By: Robert J. Nahoum
THE PROBLEM:
For many, your credit score has a powerful influence on your life. Your score influences how much your home and your car will cost and whether you will be approved for insurance, an apartment and even a job. With stakes this high, a lot of attention is paid to improving people’s scores. Everywhere you look these days you see ads for credit repair services. They all make the same claims:
- “Credit problems? No problem!â€
- “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!â€
- “We can erase your bad credit — 100% guaranteed.â€
With promises like this, the old adage unfortunately applies – “if it sounds too good to be true, it probably isâ€. These companies charge unwitting consumers lots of money and produce little results. The reason is, ultimately, there is only three ways for your credit score to improve: (1) by correcting mistakes, (2) by paying off delinquent debts, and (3) with the passage of time (most negative credit reports fall off your report after seven years).
Consumer’s with damaged credit are already vulnerable and with stakes this high, what protections do consumers have against fraudulent credit repair companies?
THE RULES:
The Credit Repair Organization Act (CROA) is a federal consumer protection law that makes it illegal for credit repair companies to lie about their services and what results that can accomplish.  The CROA was enacted because “[c]ertain 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.â€
The CROA is enforced by the Federal Trade Commission and requires credit repair companies to explain:
- your legal rights in a written contract detailing the services they will perform;
- your three day right to cancel the contract without any charge
- how long it will take to get results
- the total cost you will pay
- any guarantees.
Under the CROA credit repair organizations are barred from taking advance payments, from making statements which are untrue or misleading with respect to a consumer’s credit, including statements that encourage the alteration of a consumer’s identification. Credit repair organizations are barred from using untrue or misleading representations of their services, and from engaging in any business practice that constitutes or results in the commission of fraud.
A major weakness in the CROA to be aware of is an exemption from the definition of “credit repair organization†for “any nonprofit organization exempt from taxation under §501(c)(3)†of the IRS code. This exemption has left the door open for some fraudulent business disguised as nonprofit organizations.
WHAT YOU SHOULD DO:
What recourse do consumers have if a credit repair company doesn’t live up to its promises? You have some options. The CROA includes a “private rights of action†which empowers consumers to sue the unscrupulous in federal court for actual damages or for what you paid them, whichever is more and for seek punitive damages — money to punish the company for violating the law.
Like most other consumer protection laws, the CROA is “fee shifting†meaning that if the consumer is successful in his or her lawsuit, the offending business must pay the consumer’s reasonable attorneys’ fees. Because these laws are fee shifting, most consumer attorneys will handle a consumer protection case without ever charging the consumer a penny.
If you need help with a consumer protection issue, contact us today to see what we can do for you.
The Law Offices of Robert J. Nahoum, P.C
(845) 232-0202
www.nahoumlaw.com
info@nahoumlaw.com