv-3043

OPINION
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on the Rule 12(b)(1) and
12(b)(6) Motion to Dismiss Plaintiff’s Class Action Complaint (d/e
8) filed by Defendant Commonwealth Equity Group, LLC d/b/a
Key Credit Repair. Defendant asserts that Plaintiff Jerome Reid
lacks standing and that he has failed to state a claim. The Motion
(d/e 8) is GRANTED IN PART.
In response to the Motion to Dismiss, Plaintiff agrees to the
voluntary dismissal of Counts I and IV. Therefore, the Court
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deems those counts dismissed. As for the remaining counts, even
assuming that Plaintiff has properly alleged standing, Plaintiff’s
Counts II, III, and VI fail to state a claim and are dismissed without
prejudice.
I. LEGAL STANDARD
A motion under Rule 12(b)(6) challenges the sufficiency of the
complaint. Christensen v. Cnty. of Boone, 483 F.3d 454, 458 (7th
Cir. 2007). To state a claim for relief, a plaintiff need only provide
a short and plain statement of the claim showing he is entitled to
relief and giving the defendant fair notice of the claims. Tamayo v.
Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008).
When considering a motion to dismiss under Rule 12(b)(6),
the Court construes the complaint in the light most favorable to
the plaintiff, accepting all well-pleaded allegations as true and
construing all reasonable inferences in plaintiff’s favor. Id.
However, the complaint must set forth facts that plausibly
demonstrate a claim for relief. Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 547 (2007). A plausible claim is one that alleges factual
content from which the Court can reasonably infer that the
defendants are liable for the misconduct alleged. Ashcroft v. Iqbal,
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556 U.S. 662, 678 (2009). Merely reciting the elements of a cause
of action or supporting claims with conclusory statements is
insufficient to state a cause of action. Id.
II. FACTS ALLEGED IN THE COMPLAINT
In February 2017, Plaintiff filed a Class Action Complaint
against Defendant for purported violations of the Credit Repair
Organizations Act, 15 U.S.C. § 1679 et seq. (CROA), and the
Electronic Funds Transfer Act, 15 U.S.C. § 1693 et seq. (EFTA).
Plaintiff’s Complaint originally contained six counts. However,
after Defendant filed the Motion to Dismiss, Plaintiff agreed to the
voluntary dismissal of Counts I and IV. Pl. Resp. at 1 n.1 (d/e 10).
The following facts come from Plaintiff’s Class Action
Complaint and the Service Agreement, which is referenced in the
Class Action Complaint and attached to the Defendant’s Motion.1
See Citadel Group Ltd. v. Wash. Reg’l Med. Ctr., 692 F.3d 580, 591
(7th Cir. 2012) (noting that, on a motion to dismiss for failure to
state a claim, the court can consider documents attached to or

Although the Complaint references the Service Agreement and indicates that
the agreement is attached to the Complaint, Plaintiff did not file the Service
Agreement. However, Defendant filed a copy of the Service Agreement with
the Motion to Dismiss.
1

