This article was published on February 17, 2021 and updated on April 12, 2023.
It is understandable that you would want to have a profitable credit repair business. But along with your success, you have to pay attention and understand the rules and regulations of the industry – the credit repair laws in Texas. Note that every state has different credit repair business laws and practices. These include specific requirements for credit organizations to become legitimate businesses.
So, you may encounter specific requirements for bonding, licensing, and registering your credit repair high-risk merchant account, which may also include how much and when you can charge clients.
You can read all about the Texas laws for the credit services industry. You can read more here. For additional information, call (512) 475-0775.
|CSO definition||A CSO provides services related to the extension of consumer credit by others, such as improving credit history or rating, obtaining credit extensions, or offering advice/assistance regarding credit.|
|CSO registration requirement||CSOs must register with the secretary of state in Texas before conducting business, with some exemptions. A registration is effective for one year and may be renewed.|
|CSO registration cost||The cost of obtaining or renewing a CSO certificate of registration is $100, with additional requirements for providing proof of security or a statement explaining why it’s not required.|
|Security deposit requirement||Security deposits are generally required when consumers are charged or pay in advance for services.|
|Security amount||CSOs must provide $10,000 of security for each location, which is in favor of the State of Texas for the benefit of any person damaged by a violation of Chapter 393, Finance Code.|
|Acceptable security types||A CSO can satisfy the security requirement by obtaining a surety bond or establishing a surety account in favor of the secretary of state.|
|Bond cost||The cost of a surety bond is determined by the surety bonding company and can be obtained by contacting them.|
|Advance fee charging||CSOs can charge advance fees only if they have obtained a surety bond or maintain a surety account for each location, and a copy is on file with the secretary of state. However, charging advance fees might be a violation of the FTC’s Telemarketing Sales Rule for some CSOs.|
|CSO contract requirements||CSO contracts must be in writing, dated, signed by the consumer, and include payment terms, service descriptions, performance estimates, business address, and registered agent details. Consumers must be notified of their right to cancel within three days.|
|Waiving Chapter 393 provisions||Consumers cannot waive any provisions of Chapter 393, Finance Code.|
|Determining CSO registration||CSO registration status can be checked using the Credit Service Organization Search provided by the secretary of state.|
|Unregistered CSO or fraudulent practices||Consumers may take legal action, file a complaint with the attorney general, or report the CSO to the secretary of state, who will notify the CSO and refer the matter to the attorney general for investigation. Consumers can also report issues to the Federal Trade Commission and the Better Business Bureau.|
Due to some of the illegal and unethical practices disreputable credit repair companies implement, some might wonder whether or not credit repair is illegal. The answer is no, it is not illegal.The credit repair industry is regulated by both federal and state laws.
In this case, the Credit Repair Organization Act protects consumers against dishonest credit repair companies in order to prevent credit repair companies from taking advantage of consumers. This will also help consumers make informed decisions when hiring a credit repair company.
You can learn more about the Credit Repair Organizations Act here.
In the state of Texas, you can register your credit organization in compliance with the law. That includes the need for a surety bond that legally binds the state, a surety bond company, and your credit repair company.The state of Texas requires a credit repair bond from a surety company.
That said, if you cause your consumers harm or fail to perform, any resulting damages or losses will be covered by the bond.
Texas law requires you to pay $10,000 as the bond requirement amount. Surety bonds would cost between 1% and 10% of the face value on the basis of the personal credit of the owner and are offered by many insurance companies in the state of Texas.
A credit repair license in the state of Texas is not required; however, there may be county or city laws that would require you to obtain a local tax receipt, local professional license, or permit. Many credit repair businesses become members of the National Foundation for Credit Counseling and hire debt counselors with NFCC certifications in order to establish credibility.
All businesses in most cities and counties of the state of Texas are required to have business licenses, which include one-person and home-based operations. Note that some county governments will require you to get a license particularly if you are in an unincorporated area. Therefore, having an office in two or more cities or counties requires you to get a license for each.
Federal law requires credit repair companies to provide a contract for consumers. The state of Texas has specific contract requirements. For instance, the law disallows contract terms that will exceed 180 days. Thus, a new contract will be required after that.
Overall, credit repair companies are governed by chapter 393 of the Finance Code and chapter 74 of the rules in the Texas Administrative Code. They will provide services to consumers to improve a credit rating or history, obtain an extension of credit, or consult with consumers with regard to their credit history.
If helping consumers improve their credit is your calling, learn how to get into the credit repair industry in 2021 in the Lone Star State and make sure you understand the credit repair laws in Texas before you get started. Contact us today and schedule a consultation to set up a high-risk merchant account for your business with a trusted credit card processor.