Consumer Pamphlet: Credit Repair Fraud
Note: This pamphlet is available online only.
What is credit repair fraud?
Can’t my credit be cleaned up?
Free credit reports
Negotiating debts, payment plans and credit counseling
Debt settlement companies
How credit counseling works
How to evaluate counselors
The bad counselor
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!”
Be careful, these types of promises are generally false.
Credit repair fraud occurs when companies offer you the service of cleaning up your credit report for a fee (typically $50 or more), but then do little or nothing to repair your credit before vanishing.
If a credit repair company promises 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 credit report after a seven-year (or, in some cases, 10-year) reporting period. If you have a poor credit history, the only way you can heal your credit report, other than deleting incorrect or expired information, is by making timely payments on your debts over time. Some credit repair schemes promise 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. Be careful; this practice is called “segregation,” and it is illegal.
In determining whether a credit repair company is legitimate, be particularly wary of companies that do or say the following things, none of which are in your best interest:
- 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 Office of the Attorney General both enforce federal and state credit laws designed to protect your right to receive, use and maintain credit. These laws, however, do not guarantee that you will receive credit. Instead, these laws protect your rights by requiring businesses to give you a fair and equal opportunity to get credit and to resolve disputes over credit issues.
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 promised services.
- The Fair Credit Reporting Act (FCRA) – which promotes the accuracy, fairness and privacy of information maintained by consumer reporting companies.
- The Equal Credit Opportunity Act (ECOA) – which prohibits creditors from discriminating against applicants on the basis of sex, race, color, marital status, religion, national origin, age, receipt of public assistance or prior exercise of any rights under the Consumer Credit Protection Act
- The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) – which establish 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 using unfair, deceptive or abusive practices to collect debts from consumers.
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 protects consumers from unfair, unconscionable or deceptive acts in various types of transactions, including false or misleading advertisements and schemes.
You can help yourself repair your credit record. Start by contacting your creditors as soon as you realize you cannot make a payment. Obtain free copies of your credit report from each of the main credit reporting agencies (TransUnion, Experian and Equifax). Review your credit reports for accuracy, and dispute any incorrect or outdated information in your credit reports. While tedious, taking these steps can help you obtain the same results as a credit repair company, and for free.
Everyone is entitled to one free credit report per year, from each of the three major credit reporting agencies (TransUnion, Experian and Equifax). You can request your reports online or by phone at 877-322-8228. You are not required to buy or pay anything to receive your free credit 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 denying credit. If you are denied insurance or employment, you are entitled to a free report within 60 days of notice. However, you must be able to show that you are 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 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, affordable or legitimate.
There are many resources available for free online to help you budget. One of the easiest ways to budget is to 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 would like 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 also offer credit counseling services. If you are asked to pay anything, make sure you get a quote in writing setting forth the total payments and services you will receive. You also can ask to see the nonprofit’s certification information.
Debt settlement companies promise they will settle your debt for pennies on the dollar, for a fee. You’ve seen their ads: “I had debt of $80,000 and they settled it for $1,000; call now for information.” Beware of debt settlement companies. Because of the Federal Trade Commission’s investigation into unscrupulous debt settlement companies, new regulations now require these companies to actually do the work they promise.
Debt settlement companies must make certain disclosures before you sign a contract with them, including how long it will take to get results and how much it will cost you. Debt settlement companies may NOT collect any fee from you upfront. Rather, 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. In addition, 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 make you pay for information.
- Get a specific price quote in writing, together with a description of servicing being provided.
- 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:
- The organization charges set-up or monthly fees.
- The organization 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 the “How to Protect Yourself: Credit Repair Scams” page on the website of Florida’s attorney general or call 866-966-7226.
This pamphlet is produced as a public service for consumers by The Florida Bar.
[Updated February 2018]