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referenced in a pleading if the documents are central to the claim).
These facts are accepted as true at the motion to dismiss stage.
Tamayo, 526 F.3d at 1081.
Defendant is a credit repair organization in the business of
providing credit repair services to consumers for a fee. Compl.
¶¶ 23-24. On June 29, 2016, Plaintiff retained Defendant for the
purpose of improving his credit profile. Id. ¶ 25; Service
Agreement (d/e 8-1).
In the Service Agreement, Defendant agreed to evaluate
Plaintiff’s current credit profile and advise Plaintiff of the steps
necessary to legally remove inaccurate, incomplete, or
nonverifiable information. Compl. ¶ 26. Defendant also agreed to
provide unlimited advice and credit coaching. Id. ¶ 27.
Defendant guaranteed that Defendant would do everything in
its power to legally improve Plaintiff’s credit profile within one year
from the date of the Service Agreement. Id. ¶ 28. Defendant also
guaranteed that Plaintiff’s credit score would improve if Plaintiff
followed Defendant’s advice. Id. ¶ 29.
Defendant required that Plaintiff pay a “work fee” charged five
days after signing the Service Agreement. Id. ¶ 31. This work fee
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applied to the setup of the credit file, review and analysis of the
credit report, the collection of any documents associated with the
file, and the creation of the first round of letters to the three credit
agencies and creditors. Id. All of this work is done within the first
five days of signing the Service Agreement and prior to the
payment of the work fee. Id.
Defendant also required Plaintiff to pay on a month-to-month
basis. Compl. ¶ 32. The Service Agreement required Plaintiff to
authorize Defendant to charge Plaintiff’s credit card or bank
account for the first work fee of $189.95 on August 3, 2016 and
then each subsequent month for work performed within that
month for a maximum of five payments. Id. ¶ 36. Plaintiff would
then receive an additional eight months of service at no additional
fee. Id. Plaintiff alleges that, despite Defendant’s guarantee to do
everything in its power to legally improve Plaintiff’s credit profile
within one year of the date of the Service Agreement and its
implication that Defendant would perform services for 13 months,
Defendant required full payment for its 12-to-13 month “endeavor”
less than 6 months after entering into the Service Agreement. Id.
¶ 37.
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All monthly fees were due unless Plaintiff requested
cancellation in writing 13 or more days prior to the next payment
date. Id. ¶ 33. The cancellation must be submitted in writing and
emailed, mailed, or faxed to Defendant. Id. ¶ 34. The Service
Agreement provided that Plaintiff would be billed for services
rendered, not a specific outcome. Id. ¶ 35. On August 3, 2016,
Defendant electronically debited $189.95 from Plaintiff’s checking
account. Id. ¶ 39.
In Count II, Plaintiff alleges that Defendant violated the
provision of the CROA that prohibits a credit repair organization
from charging a fee for a service before the service is fully
performed:
No credit repair organization may charge or receive any
money or other valuable consideration for the
performance of any service which the credit repair
organization has agreed to perform for any consumer
before such service is fully performed.
15 U.S.C. § 1679b(b); Compl. ¶ 76. Plaintiff alleges that Defendant
violated this provision by requiring “full payment for its year-long
to thirteen month-long endeavor to complete services outlined by
the Service Agreement less than six months after entering into the
Service Agreement.” Compl. ¶ 77.
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In Count III, Plaintiff alleges that Defendant violated the
provision of the CROA that provides that “[n]o person may . . .
make or use any untrue or misleading representation of the
services of the credit repair organization.” 15 U.S.C. § 1679b(a)(3);
Compl. ¶ 79. Plaintiffs alleges that Defendant made the misleading
statement that Defendant guaranteed that Plaintiff’s credit score
would improve provided that Plaintiff follows Defendant’s advice.
Plaintiff alleges this was false and misleading because (1)
Defendant did not, at the time it made the guarantee, know
Plaintiff’s credit history or future credit needs; (2) Defendant
acknowledged that neither Plaintiff nor any credit repair
organization had the right to have accurate, negative information
removed from Plaintiff’s credit report before the information is
seven years old; and (3) no credit repair organization can
legitimately remove or enable consumers to remove all negative
entries from a consumer’s credit report. Compl. ¶ 80.
In Count V, Plaintiff alleges that Defendant violated the
provision of the CROA that requires a credit repair organization to
provide a consumer with the “Consumer Credit File Rights Under
State and Federal Law” information before it executes any contract
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or agreement with the consumer. 15 U.S.C. § 1679c(a) (reciting
the required information). The information must be in a
document separate from any written contract or other agreement
between the credit repair organization and the consumer. 15
U.S.C. § 1679c(b). Plaintiff alleges Defendant violated this
provision by failing to provide Plaintiff with the required
information in a document separate from the written contract
between Defendant and Plaintiff.
Finally, in Count VI, Plaintiff alleges that Defendant violated
the EFTA. Section 1693e(a) of the EFTA provides that a consumer
may stop payment of a preauthorized electronic fund transfer by
notifying the financial institution orally or in writing at any time up
to three business days preceding the date of the transfer. Compl.
¶ 88. Section 1693l of the EFTA provides that no agreement
between a consumer or any other person may waive any right
conferred under the EFTA. Compl. ¶ 89. Plaintiff alleges that
Defendant violated §1693l of the EFTA because Defendant’s
Service Agreement contained a provision constituting a waiver of
Plaintiff’s rights under the EFTA and the regulations promulgated
by the Consumer Financial Protection Bureau. Id. ¶ 90.
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Specifically, Plaintiff alleges that the provision of the Service
Agreement providing that all fees for services rendered are due
unless the client requests cancellation in writing 13 or more days
prior to the next payment constituted a waiver of Plaintiff’s right to
cancel preauthorized electronic fund transfers orally, cancel
preauthorized electronic fund transfers by providing notice to the
financial institution, and cancel preauthorized electronic fund
transfers by providing three-days’ notice. Id. ¶ 91; ¶ 90 (also
noting that the Service Agreement provides that “[p]ayment will
continue to process for up to but not greater than 30 days after a
payment has been declined until approved.”).
Plaintiff seeks actual damages sustained as a result of
Defendant’s failure to comply with the CROA and statutory
damages sustained as a result of Defendant’s failure to comply
with the EFTA. Plaintiff also seeks injunctive relief, reasonable
attorney’s fees, pre-judgment and post-judgment interest, and
such other relief as the Court deems just and proper. In addition,
Plaintiff seeks to bring the causes of action on behalf of a class.
In May 2017, Defendant filed a Rule 12(b)(1) and 12(b)(6)
Motion to Dismiss Plaintiff’s Class Action Complaint. Defendant
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asserts that Plaintiff lacks standing to bring his CROA and EFTA
claims. Defendant also argues that Plaintiff fails to state a claim in
Counts II, III, and VI.
III. ANALYSIS
The Court finds that, even assuming Plaintiff has sufficiently
alleged standing, Plaintiff has failed to state a claim in Counts II,
III, and VI.
A.

