Credit Repair Act - Understanding CROA


Because of bad actors in our industry, Congress stepped in and decided to regulate credit repair companies...harshly. Here are the major points you need to know about the CROA to stay compliant. Here is Credit Repair Organization Act statute.

CROA Prohibited Acts
If you are offering to improve someone's credit report, history or score in return for your money you are governed by this statute.You are prohibited from:
Making any untrue statement or coaching your client from making any untrue statement to any credit reporting agency creditor or prospective creditor;
Making any untrue statement or coaching your client from making any untrue statement to a CRA or any creditor with the intention of misleading them as to your identity;
Making any untrue statement in connection with your services as a credit repair professional
Take any action that would tend to defraud a person in connection with your services as a credit repair pro.
Accepting any payment in advance of services performed.
What this section means:
You cannot lie to the CRAs. If your client has an accurate derog on their credit report that your client knows is accurate, don't dispute it. You can ask for verification of it, but do not lie to the CRA and say "Not mine" or "I have no knowledge of it." Those are lies that violate the law.
Don't get your client another social security number. It's a felony. It's just pure fraud. If anyone even suggests this as an acceptable practice, disassociate yourself from this scumbag immediately.
Run your credit repair practice honestly and ethically. Treat every client as if your own mother is considering you as her credit repair pro. Would you lie to your mom? Don't lie to your clients, either. Be transparent. You will never regret it.
Payments in advance of perform services are forbidden! Don't even think about. You must perform the services first and then you get paid. This presents special issues with credit repair pros who do pay per delete. You see, some entities such as the Better Business Bureau believe that all negatives must come off before someone using a pay per delete can get paid. Industry standard, however is different. Many CROs who use the pay per delete model, charge fees as items come off of the credit reports. Personally, I think the industry standard is correct.
The Disclosure Sheet you must give to your clients prior to their signing a Contract
Here are the things that you must tell your client BEFORE they sign a contract. Be sure to give it to them in writing and as a separate document from your contract. Have them sign and date a copy of this Disclosure Sheet to acknowledge their receipt. You are required to keep this Disclosure Sheet for 2 years from the date that it was signed. You can scan and keep a .pdf of it.

The Disclosure sheet must state as follows (Do NOT change any of the words, please):

"Consumer Credit File Rights Under State and Federal Law"

"You have a right to dispute inaccurate information in 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 copy of 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 sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations."
"You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it."
"Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur."
"You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then re-investigate 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 re-investigation does 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".
You cannot provide services to your clients without a signed and dated contract. Moreover, there is a 3-day cooling off period. The consumer has 3 days from the date that they sign the contract to change their mind and void the contract. Hence, wait 3 days before performing any services under it.

Be sure that your client walks out with a signed and dated copy of their contract along with 2 copies of the Notice to Cancel (see below):

Your contract must include:

Your company's name and address
The terms and conditions of payment and the total of all payments to be made by the consumer
Full and detailed description of all services to be performed including:
Any guarantees of performance and
An estimate of the date by which the services will be performed completely or the length of time necessary for perform these services completely.
The Consumer's Right to Cancel the Contract must be prominent.
Above the Client's signature line, you have to put a conspicuous statement "You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right."

The consumer can cancel the contract without penalty or obligation by midnight of the 3rd business day (not weekend day or holiday) following the date that he signed the contract. In fact, at the same time that you give your client your contract to sign, you also have to give them a form, in duplicate, that allows them to cancel. The form must state:

You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you. "To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to [ name of credit repair organization ] at [ address of credit repair organization ] before midnight on [ date ] "I hereby cancel this transaction, [ date ] [ purchaser's signature ]."

If you fail to comply with the CROA contract requirements, your contract will be void. This means that all of the services that you provide to your client will be for free since the client will be able to get all of his money back. Hence, do NOT:

vary any of the terms required by CROA;
ask your client to waive any right to anything at all;
Liability for Failing to Comply with CROA
Damages – The consumer is entitled to the greater of actual damages or amounts paid to you;

Punitive damages – these are those damages meant to punish you for failing to comply with the law. Juries can come back with high dollar figures on these. Runaway juries have been known to come back in the millions for Plaintiffs.
Attorneys fees and costs of the action. These can be substantial.
Statute of Limitations
The statute of limitations for enforcement of a CROA action is 5 years. That is a pretty healthy length of time especially considering that the FDCPA is 1 year and the FCRA is a 2 year statute of limitations.

States requiring licensure

States NOT requiring a license or bond, but with state specific requirements for credit repair contracts:

States without any regulation of Credit Repair

The only State where credit repair by a for profit company is illegal – GA

Federal Trade Commission and Consumer Financial Protection Board
The FTC and the CFPB both enforce CROA. They fight fraud that impacts businesses. While some people are not crazy about the FTC, they do serve a purpose. They kick the bad actors out of our industry.

WARNING – If you think you are too small to get on the FTC's radar, I am here to tell you that you are wrong. In any event, if it can happen to me, it can happen to you. Practice ethically and in compliance with the law.

The CFPB is a relatively new governmental agency. It was born out of the recession of the 2007. Anyways, it's a very scary agency. They report directly to the President. They have complete discretion to assess fines and costs and indeed, they have been doing so with a very heavy hand. They hand out multi million dollar penalties quite readily and easily. Just recently, they took aim at four California based credit repair companies. Again, if you run an honest, ethical and legally compliant practice, you have nothing to fear from any governmental agency.

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