CONSUMER ALPHABET SOUP: CROA
by Arin E. Berkson
When mistakes appear on a credit report, individuals may be tempted to hire a credit repair organization (CRO) to represent them in the credit repair process to save the time and effort of disputing incorrect credit report information on their own. While legitimate CROs exist, repeated unscrupulous behavior by the CRO industry led to the enactment of the federal Credit Repair Organizations Act (CROA), which was created to protect the public from bad actors.
Under the CROA, CROs are not allowed to make false statements to consumers about what type of services they can provide and they are not allowed to collect payment from consumers until they have provided the services promised under a written contract. The CROA creates civil liability when CROs fail to play by the rules outlined in the act. Any contract provided to a consumer by a CRO must disclose the right to sue, although this right can be waived if the CRO discloses an arbitration clause, as was held in US Supreme Court case CompuCredit v. Greenwood.
Consumers should be aware that despite promises otherwise, CROs cannot legally help improve credit reports by disputing truthful information that happens to be negative. In fact, there are no services a CRO can provide to an individual regarding “cleaning-up” their credit report other than representing a person through the regulated credit report dispute process, a process that most individuals can navigate on their own.
In addition to helping consumers navigate through the credit report dispute process, some CROs promise to improve consumer credit reports by offering sup-prime credit cards to people with low credit scores. The idea behind these cards is that the issuer will report positive information to the credit bureaus when consumers use the cards in accordance with the terms of the credit agreement. However, the credit card issuer will often charge high up-front fees against the credit card as a cost of setting up the account, leaving little to no available credit for the consumer to use. These fee-harvester accounts may violate the CROA by charging up-front fees as part of a promise to repair a consumer’s credit report. Likewise, “set-up fees” as a condition of hiring a CRO also violate the CROA.
If you have had dealings with a CRO that you think may have violated the CROA, speak with your attorney.
If you find inaccurate information on your credit report, the Fair Debt Credit Reporting Act outlines how the incorrect information should be disputed. The Federal Trade Commission (“FTC”) provides a step-by-step guide to help individuals through the dispute process:
Arin Berkson is an attorney that recently moved to Madison from
Albuquerque, NM, where she practiced bankruptcy law for fifteen years.