Credit Repair Organizations Act

What Exactly Is The Credit Repair Organizations Act?

The aim of the CROA is to help protect consumers from illegal and deceitful practices as well as helping to regulate the credit repair industry.

The credit repair industry has a notorious reputation for credit repair scams. This not surprising as more people become dependent on debt.

When they are in need of more credit and are unable to obtain it they become desperate to raise their credit score. In this situation they fall for the promises made by unscrupulous companies that take advantage of their vulnerable situation.

Credit repair scams are one of the most common consumer complaints received by the Federal Trade Commission (FTC).

In response to this the Federal Government passed the Credit Repair Organizations Act (CROA) into law in September 1996.

Why The Credit Repair Organizations Act Was Made Law

The credit repair business got a bad name for itself by many companies making huge and unrealistic claims that they could improve peoples credit scores by removing accurate negative information such as bankruptcy from their credit report. Such claims are false and illegal.

Other practices involved creating a new identity so that you could have a new credit file that was clean. This would involve obtaining a new Employment ID Number and using a different contact address when you apply for a new credit line. These sort of practices are actually criminal offences.

Many of the major complaints were a result of credit repair companies charging fees before delivering on the promises they made. In many cases people were charged hundreds or thousands of dollars and received nothing in return.

Your Rights Under The Credit Repair Organizations Act

The CROA has been put in place to ensure companies that provide credit repair services do not advertise untrue or misleading information. They are not allowed to make unsubstantiated claims related to the removal of negative information from your credit report.

The act prohibits credit repair agencies to charge people upfront before they deliver the services they promise. This means they can no longer accept your cash until the job is done.

To reinforce your consumer protection and rights the CROA specifies that companies must present potential clients with a legitimate and CROA approved contract that should contain the following information:

The companies full address and contact details.
Full details of the services that will be provided.
A detailed cost schedule i.e. how much they charge and when.
A time schedule detailing when the services will be completed.

The company cannot provide any service until you have signed the contract, if they do this it is a direct violation of the act. An important point to make is that the contract you are offered should have a cooling off period of at least 3 working days. This means if you are having any doubts you can still cancel the contract before it is binding.

Avoid The Scams By Knowing Your Rights

As with any industry there are both good and bad apples. However, the majority of people who fall for credit repair fraud are people who are not fully informed of their rights. To avoid becoming a victim you should get to know your rights under the Credit Repair Organizations Act.

Below are a number of warning signs that will help you avoid becoming victim:

The company insists on charging you up front fees before providing any services.
The company makes claims that they can legally remove accurate negative records from your credit file such as liens, foreclosures or bankruptcy.
They ask you to create a brand new credit identity.
Offers advice to dispute all negative records in your credit report

There are reputable and legitimate credit repair businesses out there that adhere to The CROA and it is really down to you to use your due diligence when you are doing your research. To save you time researching check out my article on the best credit repair agencies.

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