Watch for Debt Collection Scams
Debt collection scams can cost consumers financially as well as cost time and aggravation. Debt collection scams and errors occur when the information about a consumer’s debt is recorded incorrectly. Errors regarding debts and debt collections may include minor issues such as the wrong amount recorded in the credit report or major issues such as the wrong person being attributed to the bad debt.
Errors often occur when a bad debt is released or sold from the original creditor to a collection company. These bad debt errors can cost an individual money with unnecessary payments as well as a poor credit history and bad credit score.
Unfortunately, in some egregious cases the debt collection error is due to willful acts made by the collection agency. Collection agencies that end up doing more damage to an individual credit history and credit score by not recording payments properly or displaying a debt as not paid when it should be and other related problems that are caused by willful neglect or intentional deceit.
An example of improper acts conducted by collection agencies was brought to light by a settlement between the FTC and large collection agency. The FTC news release regarding this settlement simply stated “Claimed Debts Were Owed Despite Consumers’ Disputes”
In the press release by the FTC the complaint stated that a nationwide debt collector has agreed to pay a fine of more than $1 million to settle charges that it violated federal law by inaccurately reporting credit information and pressing consumers to pay debts they often did not owe. The FTC charged a company called Credit Bureau Collection Services with these actions and of violating the FTC Act and the Fair Debt Collection Practices Act.
The company was charged with violating the Fair Credit Reporting Act by reporting information to credit reporting agencies that consumers had proved was inaccurate, failing to inform the credit reporting agencies that consumers had disputed the debts, and failing to investigate the accounts after receiving a notice of dispute from a credit reporting agency.
The Federal Trade Commission is a federal government agency authorized to prevent fraudulent, deceptive, and unfair business practices and includes practices in credit reporting and debt collections. Unfortunately, by the time the FTC addresses an issue there may be numerous consumers who have already experienced damaging results by the actions of others. Knowing the laws and rules regarding credit reports, credits cores and debt collections can help save someone from being the victim of unlawful practices and abuses.
Managing Money and Credit
Learning how to manage money the right way is an important step for individuals to take toward controlling their financial position. Understanding where your money is coming from and where it’s going to, not only helps to manage a household budget but can make sure that an individual’s credit remains good as well as helping to improve credit and credit scores that are already weak.
One of the first steps toward financial control and sound credit management is to calculate your net income. In order to improve credit and hence improve credit scores, the first step has to be knowing all of your sources of income after deductions, like income taxes and 401k, are taken into consideration. This net figure ultimately determines how much money can be spent each month on living expenses and debt repayment.
The next step is to make sure all accounts are current or have current information. Along with gathering and managing all current accounts, balancing the checkbook is a critical component in money management since it provides the information on exactly how much money is currently available to save or spend. Prepare statements on all bills and debt and make sure the checkbook is balanced and up to date.
Create a personal budget is next logical step to managing money and credit. A budget is an important tool to control spending, help manage debt and improve savings. A budget can be a fundamental starting point to help you achieve your financial goals. A budget is also a good way to understand what is important to you. Items of consumption such as new toys and cars and furniture are nice but hardly important to our lives and relationships. Determine what’s important in your life including credit, debt and relationships with a budget.
Once a budget is in place it times to take a close look at credit card debt and minimize the use of credit cards. Always use your credit cards wisely. The credit card rates on outstanding balances add up quickly and buying goods that cannot be paid for with current income is only going to make money management harder and stress levels higher. Credit card debt is an easy trap to fall into. The best way to avoid this trap is to avoid using credit cards altogether.
Now its time to pay down any outstanding debt. For those consumers that have credit card debt or other debts, one of the best approaches is to pay the maximum amount of funds available to the highest interest rate debts first and the minimum on lower interest debts to pay debts faster. Call the credit card companies to make better payment arrangement and lower the interest rate to help solve your debt burden.
Now, establish a savings plan. Try to set up an automatic withdrawal plan for forced savings, contribute to a 401K or deposit a portion of your monthly income into some kind of savings account. Even a small amount will add up when it is deposited monthly.
Review and understand your credit report. Obtain a credit report and become acquainted with your credit history. Annualcreditreport.com is the government mandated web site that lets consumers get access to one credit report from each of the three major credit reporting agencies annually. In order to improve your credit and improve your credit score, it is important to know where it stands presently. Repairing damaged credit can be easier than many people believe. But it does require work and no matter how bad the starting point is, you need to see the credit report and credit history to know where to start.
If the credit report shows late payments, high balances and credit lines, or bankruptcies or other collection activities, this will negatively impact an individual’s ability to get additional credit, housing, insurance and many other services that involve credit. Start now with good money management skills and fix as much of the credit report as possible to increase the credit score and credit profile.
Credit Scores and Credit Limit Changes
Credit scores are influenced and change up and down to a number of attributes found in an individual’s credit report. The FICO credit score is the most common credit score used by lenders. In calculating credit scores, the FICO score is derived by analyzing the data in an individual’s credit report and will change as the credit report data changes.
A number of factors are weighed in a credit report to come up with the credit score. Factors include length of credit, payment history, amounts owed, amount of new credit, types of credit used and other factors.
One of the other factors used to determine the credit score is the amount of available credit in relation to credit outstanding. This is further analyzed by the proportion of credit lines used or the proportion of credit line balances such as credit card balances in relation to the total credit limits on certain types of revolving accounts. The FICO score considers the consumer’s credit limit to evaluate what is referred to as the credit utilization rate or how much available credit is being used at the time the score is calculated. The greater an individual’s credit utilization rate, the greater the risk that person will eventually default on a credit account.
