Credit Repair Organization Act - Explained
What is the Credit Repair Organization Act?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Back to: LAW, RISK, & TRANSACTIONS
What is the Credit Repair Organization Act?
The Credit Repair Organization Act also referred to as CROA, is a federal law that requires companies offering credit repair services to customers to act with utmost honesty. The CROA was passed in 1996 and formed a section of the larger Consumer Credit Protection Act laws. The intention of coming up with CROA was to ensure that credit repair organizations do not engage in unfair business deals, which could lead to consumers experiencing financial hardships. In other words, it protects consumers from organizations that robe them their money, with a false promise of improving their low credit scores based on correct information.
How Does the Credit Repair Organization Act Work?
Credit repair gives room for those consumers who want to correct errors or mistakes in their credit reports. So, as a customer, you have a right to amend any errors made on your credit report to ensure that you have a clean credit profile and make good use of your credit score. The CROA is the law that ensures the protection of your rights as a customer throughout the process of credit repair. It is an amendment to the Consumer Credit Protection Act of 1968. CROA generally protects those prospective customers seeking credit repair services from credit repair organizations so that they can make informed decisions. The law is intended to protect the public from deceptive business practices and advertisements by credit repair organizations. It points out the required disclosures, prohibited practices, contract requirements, penalties, and liabilities for those who do not comply. Also highlighted is the procedure for reporting non-compliance. One important part that CROA covers are how credit repair organizations get their payments. It ensures that credit repair companies receive payment only after rendering services. It achieves this through a payment method where clients pay only after confirming the successful removal of the items from the credit report. So, it means that those credit repair companies that demand upfront payment or charge excess are actually going against the CROA provisions. However, for those companies that demand advance payment, CROA requires that the contracts be in the form of writing. The contract should also have a provision that gives consumers cancellation rights to the contract.
What does CROA DO?
CROA was established to purposely respond to the growing number of complaints regarding credit repair organizations that were fraudulently promising customer services that the law prohibits. CROA is a law that offers protection to consumers by doing the following:
- It ensures that credit repair companies do not give false information about their services
- It ensures that the credit repair companies provide their customers with a written contract
- It prevents the credit repair organizations from demanding for advance payment before they provide the services to customers
- It ensures that the contract has a provision that gives a customer the right to cancel the contract within three days
Note that as a customer, you have a right to obtain a credit report from a credit repair company, a disclosure known as Consumer Credit File Rights as provided under State and Federal Law. The documents enable you to know your right as far as obtaining your credit report and disputing erroneous information is concerned. It also gives you the right to take legal action against a credit repair company that violates the CROA.
How the CROA Works
A credit score is percentage lending institutions use to measure the creditworthiness of an individual. It a persons credit score is low, then it means that he or she is a risky borrower. On the other hand, a person with a high credit score means that he or she is likely not capable of missing a loan payment. Most credit score ranges between 300-850. So, a person with a 720 and above score is within the bracket of people who have an excellent credit score, between 620 and 720 is a fair to good credit score. Those with credit scores below 620 are a high-risk borrower. Generally, credit scores work in a way that the higher the credit score, the higher of borrowing money from lenders. Also, those with high credit scores are likely to get a loan with more fair terms such as low-interest rates or longer loan payment period. What makes up your credit score include things such as:
- Loan payment history
- The amount you owe the lender(s)
- Your credit history length
- Your recent credit accounts that you just opened
Credit reporting agencies compile such information and hand it over to an organization known as Fair Isaac Corporation (FICO). FICO is the one that calculates your actual credit score. However, your credit score calculation may vary from one agency to the other because credit reporting agencies may have different credit score history about you.
What are the Credit Repair Contract Requirements?
As a customer, you must be given a contract to sign by a credit repair contract before engaging in any transaction with it. The contract should have the following features:
- Should show the amount to be paid as charges (payment amount)
- A description showing the services the company will perform to repair your credit
- A date by which the company expects to complete the credit repair services (The duration it will take to complete the process)
- A statement that is visible to let you know that you are free to cancel the contract in three business days in case you want to
Note that as a customer, CROA gives the right to cancel a signed contract between you and a credit repair company. The period within which to cancel the contract is usually three business days. There are no cancellation charges if you cancel the contract within the stipulated time frame. The contract usually has what we call a Notice of Cancellation form, where a customer who wishes to cancel the contract can fill out and return to the organization.
Credit Repair Organization and Fraudulent Activities
There are many ways that credit repair organizations deceive customers that they will delete their negative credit information from a credit report. Such organizations may, for example, eliminate references that show repeated late loan payments, bankruptcies, or even default on loans. There are usually fee charges these organizations ask (mostly upfront payment) for services you can personally perform. Some even may even try to change a negative credit score by letting you change your identity. For instance, some may advise you to obtain a new employer identification number. For those credit repair organizations that practice such illegal or fraudulent activities, the FTC has a right to shut them down if they happen to receive complaints from customers.
How to Protect Yourself from the Fraudulent Activity
As a customer, you have the right to take legal action against credit repair organizations if you believe that it has defrauded you without going through the FTC for complaint. For instance, if a credit repair organization fails to offer you a written contract or demands upfront payment, it has violated the CROA. In this case, you have the right to file a lawsuit seeking a refund or your money from the organization. FTC encourages customers to directly approach any credible credit reporting agencies in case their credit report has some errors. It is possible to make corrections to your credit report free of charge.
- Consumer Protection Law (Intro)
- What is consumer protection law?
- Cooling Off Rule
- What major federal laws protect consumers?
- What is the Federal Trade Commission
- Enforcement procedures of the FTC?
- Penalties for violating FTC regulations?
- Commercial Practices Prohibited by FTC?
Unfair Trade Practices
- Predatory Pricing
- Bait & Switch
- Lemon Laws
- Consumer Financial Protection Bureau
- What is the Fair Credit Reporting Act?
- Users of Information?
- Credit Reporting Agency Consumers
- Reporting Agencies?
- Consumer Reporting Agency
- Furnishers of Information?
- Truth in Lending Act
- Fair Debt Collection Practices Act
- Fair Credit Billing Act
- Electronic Funds Transfer Act
- Electronic Funds Transfers (EFT)
- Equal Credit Opportunity Act
- Regulation B
- Consumer Credit Protection Act
- Consumer Advisory Council
Consumer Financial Protection Act
- Consumer Product Safety Act
- Consumer Product Labeling Laws
- Credit Repair Organization Act
- Federal Food, Drug, and Cosmetic Act
- Magnuson-Moss Warranty Act
- Privacy Act of 1974 (Privacy Act)
- Personally Identifiable Information
- Right to Financial Privacy Act of 1978 (RFPA)
- Electronic Communication Privacy Act of 1986 (ECPA)
- Childrens Online Privacy Protection Act of 1986 (COPPA)
- CAN SPAM Act
- What role do states play in Consumer Protection?