Plaintiff Fails to State a Claim under the Credit Repair
Organization Act in Counts II and III.
Defendant argues that Plaintiff fails to state a claim under the

CROA in Counts II and III.
As stated above, Plaintiff alleges in Count II that Defendant
violated the provision of the CROA that prohibits a credit repair
organization from charging or receiving money or other valuable
consideration for a service before the service is fully performed. 15
U.S.C. § 1679b(b). Plaintiff alleges that Defendant violated this
provision by requiring “full payment for its year-long to thirteen
month-long endeavor to complete services outlined by the Service
Agreement less than six months after entering into the Service
Agreement.” Compl. ¶ 77.
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Defendant argues that Count II fails to state a claim because
the allegations are contradicted by the plain language of the
Service Agreement, which specifically provides that, with respect to
the Accelerated Program Plaintiff signed up for, the monthly
payments are for work that was performed within that month. See
Service Agreement (providing, under the Accelerated program, that
Plaintiff would be charged the first work fee of $189.95 on August
3, 2016 and then $189.95 for five more months for work performed
within that month and that Plaintiff would receive an additional 8
months of service at no additional fee). Defendant also argues that
Plaintiff’s claim is based on an incorrect interpretation of the
CROA. Specifically, Defendant asserts that Plaintiff is reading the
statute to require that no fee be charged until all work on a client’s
behalf is completed. However, the statute itself provides that a
credit repair organization may not charge for the performance of
“any service” before “such service” is fully performed but does not
refer to all services being performed before the client is charged.
See 15 U.S.C. § 1679b(b) (providing that a credit repair
organization cannot charge or receive money for “any service”

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which the credit repair organization has agreed to perform before
“such service is fully performed”).
Plaintiff’s claim is that Defendant required payment in full
within 6 months of Plaintiff entering the Service Agreement that
that payment was for services Defendant promised to complete
over the course of 12 to 13 months. In support thereof, Plaintiff
cites to Defendant’s guarantee to do everything in its power to
improve Plaintiff’s credit profile within one year from the date of
the Agreement. Plaintiff also points to Defendant providing
Plaintiff with free services for eight months following payment of
the initial work fee and five monthly payments. At least one court
has found a violation of § 1679b(b) under similar circumstances—
in that case a two-year guarantee—because the credit repair
organization charged for services that the entity agreed to perform
before the services had been fully performed. See United States v.
Cornerstone Wealth Corp., Inc., No. 3:98CV0601-D, 2006 WL
522124, at *8 (N.D. Tex. March 3, 2006). In Cornerstone, the
evidence showed that, while the defendant appeared to charge only
for the three services specified in the agreement, the defendant
actually charged for all of the services it provided, including “those
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rendered under the rubric” of the two-year guarantee which
included services performed after the payment of the charges. Id.
The problem with Plaintiff’s allegations, however, is that he
does not allege that he was charged for or paid for any services
that had not been performed. Although Plaintiff alleges that he
paid a $189.95 “work fee,” he also alleges that the “work fee” was
charged five days after signing the Service Agreement and applied
to the setup of the credit file, review and analysis of the credit
report, collection of documents associated with the file, and
creation of the first round of letters to the credit agencies. Compl.
¶ 31. Plaintiff does not allege that these services were not
performed or that the “work fee” was intended as partial payment
of other services.
In addition, while Plaintiff alleges that Defendant required
Plaintiff to pay on a month-to-month basis, (Compl. ¶ 32), Plaintiff
does not allege that Defendant actually charged Plaintiff those
months or that Plaintiff made any of those payments. For all the
Court knows from the Complaint, Plaintiff could have cancelled the
contract after paying the initial “work fee” and was never actually