Therefore it is reasonable to find two individuals that have fairly similar credit histories and payment patterns and one of these individuals has incurred a significant amount of credit card debt in relation to their available credit limits, while the other individual has relatively low credit card balances in relation to the available credit and the two scores will be different. The individual with the greater amount of debt relative to available credit is penalized for that position.
The credit utilization rate factor that goes into credit score models is why the common advice on credit card for consumers is to avoid running up one credit card to its maximum limit, rather it is generally believed that to maintain or improve a credit score, the credit card balances should be spread out among different cards and therefore reduce the relative amount of debt to credit limit or credit utilization rate per credit card.
With credit cards companies reducing their credit card exposure by dropping credit card limits on customer accounts, it is possible that these consumers are now finding their credit scores dropping as well. In a recent FICO score study, the company found that that approximately 20 percent of the U.S. population experienced a reduction in total revolving credit between October 2008 and April 2009. In general big reductions in credit limits will work the same as increases in the debt by reducing the amount of available credit and subsequently result in a negative impact on a credit score.
According to data from FICO score, the scores derived assess a lot of data and the effect of a single factor like a credit limit reduction on an individual credit score will depend on what other data is on the credit report and how much the credit card limit or line is reduced.
The key factors that impact the credit score in conjunction with a credit limit reduction, according to the folks at FICO score, include: the amount by which their credit limit is reduced, what actions are taken by the consumers in reaction to the reduced credit limit, such as, late monthly payments, changes in the account balances, or opening a new accounts, as well as any other changes in the individuals credit report after the credit limit is reduced.
The negative impact of the reduced credit limit is therefore substantially mitigated by either positive steps of the consumer such as reducing credit balances or financial missteps such as late payments. A credit limit reduction on a single credit card account won’t necessarily damage someone’s credit history or credit score. The final impact will vary depending on each person’s unique credit profile.
Changes to Credit Score Calculations
In 2007 Fair Isaac Corporation, creators of the FICO credit scoring system announced that they would change how their credit score models evaluate credit report data. The new credit score, referred to as FICO 08, was delayed in its implementation until the second half of 2009.
The FICO score model is kept under wraps by the company that created it, but it is always a good idea to obtain a general understanding as to what makes a good or bad credit score. With the knowledge of what drives a credit score, consumers can either engage in good habits to maintain a good credit score or work to improve an existing low credit score.
The changes to the current FICO scores are taking place in a few key consumer sections that include opening new accounts or having prior derogatory information on select accounts and authorized user accounts.
The new version is less damaging for consumers that have had limited credit problems even in severe situations. The score gives less weight to isolated problems as long as the majority of other active credit accounts are in good standing.
The new formula gives less weight to minor derogatory or negative accounts such as small collection accounts and public records in which the original debt was less than $100.
The new credit model also reduces the weight of authorized-user accounts by reducing the potential score impact associated with the abuse of authorized user accounts.
Adding a spouse or child to a credit card as an authorized user has long been a good way to improve that person’s credit score, since the good history already established on the account had generally been imported to the credit report of new authorized user. Some mortgage brokers and credit repair companies began abusing this feature by “renting” authorized-user accounts from individuals that had good credit accounts and selling them to individuals who wanted to boost their scores.
According to company, they have developed technology that reduces any impact on the new credit score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit accounts.
The new credit score model uses the same 300-850scoring range, score reason codes, minimum scoring criteria, and inquiry treatment as previous versions of the score.
Credit bureau scores are often called FICO scores because most credit bureau scores used in the U.S. are produced from software developed by Fair Isaac and Company but not all credit scores are FICO scores. FICO scores are provided to lenders by the major credit reporting agencies. The FICO score is the credit risk score used by most lenders in the U.S.
Fed Announces Rule Changes for Marketing Free Credit Reports
The confusion over the marketing of free credit reports by companies that require a subscription to a credit monitoring service or other related products and services to receive the free credit report has resulted in intervention by the Federal Trade Commission.
Numerous consumers have seen advertisements touting free credit reports. Most of these advertisements have small disclaimer that explain that there is a requirement that the consumer sign up for a credit monitoring service or similar service that has a monthly charge in order to receive the free credit report(s).
The primary reason why there is a cost to the consumer over this confusion is that there has been no change regarding a consumer’s ability to receive a free credit report annually from each of the big three credit reporting agencies. Federal law mandated that the big three credit reporting agencies make available one credit report per year, with the no-strings-attached.
With the passage of the 2003 Fair and Accurate Credit Transaction Act (FACTA), all U.S consumers are entitled to one free credit report from each of the three major credit reporting agencies, Equifax, Experian and TransUnion upon request every 12 months. The credit reports are available by mail or at AnnualCreditReport.com or by calling 877-322-8228.
A new rule established by the FTC is designed to restrict procedures and actions that might confuse or mislead consumers as they try to get their federally mandated free annual credit reports and end up paying for an unnecessary service.
The FTC press release regarding the new rule changes states that, starting April 1, advertising for “free credit reports” will require new disclosures to help consumers avoid confusing “free” offers – which often require consumers to spend money on credit monitoring or other products or services.
The Federal Trade Commission’s Free Credit Reports Rule will require prominent disclosures in advertisements for “free credit reports.” The FTC example states that any Web site offering free credit reports must include a disclosure, across the top of each page that mentions free credit reports. The notice will read:
THIS NOTICE IS REQUIRED BY LAW. Read more at FTC.GOV.
