Repairing inaccurate, misleading and unverifiable items off credit reports is perfectly legal. But some credit repair companies are not. Fraudulent companies make false promises and often mislead consumers. As a result, the Federal Trade Commission (FTC), who is responsible for enforcing consumer protection, developed the Credit Repair Organization Act (CROA). I know what you are thinking “one bad apple ruined it for the rest of us” but with a few simple tips, it will be smooth sailing. Several states have their own laws and regulations so you many want to do a search for what your states regulations are. For this article we will focus on the Federal CROA.
#1 – Don’t make deceptive claims
Do not make false representations or guarantees. It is important to understand there are no guarantees involved with Credit Repair. Just like in a court of law, an attorney could never guarantee a client that the judge or jury would find in their favor. It is also important that you do not lie or misrepresent your credit repair services. Honesty is the best approach. If you want to make claims about how successful your services are, give actual statistics and examples of what your other clients have experienced. “Our average clients see 4 – 10 items removed in 90 days” is a great way to pitch your service. Remember, you don’t have to lie or deceive to sell your service. The largest credit repair organizations out there are still in business because they are truthful.
#2 – Ask you clients which items to dispute
The second biggest violation credit repair companies make is disputing items that are known to be accurate. Although it is a rare thing to find credit reports “completely accurate” across all three credit bureaus, if the client indicates that “yeah, that is right” then you better leave that item alone. As Brad Elbein, Director of the FTC’s Southwest Regional Office says “no credit repair company has the right to remove accurate, current information from a credit report.” Stick with disputing items the client instructs you to. This is as simple as taking 10 minutes to run over the credit report with your client. Using DisputeSuite.com, you can input customer instructions, such as “My payment was never late”, into the software for each item.
#3 – Provide consumers with their rights
As a credit repair organization, you must provide a copy of the “Consumer Credit File Rights Under State and Federal Law” before you have your client sign a contract. You must also inform your client that they have a right to cancel your contract. Visit http://www.ftc.gov/os/statutes/croa/croa.shtm to get a copy.
#4 – Make sure you have a contract in place
If you don’t already have one in place, you must get a contract in place immediately. Make sure your contract hits these talking points:
- The payment terms for services, including their total cost
- A detailed description of the services to be performed
- Any guarantees or refund policies (if offered)
- Power of attorney
- The expected time it will take to achieve results (use estimates)
- A copy of the FTC’s “Consumer Credit File Rights”
- A cancellation notice (in bold font). Clients have 3 business days afterwards to legally cancel.
- Your company’s name and business address
You can find tons of sample credit repair agreements on the internet by Google’ing “credit repair agreement”. However, I recommend you have a lawyer look over the contract to ensure its legality. Make sure you have the client sign and date it (in ink). Make 2 copies of the agreement, one for the client’s records and one for yours. It is a MUST to keep copies of your clients’ contracts for a minimum of 2 years.
#5 – First perform then collect payment
That’s right, perform credit repair services then collect money. Seems like a backwards way of billing but the CROA states a credit repair organization is not allowed to collect payment for any services that have not been performed. The organization can only collect payment after they have performed their end of the deal. This is why I recommend monthly billing. (See my article on fixed vs. monthly billing.) With monthly billing, you are billing for work previously performed.
For a closer look, please visit www.ftc.gov. I recommend printing up the CROA and pasting it up on the wall for quick reference. It also lets your employees know you are serious about compliance.