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charged for services that were not performed. Therefore, the Court
finds that Plaintiff does not state a claim in Count II.
In Count III, Plaintiff alleges that Defendant violated
§ 1679b(a)(3) of the CROA, which prohibits a person from making
or using “any untrue or misleading representation of the services
of the credit repair organization.” 15 U.S.C. § 1679b(a)(3).
Defendant argues that Count III does not state a claim
because there is ample basis for Defendant’s statement that
Plaintiff’s credit score would improve provided that Plaintiff follows
Defendant’s advice. See Service Agreement (“providing that
Defendant “guarantees that the clients’ credit score will improve
provided that the client follows the advice of [Defendant.] Client[s]
will not make any late payments on any other accounts that they
are paying on and their revolving account balances are below 30%
of the available limit.”) According to Defendant, several factors
affect credit scores, including payment history, available credit,
negative public records, length of credit history, and evidence of
taking on new debt.2 Moreover, Defendant asserts there is nothing

Defendant asks the Court to take judicial notice of the five FICO Score
factors referenced in FICO, Curing Credit Score Confusion, p. 4 (March 2014)
2

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about Defendant’s lack of familiarity with Plaintiff’s credit history
or the limits to which one is able to remove negative information
from a credit report that merits the conclusion that the statement
was false.
Count III fails to state a claim. Plaintiff alleges that the
Defendant’s guarantee that Plaintiff’s credit score would improve is
false because (1) Defendant did not, at the time it made the
guarantee, know Plaintiff’s credit history or future credit needs; (2)
Defendant acknowledged that neither Plaintiff nor any credit repair
organization had the right to have accurate, negative information
removed from Plaintiff’s credit report before it is seven years old;
and (3) no credit repair company can legitimately remove or enable
consumers to remove all negative entries from a consumer’s credit
report.
The mere fact that Defendant did not know Plaintiff’s credit
history when it made the representation does not support an
inference that the statement that Defendant would improve
Plaintiff’s credit was untrue or misleading. As Defendant points

(white paper) (d/e 8-2). Plaintiff did not object to the Court taking judicial
notice. The Court will do so.

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out, numerous factors affect a person’s credit score. Moreover, the
Service Agreement demonstrates that Defendant did not represent
that all negative information could be removed from Plaintiff’s
credit report and affirmatively states that accurate, negative
information cannot be removed before the information is seven
years old. See also Service Agreement (“Accurately reported items
on a credit report[] cannot be removed). Plaintiff has not alleged a
plausible claim that the statement that Defendant guaranteed to
improve Plaintiff’s credit score if Plaintiff followed Defendant’s
advice was misleading or untrue. Therefore, Count III is dismissed
without prejudice for failure to state a claim.
B.

Plaintiff Fails to State a Claim under the Electronic Fund
Transfer Act
In Count VI, Plaintiff alleges that Defendant violated § 1693l

because its Service Agreement contained provisions constituting a
waiver of Plaintiff’s rights under the EFTA. Section 1693l of the
EFTA provides that:
No writing or other agreement between a consumer and
any other person may contain any provision which
constitutes a waiver of any right conferred or cause of
action created by this subchapter.

