This post is for all of you who have ever considered using a credit repair organization to improve your credit or raise your FICO score.   

The CROA was enacted in 1996 by Presidential order.   I’ll provide a link to the entire text of the Act later in this post. 

The Credit Repair Organizations Act (“CROA”) is not actually an Act, it is actually Title IV of The Consumer Credit Protection Act.  Section 401 states, however, it can be referred to as “Credit Repair Organizations Act”.

Everyone knows how important it is in these current economic times to maintain a good credit rating.  Some are able to restore their own credit; others might need to seek the help of a credit repair professional. As I have said in previous posts, a casual internet search for “credit repair” will yield literally hundreds of hits.  Many of these organizations are simply not reputable and have further damaged the credit of many innocent and uneducated consumers.

The Credit Repair Organizations Act was created to ensure that credit repair organization conduct business in a manner that is fair and transparent so prospective buyers of credit repair services can make informed decisions based upon a well regulated set of rules. The CROA protects the average citizen seeking credit repair services from unfair and deceptive business practices. Here are the main protections it provides:

  • Prohibited practices
  • Required disclosures
  • Contract requirements
  • Liability
  • Penalties for non-compliance
  • Procedure to report non-compliance

The Credit Repair Organizations Act (CROA) has clearly enumerates your rights as a consumer. Of particular importance is the requirement that you be given a copy of your rights before you sign any legal contract with an organization. Your contract must be in writing, and must clearly spell out all your rights and obligations. Once you know your rights, it then becomes your responsibility to make an informed decision.  It’s similar to buying a vehicle; never make a decision to purchase credit repair services based upon emotion, or what you might hear in a phone conversation or website teaser advertisement.  Get everything in writing and ask questions until you satisfied.  Don’t be afraid to put on a little pressure by stating your skepticism.  If they want your business they will be up front with you.

One of most egregious violations that credit repair organization commit is the making of false or misleading claims about what they are capable of.  Some claims are outright illegal, such as the ability to provide clients with a “brand new” credit file.  Other claims include the promise to raise your score 100-200 points in a matter of weeks or days.  This is just plain impossible. If you see or hear anything even similar to that promise coming from a credit repair organization avoid them like the plague because they are simply out to steal your money.  Disclosure Required.–

Here the specific points that must be addressed clearly in a contract with a credit repair company:

  • The company’s name
  • Company’s address
  • Contact information
  • Total cost of services
  • A detailed description of the services and fees
  • The time frame for completion of work
  • Any guarantees they may offer

A credit repair company must perform the work before you are required to pay them, except for a set up fee.  You also have a three-day buyer’s remorse period.  Just make sure you know the procedure as it (should be) stated in the contract. Credit repair companies are also prohibited from performing any services on your behalf until you have signed a written contract and you have given them Limited Power of Attorney.  Also, there can be no cancellation fees attached listed in the contract.

Financial problems can sometimes be so severe that it’s difficult not to take the first company that sounds like they can help you.  Don’t give in to that tendency if you can help it.  The more due diligence you perform, the more you will be protected with that knowledge. http://www.ftc.gov/os/statutes/croa/croa.shtm

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