What is Illegal Credit Repair?
Some techniques labeled as "credit repair" are sometimes nothing but scams and often are even illegal. Here are some credit repair schemes you should avoid.
Pay nothing until AFTER the promised repair services are FULLY completedThe CROA could not be more clear: "No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully perform." 15 U.S.C. ? 1679b(b). They cannot ask for a deposit or monthly payments until the job is DONE. If they ask you to pay anything before they have completed the credit repair job as promised, this violates CROA and you should avoid this company and get all your money refunded.
There must be a written contract, which states your right to cancel within three daysNot only must the contract be in writing and dated, near your signature the contract must state: "You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right."
The contract is not valid unless it states the cost, a time estimate for completion, and exactly what services will be providedYou have the right to know exactly how long the services are estimated to take, the cost, payment arrangements and exactly what they intend to do and what is guaranteed. If they promise to delete Account A, Judgment B, and Collection C, then the contract must state this and give you an estimate of when these will be deleted. If you don't see it clearly in your contract, then I would not sign it or cancel within three days.
Cancel the contract for any reason within three days in WRITING, signed and datedAlong with the written credit repair contract, you must be given a separate notice of cancellation, which must state in boldface type:
"You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
"To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to [name of credit repair organization ] at [address of credit repair organization ] before midnight on [date ]
"I hereby cancel this transaction,
[purchaser's signature ].".
A contract that does not have the above disclosures and notices is Illegal and cannot be enforced against youYou are protected from improper credit repair contracts that don't have the required disclosures. You need not pay a penny if it is not in the proper form required by the CROA, which states: "Any contract for services which does not comply with the applicable provisions of this title [15 U.S.C. Sec, 1679 et seq.]-- (1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person." 15 U.S.C. Sec. 1679f(c). If it is not enforceable, they cannot sue you on it and cannot make you pay or report it on your credit.
A credit repair organization may not have deceptive advertising or make misleading statementsCROA requires the credit repair organizations to be honest with prospective and current clients and many not have false advertising or deceptive promises. CROA states: "You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations."
What is a credit repair organization?The company or person is a credit repair organization that must comply with CROA if it meets these four tests:
(1) Uses an instrumentality of interstate commerce or mails;
(2) Sells, provides, or performs (or represent that it could do so);
(3) In return for valuable consideration;
(4) Services or advice about services to improve a consumer's credit record, credit history, or credit rating.
Costa v. Mauro Chevrolet, Inc., 390 F.Supp.2d 720, 727 (N.D. Ill. 2005). Thus, any company that claims it can improve a consumer's credit and charges a fee for this service, must comply with CROA in all respects.
Attorneys may also be a credit repair organization and thus required to comply with the CROAIn FTC v. Gill, 265 F.3d 944 (9th Cir. 2001), the defendants included a lawyer whose office was advertising its credit repair services. Recently, the U.S. Ninth Circuit Court of Appeals reaffirmed the Gill case, in Rannis v. Peter Recchia, Case No. 09-55859 (May 27, 2010). Recchia is a licensed California attorney who advertised, "Improve your credit score now!" in the Pennysaver. Robert Stempler was the attorney who filed the case for Plaintiff (with co-counsel) and presented oral argument on May 7, 2010 for the Plaintiff and class members, who may expect a full refund of the amounts paid for the credit repair services, as part of the class action settlement.
Representing that they can remove ACCURATE credit information and judgments violates CROAIn FTC v. Gill, 265 F.3d 944 (9th Cir. 2001), the defendants attracted potential clients using talk radio promotions and newspaper advertisements, claiming: "There literally is nothing a consumer can possibly have on a credit report that we cannot remove and we can remove it legally." "There [are] many legal ways under the Federal Fair Credit Reporting Act to fix credit, no matter what type of negative it is, including foreclosure and or bankruptcy, judgments, tax liens ... even if those [items] are not paid off." The U.S. Ninth Circuit Court of Appeals held that these statements were false and misleading and violate the CROA.
Small claims court is an excellent way to get your refund from a credit repair companyHopefully you have not paid more than $7,500 to a credit repair organization, so you should be able to file this in small claims court. If you are in California, for small claims court you may be better citing to the California Credit Services Act, which is very similar to CROA, but it excludes attorneys from coverage. Some other states have their own version of CROA.