Credit repair organizations can help consumers improve their credit by addressing inaccurate negative items on their credit reports. To ensure consumers and potential buyers of credit repair services are treated fairly and given accurate information before making a purchase, Congress enacted the Credit Repair Organizations Act (CROA) in 1996.
CROA bars credit repair companies from advertising deceptive or false information regarding their services. The act also outlines illegal practices as well as information these organizations must provide to consumers.
Continue reading to learn more about CROA and how to tell if a credit repair company is fraudulent.
How CROA works
CROA, Title IV of the Consumer Credit Protection Act, was enacted to protect consumers from credit repair companies engaging in misleading or unfair business practices.
While there is nothing inherently wrong about hiring a credit repair company to challenge and dispute negative items on your behalf, the problem arises when fraudulent companies attempt to offer these services. These scammers have been known to provide consumers with illegal credit privacy numbers, suggest consumers make fraudulent statements or simply take consumers’ money without doing anything in return.
Luckily, CROA helps consumers identify these scams, while also ensuring that legitimate credit repair companies are completely transparent regarding the services they offer.
Credit repair laws under CROA
On behalf of their customers, legitimate credit repair companies attempt to address inaccurate or unfair negative items on customers’ credit reports that can negatively affect their credit scores. For example, if you were a victim of fraud in the past or an insurance billing company failed to follow proper HIPAA protocols when reporting medical debt, then any negative items stemming from these situations could be considered inaccurate and could be removed.
Illegal credit repair practices
According to the Credit Repair Organizations Act and the broader Consumer Credit Protection Act (which CROA is part of), credit repair companies must adhere to firm guidelines. Under CROA, credit repair companies are prohibited from:
- Exaggerating or misrepresenting their services: It is illegal for a credit repair company to promise to raise your score by a specific amount or within a specific time frame or to guarantee the removal of accurately reported negative items. Credit repair is dependent on your own unique credit history and can take varying amounts of time. It’s impossible to promise any type of results.
- Making false statements about your information to the credit bureaus or any other data furnisher: A credit repair company cannot falsely misrepresent your credit history or ask that you do the same by lying about past events to the credit bureaus, creditors or lenders.
- Promising to alter your identity or provide a new identity: It is illegal for a credit repair company to promise to clear your credit history by providing a new identity.
- Charging you an up-front fee for services they haven’t performed yet: Credit repair companies are required to charge you for services only after they have been executed.
- Requiring you to waive any of your rights: A credit repair company is not legally allowed to ask you to waive any of your rights in order to use their services.
Legal credit repair practices
Aside from outlining the above unlawful practices, CROA also declares that credit repair organizations must be fully transparent about their services with all potential customers. Here is what credit repair organizations are obligated to provide under CROA:
- A disclosure of consumer rights: Credit repair companies must give you a disclosure that notifies you of your ability to obtain your own credit reports, dispute errors and inaccurate items yourself and file a lawsuit against any credit repair organization that infringes on CROA.
- A credit repair contract: This contract must outline the terms of your payment, what services will be provided, the timeline of when the services will be performed, and the address of the company and information detailing how to cancel services.
- The ability to cancel services within three business days of signing the contract without penalty: Consumers must be given three business days to cancel services without incurring fees or penalties. This should be stated in the contract.
What happens if a company violates CROA?
If you suspect that a credit repair organization has broken the law, you can report it to your state’s attorney general office and the Consumer Financial Protection Bureau.
Additionally, you can file a lawsuit against the company that violated CROA for actual damages, punitive damages and attorney fees.
When should violations of CROA be filed?
If you believe a company has violated CROA, you must file a lawsuit within five years of the date the violation occurred.
How to tell if a credit repair company is a scam
It’s important to be aware of your CROA rights to help identify a
credit repair scam. The following are signs that a company may be fraudulent:
- The company advertises a “new credit identity.” Oftentimes, these identities are stolen from victims of identity theft.
- The company makes exaggerated claims. Avoid credit repair services that promise to “fix your credit within 30 days!” or “raise your score by 100 points immediately!”
- The company has no cancellation option. Credit repair companies must allow the debtor to cancel within 3 days.
It’s important to note that if you do make the mistake of signing a contract with a credit repair company not following CROA, the contract may be considered void. If you are in such a situation, we encourage you to seek legal counsel.
Lexington Law Firm provides credit repair services. Our team fights for consumers’ rights under the Fair Credit Reporting Act to ensure fair and accurate credit reports.