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15 U.S.C. § 1693l. Under § 1693e(a) of the EFTA, a consumer may
stop payment of a preauthorized electronic fund transfer by
notifying the financial institution orally or in writing at any time up
to three business days preceding the scheduled date of the
transfer.
The Service Agreement provides that all fees for services
rendered are due unless the client requested cancellation in
writing 13 or more days prior to the next payment date:
The client understands that they are paying on a month
to month basis. The Client understands that they are
able to cancel out of this program at any point in time
without incurring any cancellation fees. All fees for
services rendered are due unless client requests
cancellation in writing 13 or more days prior to the next
payment date. This cancellation needs to be submitted
in writing and emailed, mailed[,] or faxed to [Defendant].
[Defendant] grants each client a 5 day grace after
payment is due before credit service is suspended.
Payment will continue to process for up to but not
greater than 30 days after a payment has been declined
until approved.
Service Agreement (emphasis in original).
Plaintiff alleges that the Service Agreement violates § 1693l
because it constitutes a waiver of Plaintiff’s right to cancel
preauthorized electronic fund transfers by orally contacting the
financial institution within three days’ preceding the transfer.
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Defendant argues that the provision in the Service Agreement does
not interfere with Plaintiff’s right to stop payment of the fund
transfer by notifying his financial institution orally or in writing at
any time up to three business days before the scheduled transfer
date. The Court agrees with Defendant.
In the Service Agreement, Plaintiff authorized Defendant to
debit his bank account. The Service Agreement also provides that
fees for services rendered are due unless Plaintiff requested
cancellation in writing 13 or more days prior to the next payment
date. The Service Agreement does not, however, say anything
about Plaintiff’s right to stop the electronic payment but only
addresses cancellation of the Service Agreement. See, e.g., Miller
v. Interstate Auto Group, Inc., No. 14-cv-116-slc, 2015 WL
1806815, at *7 (W.D. Wis. April 21, 2015) (noting, on a motion for
summary judgment, that the EFT Authorization provision requiring
5-days’ notice pertained to cancellation of the plaintiff’s
contractual right to revoke her entire authorization, not her
separate statutory right to ask the bank to stop payments made
pursuant to that authorization). In that regard, this case is
distinguishable from the cases cited by Plaintiff. Baldukas v. B &
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R Check Holders, Inc., No. 12-cv-01330-CMA-BNB, 2012 WL
7681733 (D. Colo. Oct. 1, 2012), report & recommendation
adopted by 2013 WL 950847 (D. Colo. Mar. 8, 2013); Murphy v.
Law Offices of Howard Lee Schiff, P.C., No. 13-10724-RWZ, 2014
WL 710959, at *3 (D. Mass. Feb. 25, 2014) (relying on the
reasoning of Baldukas).
For example, in Baldukas, the parties’ authorization
agreement provided that the defendant’s authority to debit the
plaintiff’s account remained in full force until the Defendant and
the financial institution received written notification of termination
and in such manner as to afford defendant and the financial
institution a reasonable opportunity to act on it. Baldukas, 2013
WL 950847, at * 2. The requirement that the plaintiff give written
notification to the financial institution conflicted with § 1693l,
which permitted oral notification to the financial institution. Id.
The court, therefore, found that the plaintiff sufficiently alleged
that the agreement caused the plaintiff to waive her rights to the
stop payment provisions of the EFTA. Id.; see also Simone v. M &
M Fitness LLC, No. CV-16-01229-PHX-JJT, 2017 WL 1318012, at
*1, 3 (D. Ariz. Apr. 10, 2017) (finding that the agreement precluded
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the plaintiff from exercising her right freely and without legal
exposure where the agreement required the customer to contact
the defendant about any stop payment in an attempt to resolve the
matter prior to stopping payment and, if the customer did not do
so, held the customer legally liable for all “items and fees”).
In this case, Plaintiff has not alleged that the Service
Agreement contains similar language purporting to affect or limit
Plaintiff’s ability to stop payment by notifying the financial
institution orally or in writing up to three days preceding the
scheduled date of the transfer. The Service Agreement also
specifically provides that the client can cancel at any time and is
not charged a cancellation fee. Only fees for services rendered are
due if a client does not cancel with 13 days’ notice. The Court also
notes that the Complaint does not allege any injury to Plaintiff,
although that is a subject more relevant to lack of standing.
Consequently, Count VI fails to state a claim.
IV. CONCLUSION
For the reasons stated, Defendant’s Motion to Dismiss
Plaintiff’s Class Action Complaint (d/e 8) is GRANTED IN PART.
Counts II, III, and VI are DISMISSED without prejudice for failure
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to state a claim. Counts I and IV are deemed voluntarily dismissed
by Plaintiff. Plaintiff is granted leave to file an amended complaint
on or before August 24, 2017. Defendant shall answer or
otherwise plead to the amended complaint on or before September
7, 2017. Defendant may again raise the standing issue. If Plaintiff
does not file an amended complaint, Defendant shall respond to
Count V of the original complaint on or before September 7, 2017.
Defendant may file an answer to Count V or may again raise the
standing issue in a motion to dismiss.
ENTER: August 9, 2017
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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