The laws behind credit repair

If you’ve been considering credit repair, there’s a good chance you might come across some offers that sound too good to be true. The promise of a quick fix is tempting, but if you’re not careful, you could end up falling for a scam.

Unfortunately, not all companies play by the rules, which is why it’s so important to know your rights. Federal and state laws exist to protect consumers and hold credit repair companies to a high standard. By understanding these protections, you’ll know what to watch for and what to do if a company’s misconduct violates your rights.

The Credit Repair Organizations Act (CROA)

The CROA is a federal law created to protect consumers from deceptive practices in the credit repair industry. Passed in 1996, it outlines clear rules for credit repair companies, including:

• Cancellation rights: Consumers have three days to cancel a credit repair contract without penalty.
• No false promises: Companies are prohibited from making misleading claims, such as guaranteeing to improve your credit score by a specific amount or to remove accurate negative information from your credit report.
• No upfront fees: Companies cannot charge you for services before they are fully performed.
• Written contracts: Any credit repair agreement must be provided in writing, clearly outlining the services to be performed, the total cost and the expected timeframes.

These rules are designed to make sure credit repair companies operate with transparency and integrity. If a violation of the CROA results in any harm to a consumer, that consumer can file a lawsuit to recover losses, including refunds, attorney fees and punitive damages.

Other federal laws protecting consumers

While CROA focuses on regulating credit repair companies, other federal laws are focused on protecting consumers. The Fair Credit Reporting Act (FCRA) and the Consumer Credit Protection Act (CCPA) both require fairness, accuracy and transparency in credit reporting, lending and debt collection.

Fair Credit Reporting Act (FCRA)

The FCRA gives consumers the right to dispute errors on their credit reports at no cost. It also requires credit reporting agencies to investigate and correct inaccuracies.

In addition, the FCRA entitles consumers to a free credit report from each of the three major credit bureaus once every 12 months, allowing you to stay informed about your credit health without an additional expense.

Consumer Credit Protection Act (CCPA)

The CCPA includes several key provisions designed to protect consumers. For example, the Truth in Lending Act (TILA) requires lenders to clearly disclose loan terms, including interest rates and fees, so borrowers can make informed decisions.

The Fair Debt Collection Practices Act (FDCPA), protects consumers from harassment and deceptive tactics by debt collectors. The CCPA also enforces wage protections by limiting the amount creditors can garnish from wages, ensuring consumers retain enough income to meet basic needs.

Telemarketing Sales Rule (TSR)

Enforced by the FTC, the Telemarketing Sales Rule (TSR) sets strict guidelines for telemarketing activities, including those conducted by credit repair companies. Under the TSR, credit repair organizations are prohibited from charging advance fees for services sold over the phone. It also restricts telemarketing calls to specific hours, allowing contact only between 8 a.m. and 9 p.m. in the consumer’s time zone.

Companies must also comply with the National Do Not Call Registry, honoring consumer requests to opt out of telemarketing communications. Violating the TSR can result in penalties that may include fines and legal action.

State laws and additional protections

State laws often add an extra layer of oversight by requiring credit repair companies to meet specific licensing and registration standards before offering services. This helps ensure that only qualified and compliant businesses can operate within the state. Some states also impose rules regarding contract terms or establish additional consumer rights.

State attorneys general and consumer protection agencies enforce these laws and hold companies accountable for violations. These agencies investigate complaints, penalize noncompliant businesses and provide resources to help consumers understand their rights. Some states also offer hotlines or mediation services to resolve disputes with businesses, including credit repair companies.

What to do if a credit repair company violates your rights

If a credit repair company oversteps the law, it’s a breach of trust and a violation of your rights. Recognizing the warning signs early and knowing how to respond can save you time, money and stress. Watch out for practices like:

• Charging a cancellation fee within the three-day grace period.
• Charging fees before delivering any results (a direct violation of CROA).
• Failing to provide a written contract or rushing you into agreements without clear terms.
• Guaranteeing they can remove accurate negative information from your credit report (no company can legally promise this).
• Calling you outside the allowed hours of 8 a.m. to 9 p.m.
• Ignoring requests to stop contacting you or violating the Do Not Call Registry.

If you’re concerned that a company has violated your rights, it’s important to act quickly. Reporting the misconduct and seeking help through the proper channels can help you protect yourself and hold the company responsible. Here’s what to do next.

1. Report the company to the FTC

The Federal Trade Commission (FTC) enforces the CROA and investigates complaints about fraudulent or deceptive practices. The FTC can also investigate companies that operate across state lines or engage in widespread violations.

To file a report, visit ReportFraud.ftc.gov or call 1-877-FTC-HELP (1-877-382-4357).

2. File a complaint with the state’s attorney general or consumer protection office

State attorneys general and consumer protection offices handle violations of state laws and can take legal action or mediate disputes locally. Filing with both the FTC and the state helps ensure the issue is addressed at multiple levels, which may help ensure your concerns are properly handled.

Many state attorney general websites have a dedicated section for filing consumer complaints online or by mail. You can also search for your state’s consumer protection office for additional resources and contact information. A quick online search for “[Your State] attorney general consumer complaint” will typically lead you to the right place.

3. Consider legal action

If a credit reporting company’s misconduct has caused you harm, you may have the right to sue. If you think this applies to you, consider consulting with an attorney who specializes in consumer protection laws.

The bottom line

Credit repair laws are designed to protect consumers from unethical practices and ensure transparency in the credit repair process. Understanding your rights and the steps to take if they’re violated can help you make informed decisions and avoid credit repair scams.

While there are many reputable credit repair companies, if an offer seems too good to be true, it probably is. The best defense is watching out for potential red flags and avoiding companies that do not have a solid reputation. However, if you fall victim to a scam or misconduct, reporting the incident may help protect your rights while also holding the company accountable.

Frequently asked questions

• Can credit repair companies remove all negative information from my credit report?

  No. Credit repair companies cannot legally remove accurate information from your credit report. They can only dispute errors or outdated information. Be cautious of any company that guarantees the removal of legitimate negative marks, as this is a clear red flag.

   

• Are all credit repair companies regulated by CROA?

  Yes, all credit repair companies operating in the United States must comply with the Credit Repair Organizations Act (CROA). This federal law applies to any organization offering credit repair services, regardless of the state where they operate. In addition, companies must also comply with any applicable state-specific laws.

• Is it better to repair my credit on my own or hire a company?

  It depends on your situation, including how much time you’re able to dedicate to the process. Credit repair companies typically don’t do anything you can’t do yourself. You can repair your credit by disputing errors directly with the credit bureaus and improving your financial habits, such as paying down debt and making on-time payments.

  Hiring a credit repair company might be worth considering if you’re unfamiliar with the process or don’t have the time to manage it yourself. However, it’s important to thoroughly research any company you’re considering to ensure they have a solid reputation and operate within the law.

• How long does it take to improve your credit?

  The time it takes to improve your credit depends on the nature of your credit issues. Correcting errors on your credit report may improve your credit score in a few months. On the other hand, rebuilding a credit score after missed payments or defaults could take years.

   

• Are all credit repair companies regulated by CROA?

  Yes, all credit repair companies operating in the United States must comply with the Credit Repair Organizations Act (CROA). This federal law applies to any organization offering credit repair services, regardless of the state where they operate. In addition, companies must also comply with any applicable state-specific laws.