Credit Education

Businessman pointing to COMPLIANCE word on virtual screen
03. Aug, 2016

CROA – General Overview

Imagine being caught in the following situation: debts mount up as mortgage payments default, and car loan repayments fall behind schedule. Some creditors start legal proceedings. As credit problems accumulate, the credit bureaus adjust their ratings downwards. Credit scores hit the low 600s and continue to fall. Poor credit ratings put off potential lenders. Now this high risk customer can only get a loan with a high interest rate and other harsh terms.

If this series of problems sounds familiar, it shouldn’t come as a surprise — almost one of five Americans has a bad credit profile. Some manage to escape their growing debt burden. They renegotiate loan agreements, cut down credit card spending, and make tough budgetary decisions. Other bad credit sufferers turn to credit repair organizations to help escape the vicious debt cycle.

The Credit Repair Market
The difficulties bad credit causes encourage people to seek help from credit repair services. While individuals can get their credit fixed single-handedly, it demands much time and effort. Credit repair companies claim they can quickly help improve credit reports and raise credit scores. They advertise extensively across printed and electronic media. The fees they charge often exceed $1,000, so this market has a high earning potential. Some of the credit repair firms have been in business a number of years. Over this time, they’ve acquired a good understanding of the process and best practices. They do a good job of finding errors in credit reports, and this certainly helps their customers’ credit ratings.

However, the thriving credit repair industry also attracts more than its fair share of rogues. Twenty years ago, the US Congress decided this situation was getting out of hand. They passed the Credit Repair Organizations Act (CROA) to protect consumers from unscrupulous credit repair scams. The legislators were particularly concerned with credit repair firms taking advantage of people with low incomes and limited schooling.

How CROA Controls Credit Repair Businesses
The act starts with a definition of what counts as a credit repair business. This is much more than a question of legal terminology a clear definition prevents a firm from charging for credit repair while claiming they are not a credit repair business. They may try this trick to escape CROA regulations, so legislators closed this loophole. A firm that provides a credit repair service must operate within this law.

The CROA regulations try to ensure that credit repair customers have all information they need to make a sound decision. It forbids companies from advertising their services in misleading ways. They must also tell potential clients that they can improve their credit status without the help of a credit repairer.

Before the business contract is signed, the credit repair customer needs to sign a statement outlining their legal rights. The law sets the wording required for this statement. The text describes how credit bureaus and repair organizations operate. It also informs the customer that they are free to cancel their agreement with the credit repair company within three business days. CROA also bans credit repairers from charging in advance for services t not yet supplied.

Aside from being fair and straight with customers, CROA prohibits credit repair agencies from following deceptive tactics with credit bureaus or with bureaus’ information sources. For example, a dishonest credit repair agency might make a false identity theft claim to explain some of the client’s debt. CROA places these deceitful credit repair practices clearly outside the law.

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