Is Credit Repair Illegal? A Guide for Credit Repair Company Owners
Credit repair is completely legal, and many consumers rely on it to help them deal with their financial troubles and regain good standing with credit companies. So, go ahead, start your own credit repair company.
The industry’s checkered reputation, however, is primarily due to illegal and unethical practices that some credit repair companies resort to.
But rules are now in place to protect credit repair company owners and their clients.
The credit repair organizations act (CROA) is the federal statute that sets tough compliance requirements for credit repair providers to follow. For as long as agencies comply with the rules, they can operate fearlessly.
So, when is credit repair illegal?
It all boils down to how they bill their clients for services rendered. The CROA strictly prohibits advanced billing, which makes prepayment a violation. There are certain exceptions, however.
Initial charges called a discovery fee or initial audit is not exactly a red flag. It may come as a shock to new customers, especially because the initial amount could go as high as $299, but the amount will be paid for expenses incurred on the front end of credit repair arrangement.
Some companies that only charge $99 for the initial fee tend to provide substandard services. They also prolong the time it takes to repair a client’s credit concerns to earn more profit. These are the entities that should be taken legal action with.
Never trust a credit repair company that makes promises that are beyond their control. Steer clear of any agency that guarantees removals of negative items. Considering that this is within the control of the credit bureau, there’s no way a credit repair organization can handle this properly.
Companies that guarantee things outside of their control are misrepresenting their services. What they’re doing is illegal and is ground for complaints.
No written contract provided
Before services are rendered, a credit repair organization must provide you with a written contract. Failure to do so should be considered a red flag.
The contract must contain the required terms, such as:
- Description of the services that will be rendered
- Payment terms and conditions
- A statement that indicates a consumer can cancel within 3 business days without penalty
Suggesting against DIY credit repair
Most people who work with credit repair companies do so because they lack the time or the desire to take care of their financial problems themselves. If this is not the case for you, you can decide against hiring credit repair. You also have the right to dispute whatever inaccuracies you discover in your credit report.
But one of the major red flags is when a credit card company suggests that you create a new credit profile to escape your past negative history. This involves taking out a new SSS number and going through great lengths to be someone else.
Credit repair is perfectly legitimate. What’s not are those entities that resort to illegal practices to gain clients. If you want to run your own credit repair company, know the rules and stay compliant to avoid problems.
Laws Surrounding Legal Credit Repair
FCRA – Fair Credit Reporting Act (Federal Law)
FCRA – The Fair Credit Reporting Act is the law that created the credit repair procedure in 1970. Small business companies started giving credit histories in summaries to banks in 1960. These summaries helped the banks to make decisions regarding lending to customers. But later on, many consumers claimed that the summaries provided to banks are not entirely accurate. As this affected consumer’s abilities to get loans, the government decided to regulate FCRA.
Credit Repair Organizations Act (CROA)
CROA – The Credit Repair Organizations Act is also a federal law passed in 1996 that states that all credit repair service providers should honestly advertise and communicate with consumers.
Though ethical credit repair is entirely legal, but there are some scams that you must be aware of. One of the most common is to “separate” your credit file. And it’s something that you will only find in scandalous credit repair organizations.
State laws that regulate credit repair
In addition to the above mentioned federal laws, every state has its own law regarding credit repair. Most state laws state that a credit repair organization should have a state-licensed attorney. In simple words, only a credit repair attorney is allowed to make disputes on a consumer’s behalf.
This gives security to consumers that a credit repair firm is genuine. If the firm doesn’t have any licensed attorneys on their staff, then you should be extra vigilant! The service can be another scam.
Only the state can set all the legally required disclaimers or disclosures. Similarly, the standards for making claims during sales pitches and advertising can only be set by the state.
For more information regarding consumer protection of your state, you can always contact the Attorney General’s office in your state.
Everyone, regardless of their amount of credit debt, income, or other issues, is legally eligible for the accurate and fair presentation of the information that is mentioned on the credit report.
Take your first step and setup a payment processing account for credit repair companies.
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