Back in 2014, the Better Business Bureau (BBB) conducted a study on the credit repair and debt settlement industry focusing on consumer complaints, changes in laws, and the enforcement of these laws by the FTC. What they found was an increase in the number of consumers seeking help from the BBB to resolve their credit and debt problems arising out of incompetent credit repair and debt settlement companies.
The surge in complaints against credit repair companies rose to over 200,000 in 2014. Federal and state laws were enacted a few years ago to address these questionable operators and run them out of business. But, did all of these new laws help or is there still a rampant number of credit repair and debt settlement companies ripping off innocent consumers?
BBB Complaints Rise Against Credit Repair Companies
Since 2008, more and more Americans have been falling further into debt, losing their jobs, and ruining their credit in the process. Looking for a way to improve their low credit score, consumers are turning to the Internet to look for credit repair companies who can remove negative items from their credit report which in turn may increase their scores.
A Google search of “credit repair companies” brings up over 19 million hits, of which, many ads read: “Fast Credit Repair – $29” or “Repair Your Bad Credit Fast.” Because of these enticing ads, consumers sign up for the service only to be let down or taken to the cleaners. For example, in St. Louis (one of the cities the BBB studied) consumers paid an average of $816 to credit repair companies and 85 percent of those people received NO SERVICE in return.
According to the BBB, complaints against credit repair companies ballooned in 2011. With the sudden overwhelming need for credit repair, many companies opened their doors only to masquerade as professionals much to the detriment of the consumer. Many of these fly-by-night companies have made the entire credit repair industry seem unsavory and the FTC had to sweep in and take control of this dire situation.
FTC Clamps Down on Credit Repair Organizations
Several states joined the FTC in sweeps of credit repair organizations, filing numerous lawsuits alleging violations. These actions were called Project Credit Despair and Operation Clean Sweep. In these efforts, they targeted 20 credit repair operations, which charged hundreds of dollars in advance with promises to remove accurate information from consumers’ credit reports.
In later years, the FTC and 24 state agencies announced a crackdown on 33 operations that claimed they could remove negative information, even if that information is accurate and timely. “Companies that promise they are able to scrub your credit reports of accurate, negative information for a fee are lying — plain and simple,” as stated by the FTC.
Law Passed to Protect Consumers from Credit Repair Scams
About 15 years ago, in response to a then growing credit repair industry, Congress enacted the Credit Repair Organizations Act (CROA). According to the FTC website, the purpose of this act is as follows:
- To ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and
- to protect the public from unfair or deceptive advertising and business practices by credit repair organizations.
When the FTC saw a sharp increase in complaints over the last few years, they began their crack-down and started to file lawsuits against these companies using the CROA as a basis for the filing. Many companies were shut down due to these lawsuits and some consumers were refunded their money. Now with a more watchful eye on the credit repair companies, the FTC has seemed to weed out all the bad companies and consumers can now be a bit more confident they will get the proper credit repair service they were entitled to in the first place.
What You Can Do To Avoid Be Scammed
Even with the FTC watching out for you, you still need to make sure you do your homework before you sign up with a credit repair company. Having said that, there is really nothing a credit repair company can do for you that you can not do on your own. As evidence from this website, you can repair your credit yourself but it does take time and effort. If you don’t have the time, here are some tips to make sure you are hiring a reputable credit repair company as outlined in the CROA.
- Written Contract Required. No services may be provided by any credit repair organization for any consumer;
- unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection has been signed by the consumer; or
- before the end of the 3-business-day period beginning on the date, the contract is signed.
- Terms and Conditions of Contract. No contract referred to in subsection meets the requirements of this subsection unless such contract includes (in writing);
- the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
- a full and detailed description of the services to be performed by the credit repair organization for the consumer, including;
- all guarantees of performance; and
- an estimate of the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete;
- or the length of the period necessary to perform such services;
- the credit repair organization’s name and principal business address; and
- a conspicuous statement in boldface type, in immediate proximity to the space reserved for the consumer’s signature on the contract, which reads as follows: “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.”
If you would like to repair your credit on your own, you can read our easy-to-follow guide on credit repair. No matter which road you travel, do-it-yourself, or hiring a company, fixing your credit is a worthwhile endeavor that will reap benefits for years to come. Start today and fix your credit!