You have the right to a free credit report from AnnualCreditReport.com
or 877-322-8228, the ONLY authorized source under federal law.
The Web site must also include a link to AnnualCreditReport.com and FTC.GOV.
The amended rule established by the FTC becomes effective April 1, 2010, except in the case of television and radio advertisements, in which the new rules will take effect on September 1, 2010.
Credit Repair Scams Halted by FTC
In October, 2008 the Federal Trade Commission sent out a press release regarding charges brought against another credit repair scam operation. Credit report repair services that offer to repair credit for consumers have popped up across the nation. Unfortunately, many of these organizations fail to help consumers and in some egregious cases, violate the law by taking money in advance and deceiving consumers regarding the services they perform to improve credit histories and credit scores.
In October, the FTC announced that two bogus credit repair companies and their principals settled Federal Trade Commission charges that they falsely claimed they could clean up consumers’ credit reports and collected up-front fees for their services, in violation of federal law. In one case, the FTC alleged that the defendants marketed their services via Web sites and real estate investment seminars and falsely claimed that their special relationships with creditors, collection companies, public records providers and credit bureaus enabled them to remove derogatory information from consumers’ credit reports.
According to the FTC’s complaints, all of these defendants falsely promised to remove negative information from consumers’ credit reports, such as late payments, charge-offs, collections, tax liens, repossessions, bankruptcies, and judgments, even when the information was accurate and not obsolete, in violation of the FTC Act and the Credit Repair Organizations Act (CROA). The Commission also charged them with violating the CROA by charging and collecting payment for their services before doing any work.
In the first case, Successful Credit Service Corporation, also doing business as Success Credit Services, and Tracy Ballard, also known as Tracy Ballard-Straughn, the settlement order prohibits them from collecting additional money from consumers who purchased their services before October 16, 2008, when the court halted their business practices.
The defendants in the second case are Rudolph Joseph Strobel, a/k/a Lee Harrison, and Leanna Ruth Harrison, both doing business as Lee Harrison Credit Restoration, Credit Restoration, and Lee Harrison Associates Credit Restoration. The order bars them from collecting money from consumers who purchased their services before August 28, 2008, when the court halted their business practices, and requires them to return any money orders or other negotiable instruments received after that date.
Understanding your credit situation and the facts on how to clear up credit problems and improve a credit score is the first step to solving credit problems. Rushing into a quick fix scheme can often lead to less than satisfactory results. Know that facts before working with a credit repair organization to help your credit score.
No Credit or Credit Score Same as Bad Credit
Good credit and a good credit score is an important facet of our lives whether it is used to buy a house, for employment screening, purchasing insurance or a whole host of other activities that often require a good credit history. For some consumers though, credit is a burden and they prefer to exercise their use of cash and avoid credit.
Since there are so many actions that require a credit score such as renting a car, purchasing things over the phone or the Internet, and even writing a check having no credit and no credit score can be a burden.
For these consumers, improving their credit score is not the problem, it is simply a matter of obtaining credit in order to have a credit score. If you have no credit history, you have no track record of payment and you most likely will not have a credit score. The unfortunate aspect of having no credit history and no credit score is that consumer is considered a credit risk.
Lenders use credit scores to help them determine whether someone is an acceptable credit risk for new credit or whether a creditor will increase or decrease an existing line of credit or even the likelihood that a customer will file for bankruptcy. Creditors are reviewing a credit profile to see a history of how that consumer handles debt. The review of an individual’s credit history may involve reviewing total outstanding debts, minimum monthly payments, even account credit limits. If there is no credit history and no credit score upon which to make a decision, a decision to extend credit is regarded as a risk by most lenders and creditors.
In fact, the automated underwriting approval systems developed by FNMA and FHLMC used for the vast majority of home loan approvals will not approve a loan request in which the borrower does not have a credit score.
There are some things you can do to improve your credit even when your financial situation has turned sour and there are ways to build a credit profile and credit score when there is no credit score to start with. The first issue someone may have when there is no credit score compiled with their credit report, may be that there is a mistake on their credit report.
Credit scores are dependent on the credit reporting agency that the score is based on. The three major credit reporting agencies in the US are Trans Union, Experian and Equifax. Each one of these credit reporting agencies will have a different score for the same consumer since the data in each of the three different credit reporting agencies on which the score is based will generally have slightly different information.
If a consumer finds they do not have a credit score it may be the result of the score being based on data from just one credit reporting agency. It may be that credit histories for accounts paid on time are missing from this credit report or is only recorded in one or two credit reports.
For credit histories that are only in one of the credit reporting agencies files, ask the other agencies to add the data. Send a copy of the statement and the credit report that includes all of the accounts if you can.
If it appears more than one credit report or all of the big three credit agencies are missing accounts that are paid on time, ask the credit reporting agency that these accounts be added to the report. Send the credit bureaus a recent account statement and copies of canceled checks if needed, reflecting the account and payment history. The credit bureau doesn’t have to add account information, but if it is a verifiable account they often will add the data.
A final step is to quickly develop a credit history. A credit card is one of the fastest and easiest methods to build a credit history. Credit cards can be obtained for consumers that have no credit and previous bad credit. Some secure credit cards come with a guaranteed approval with just minimal conditions, none of which include credit verification. It is important to use the credit card to obtain a payment history, though the payments can be made within the grace period to avoid finance charges. A good resource to review competitive credit card offers is www.bestcreditcardrates.com.
Other loans such as secured loans at a bank, major department store credit cards even certain utility bills will work to establish a credit history as long as the bank or utility company reports the accounts to the credit bureaus.
