Your credit score is the most important financial tool you have; more important than the amount in your bank account or the spending limit on your credit card. Without a good credit score, you will struggle to find affordable rates on a car loan, home loan, or credit card. Even worse, you could be turned down for a job, apartment, or other types of loans based upon a bad credit score. Sometimes, your poor credit score is not a reflection of your financial missteps, but rather the result of unfair business practices. This is where the Credit Repair Organizations Act (CROA) comes to your defense.
Overview of the Credit Repair Organizations Act
The Credit Repair Organizations Act is not an act unto itself, but rather is Title IV of the Consumer Credit Protection Act. The measure was signed into law by President Bill Clinton in September 1996 in an effort to “prevent credit repair organizations from engaging in unfair business practices which result in financial hardship for consumers, particularly those of limited economic means or the uneducated.”
While other laws aimed at protecting consumer credit ratings focus on the behavior of debt collectors or credit bureaus, this bill takes aim at companies that offer credit repair services to consumers that already have low or bad credit scores. The overarching goal of CROA is to protect you from the deceitful practices of unethical credit repair companies. Before you buy any services that promise to repair your credit rating, you have the right to access the information necessary to make an informed decision.
Among the practices that CROA targets are the marketing and advertising efforts of credit repair companies. The statute protects you and other consumers from unfair and deceptive advertising and business practices that misrepresent the services available or overestimate the potential outcome from working with a credit repair company. There are a number of prohibited practices, necessary disclosures, contract requirements, and liability clauses for companies to follow, as well as non-compliance penalties and procedures for reporting instances of non-compliance.
Prohibited Practices Under the Credit Repair Organizations Act
The statute requires any organization claiming to offer credit repair services to provide you with a disclosure at the beginning of the process, known as a “Consumer Credit File Rights Under State and Federal Law.” This lets you know about your rights in regard to requesting a copy of your credit report and the ability to dispute inaccurate information on your own.
There are a number of prohibited practices under CROA, and the following are some of the most important to be aware of. No credit repair company can:
- Lie about your credit history to current or future creditors.
- Advise you to lie about your credit history to current or future creditors.
- Alter your identity by, for example, giving you a new Employer Identification Number, new identity, or a fresh credit history.
- Misrepresent the scope and ability of their services.
- Ask you to pay for services that have not yet been rendered. It is important to note here that you should NEVER deal with a credit repair company that asks for payment, in full or partial, before completing work.
One of the most important actions to watch out for is a request to waive your rights. Some credit repair organizations will try to get you to sign a form that waives your rights under the Credit Repair Organizations Act. Under the terms of CROA, credit repair organizations are not only prohibited from presenting such a form to customers, but all such waivers are considered void, and therefore cannot be enforced by a federal or state government.
Requirements for Credit Repair Companies Under CROA
In addition to providing you with a copy of the Consumer Credit File Rights Under State and Federal Law, a credit repair company has a number of other requirements that must be met in order to maintain compliance with CROA. Before any services can be offered you as a customer, a credit repair organization must provide you with a contract to be signed, and allow a 3-business day cancellation period to expire.
A valid contract for credit repair services must include the following:
- Total amount of payment required for services (Again, to be paid only upon completion of work).
- A full description of the services offered in an effort to repair your credit.
- An accurate estimate of the time it will take to repair your credit. Ideally, a date by which the services will be completed should be provided.
- Again, you should receive a hard copy of the statement that lets you know you have the right to cancel your contract within 3 business days.
If you opt to cancel your contract for services within the 3-business day window, the credit repair organization may not charge you a fee as a result. Before leaving with that contract, ensure that you have a Notice of Cancellation form in the contract that can be filled out and submitted in the event you decide to cancel the contract.
Of Particular Concern: Pay for Credit Repair Organizations
One primary concern for those who crafted CROA was the payment structure for credit repair organizations. As mentioned earlier, a credit repair company may not request payment upfront for any services to be rendered to you as a client. However, there are also guidelines for how these entities are paid upon the completion of services. CROA stipulates that a credit repair company can use a monthly fee model where you are charged on a monthly basis after services are completed.
Alternatively, more credit repair groups are turning to a pay-after-deletion model, wherein you pay for items as they are deleted from your credit report. Regardless of which of these two accepted payment models is used, no company can charge you an excessive “setup” fee. The result of excessive “setup” fees is a violation of the provisions of CROA.
Options for Recourse Under CROA
If you believe you have been the victim of unfair business practices at the hands of a credit repair company, the first step you can take is to report those violations. The Federal Trade Commission, as well as your state attorney general, should be notified of any violations so that appropriate action can be taken against the company in question.
Additionally, you have the right to sue the credit repair company for actual damage, punitive damages, and attorney’s fees should they violate the law. You have five years from the date of the violation, under CROA, to take action against the credit repair company.
For those who believe they’re rights have been violated under the terms of CROA, the legal team at Fair Debt Lawyers can help. Our team of knowledgeable attorneys is familiar with CROA, and we’ll help you recover the damages you deserve if you’ve targeted by these unfair practices.