What You Need To Know About The Credit Repair Organizations Act (CROA) Before You Say Yes To A Credit Repair Company.

When you are considering investing in a credit repair company, there’s a few things you should know about before you say yes, and commit yourself to any credit repair organization.

While the Fair Credit Reporting Act creates the streamlined process of how to repair your credit, and remove inaccurate, or fraudulent information from your credit reports, the credit repair organizations act regulates the credit repair industry, and serves as the law in which gives you the ability to provide third party authorization usually through a power of attorney for someone else to do the work for you on your behalf. 

What Should A Credit Repair Company Be Doing For Me? 

We’re often asked what a credit repair company should be doing when they are retained by a consumer to repair their credit.  Well, it’s simple really, basically when you sign a 3rd party authorization, usually through a power of attorney that means you are authorizing them to speak on your behalf, which significantly reduces the amount of time that you’ll spend writing letters, making phone calls to creditors, and companies that you allegedly owe money to, and which further, reduces the additional stress, and agitation that comes with the credit repair process.

The History & Purpose Of The Credit Repair Organizations Act:

In 1996, Congress passed the Credit Repair Organizations Act in an effort to reduce consumer fraud, and consumer abuse in regards to the amount of fraudulent charges, accounts, and creditor abuse claims that had been rising through years past.  While the FTC, the CFPB, and Congress all agree(d) that consumers need to maintain high credit scores, and a clean credit history full of positive accounts in order to get approved for most new forms of credit, they also know that credit repair companies often make false or misleading claims about what they can do to improve a consumer’s credit reports and credit scores therefore, this law allows for the FTC, and the CFPB to create oversight in order to prevent scams, lies, and false information spreading out across the networks and platforms as we continue to move forward in the digital age that more often than not only create additional hardships for consumers honestly looking to repair their credit, and improve their credit scores with factual information, data, tools, and resources that are legally available to them.

How Does The Law Define A Credit Repair Company?

The law defines a credit repair company as a legal business, or organization that sells services that are related to maintaining the accuracy of a consumer’s credit reports.  

While this does not cover credit servicers, lenders, credit card issuers, non profits, or banks, consumers will often find that when they go to apply for a new mortgage they are often referred to a credit repair company or a credit consulting service in order to restructure their credit, work to build a more positive credit history, and or repair their credit if their scores come in at under 620 for FHA loans and 660 for Conventional loans.

Is There Anything Credit Repair Companies Can’t Do For Consumers?

Under the CROA there’s a few things that Credit Repair Companies and Credit Repair Organizations can not do for consumers, they include:

  1. Credit Repair Companies can not make false promises or statements about your credit scores or their ability to improve or raise your credit scores with unrealistic or untrue claims.
  2. A Credit Repair Company Can Not alter or change your identity or advise you to do anything of that nature to hide or remove negative information that may be appearing on your credit report.
  3. Credit Repair Companies can not make untrue or misleading statements about the benefits of the services that they provide OR their services in general.
  4. A Credit Repair Service can not endorse, support, or encourage any consumer to commit what could be portrayed as an act of fraud under state or federal laws.
  5. A Credit Repair Company can not charge upfront fees.  Any service that is agreed upon must be performed PRIOR to services being paid for.

On the subject of number 5 above, you will find that many credit repair companies charge an initial setup, strategy or consultation fee usually within 3 days of signing you on as a client.  Assuming you have the strategy in hand, and have that plan of attack, that is fully legal for them to charge for, and is most usually separate from any credit repair charges that you may additionally agree to.

Additional Factors That You Should Know About If You Are Considering Hiring A Credit Repair Company:

  1. By Law You Are Required To Receive A Document That Explains What The Credit Repair Company’s Services Do Including Disclosures On ALL Prospective Charges and Fees.
  2. A Credit Repair Company CAN NOT Penalize You or Charge You Extra If You Decide To Cancel Their Services.
  3. Credit Repair Companies Are PROHIBITED From Making You Sign Your Rights Away For Their Benefit.  This Grants You The Ability To Sue Them & Seek Damages If They Have Lied, or Misled You Into Purchasing THEIR Services.  (False Claims, False Promises, Requests To Commit Fraud)
  4. You Have 5 Years Under The CROA As A Consumer To Bring A Lawsuit Forth Against Any Credit Repair Company That You Have Elected To Do Business With If The Service Was NOT Provided Legally and Did Not Meet The Claims That They Claimed Would Be The Result.

Are Credit Repair Company Scams Common?

Out of the over 1 million calls and complaints that the FTC received in 2018 over 1,000 of those calls were made regarding credit repair companies not doing what they claimed that they could for a consumer.  

So while yes, scams can and do happen, they are no where near as common in the broader range of things.  This is why it’s so important to know your rights, both at a federal and state level while also knowing what may constitute fraud because no one wants to add a fraud claim to their to do list or calendar of things they need to take care of, handle etc…

How To Handle What You Believe May Be A Credit Repair Scam:

If you know or believe that a credit repair company has broken any of the rules set forth under the CROA or believe that you have investigated in some form of a credit repair scam you have the right to file a formal complaint with the FTC and potentially sue for any moneys paid back as well as for damages.

To file a complaint with the FTC please visit the FTC’s Consumer Complaint Center.

Additionally, research your State Attorney General’s rules on any prospective or possible laws that may have been violated at the state level as well.

Remember though, any complaints made to the FTC do not help you in the process of reclaiming any money paid to fraudulent credit repair companies that did not live up to their promises.  The point of filing a complaint with both the FTC and your State’s Attorney General is to get the company into state wide and federal databases of consumer complaints.  If enough complaints are made or filed against the company, then the FTC will then bring civil action against the credit repair company but, it’s best to try and act on your own with the help of an attorney if you want to pursue a lawsuit with reason.

In Conclusion:

The CROA is meant to serve as a protective measure, not all credit repair companies are bad, and not all credit repair companies advertise or promote what could be seen as illegal and fraudulent activities.  It’s best to do your due diligence, research any credit repair company that you speak with, and realize that credit repair on it’s own will not improve your consumer credit scores.  The truth is, in many cases, if an account that is in negative standing with several years of long history behind it is disputed and removed that will in-fact lower your credit scores as you are removing a portion of your credit history that actually makes up to 50% of your credit with payment history making up 35% of your credit score and length of overall credit history making up 15% of your credit scores.  For the best results ask us about how you should be working to repair your credit while further working to build your credit history with legal methods in credit building including the addition of legal, authorized user tradelines when and where applicable in a complimentary 30 minute consultation with us.

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