Credit Report Complaints and State Consumer Protection Agencies
State consumer protection agencies enforce consumer protection laws and often make available consumer protection information to inform consumers of the state and help file complaints. Many state consumer protection agencies regulate credit reporting agencies and credit repair organizations as well collection agencies.
State consumer protection agencies contact information by state:
Alabama
Consumer Affairs Division
Office of Attorney General
Alabama State House
500 Dexter Ave.
Montgomery, AL 36130
334-242-7300
800-392-5658
www.ago.state.al.us
Alaska
Consumer Protection Unit
Office of the Attorney General
P.O. Box 110300
Juneau, AK 99811
907-465-2133
1-888-576-2529
www.law.state.ak.us
Arizona
Consumer Information and Complaints
Office of Attorney General
1275 West Washington Street
Phoenix, AZ 85007-2926
602-542-5763
800-352-8431
602-542-5002 (TTY)
www.azag.gov
Arkansas
Consumer Protection Division
Office of the Attorney General
323 Center Street, Suite 200
Little Rock, AR 72201
501-682-2341
800-482-8982
501-682-6073 (TTY)
www.arkansasag.gov
California
Department of Consumer Affairs
Consumer Information Division
1625 North Market Blvd., Suite N 112
Sacramento, CA 95834
916- 445-1254
(800) 952-5210
www.dca.ca.gov
Colorado
Consumer Protection Section
Office of Attorney General
1525 Sherman Street, Fifth Floor
Denver, CO 80203-1768
303-866-5189
800-222-4444
www.ago.state.co.us
Connecticut
Department of Consumer Protection
165 Capitol Avenue
Hartford, CT 06106-1630
860-713-6050
1-800-842-2649
TTY: 1-860-713-7240
Fax: 860-713-7239
www.ct.gov/dcp
Delaware
Consumer Protection Unit
Office of the Attorney General
820 North French Street
Carvel State Building
Wilmington, DE 19801
302-577-8600
800-220-5424
www.attorneygeneral.delaware.gov
District of Columbia
Department of Consumer and
Regulatory Affairs
941 North Capitol Street, NE
Washington, DC 20002
202-442-4400
202-442-9480 (TDD-TTY)
www.consumer.dc.gov
Florida
Division of Consumer Services
Department of Agriculture and
Consumer Services
2005 Apalachee Parkway
Tallahassee, FL 32399-6500
850-488-2221
800-435-7352
www.800helpfla.com
Georgia
Governor’s Office of Consumer Affairs
2 Martin Luther King, Jr. Drive, Suite 356
Atlanta, GA 30334
404-651-8600
800-869-1123
consumer.georgia.gov
Hawaii
Office of Consumer Protection
235 South Beretania Street
Honolulu, Hawaii 96813
808-587-3222
808-586-2630
www.hawaii.gov/dcca/ocp
Idaho
Consumer Protection Division
954 W. Jefferson, 2nd Floor
Boise, ID 83720
(208) 334-2424
Toll Free in Idaho 1-800-432-3545
Fax (208) 334-4151
www.state.id.us/ag/consumer
Illinois
Consumer Protection Division
Office of Attorney General
100 W. Randolph Street
Chicago, IL 60601
312-814-3000
800-386-5438
800-964-3013 (TTY)
www.illinoisattorneygeneral.gov
Indiana
Office of Attorney General
Consumer Protection Division
302 West Washington St., 5th floor
Indianapolis, IN 46204
317-232-6330
Toll free: 1-800-382-5516 (Consumer Hotline)
Fax: 317-233-4393
www.indianaconsumer.com
Iowa
Consumer Protection Division
Office of Attorney General
1305 E. Walnut Street
Des Moines, IA 50319
515-281-5926
www.IowaAttorneyGeneral.org
Kansas
Consumer Protection and Antitrust
Division
Office of Attorney General
120 S.W. Tenth Avenue
Topeka, KS 66612-1597
785-296-3751
800-432-2310
785-291-3767 (TTY)
www.ksag.org
Kentucky
Consumer Protection Division
Office of the Attorney General
1024 Capitol Center Drive, Suite 200
Frankfort, KY 40601
502-696-5389
888-432-9257
www.ag.ky.gov/cp
Louisiana
Consumer Protection Section
Office of the Attorney General
P.O. Box 94095
Baton Rouge, LA 70804-9095
225-326-6465
800-351-4889
www.ag.state.la.us
Maine
Department of Professional & Financial Regulation
Bureau of Consumer Credit Protection
35 State House Station
Augusta, Maine 04333
1-800-436-2131 (Consumer Protection)
Fax: 207-626-8812
www.credit.maine.gov
Maryland
Consumer Protection Division
Office of Attorney General
200 St. Paul Place
Baltimore, MD 21202-2022
410-576-6550
888-743-0023
www.oag.state.md.us/consumer
Massachusetts
Office of Consumer Affairs and
Business Regulation
10 Park Plaza, Suite 5170
Boston, MA 02116
617-973-8787 (hotline)
617-973-8700
888-283-3757
www.mass.gov/consumer
Michigan
Consumer Protection Division
Office of Attorney General
P.O. Box 30213
Lansing, MI 48909
517-373-1140
877-765-8388
www.michigan.gov/ag
Minnesota
Consumer Protection Division
Office of Attorney General
1400 NCL Tower
445 Minnesota Street
St. Paul, MN 55101-2130
651-296-3353
800-657-3787
651-297-7206 (TTY)
800-366-4812 (TTY)
www.ag.state.mn.us
Mississippi
Consumer Protection Division
Office of the Attorney General
P.O. Box 22947
