Credit repair companies help consumers remove inaccurate negative information on their credit reports. Such companies offer credit repair services to help individuals improve their credit scores.

Enacted in 1996, the Credit Repair Organizations Act (CROA) is a U.S. federal law designed to regulate credit repair organizations and protect consumers. The primary goal of the act is to shield individuals from unfair or deceptive advertising and business practices that some credit repair companies may use to attract customers. It is enforced by the Federal Trade Commission (FTC), a U.S. government agency, dedicated to protecting consumer rights and preventing unfair business practices.

The CROA aims to ensure transparency and prevent such companies from taking undue advantage of consumers, particularly those with limited financial literacy or those experiencing credit challenges.

What Types Of Services Do Credit Repair Organizations Offer?

Credit repair companies offer services designed to improve a consumer's credit score. Credit repair services typically involve disputing negative items on credit reports with credit bureaus. They challenge the accuracy or verifiability of the reported information to protect the rights of consumers under the Fair Credit Reporting Act (Title VI of the Consumer Credit Protection Act).

Thus, credit repair organizations act as intermediaries between consumers and credit reporting companies. These organizations may contact credit reporting agencies on their customer's behalf to get negative information removed from credit reports. While there is nothing wrong with this transaction in principle, issues arise when some credit repair companies misrepresent the extent of their services.

Prohibited Practices Under CROA

Misrepresentation of Credit Services
Credit repair companies are strictly prohibited from making false or misleading statements about a consumer’s creditworthiness, credit standing, or credit capacity.

This includes misrepresenting or exaggerating their services, such as “promising specific credit score increases” or “guaranteeing” the removal of accurate negative items from credit reports.

Advising Dishonest Practices

Credit repair organizations cannot counsel or advise consumers to provide false information to credit reporting agencies or creditors. Encouraging consumers to make false statements is a direct violation of CROA.

Altering or Concealing Credit History

CROA prohibits credit repair companies from advising consumers to change their identification to hide accurate but adverse credit information. Thus, credit repair companies cannot promise to clear a credit history by creating a new identity; this is both illegal and unethical.

Misleading Service Representations

Credit repair companies are barred from making or using any untrue or deceptive claims about their services. Transparency is a legal requirement in the credit repair industry, and any attempt to mislead consumers is strictly forbidden.

Fraudulent or Deceptive Practices

Engaging in fraud, deception, or any practice intended to deceive a consumer in connection with their services is prohibited. CROA ensures that all business dealings remain fair and truthful.

Charging Upfront Fees

Credit repair companies are not allowed to charge or accept payment for services before they have been delivered. Consumers should only be charged after services are completed.

Requiring Waivers of Consumer Rights

It is illegal for credit repair companies to require their customers to waive any of their rights under CROA. Any such waiver is considered void and cannot be enforced.

Lack of Disclosure of Consumer Rights

Credit repair companies must inform consumers of their rights, including: