|What is credit repair fraud?Do promises like these sound familiar?|
Note: This pamphlet is available online only.
Credit repair fraud occurs when companies offer consumers the service of cleaning up their credit report for a fee. They typically charge $50 and up, but they often do little or nothing for you before vanishing.
“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!”
If a credit repair company promises you that it will be able to remove negative information from your credit report, the company is not telling the truth. Generally, you can change only incorrect information or remove negative items appearing on your report after the seven-year (or, in some cases, 10-year) reporting period. If you have a poor credit history, other than deleting incorrect or expired information, making timely payments on your debts over 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 it is illegal.
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 interests 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.
The Federal Trade Commission (FTC) and the Florida 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 requires credit repair organizations to give you a copy of your rights as a consumer before you sign a contract. They also must give you a written contract that spells out your rights and obligations, and they cannot require you to pay them until they have delivered the services they promised.
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) – which set out procedures for resolving mistakes on credit billing and electronic fund transfer account statements (in other words, credit cards and debit cards).
The Fair Debt Collection Practices Act (FDCPA) – which 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.
The truth is that you can help yourself rebuild a better credit record by disputing the items that are incorrect or outdated 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
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 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) or on welfare, or that your report is inaccurate because of fraud.
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 not going beyond what you have set aside.
If you do decide that you need help working out a payment plan and a budget, contact your local nonprofit credit counseling service. These nonprofit 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 a price quote in writing and that everything the organization is promising you is in writing. You also can ask to see the nonprofit’s certification information.
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.
Debt settlement companies must make certain disclosures, including how long it will take to get results and how much it will cost you, before you sign a contract with them. Debt settlement companies are prohibited from collecting any fee from you upfront. They must “earn” the fee first, meaning they have to fully perform under the contract before you must pay them.
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.
Make sure all promises are in writing, and don’t sign anything without reading it first.
Here are some tips to make sure that a counselor is right for you:
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 nonaffiliated party (meaning they are trained by a different company or certification method).
Look for these RED FLAGS:
They charge set-up or monthly fees.
They won’t help you because you can’t afford to pay.
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.
For more information on credit repair fraud visit www.myfloridalegal.com or call (866) 966-7226.
[Updated July 2015]