Jackson, MS 39225-2947
601-359-4230
800-281-4418
www.ago.state.ms.us
Missouri
Consumer Protection Division
Attorney General’s Office
P.O. Box 899
Jefferson City, MO 65102
573-751-3321
800-392-8222
www.ago.mo.gov
Montana
Office of Consumer Protection
2225 11th Avenue
P.O. Box 200151
Helena, MT 59620-0151
(800) 481-6896
(406) 444-4500
Fax: (406) 444-9680
www.doj.mt.gov/consumer
Nebraska
Consumer Protection Division
Office of Attorney General
2115 State Capitol Building
Lincoln, NE 68509-8920
402-471-2682
800-727-6432
www.ago.ne.gov
Nevada
Consumer Affairs Division
Office of the Attorney General
100 North Carson Street
Carson City, Nevada 89701-4717
(775) 684-1100
Fax - (775) 684-1108
www.fyiconsumer.org
New Hampshire
Consumer Protection and Antitrust
Bureau
Department of Justice
33 Capitol Street
Concord, NH 03301-6397
603-271-3658
Toll free: 1-888-468-4454
www.doj.nh.gov/consumer
New Jersey
Division of Consumer Affairs
Department of Law and Public Safety
124 Halsey Street
Newark, NJ 07102
973-504-6200
800-242-5846
973-504-6588 (TDD)
www.njconsumeraffairs.gov
New Mexico
Consumer Protection Division
Office of Attorney General
P.O. Drawer 1508
Santa Fe, NM 87504-1508
505-827-6000
800-678-1508
www.nmag.gov
New York
Office of the Attorney General
The Capitol
Albany, NY 12224-0341
General Helpline: 1-800-771-7755
800-788-9898 (TTY)
www.oag.state.ny.us
North Carolina
Consumer Protection Division
Department of Justice, Attorney
General’s Office
9001 Mail Service Center
Raleigh, NC 27699-9001
919-716-6000
877-566-7226
www.ncdoj.gov
North Dakota
Consumer Protection and Antitrust
Gateway Professional Center
1050 E Interstate Avenue Suite 200
Bismarck ND 58502-5574
701 328-3404
800 472-2600
www.ag.nd.gov
Ohio
Consumer Protection Division
Office of Attorney General
Ohio Attorney General Richard Cordray
30 E. Broad St., 17th Floor
Columbus, OH 43215
Fax: 614-728-7583
(800) 282-0515
www.speakoutohio.gov
Oklahoma
Consumer Protection Unit
Office of the Attorney General
4545 N. Lincoln Blvd., Suite 112
Oklahoma City, OK 73105-3498
405-521-3653
Toll free: 1-800-448-4904
www.okdocc.state.ok.us
Oregon
Financial Fraud/Consumer Protection Section
1162 Court Street, NE
Salem, OR 97301-4096
503-378-4320
503-229-5576
877-877-9392
www.doj.state.or.us
Pennsylvania
Bureau of Consumer Protection
Office of Attorney General
Strawberry Square, 16th Floor
Harrisburg, PA 17120
717-787-3391
800-441-2555
www.attorneygeneral.gov
Rhode Island
Consumer Protection Unit
Department of Attorney General
150 S. Main Street
Providence, RI 02903
401-274-4400
800-852-7776
401-453-0410 (TTY)
www.riag.state.ri.us
South Carolina
Department of Consumer Affairs
P.O. Box 5757
3600 Forest Drive, 3rd Floor
Columbia, SC 29250
803-734-4200
800-922-1594
www.scconsumer.gov
South Dakota
Office of the Attorney General
Division of Consumer Protection
500 East Capitol
Pierre, SD 57501
605-773-4400
800-300-1986
www.state.sd.us/atg
Tennessee
Division of Consumer Affairs
Department of Commerce and
Insurance
500 James Robertson Parkway
Nashville, TN 37243-0600
615-741-4737
800-342-8385
www.tn.gov/consumer
Texas
Consumer Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, TX 78711-2548
512-463-2185
800-621-0508
www.oag.state.tx.us
Utah
Division of Consumer Protection
Department of Commerce
160 E. 300 South
SM Box 146704
Salt Lake City, UT 84114-6704
801-530-6601
800-721-7233
www.consumerprotection.utah.gov
Vermont
Consumer Assistance Program
Office of Attorney General
104 Morrill Hall, UVM
Burlington, VT 05405-0106
802-656-3183
800-649-2424
www.atg.state.vt.us
Virginia
Office of the Attorney General
900 East Main Street
Richmond, VA 23219
(804) 786-2071
www.vaag.com/consumer
Washington
Consumer Resource Center
Office of the Attorney General
1125 Washington St SE
Po Box 40100
Olympia, WA 98504
1-800-692-5082
206-464-6811
www.atg.wa.gov
West Virginia
Consumer Protection Division
Office of the Attorney General
Mailing: P.O. Box 1789
Charleston, WV 25326
304-558-8986
800-368-8808
www.wvago.gov
Wisconsin
Bureau of Consumer Protection
Department of Agriculture, Trade,
and Consumer Protection
P.O. Box 8911
2811 Agriculture Dr.
Madison, WI 53708-8911
608-224-4976
800-422-7128
608-224-5058 (TTY)
www.datcp.state.wi.us
Wyoming
Consumer Protection Unit
Attorney General’s Office
123 Capitol
200 W. 24th Street
Cheyenne, WY 82002
307-777-7874
800-438-5799
attorneygeneral.state.wy.us
The Federal Credit Repair Organizations Act – Full Text
The Federal Credit Repair Organizations Act prohibits a variety of false and misleading statements, as well as fraud by credit repair organizations. The Federal Trade Commission as well as the individual states, enforces The Federal Credit Repair Organizations Act.
