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Credit Repair Fraud

Table of Contento
What is Credit Repair Fraud?

Do promises like these sound familiar?

Can’t My Credit Be Cleaned Up?

Questionable Practices

Credit Laws

Self Help

Negotiating Debts, Payment Plans and Credit Counseling

Debt Settlement Companies

How Credit Counseling Works

How to Evaluate Counselors

The Bad Counselor

A Few Cases


What is Credit Repair Fraud?

Credit repair fraud occurs when companies offer consumers the service of cleaning up their credit report for a fee. They typically charge from $50 and up, but often do little or nothing for you before vanishing.

Do promises like these sound familiar?

“Credit problems? NO Problem…”
“We can ease your bad credit! 100% guaranteed.”
“We can remove bankruptcies, judgments, liens, and bad loans from your credit file, FOREVER!”
“Create new credit identity—legally!”


Can’t My Credit Be Cleaned Up?

If a credit repair company tells you that it will be able to remove negative information from your credit report, the company is not telling the truth. Generally, only incorrect information or items appearing on your report after the seven (7) or ten (10) year reporting date can be changed. If you have a poor credit history, other than incorrect or expired information, time is the only thing that can heal your credit report. Some credit repair schemes promise you that they can “hide” bad credit by helping you establish a new credit identity. For a fee, some schemers may ask you to file for an Employer Identification Number (EIN) to use in place of your social security number. This practice is called “segregation” and is illegal.


Questionable Practices

In determining whether a credit repair company is legitimate, study these tips to aid you in evaluating their authenticity. The questionable practices below represent companies that DO NOT have your best interest in mind. They just want your money.
Ask you to pay before services are rendered
Fail to tell you your legal rights
Suggest a new credit identity
Advise you to dispute everything on your credit report


Credit Laws

The Federal Trade Commission (FTC) and the attorney general both enforce the credit laws that protect your right to receive, use and maintain credit. These laws, however, do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to get credit and to resolve disputes over credit errors.

Federal consumer protection laws include:

The Credit Repair Organizations Act — which require credit repair organizations to give you a copy of your rights as a consumer before you sign a contract. They must also give you a written contract that spells out your rights and obligations.

The Fair Credit Reporting Act (FCRA) — which promotes the accuracy and privacy of information in the files of the consumer reporting companies.

The Equal Credit Opportunity Act (ECOA) — which prohibits credit discrimination on the basis of sex, race, color, marital status, religion, national origin, age, or receipt of public assistance.

The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) — gives procedures for resolving mistakes on credit billing and electronic fund transfer account statements.

The Fair Debt Collection Practices Act (FDCPA) — prohibits debt collectors from engaging in unfair, deceptive or abusive practices while collecting these debts.

Some of the Federal consumer credit laws allow you to file your own claim against the offending business or organization (for example, against a debt collector under the Fair Debt Collection Practices Act).

State consumer protection laws include:

The Florida Deceptive and Unfair Trade Practices Act, which provides protections against unfair, unconscionable or deceptive acts for consumers in various types of transactions including false or misleading advertisements and schemes.


Self Help

The truth is that you can help yourself rebuild a better credit record by disputing the items that are incorrect or out dated in your credit report directly with the credit reporting agency (TransUnion, Experian, and Equifax). While it is often tedious, it is possible and you can accomplish the same results as a credit repair company. The first step is to obtain a copy of your credit report from each of the three reporting agencies

Free Credit Reports: Everyone is now entitled to one free credit report per year, from each of the three major credit reporting agencies. You can request your reports online at www.annualcreditreport.com External Link opens in a new window or by phone at (877) 322-8228. You are not required to purchase anything to receive your reports through this source authorized by the Federal government.

In addition, you are entitled to a free credit report if you respond within 30 days to a letter from a creditor after you are denied credit. If you are denied insurance or employment you are entitled to a free report within 60 days of notice. You must be able to show that you are either unemployed (but will seek employment within 60 days), on welfare or your report is inaccurate because of fraud.


Negotiating Debts, Payment Plans and Credit Counseling

Are you living paycheck to paycheck? Are you worried about debt collectors? Maybe you can’t seem to develop a workable budget, let alone save money for retirement.

If any of this sounds familiar, you may want to consider the services of a credit counselor. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But beware—just because an organization says it is “nonprofit” doesn’t mean that its services are free or affordable or legitimate.

There are many resources on the Internet available for free to help you budget. One of the easiest ways is to simply freeze or destroy your credit cards, and live on a cash basis, putting aside your money for the week in individual envelopes (for example, “Groceries”, “Transportation,” “Entertainment”) and do not go beyond what you have set aside.

If you do decided to that you need help working out a payment plan and a budget, contact your local non-profit credit counseling service. These non-profit groups offer credit guidance to consumers, and their services are available at little or no cost to you. Your credit union, housing authority or employer may offer these services too. Make sure that you get price quote in writing and that everything the organization is promising you is in writing. You can also ask to see the certification information.


Debt Settlement Companies

You’ve seen the ads: “I had debt of $80,000 and they settled it for $1,000, call now for information.” Debt settlement companies promise they will settle your debt for pennies on the dollar, for a fee. Beware. Because of the Federal Trade Commission’s investigation into unscrupulous debt settlement companies, new regulations are now requiring that these companies actually do the work they promise:

Beginning September 27, 2010 debt settlement companies must make certain disclosures, including how long it will take to get results and how much it will cost to you before you sign a contract with them.

Beginning October 27, 2010 debt settlement companies are prohibited from collecting any fee from you upfront. They must “earn” the fee first, meaning they have to reach a settlement with at least one creditor before collecting a fee from you.

Finally, Congress is considering two bills to try to limit debt settlement fees to a one time fee of $50 and 5% of the savings from each settlement.


How Credit Counseling Works

An initial counseling session typically lasts one hour and includes an offer for follow up sessions. If a firm doesn’t send you free information about itself, consider it a red flag and go elsewhere for help. Likewise, if you can’t meet with someone in person, it is probably not a good idea.

How to Evaluate Counselors

Here are some criteria to look for to be sure that a counselor is best for you:
Don’t sign anything without reading it first.
Make sure all verbal promises are in writing.

Look for an organization that offers a range of services, including budget counseling, savings and debt management classes.
Avoid organizations that charge for information.
Get a specific price quote in writing.
• Try to use an organization whose counselors are trained by a non-affiliated party (meaning they are trained by a different company or certification method).

Look for these RED FLAGS to avoid:
They charge set-up or monthly fees.
They won’t help you because you can’t afford to pay.


The Bad Counselor

Steer clear of counselors who:
Guarantee to remove unsecured debt.
Say using their system will let you avoid bankruptcy.
Require substantial monthly service fees.
Advise you to stop making payments to or communicating with your creditors.
Ask you to pay them.


A Few Cases

There have been instances when the government has had to step in and halt illegal business practices. According to separate FTC complaints, Florida-based Sunshine Credit Repair, Inc. and Service Brokers Associates, Inc. use Spanish and English language advertising to induce consumers to pay up-front fees for “credit repair” services. The FTC alleges that Sunshine Credit typically charges a $198 fee for its services, while Service Brokers typically charges $300 to $400.

Under the Credit Repair Organizations Act (CROA), it is illegal to charge consumers money before performing the promised credit repair services. The FTC also charges that Sunshine Credit deceptively claims it can permanently delete accurate, negative information from consumers’ credit reports.

For more information on credit repair fraud visit www.myfloridalegal.com External Link opens in a new window or call (866) 966-7226.

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