Credit Repair and the Credit Repair Organizations Act

Credit Repair Companies

Consumers with poor credit scores often consider using a credit repair company to help fix their credit scores. Credit repair companies can be beneficial in helping guide you through the credit repair process, informing you of your options, and working with you to fix your poor credit scores. However, you should carefully consider and thoroughly research the credit repair company you are considering as the credit repair industry has seen its fair share of illegitimate businesses.

As a general rule, you can clean up your own credit score in the same manner that a credit repair company can fix your poor credit score, if you are willing to spend the time to do so. Whether through a credit repair company or through your own efforts, credit repair tactics typically include removing incorrect information from your credit file.

Improper credit repair tactics include:

  • Removing correct but damaging information from your credit file. While rare, sometimes a credit bureau will remove damaging information that is actually correct. These changes may be temporary as the creditor will likely report the information again within 30–60 days.
  • Filing segregation, which involves creating a new identity to hide unfavorable credit history items. This is illegal.
  • Applying for an Employer Identification Number from the IRS and to use it for applying for new lines of credit. This is a federal crime constituting fraud on the government and is punishable by fines or prison.

The federal Credit Repair Organizations Act, 15 U.S.C. § 1679 (“Act”), governs all companies or persons who improve consumers’ credit records, history or ratings, or advise consumers on improving their credit. The Act sets the following requirements/prohibitions on all credit repair companies or individuals:

  • It is illegal to make any false or misleading statements or representations or to advise consumers to make false statements or representations to credit agencies or credit providers.
  • It is illegal to charge payment in advance of services. Payment can only be made after the promised service is fully performed.
  • It is required to provide any consumer with a separate written statement containing a disclosure with required statutory language warning of the limitations of both the consumer and the credit repair company in repairing credit scores and history, informing the consumer of his or her right to sue the credit repair company if they commit fraud, and informing the consumer of the self-help remedies available.
  • It is ineffective to get consumers to agree to waive any of the protections in the Act.

The Act gives authority of enforcing the law to the Federal Trade Commission or the state attorney general. Consumers can also sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorneys’ fees. There is a 5-year statute of limitations to bring any claim under this Act. Failure to bring a claim within 5 years constitutes a waiver of the legal right to bring a claim under the Act. Some credit repair organizations have gotten around the regulations in the Act by setting themselves up as nonprofits.

If you would like to check the legitimacy of a certain credit repair services in Minnesota, contact the Minnesota Department of Commerce–the state agency authorized to license debt counseling and credit repair services. You should make sure the company is licensed to conduct business in Minnesota before retaining their services. If the company claims to be a nonprofit organization, you may contact the Minnesota Attorney General’s office to verify that it is registered in Minnesota. You may also contact the Better Business Bureau to check on the reputation of the company.

by Lucas Spaeth