The Federal Trade Commission’s Bureau of Consumer Protection works for the consumer to prevent fraud, deception, and unfair business practices in the marketplace. This federal government department protects consumers from deceptive and unfair practices in the financial services industry, including protecting consumers from predatory or discriminatory lending practices, as well as deceptive or unfair loan servicing, debt collection, and credit counseling or other debt assistance practices. The Division of Financial Practices within the Federal Trade Commission’s Bureau of Consumer Protection takes action against companies that violate the law when collecting debts, marketing debt reduction or relief services, and offering credit counseling services.
The Federal Credit Repair Organizations falls under the Federal Trade Commission’s jurisdiction.
The full text of the Federal Credit Repair Organizations Act:
Title IV of the Consumer Credit Protection Act (Public Law 90-321, 82 Stat. 164)
TITLE IV–CREDIT REPAIR ORGANIZATIONS
SEC. 401. SHORT TITLE.
This title may be cited as the ‘Credit Repair Organizations Act’.
SEC. 402. FINDINGS AND PURPOSES.
(a) Findings.–The Congress makes the following findings:
(1) Consumers have a vital interest in establishing and maintaining their credit worthiness and credit standing in order to obtain and use credit. As a result, consumers who have experienced credit problems may seek assistance from credit repair organizations which offer to improve the credit standing of such consumers. (2) Certain advertising and business practices of some companies engaged in the business of credit repair services have worked a financial hardship upon consumers, particularly those of limited economic means and who are inexperienced in credit matters.
(b) Purposes.–The purposes of this title are—
(1) to ensure that prospective buyers of the services of credit repair organizations are provided with the information necessary to make an informed decision regarding the purchase of such services; and (2) to protect the public from unfair or deceptive advertising and business practices by credit repair organizations.
SEC. 403. DEFINITIONS.
For purposes of this title, the following definitions apply:
(1) Consumer. — The term ‘consumer’ means an individual.
(2) Consumer credit transaction. — The term ‘consumer credit transaction’ means any transaction in which credit is offered or extended to an individual for personal, family, or household purposes.
(3) Credit repair organization. — The term ‘credit repair organization’—
(A) means any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of–
(i) improving any consumer’s credit record, credit history, or credit rating; or
(ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i); and
(B) does not include–
(i) any nonprofit organization which is exempt from taxation under section 501(c)
(3) of the Internal Revenue Code of 1986;
(ii) any creditor (as defined in section 103 of the Truth in Lending Act), with respect to any consumer, to the extent the creditor is assisting the consumer to restructure any debt owed by the consumer to the creditor; or
(iii) any depository institution (as that term is defined in section 3 of the Federal Deposit Insurance Act) or any Federal or State credit union (as those terms are defined in section 101 of the Federal Credit Union Act), or any affiliate or subsidiary of such a depository institution or credit union.
(4) Credit.–The term ‘credit’ has the meaning given to such term in section 103(e) of this Act.
SEC. 404. PROHIBITED PRACTICES.
(a) In General.–No person may—
(1) make any statement, or counsel or advise any consumer to make any statement, which is untrue or misleading (or which, upon the exercise of reasonable care, should be known by the credit repair organization, officer, employee, agent, or other person to be untrue or misleading) with respect to any consumer’s credit worthiness, credit standing, or credit capacity to– (A) any consumer reporting agency (as defined in section 603(f) of this Act); or
(B) any person–
(i) who has extended credit to the consumer; or
(ii) to whom the consumer has applied or is applying for an extension of credit;
(2) make any statement, or counsel or advise any consumer to make any statement, the intended effect of which is to alter the consumer’s identification to prevent the display of the consumer’s credit record, history, or rating for the purpose of concealing adverse information that is accurate and not obsolete to–
(A) any consumer reporting agency;
(B) any person–
(i) who has extended credit to the consumer; or (ii) to whom the consumer has applied or is applying for an extension of credit;
(3) make or use any untrue or misleading representation of the services of the credit repair organization; or
(4) engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of the credit repair organization.
(b) Payment in Advance.–No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
SEC. 405. DISCLOSURES.
(a) Disclosure Required.–Any credit repair organization shall provide any consumer with the following written statement before any contract or agreement between the consumer and the credit repair organization is executed:
‘Consumer Credit File Rights Under State and Federal Law
You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any ”credit repair” company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.
You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.
You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.
You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.
Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.
You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.
If the credit bureau’s reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.
The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact:
The Public Reference Branch
Federal Trade Commission
Washington, D.C. 20580′.
(b) Separate Statement Requirement.–The written statement required under this section shall be provided as a document which is separate from any written contract or other agreement between the credit repair organization and the consumer or any other written material provided to the consumer.
(c) Retention of Compliance Records.—
(1) In general.–The credit repair organization shall maintain a copy of the statement signed by the consumer acknowledging receipt of the statement.
(2) Maintenance for 2 years.–The copy of any consumer’s statement shall be maintained in the organization’s files for 2 years after the date on which the statement is signed by the consumer.
SEC. 406. CREDIT REPAIR ORGANIZATIONS CONTRACTS.
