What Does the CROA Do, and How Does It Affect You?

FT Contributor  | 

The CROA stands for the Credit Repair Organizations Act. Part of the Consumer Credit Protection Act of 1968, this federal law protects consumers against predatory behavior from credit repair companies. The CROA helps to ensure that consumers make informed decisions about enlisting the services of a credit repair company when trying to improve their credit score, and prevents disreputable companies from engaging in false or misleading advertising.

Before this law was put into place, there was no specific law preventing credit repair companies from overselling their services and promising consumers credit repair services that were too good to be true. Credit repair companies could also take advantage of the confusion and stress surrounding the credit repair process to obfuscate simple actions that a consumer could complete on their own, such as disputing errors on their credit report.

With the law in place, consumers enjoy protection from unscrupulous credit repair agencies, and reputable credit repair companies can offer transparent and helpful services to customers.

Important Components of the Credit Repair Organizations Act

The purpose of the CROA is to protect consumers from exploitation by credit repair companies. The rights provided to consumers through the CROA cannot be waived. These include credit file rights, contract rules, and payment restrictions put into place by the law.

Consumer Credit File Rights Under State and Federal Law

Credit repair companies are required to provide customers with a disclosure statement that includes a consumer’s right to file disputes directly with a credit bureau if there is inaccurate information on their report. In essence, this means that credit repair companies are obligated to inform their clients that they have the right to contact a credit bureau directly on their own behalf.

Credit bureaus must remove inaccurate negative information from a consumer’s report. Consumers also have a right to obtain a copy of their own credit report and see the factors that affect their credit score. While negative items automatically fall off a credit report after seven to 10 years, credit repair companies don’t have the authority to remove accurate negative information before this time has passed.

Contract Rules

Customers have the right to cancel their contract with a credit repair company within three business days after signing the contract. Written contracts are required before any credit repair company can begin providing services to a consumer. The contract must also include the full terms and conditions of payment, including the total amount of all payments, as well as a detailed description of the services being offered by the company.

Customers have the right to cancel the contract without any penalty within three business days, and credit repair companies are required to state this conspicuously on the contract itself.

Payment Restrictions

There are a variety of restrictions placed on payment to credit repair companies because of the CROA. Credit repair companies cannot legally request substantial advance payments before they perform the services detailed in a signed contract. This means that a credit repair company can’t request payment upfront — instead, consumers will only have to pay after the services are rendered.

How to Report CROA Violations

If a credit repair company violates the CROA, you can report them to the Consumer Financial Protection Bureau and your state attorney general. You must report any violation of your rights guaranteed by the CROA within five years. The CFPB and your state attorney general can investigate predatory or fraudulent credit repair companies, and impose fines, penalties, or other punishments on companies that are not in compliance with the CROA.

How Does the CROA Affect Credit Repair Agencies?

In general, the CROA applies restrictions to credit repair agencies in order to help prevent misleading advertising and protect consumers. Credit repair companies are not allowed to be intentionally deceitful when it comes to advertising their services to customers. In addition, these companies are required to inform potential customers of their rights, and to provide a contract that clearly lays out the terms and cost of any potential agreement.

Credit repair companies aren’t allowed to collect payment upfront, and must instead wait until after they have performed credit repair services before receiving payment from a customer.

How Does the CROA Affect Consumers?

The CROA protects consumers from predatory practices when it comes to credit repair companies. Under the CROA, consumers are entitled to a free credit report, and can dispute any errors on the report directly with a credit bureau. In addition, the CROA protects consumers from false or misleading advertising from credit repair companies.

This means that credit repair companies can’t claim to do things that they aren’t really able to do, like allowing you not to pay bills sent to collections or removing negative but accurate items from your report. There are also additional protections such as the necessity of a signed contract and no upfront payments.

In general, credit repair companies aren’t allowed to promise more than they can deliver. In most cases, the actions performed by a credit repair company can be performed just as well by the consumer themselves.

Consumers can dispute errors on their credit report, contact creditors directly to ask that negative marks be removed, and work to improve their own credit over time. However, there may be some circumstances when a consumer would rather pay a professional company to handle the credit repair process rather than go it on their own. In these cases, credit repair companies can help to improve your credit in exchange for a fee.


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