Beware the Wolf in a Sheep’s $2,000 Suit

Most of us can recognize a scam, especially when it comes in the form of an offer to repair your credit. Advertisements by credit repair firms found in the local pennysaver (you know, the free ads found at your local laundry mat) promise to magically erase the negative marks from your credit reports. Like dad always advised, “If it seems too good to be true, it probably is.”

But what if the credit repair firm is a “not-for-profit” or even a lawyer? To help consumers tell the unscrupulous wolves from the sheep offering good and lawful services at a fair price, Congress enacted laws to regulate the credit repair industry. The rules are codified in the Credit Repair Organizations Act, or “CROA.” According to CROA, any company that provides services marketed as credit improvement and is paid for those services is a credit repair organization. That includes attorneys who offer credit repair assistance. See Rannis v. Recchia, 380 Fed.Appx. 646 (9th Cir. 2010). Not-for-profit organizations are exempt from the CROA, but many credit repair organizations that claim not-for-profit status are actually offering for-profit services and must adhere to the CROA.

Pursuant to the CROA, credit repair organizations may not charge a fee in advance for services, must provide certain disclosures to their customers, allow their customers to cancel at any time, and not make any guarantees regarding their results. The Federal Trade Commission is tasked with enforcement of the CROA. You can also file an action against the credit repair organization for actual damages, punitive damages, costs, and attorneys’ fees for violations of the CROA.

Honest credit repair is not difficult. All three of the major credit reporting bureaus (Experian, Equifax, and Trans Union) provide simple and clear instructions on how to dispute inaccurate information on your credit report. A copy of your report is available from each of these bureaus simply by visiting a website: annualcreditreport.com. In other words, a credit repair organization cannot do anything more than you can do for yourself.

Not all credit repair organizations act honestly or within the spirit of the federal rules. Some engage in “guerilla tactics” and dispute every negative item on a credit report, whether accurate or not. The credit bureau is then obligated to either verify the accuracy of the information within 30 days, or remove it from the individual’s record. The problem is that after you have paid the credit repair organization for its magical services, the information may reappear on your report after it is verified (or, in some cases, inaccurate information may show up again). The credit repair company gets your money and you only get temporary relief.

Before you hire a credit repair company that you found while waiting for your whites to tumble dry, have your situation reviewed by a licensed bankruptcy or consumer credit attorney. Your attorney can use the federal laws to improve your credit, reorganize your finances, or help you attain a fresh financial start.