(a) Written Contracts Required.–No services may be provided by any credit repair organization for any consumer—
(1) unless a written and dated contract (for the purchase of such services) which meets the requirements of subsection
(b) has been signed by the consumer; or
(2) before the end of the 3-business-day period beginning on the date the contract is signed.
(b) Terms and Conditions of Contract.–No contract referred to in subsection
(a) meets the requirements of this subsection unless such contract includes (in writing)—
(1) the terms and conditions of payment, including the total amount of all payments to be made by the consumer to the credit repair organization or to any other person;
(2) a full and detailed description of the services to be performed by the credit repair organization for the consumer, including—
(A) all guarantees of performance; and
(B) an estimate of– (i) the date by which the performance of the services (to be performed by the credit repair organization or any other person) will be complete; or (ii) the length of the period necessary to perform such services;
(3) the credit repair organization’s name and principal business address; and
(4) a conspicuous statement in bold face type, in immediate proximity to the space reserved for the consumer’s signature on the contract, which reads as follows: ‘You may cancel this contract without penalty or obligation at any time before midnight of the 3rd business day after the date on which you signed the contract. See the attached notice of cancellation form for an explanation of this right.’.
SEC. 407. RIGHT TO CANCEL CONTRACT.
(a) In General. — Any consumer may cancel any contract with any credit repair organization without penalty or obligation by notifying the credit repair organization of the consumer’s intention to do so at any time before midnight of the 3rd business day which begins after the date on which the contract or agreement between the consumer and the credit repair organization is executed or would, but for this subsection, become enforceable against the parties.
(b) Cancellation Form and Other Information. — Each contract shall be accompanied by a form, in duplicate, which has the heading ‘Notice of Cancellation’ and contains in bold face type the following statement:
‘You may cancel this contract, without any penalty or obligation, at any time before midnight of the 3rd day which begins after the date the contract is signed by you.
To cancel this contract, mail or deliver a signed, dated copy of this cancellation notice, or any other written notice to (name of credit repair organization) at (address of credit repair organization) before midnight on (date)
I hereby cancel this transaction,
( date )
( purchaser’s signature ).’.
(c) Consumer Copy of Contract Required.–Any consumer who enters into any contract with any credit repair organization shall be given, by the organization—
(1) a copy of the completed contract and the disclosure statement required under section 405; and (2) a copy of any other document the credit repair organization requires the consumer to sign, at the time the contract or the other document is signed.
SEC. 408. NONCOMPLIANCE WITH THIS TITLE.
(a) Consumer Waivers Invalid.–Any waiver by any consumer of any protection provided by or any right of the consumer under this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
(b) Attempt To Obtain Waiver.–Any attempt by any person to obtain a waiver from any consumer of any protection provided by or any right of the consumer under this title shall be treated as a violation of this title.
(c) Contracts Not in Compliance.–Any contract for services which does not comply with the applicable provisions of this title—
(1) shall be treated as void; and
(2) may not be enforced by any Federal or State court or any other person.
SEC. 409. CIVIL LIABILITY.
(a) Liability Established.–Any person who fails to comply with any provision of this title with respect to any other person shall be liable to such person in an amount equal to the sum of the amounts determined under each of the following paragraphs:
(1) Actual damages.–The greater of–
(A) the amount of any actual damage sustained by such person as a result of such failure; or
(B) any amount paid by the person to the credit repair organization.
(2) Punitive damages.–
(A) Individual actions.–In the case of any action by an individual, such additional amount as the court may allow.
(B) Class actions.–In the case of a class action, the sum of–
(i) the aggregate of the amount which the court may allow for each named plaintiff; and
(ii) the aggregate of the amount which the court may allow for each other class member, without regard to any minimum individual recovery.
(3) Attorneys’ fees.–In the case of any successful action to enforce any liability under paragraph (1) or (2), the costs of the action, together with reasonable attorneys’ fees.
(b) Factors to Be Considered in Awarding Punitive Damages.–In determining the amount of any liability of any credit repair organization under subsection (a)(2), the court shall consider, among other relevant factors—
(1) the frequency and persistence of noncompliance by the credit repair organization;
(2) the nature of the noncompliance;
(3) the extent to which such noncompliance was intentional; and
(4) in the case of any class action, the number of consumers adversely affected.
SEC. 410. ADMINISTRATIVE ENFORCEMENT.
(a) In General.–Compliance with the requirements imposed under this title with respect to credit repair organizations shall be enforced under the Federal Trade Commission Act by the Federal Trade Commission.
(b) Violations of This Title Treated as Violations of Federal Trade Commission Act.—
(1) In general. — For the purpose of the exercise by the Federal Trade Commission of the Commission’s functions and powers under the Federal Trade Commission Act, any violation of any requirement or prohibition imposed under this title with respect to credit repair organizations shall constitute an unfair or deceptive act or practice in commerce in violation of section 5(a) of the Federal Trade Commission Act.
(2) Enforcement authority under other law. — All functions and powers of the Federal Trade Commission under the Federal Trade Commission Act shall be available to the Commission to enforce compliance with this title by any person subject to enforcement by the Federal Trade Commission pursuant to this subsection, including the power to enforce the provisions of this title in the same manner as if the violation had been a violation of any Federal Trade Commission trade regulation rule, without regard to whether the credit repair organization–
(A) is engaged in commerce; or
(B) meets any other jurisdictional tests in the Federal Trade Commission Act.
