U.S. Bankruptcy Judge Craig Goldblatt in Wilmington, Delaware approved the loan, allowing PGX, which operates creditrepair.com, credit.com and Lexington Law, to borrow additional funds from its primary lenders, Blue Torch Finance LLC and Prospect Capital Corp. Blue Torch controls PGX's $243.5 million senior loan, and could end up owning the company if no other buyer emerges.
PGX filed for bankruptcy on Monday, citing a recent loss in a court case brought by the CFPB over its billing for credit repair services. The consumer watchdog agency is seeking $3 billion in damages from PGX, after a Utah federal judge ruled in March that the company violated a federal law that prohibits up-front billing for credit repair services.
PGX attorney Spencer Winters said at a Tuesday court hearing that PGX entered bankruptcy with about $4 million cash on hand, nowhere near enough to pay the CFPB's proposed judgment.
The litigation has also forced PGX to dramatically scale back its operations, making it more difficult for the company to make payments on more than $400 million in loans that are unrelated to the lawsuit, Winters said.
PGX ceased all telemarketing and monthly billing for about 80% of its customers, based on the Utah court's ruling that it cannot send bills to customers who have enrolled over the phone without proving that their credit score has improved. The company recently laid off 900 employees, leaving just 300 employees on its payroll.
CFPB declined to comment on PGX's bankruptcy. It has alleged that the company took $3.1 billion in improper up-front fees from four million consumers, including a $15 sign-up fee and $15 in monthly service fees.
PGX has said that 71% of its customers improved their credit scores as a result of its services.
The case is PGX Holdings Inc, U.S. Bankruptcy Court for the District of Delaware, No. 23-10718.
For PGX: Whitney Fogelberg and Spencer Winters of Kirkland & Ellis
Credit reporting firms should fix practices amid consumer complaints - U.S. watchdog
U.S. CFPB's bid to curb late credit card fees faces strong opposition
(Reporting by Dietrich Knauth)
By Dietrich Knauth