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Credit Repair Organizations


You've no doubt heard the advertisements on the radio, seen them on TV and the internet, even received phone calls and fliers in the mail. In these ads, companies claim that they can clean up your credit report, erase bankruptcies and judgments, or even set up a new credit identity to help you get back on track. 

Unfortunately, many of these companies prey on consumers who are desperate to improve their credit reports. They use deceptive practices to gain the consumer's business, often taking hundreds, even thousands, of dollars in fees without doing much to improve the consumer's credit. These companies often attract clients with promises of the impossible, such as erasing recent bankruptcies, judgments or liens.  In truth, any entry on a credit report that is accurate and timely cannot be removed. Many of these companies even perform illegal acts on the consumer's behalf, leaving the consumer open to criminal prosecution.  Common illegal practices include disputing correct information on a consumer's credit report, and file segregation, in which a false identity is created with a new Social Security or Employer Identification Number for a consumer.  

Luckily, both federal and state laws have been passed to ensure many rights and protections to consumers seeking assistance from Credit Repair Organizations. The federal Credit Repair Organization Act (CROA)(15 U.S.C. §1679)  lays the groundwork for protecting consumers, with required disclosures, contractual clauses, and limits on the types of claims Credit Repair Organizations may make.  California's Credit Services Act of 1984 (Civil Code 1789.10 et. seq.) provides even stricter guidelines on these types of organizations.

As defined by both federal and state law, a Credit Repair Organization or Credit Services Organization is a person or organization which sells, provides, performs, or assists in improving a consumer's credit record, history or rating, or in obtaining a loan or extension of credit for a consumer.  Credit Repair Organizations provide assistance only in cleaning up credit reports and obtaining credit. They cannot assist in negotiating payment plans with creditors, lowering interest rates, reducing debt, or accepting payments from consumers to be paid to creditors. That type of assistance is available from Credit Counselors and Debt Management Services, which are governed by different laws than Credit Repair Organizations.

The federal Credit Repair Organization Act (CROA) provides consumers with many rights and protections related to Credit Repair Organizations.  These rights and protections may not be waived by the consumer. Under CROA, credit repair organizations must:

  • Provide disclosures about your rights under the Fair Credit Reporting Act, using mandatory language, prior to signing any contract. (15 U.S.C. §1679c.)
  • Provide a written contract that includes very specific information about the services to be provided. Required information includes an estimated date of completion for the services; details about the terms, conditions, and total amount of payment; the name and business address of the organization; and a statement about your right to cancel the contract within a specified time period (3 days under Federal law, 5 days under California law). (15 U.S.C. §1679d.)
  • Not accept payment until all promised services are performed. (15 U.S.C. §1679b.)
  • Refrain from deceptive practices in both obtaining consumers' business and performing the promised credit repair services. This includes misrepresenting the services provided by the credit repair organization; misrepresenting the relief available to consumers; making untrue or misleading statements to consumers, credit reporting agencies, or creditors; concealing the consumer's identity; or any other act that constitutes fraud or deception. (15 U.S.C. §1679b.)

The Department of Consumer Affairs' Legal Guide CR-9: Credit Repair Services offers more information about your rights under the Credit Repair Organization Act. 

In California, organizations providing these types of services are called Credit Services Organizations, and are governed by California's Credit Services Act of 1984 (Civil Code 1789.10 et. seq.). California law offers some additional protections not provided by federal law.  California law:

  • Requires services to be completed within 6 months. (Civil Code §1789.13(b))
  • Prevents the Credit Services Organization from collecting a fee for referring consumers to:
    • A creditor that will extend credit based on substantially the same terms available to the general public, which the consumer could have obtained without the service's assistance. (Civil Code §1789.13(c))
    • A creditor that is related to the Credit Services Organization by a common owner or manager, or for which the Credit Services Organization provides services such as underwriting, billing, payment processing, or debt collection. (Civil Code §§1789.13(o)-(p))
  • Prevents Credit Services Organizations from submitting disputes to credit reporting agencies without the consumer's knowledge, or from calling a credit reporting agency's telephone system and impersonating the consumer without the consumer's consent. (Civil Code §§1789.13(l)-(m))
  • Requires Credit Services Organizations to be registered with the Department of Justice. (Civil Code §1789.13(i))
  • Requires Credit Services Organizations to obtain a $100,000 surety bond. (Civil Code §1789.18)

The Department of Consumer Affairs' Legal Guide CR-9: Credit Repair Services offers more information about your rights under California's Credit Services Act of 1984.

The law provides civil and criminal penalties for violations of the provision of the Credit Repair Organization Act and the Credit Services Act of 1984.  Any Credit Repair Organization that violates federal or state law is liable for actual damages, punitive damages, and attorneys' fees.

If you believe you have been victimized by a Credit Repair Organization, you can file a complaint with the California Attorney General's office, the Sacramento County District Attorney's Consumer and Environmental Protection Division, and the Federal Trade Commission.  These agencies usually cannot recoup your money for you, but your complaint will prompt an investigation that may lead to criminal charges against the violating Credit Repair Organization.  Filing a complaint with these agencies will not prevent you from filing a case in the civil courts for money damages.

It is important to know that most of the services provided by Credit Repair Organization can be performed by consumers on their own behalf.   Trustworthy advice on repairing your credit is available online from articles such as "Building a Better Credit Report," "Credit Repair: How to Help Yourself," and "How to Correct Errors on Your Credit Report."

By Mary Pinard Johnson, Public Services Librarian

updated 6/14