Educating the public about the Credit Repair Organizations Act.

While most credit repair companies work hard to provide a valuable service to their clients, there are still some who over promise and under deliver, or even commit fraud.  Like any industry (and particular the real estate/mortgage/and financial sector during the Boom years) it’s important that consumers know their rights and the laws in place to protect them.  Today, we will educate you about one particular law, the Credit Repair Organizations Act.

This statute, first signed by President Bill Clinton on September 30, 1996, ratifies into law legislation drafted to clean up a largely unregulated credit and financial service industry.  They wanted to address the worst practices of some companies that made concrete promises (that they couldn’t deliver,) charge up-front fees (the same problem we saw with loan modification companies,) and little recourse for consumers to cancel their services if unhappy.

Weeding out deceptive advertising practices and ensuring compliance is at the root of the Credit Repair Organizations Act (CROA) but enforcing how credit companies can lawfully collect fees.

CROA intends to eliminate the practice of credit repair companies collecting up front fees, start up fees, service fees, and any other sums of money that are not warranted.  Instead, the industry has moved to a model when clients pay only when credit repair services are performed.  This is usually with a monthly fee or payment when pre-disclosed services are rendered.  It also mandates that all agreements be clearly in writing for the client and gives consumers the right to cancel their agreement at any time, without penalty.

Of course if you’re looking for help with credit restoration, the folks at Blue Water Credit would love to earn your trust and compete for your business.  But in the interest of the greater good, it’s important to educate the public so they can make informed and empowered decisions. For more information feel free to contact Blue Water Credit.

Summary of the Credit Repair Organizations Act 
Act Pub. L. No. 104-208, § 2451, 110 Stat. 3009-455 (Sept. 30, 1996), amending title IV of the Consumer Credit Protection Act

(a) In general
No person may—
(1) 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—
(A) any consumer reporting agency (as defined in section 1681a (f) of this title); or
(B) any person—
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to—
(A) any consumer reporting agency;
(B) any person—
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in advance
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 performed.

New legislation hopes to shake up the credit reporting industry and help consumers.

U.S. consumers may be getting a valuable ally when it comes to correctly reporting their credit scores if newly introduced legislation gets passed.  A bill sponsored by U.S. Senators Sherrod Brown (D-OH) and Brian Schatz (D-HI,) among others, would call for accuracy and accountability from the credit bureaus when it comes to reporting consumers’ credit.  The Stop Errors in Credit Use and Reporting (SECURE) Act of 2014 would give the public an avenue for transparency in reporting, a way to access free credit reports, and a way to dispute and correct inaccuracies under protection of the law.  

Errors aren’t harmless since lenders, banks, and employers base their rates, premiums, and hiring decisions, on consumers' credit score.  The Federal Trade Commission (FTC) recently released a study that said up to 40 million Americans have error(s) on their credit reports.  At least 10 million of these errors would result in higher interest rates on loans or put them at other financial detriment.  Errors can take the form of duplicates, misreporting, identity errors and mix-ups, and outdated items. 

Under the current system, Credit Reporting Agencies (CRA’s) put very little man-hours or resources into fixing inaccuracies and errors, and there’s no minimum standard for to accurately match and report data.  However under the new act, there would be new procedures that CRA’s were legally mandated to follow, protecting consumers.

S. 2224 dovetails on a proposal by Senator Bernie Sanders (I-VT) which calls for free, verifiable credit reports and scores to all consumers one a year.  That differs from the current system where CRA’s provide a free report that is almost valueless.  They sell “educational” scores and reports to consumers that are rarely used by lenders.  Too often, consumers start by requesting a free copy of their credit score and end up duped into paid credit monitoring services.

The Act would:

“Ensure that agencies send consumers’ disputes and supporting documents to the creditor when there is an error on a report, so that they can thoroughly review the consumer’s claim.

Make it easier for consumers to spot errors in their credit reports by requiring that consumers receive a free copy of their credit report if anyone makes an unfavorable decision based on the report.

Give consumers the ability to request a free credit score along with their annual free credit report to see what credit they might be eligible for.

Give courts the ability to stop a credit reporting agency from reporting inaccurate information and provide the Federal Trade Commission with new authority to stop sloppy practices.”  

For instance, if a consumer filed a legitimate complaint for an error on their report, the CRA would only have 14 days to provide evidence of the reporting.  This would include debt collection agencies affiliated with the CRA’s. 

The SECURE Act is cosponsored by Senator Sanders as well as Elizabeth Warren (D-MA) and Richard Blumenthal (D-CT).  It’s also endorsed by the Consumers Union, the National Consumer Law Center, the National Association of Consumer Advocates, Consumer Action, and U.S. PIRG. 

The bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs.  You can read the complete Act here.

Answering your important questions about credit repair.

