Credit Repair Laws
Credit repair laws regulate companies paid to work on your credit records. In some states these laws cap the fees you can be charged. They can also limit the time it takes to repair your credit profile.
The Fair Credit Reporting Act defines guidelines that credit information providers and agencies must follow. This helps you whether you hire an expert or correct your own credit. When you hire a credit repair expert, they must operate within the state and federal laws having jurisdiction over your credit issues.
Sometimes it is tricky to identify the jurisdictional boundaries. They can be where the service is physically located, where you reside, and where your creditor has its main office or is incorporated. Any or all of these may apply.
If you are considering having credit repair work done professionally or if you are doing it yourself, it benefits you to become familiar with the laws and the legal rights you have as a consumer in the United States.
The Law Credit Repair Clinics Follow: CROA
Almost 20 years ago, Congress decided to take action in response to consumer complaints about unethical credit repair consultants. Its answer came in the form of Title IV, a section of the Consumer Credit Protection Act that governs how fee-based credit repair services can interact with consumers.
This section of the law is widely referred to as “CROA,” an acronym for the Credit Repair Organizations Act. If you are rebuilding your credit, it is worth reading. Even if you don’t get around to looking at it, you should know it’s essential points.
A credit repair service that collects fees from consumers must:
- Accurately represent what it can and cannot do
- Provide a written contract for its credit repair services
- Not collect any fees until the contracted services are performed
- Allow you to cancel the contract, in writing, within 3 business days of signing it
- Give you a written statement of your rights under the Fair Credit Reporting Act (FCRA)
You should read more about the Credit Repair Organizations Act credit repair law before signing up with any credit consulting organizations that charge fees for their services.
Federal Law Helping You Repair Your Credit: FCRA
One of the primary laws protecting a person’s credit and consumer reporting information in the United States is the Fair Credit Reporting Act (FCRA). Congress enacted the law in 1970.
It balances the rights of consumers against providers of information that significantly impacts a person’s opportunities for jobs, rental housing, credit transactions and myriad other circumstances that are important for economic participation in modern society.
To be in compliance with FCRA, banks, landlords, creditors and others who provide consumer information to credit reporting agencies must:
- Correct all errors identified during the credit investigation
- Provide complete, accurate information to the credit reporting agencies
- Investigate a consumer’s dispute of information in their credit report
- Validate a disputed item’s accuracy within 30 days of a consumer’s request
There are more guidelines that creditors and others handling consumer information must follow. The law provides you with a legal foundation for holding credit reporting agencies, creditors and debt collectors accountable.
See more information on the Fair Credit Reporting Act and other credit repair laws along with resources listed there.
State Laws Can Help You With Credit Repair
In addition to federal policies, there are state laws influencing professional credit repair operations. State credit repair laws mostly mirror federal guidelines. However, they add another level of legal protection for consumers.
State agencies are more localized and in some circumstances they’re more responsive than federal agencies because of licensing and other state requirements for business operations. The level of involvement and type of assistance you can expect varies by state Attorneys General and legislative activity. This is why it is important to review your state’s consumer protection laws.
You may find that your state is one of the few that specifically regulates credit repair clinics.
You can check with your state’s Attorney General for learning about consumer laws related to credit repair businesses. There is an infographic map with the contact details listed by state for your convenience.
States that regulate the credit services industry often:
- Place a limit on fees
- Require that the business informs consumers about non-profit credit counseling services
- Allow more than 3 days for cancelling the written contract
- Place time limits on performance of contracted credit repair services
Warning: Watch Out For Credit Chameleons
Federal and state laws regulating credit repair services often allow an exemption to non-profit organizations. Financial services businesses are notoriously adept at exploiting such loopholes, and it is no different in the credit repair industry. Many credit repair consultants have organized themselves legally as non-profit entities and continue to charge fees and operate outside the laws governing the industry.
This may not be a significant point for you if the consultant you hire gets you good results. However, if they don’t there may be limited legal recourse available for you to recover your money. This is another reason why it’s important for you to invest a little time into reading reviews about credit repair services.
Be diligent by researching credit clinics and know federal and state laws. This will put you in the best possible position for getting good results rebuilding your credit.