What is the Credit Repair Organizations Act?

12 May 2014
Robert Wilkins
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1) What is the Credit Repair Organizations Act?

“The CROA, 15 U.S.C. § 1679, et. seq., prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations (CROs). CROs may not receive payment before any promised service is “fully performed.” Services must be under written contract, which must include a detailed description of the services and contract performance time.CROs must provide the consumer with a separate written disclosure statement describing the consumer’s rights before entering into the contract. Consumers can sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorney’s fees for violations of the CROA. The states and the FTC may also enforce the CROA.”

{ IN OTHER WORDS } The Credit Repair Organizations Act (CROA) defines how credit repair organizations are allowed to operate.

2) The Credit Repair Organizations Act – Break Down

Here’s an in-depth look at the different sections within the CROA and explanations of how they affect you:

Sec. 401: Short Title
Here, the act states you may refer to the act as the ‘Credit Repair Organizations Act’.

Sec. 402: Findings and Purposes
Congress has made the following findings:

  • Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers.
  • Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.

{ IN OTHER WORDS }

  • Here, the act is simply stating that consumers have the right and personal interest to establish and monitor the health of their own credit. If consumers fall upon hard times they also have the right to seek help from credit repair services.
  • Many credit repair agencies have advertised and practiced in a way that hurt their clientele financially. Often times it was those of lower economic status that received the most damage from these institutions.

Sec. 403: Definitions

This section of the act simply defines some of the terms used in the act as to provide clarity and better meaning to the act. For example:

Credit repair organization – The term ‘credit repair organization’ –

Means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of–

  • Improving any consumer’s credit record, credit history, or credit rating; or
  • Providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and 

Does not include:

  • Any nonprofit organization which is exempt from taxation under section 501(c)

Sec. 404: Prohibited Practices

This section of the act describes practices, from credit repair services, that are prohibited or illegal. For example:

(A) In General No person may:

  • Make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s credit worthiness, credit standing, or credit capacity to:

Any consumer reporting agency (as defined in section 603(f) of this Act);

{ IN OTHER WORDS }

No credit repair agency or individual should push their client to lie or give misleading information to improve credit or dodge credit mishaps.

Sec. 405: Disclosures

The FTC requires that any credit repair organization must provide any consumer with a written statement(prepared by the FTC) before any contract or agreement between the consumer and credit repair organization is executed. The letter states:

Consumer Credit File Rights Under State and Federal Law

  • You have a right to dispute inaccurate informationin your credit report by contacting the credit bureau directly. However, neither you nor any ”credit repair” company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
  • You have a right to obtain a copyof your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
  • You have a right to suea credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
  • You have the right to cancelyour contract with any credit repair organization for any reason within 3 business days from the date you signed it.
  • Credit bureaus are requiredto follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
  • You may, on your own, notify a credit bureauin writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
  • If the credit bureau’s reinvestigationdoes not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.

The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:

The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580

{ IN ADDITION }

Credit repair organizations must also provide this as a separate document from any other contract with the consumer, keep a copy, and maintain the copy for 2 years in their files.

Sec. 406: Credit Repair Organizations Contracts

Here you’ll find a list of rules regarding contracts between credit repair organizations and consumers.

Written Contracts Required

No services may be provided by any credit repair organization for any consumer–

Sec. 407: Right to Cancel Contract

Here you’ll find a list of rules regarding contracts between credit repair organizations and consumers.

In General

Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer’s intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.

{ IN ADDITION }

It is illegal for credit repair agencies to penalize or charge consumers extra for canceling contracts with their services. The FTC wanted consumers to have a way out if credit repair agencies weren’t doing what they said they would do.

Sec. 408: Non-Compliance With This Title

(A) Consumer Waivers Invalid-

Any waiver by any consumer of any protection provided by or any right of the consumer under this title–

  1. Shall be treated as void; and
  2. May not be enforced by any Federal or State court or any other person.

(B) Attempt To Obtain Waiver-

Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.

(C) Contracts Not in Compliance-

Any contract for services which does not comply with the applicable provisions of this title–

  1. Shall be treated as void; and
  2. May not be enforced by any Federal or State court or any other person

{ BY LAW }

Credit repair agencies cannot ask consumers to waive their rights stated in this act. If for some reason a consumer has signed a waiver, this section declares that the signed waiver is void. Consumers will always be protected under this act and in no way can credit repair agencies circumvent the act.

Sec. 409: Civil Liability

Liability Established–

Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs…

{ IN OTHER WORDS }

This section of the act declares that any individual or credit repair agency that does not follow this act will be held liable for any damages or funds to the affected consumer. In essence, if you are or have worked with a credit repair service who has broke one or several of these titles you are entitled to damages and recovery of funds.

Sec. 410: Administrative Enforcement

(A) In General –

Compliance with the requirements imposed under this title with respect to credit repair organizations shall beenforced under the Federal Trade Commission Act by the Federal Trade Commission.

(B) Violations of This Title Treated as Violations of Federal Trade Commission Act –

  1. In general –For the purpose of the exercise by the Federal Trade Commission of the Commission’s functions and powers under the Federal Trade Commission Act, any violation of any requirement or prohibition imposed under this title with respect to credit repair organizations shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act.
  2. Enforcement authority under other law –All functions and powers of the Federal Trade Commission under the Federal Trade Commission Act shall be available to the Commission to enforce compliance with this title by any person subject to enforcement by the Federal Trade Commission pursuant to this subsection, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of any Federal Trade Commission trade regulation rule, without regard to whether the credit repair organization…

{ IN OTHER WORDS }

This section basically states that this title is the real deal. Agencies that want to test the waters will be punished by the Federal Trade Commission. This serves to also give consumers peace of mind by knowing a legitimate Government agency is enforcing this title.

Sec. 411: Statute of Limitations

Any action to enforce any liability under this title may be brought before the later of–

  1. The end of the 5-year period beginning on the date of the occurrence of the violation involved; or
  2. In any case in which any credit repair organization has materially and willfully misrepresented any information which:
  3. The credit repair organization is required, by any provision of this title, to disclose to any consumer; and
  4. Is material to the establishment of the credit repair organization’s liability to the consumer under this title, the end of the 5-year period beginning on the date of the discovery by the consumer of the misrepresentation.

{ IN OTHER WORDS }

A statute of limitations describes the limitations of the specific law stated. The limitations for this act state that consumers have a 5 year window (from the date of violation) to seek damages and recovery.

Sec. 412: Relation to State Law

This title shall not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with any law of any State except to the extent that such law is inconsistent with any provision of this title, and then only to the extent of the inconsistency.

{ IN OTHER WORDS }

In addition to adhering to this title, individuals must follow all state laws. Any state law that is inconstant with the mission of this act will not have precedence over this act.