Consumers lost more than $8.8 billion to card scams and identity theft in 2022, 30% more than 2021. While credit fraud can be proven and its consequences reversed, it can take months to do so, especially if the consumer struggling with it doesn’t know what to do. However, working with credit repair companies can help.
Credit repair organizations (CROs) work with credit reporting agencies like Experian and TransUnion to improve credit scores–although they can’t always guarantee an improvement. So, what’s stopping these companies from taking advantage of desperate consumers? That’s where the Credit Repair Organization Act (CROA) comes in.
What Is the Credit Repair Organization Act?
The Credit Repair Organization Act is a federal law that regulates the activities of credit repair companies, which help consumers repair their credit scores. Under the law, CROs have to disclose consumer rights in written contracts.
When it comes to what this regulation covers, the CROA:
- Requires CROs to be truthful about their services
- Prohibits CROs from demanding advance payment and excessive set-up fees
- Gives consumers three days to cancel contracts to ensure they aren’t misled by deceptive and unfair practices
- Stops CROs from making misleading or false statements to a credit reporting agency
How Does the CROA Work?
Credit repair companies communicate with credit reporting agencies on consumers’ behalf, helping them get negative information like previous bankruptcies removed from their credit reports. While the advice offered by CROs is invaluable to consumers dealing with fraud or identity theft issues, trouble arises when credit repair companies overstate or misrepresent their services to lure in customers.
For instance, a company may imply or suggest they could compel a credit reporting agency to improve a consumer’s credit score when the person has been overspending and isn’t a victim of fraud to get business. In this case, the consumer may have to pay a significant fee to get services that may not be of much value. That’s where the CROA comes in.
The law makes it essential for companies to market their services as transparently and clearly as possible, making sure there’s no instance where their marketing could be misinterpreted. This helps ensure customers aren’t misled by deceptive and unfair practices.
Illegal Credit Repair Practices
Let’s look at acts that are illegal under the CROA:
Exaggeration or Service Misrepresentation
CROs aren’t allowed to make exaggerated or false claims about the services they provide. This means they cannot promise or guarantee specific outcomes.
For instance, if a CRO advertises that they can completely erase all negative information from your credit report, this would be an exaggeration and a violation of the CROA.
Falsely Misrepresenting Credit History
Credit reporting organizations cannot provide false information about a consumer’s credit history. This includes altering information on the credit report, such as the Social Security number, or adding positive information that doesn’t exist.
3. Promising to Clear Credit History
If a credit repair company claims they can erase all negative items from your credit history or guarantee a clean credit slate, they would be in violation of the CROA.
What Happens if a Company Violates the CROA?
If a company violates the CROA, such as by taking payment upfront or not offering a written contract, it committed a federal crime, which means the Federal Trade Commission (FTC) can shut down the organization.
In this case, consumers can sue the company to get back the money they paid, along with attorney fees and punitive damages.
What to Do if You’re the Victim of a Credit Repair Scam
If a credit repair company violates any of the rights above or doesn’t provide services as asked, here’s what you should do:
- File a complaint with the Federal Trade Commission
- File a complaint at your state attorney general’s office
While it’s essential to file a complaint with the FTC to make them aware of the situation, it doesn’t mean they’ll sue the company on your behalf. You have to pursue a civil lawsuit on your own to get compensated for any damages.
So, if you’re a victim of a credit repair scam, don’t wait for the FTC and state attorney general to act.
In Summary
The Credit Repair Organization Act protects consumers from deceptive and misleading practices. It prohibits false promises, prevents misrepresentation of credit history, and ensures transparency and fair treatment. If you think your CRO is acting unfairly, you can always use the CROA as a legal basis to file a lawsuit against them.
Of course, it’s always best to go with a vetted, reputable credit repair company, like The Phenix Group! Wondering how to remove collections from a credit report? Take a look at our latest post.