What Is the Credit Repair Organizations Act (CROA)?
The Credit Repair Organizations Act (CROA) is a piece of consumer protection legislation that regulates the behavior of companies offering credit repair services. These companies charge customers a fee to help them improve their credit scores. Typically, this is done by disputing false and negative information contained on their report.
Although such services could be helpful for consumers, the CROA aims to prevent misleading advertising, such as exaggerating the extent of the improvement likely to be obtained.
- The CROA is a consumer protection law that regulates credit repair companies.
- These companies contact credit reporting agencies on their customers’ behalf, in order to help improve their credit ratings.
- In the past, some credit repair companies would overstate their services, taking advantage of unsuspecting customers.
How the CROA Works
The CROA is one of many pieces of legislation designed to protect consumers in the United States from abusive or misleading business practices. In particular, the CROA forms part of the broader Consumer Credit Protection Act of 1968, and was drafted in response to the actions of some unscrupulous credit repair companies.
Companies in the credit repair industry help consumers by advocating on their behalf, communicating with credit reporting agencies in an effort to have negative information removed from the customer’s credit report. In some cases, these customers may have been victims of fraud, such as when a credit card or identity thief racks up significant purchases using the victim’s credit card. In these instances, the customer may be able to explain the situation to the credit reporting agency and reverse some of the negative effects on their credit score. If the customer does not have the time or inclination to communicate with the credit bureau directly, they can hire a credit repair company to do so on their behalf.
Although in principle there is nothing wrong with this basic transaction, the trouble arises when credit repair companies misrepresent or overstate the extent of their services. For example, an unethical company might claim or imply that they are able to improve the customer’s score even if the items on their credit report are in fact truthful, such as in cases where the customer was not a victim of fraud but was simply spending beyond their means. In those instances, an unwitting customer might be duped into paying a significant fee for services that are of dubious value.
When considering these services, it is important for consumers to bear in mind that credit repair agencies have no special powers that the customers themselves do not have. Although they may succeed in having some erroneous or fraud-based issues stricken from the customer’s record, they have no ability to compel the credit reporting agency or to have accurate information removed. Thankfully, the CROA helps ensure that companies in this sector advertise their services in a clear and transparent manner. For that reason, it should be a simple matter to verify whether a firm is one of the best credit repair companies or simply attempting to pull off a scam.
Real World Example of the CROA
Kyle has struggled with credit card debts for many years, which has unfortunately caused his credit score to decline significantly. To make matters worse, he suspects that his score may have been negatively affected by identity theft. After all, some of the charges that appear on his credit card statements seem unfamiliar to him, making him wonder whether one of his cards may have been stolen.
To help address this problem, Kyle hires a credit repair company to advocate on his behalf. In communicating to the credit repair agency, he was told that they would carefully review his credit report and determine whether any of the negative information contained within it is inaccurate or attributable to fraud. If any such cases are detected, they would then contact the credit reporting agency and seek to have those items struck from Kyle’s record, in order to improve his credit score.
The agent from the credit repair company was careful to explain that, if he was so inclined, Kyle could also contact the credit reporting agency and perform this work on his own behalf. In other words, the agent made clear that the credit repair company had no unique powers, but was simply offering a service for the ease of convenience. He also provided upfront information about the company’s fees, while making it clear that they could not guarantee that any improvement to Kyle’s credit score would be achievable.
Kyle appreciated this transparency and diligence, and agreed to engage the company’s services. What he did not realize is that the credit repair company’s frankness in disclosing these facts was mandated by the CROA.
Give yourself some credit (reports)
By EMILY WU
Attorney, Federal Trade Commission
One important back-to-basics step you can take this Financial Literacy Month (or anytime) is checking your credit report.
Your credit report has a summary of your credit history. For example, if you’ve been evicted and a landlord turns uncollected rent over to a collection agency, that might be on your credit report. Information in your credit report affects your credit score. That’s important because businesses — like insurance and phone companies — use your credit score to decide whether to give you a policy or service, and what rate to offer. And potential employers and landlords also might check your credit.
So you want to know that the information on your report is accurate. And if it’s wrong, you want to make sure someone didn’t steal your identity.
Here’s the plan:
●Order your free credit report. Go to AnnualCreditReport.com or call 877-322-8228. Until the end of the pandemic, everyone in the U.S. can get a free credit report each week from all three national credit bureaus (Equifax, Experian, and TransUnion).
●Read the reports carefully. Do you recognize the accounts? Do they list credit applications? Did you apply for credit at those places?
●Spot a credit repair scam. If a credit repair company asks for money up front, or tells you not to contact the credit bureaus yourself, that’s probably a scammer.
Look, it’s been a tough time, and it’s hard to get back on track. But you can take steps to rebuild your credit. Only time and a plan to pay off debt will improve your credit, but with free credit reports available every week, it’s a good time to take a small step towards recovery.
. . .
The above information is from the Federal Trade Commission Consumer Information blog.
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