A high level of personal debt continues to be a source of stress for many in today’s economy, and it often leads to a certain level of desperation among debtors who have seen their wages gradually grow stagnant. Particularly in a difficult economy, the likelihood of defaulting on regular debt payments becomes an unfortunate fact of life for those consumers who were irresponsible with previous spending. Overly high balances on credit cards and missed payments will, of course, lead to a lower credit score, thus making future purchases on credit much more difficult. In situations like these, desperation may lead to a debtor consulting with a credit repair company.
What is a credit repair company?
At it’s core, a credit repair company is an organization hired in order to review a person’s credit history, identify potential fraudulent charges, and dispute these charges with one of the major credit reporting firms. If some of these questionable charges are removed from a debtor’s credit history, this may lead to an improvement of their credit score. While in theory this beneficial for someone struggling with debt, in practice in results in a risk of debtors being taken advantage of by unscrupulous credit repair firms. For instance, credit repair companies often charge high fees, thus barely leaving a dent in the overall amount of debt that someone owes. Many of the services that credit repair companies provide could be pursued by the debtor themselves for free, and the Federal Trade Commission provides resources for consumers to better understand the dispute process. The most damaging strain of credit repair companies are those who offer debtors a “new identity” that will free them from debt, as this often results in an attempt to commit fraud by obtaining a new Employer Identification Number. Needless to say, this is a sector that requires regulation if consumers are to be protected.
Who regulates credit repair companies?
Credit repair companies are regulated by Credit Repair Organization Act (CROA), which was signed into law in 1996 in order to crack down on credit repair companies that would otherwise look to defraud customers. Under the CROA regulations, credit repair companies must provide a contract of legal rights to a debtor seeking out their services, inform a debtor how much they must pay overall and how long they should wait to hear results, and the right to cancel without charge within three days of ordering credit repair services. These regulations are enforced on an individual level by each state’s Attorney General, who will be in charge of enforcing laws that regulate the actions of a credit repair company. Each state’s laws concerning credit repair companies could vary slightly, so individual cases will be handled on a state-by-state level. Additionally, debtors who feel they have been defrauded are able to file a claim with the Federal Trade Commission. If the Commission identifies a pattern of harmful business practices by a particular firm, it may take legal action against that credit repair company.
One of the major dangers of credit repair companies is the risk that they will mislead those who are not particularly well-informed about their rights and who are desperate for short term relief from credit burdens. Despite the regulations listed above, there are still credit repair companies that will deceive a customer or pursue other questionable business practices that result in an even larger amount of overall debt thanks to their high fees. Luckily, the regulations in place are a major step towards ensuring that credit repair companies are more transparent with their customers in their business dealings.