Federal Laws Governing Credit Repair Organizations

The federal CROA requires credit repair organizations to comply with certain rules.

If you are looking to boost your credit score and clean up your credit report, there are numerous “credit repair” organizations that will offer help. Unfortunately, many of these credit repair clinics charge high prices to do things you could easily have done yourself. Many others are outright scams. Because of the many problems and complaints about credit repair organizations, Congress enacted a law to help curb abuses.

Read on to learn about this law – called the Credit Repair Organizations Act.

(To learn more about rebuilding credit, including things you can do yourself to clean up your report and increase your credit score, see Nolo’s Credit Repair topic.)  

The Credit Repair Organizations Act

The federal Credit Repair Organizations Act (CROA) (15 U.S.C. § § 1679–1679j) regulates for-profit credit repair clinics. Under the federal law, a credit repair clinic must:

  • give you a written statement of your rights under the Fair Credit Reporting  Act
  • accurately represent what it can and cannot do
  • not collect any money until all promised services are performed
  • provide a written contract, and
  • let you cancel the contract within three business days of signing (you must cancel in writing).

Any contract that doesn’t comply with the CROA’s requirements is void, and you cannot waive (sign away) these rights.

Some dubious credit repair clinics have tried to get around these regulations by setting themselves up as nonprofits, but they still take your money and provide poor results -- or do nothing for you that you couldn’t do for yourself. (To learn how to protect yourself, see Avoid Credit Repair Clinics.)

Additional State Protections

A few states provide additional protections to consumers who use credit repair clinics. For example, some states:

  • give you more than three days to cancel the credit repair contract
  • require the credit repair clinic to perform the promised services within a specific amount of time, and
  • require that the credit repair clinic inform you about available nonprofit credit counseling services.

Nolo’s Credit Repair, by Margaret Reiter and Robin Leonard, lists each state that has additional protections, summarizes the protections, and provides the statute citation so you can look up the law yourself.

What If the Credit Repair Clinic Violates Federal Law?

If a credit repair organization violates a provision of CROA, you can sue the company. But you must file the lawsuit within five years of the violation (longer in some circumstances).

A court may award actual damages, punitive damages, and attorneys’ fees.

Parts of this article were excerpted from Credit Repair, by Margaret Reiter and Robin Leonard (Nolo).

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