What is credit repair?

Credit repair is the process of trying to improve your credit score.  Lenders use your credit report and credit score in order to judge your reliability as a loan candidate. Your credit report indicates your ability to handle debt responsibly and will help banks decide if you are a desirable loan customer, so cleaning up negative and inaccurate items will raise that score and help you save money.

How is your credit score computed?

Your credit score is determined by an algorithm developed by the Fair Issue Corporation (hence its other name of FICO score). Three corporations, called “credit bureaus”, specialize in collecting and reporting on financial histories. Those three companies are Equifax, Experian and TransUnion.  While their calculations are secret, we do know that the basic building blocks of your credit score are founded on: Inquiries, Mix of Credit, Age of Credit, Debt Ratio, and Delinquencies.

Why is a good credit score important?

A good credit score can save you thousands or tens of thousands of dollars on mortgage loans, credit card interest rates, car and student loans, and even insurance.  Many employers are even now looking at credit reports when screening applicants!

Are there quick fixes and tricks that are guaranteed to improve your credit score? 

No.  Credit repair is an ongoing process of making good choices to manage your debt load and finances responsibly, and then making sure accurate information shows up on your credit reports.  Stay far away from anyone who promises guaranteed results, quick fixes, or tricks.

So how does it legitimately work?

Credit repair is a process of identifying incorrect, misreported, and duplicate items on your report and then sending dispute letters to the credit reporting agencies to challenge the validity of negative information.  The credit bureaus are carefully governed by the Fair Credit Reporting Act that requires them to either fix the problem or respond with evidence that it’s true within a certain timeline.  Either they will fix the inaccurate negative credit item or if they don’t have evidence or don’t respond in time, the item will be removed.  Either way helps your credit score to rise to where it should be. 

Are there really that many errors on credit reports?

You’d be shocked!  The credit bureaus are in the business of selling information first and foremost so duplicates, wrong addresses, misspelled names or aliases, identity theft, and old items that should have fallen off are all examples of the common mistakes that show up.  According to the Consumer Data Industry Association, a trade organization for credit reporting agencies, credit repair disputes account for no less than 30% of disputes received by the credit reporting agencies. 

What are credit repair companies?

Credit Repair companies act as advocates for consumers, doing the hard work and exercising the knowledge to dispute and remove negative items.  Credit repair companies work for the client who hires them for their services. 

Why do so many credit reporting companies have a bad reputation?

Unfortunately, it seems there are a lot of bad companies and services in the realm of finances.  Far too many credit repair companies make claims that are not true, offer guarantees and promises just to collect large fees, don’t represent their clients to the best of their abilities, or claim legal representation when none exists. 

Can you try to do it yourself?

Yes, you can try to repair your credit yourself and write dispute letters to the credit bureaus. 

Why would you hire a credit repair company?

“Trying” it and successfully obtaining the desired outcome are two different things.  A good credit repair agency has the knowledge, experience, manpower, systems, and dedication to achieve the best possible result. 

Think of it like this:  Do you do your own taxes?  Trade your own stocks?  Maybe you do, but most people chose to hire the best possible professional because it’s important enough to get right. 

Other than dispute letters, what else should be included in a responsible credit repair plan?

First, devise an action plan for things you can do to maximize your credit profile; simple adjustments to the way accounts are being reported can have a massive impact on your overall credit grade, and profile.  Next, review your credit line by line to identify items that are potentially reporting incorrectly, items that are outdated, unverifiable, misleading, or questionable.  Assess all of your debts and loans to see what is helping you and hurting you, not only in regards to credit score but in the context of your whole financial picture.  Last, there should be continuing education so you’re never left operating in the dark as you make important decisions about your credit score in the future.

What assurances do you have when you use a credit repair company?

Credit repair companies are prohibited from making promises or guarantees.  They also cannot charge customers until after services have been performed.  Make sure they disclose that you can try to improve your score yourself and follow all state and Federal laws and regulations as laid out in the Credit Reporting Organizations Act.  Good credit repair agencies let you log in or check in at any time to track the exact progress of your disputes and your file.  You will have direct access to a professional staff member who answers all of your questions and proactively coaches you. 

How do you make the best-educated decision and find the right credit repair company?

Check in with the Better Business Bureau to make sure a credit repair agency is registered and in good standing with a good rating, or else do not hire them.  You can also ask them for a statistical range of past results.  This is not a guarantee that you will receive the same thing, but a reasonable range of expectations.  Make sure your credit repair company has a physical brick and mortar office you can walk into if you wish and professional counselors you can call any time.  Ask them point blank if all of their practices are ethical and legal and request documentation in compliance with the FTC and CROA.   

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Do you have any questions or would like more information about credit repair?  Feel free to contact us for a complimentary consultation.