(c) State Action for Violations.—
(1) Authority of states. — In addition to such other remedies as are provided under State law, whenever the chief law enforcement officer of a State, or an official or agency designated by a State, has reason to believe that any person has violated or is violating this title, the State–
(A) may bring an action to enjoin such violation;
(B) may bring an action on behalf of its residents to recover damages for which the person is liable to such residents under section 409 as a result of the violation; and
(C) in the case of any successful action under subparagraph (A) or (B), shall be awarded the costs of the action and reasonable attorney fees as determined by the court.
(2) Rights of commission.–
(A) Notice to commission.–The State shall serve prior written notice of any civil action under paragraph
(1) upon the Federal Trade Commission and provide the Commission with a copy of its complaint, except in any case where such prior notice is not feasible, in which case the State shall serve such notice immediately upon instituting such action.
(B) Intervention.–The Commission shall have the right–
(i) to intervene in any action referred to in subparagraph (A);
(ii) upon so intervening, to be heard on all matters arising in the action; and
(iii) to file petitions for appeal.
(3) Investigatory powers. — For purposes of bringing any action under this subsection, nothing in this subsection shall prevent the chief law enforcement officer, or an official or agency designated by a State, from exercising the powers conferred on the chief law enforcement officer or such official by the laws of such State to conduct investigations or to administer oaths or affirmations or to compel the attendance of witnesses or the production of documentary and other evidence.
(4) Limitation. — Whenever the Federal Trade Commission has instituted a civil action for violation of this title, no State may, during the pendency of such action, bring an action under this section against any defendant named in the complaint of the Commission for any violation of this title that is alleged in that complaint.
SEC. 411. STATUTE OF LIMITATIONS.
Any action to enforce any liability under this title may be brought before the later of– (1) the end of the 5-year period beginning on the date of the occurrence of the violation involved; or (2) in any case in which any credit repair organization has materially and willfully misrepresented any information which– (A) the credit repair organization is required, by any provision of this title, to disclose to any consumer; and (B) is material to the establishment of the credit repair organization’s liability to the consumer under this title, the end of the 5-year period beginning on the date of the discovery by the consumer of the misrepresentation.
SEC. 412. RELATION TO STATE LAW.
This title shall not annul, alter, affect, or exempt any person subject to the provisions of this title from complying with any law of any State except to the extent that such law is inconsistent with any provision of this title, and then only to the extent of the inconsistency.
SEC. 413. EFFECTIVE DATE.
This title shall apply after the end of the 6-month period beginning on the date of the enactment of the Credit Repair Organizations Act, except with respect to contracts entered into by a credit repair organization before the end of such period.”.
1. Pub. L. No. 104-208, 110 Stat. 3009 (Sept. 30, 1996). The amendments to the credit statutes are in Title II of the Act, entitled “Economic Growth and Regulatory Paperwork Reduction.” The footnotes in this copy of the Act are not part of the Act, but are cross-references inserted by the FTC staff for the convenience of the reader.
2. To be codified as 15 U.S.C. § 1679.
3. To be codified as 15 U.S.C. § 1679a.
4. To be codified as 15 U.S.C. § 1679b.
5. Truth in Lending Act § 103(f) states in pertinent part: “The term ‘creditor’ refers only to creditors who regularly extend, or arrange for the extension of, credit which is payable by agreement in more than four installments or for which the payment of a finance charge is or may be required, whether in connection with loans, sales pf property or services, or otherwise. . . .”
6. TILA § 103(e) states: “The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment.”
7. To be codified as 15 U.S.C. § 1679c.
8. Fair Credit Reporting Act (FCRA) § 603(f) states: “The term ‘consumer reporting agency’ means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.”
Credit Counseling Agency Cautions
Using a reputable credit counseling organization can help some consumers get back on track with their financial obligations and help manage their budget better. Better financial management of existing debts will certainly help improve an individual’s credit history and credit score. But, credit counseling services are often not the solution they are advertised to be.
Credit counselors should provide advice to consumers regarding managing money and debts, help develop a workable budget, and offer various educational materials to help the consumer gain control of their finances. Credit counselors can help develop a personalized plan to solve that helps to solve a variety of money problems. Unfortunately, too many credit counselors charge a fee and provide very little substantive assistance to consumers that need financial help.
To avoid working with a credit counseling organization that provides little assistance, there are some questions you should ask before choosing a credit counselor.
Ask that the credit counseling organization to send or provide material regarding their services in advance. Find out if they offer any educational materials for free. Do not provide account numbers and personal finance information other than your name and address before any counseling agency will agree to send you information about their services. Avoid organizations that charge for information.
What kinds of counseling, debt management and educational programs does the counseling organization provide? It is always best to work with a credit counseling organization that provides a range of services, including budget counseling, and savings and debt management classes. Educational information is good but most consumers need relief and help form the debt and credit problems. The FTC recommends that consumers avoid organizations that primarily push a debt management plan (DMP).
Check and see if there are any upfront fees for the services and what all of the costs will be for the program offered. Some agencies charge up front fees for their debt management programs and other services. These fees may be so high that getting assistance is more costly than it is beneficial. Get specific information on fees in writing before going forward.
Is there a written agreement or contract for the services rendered? Don’t sign anything without reading it first. Make sure all promises and services to be performed are in writing.
What kind of training do they have for their staff and what qualifications do they posses to assist the consumers? A good counseling agency provides its counselors with regular training. Ask if they accredited or certified by an outside organization? Do they work with lawyers, certified financial planners, and other professionals?
If you are using a debt management component of the counseling services, ask if you will receive regular updates and reports regarding your account status? Within the debt management program, find out how often the creditors are paid. Ask if the credit counselor will be able to help with all of your debts? Some agencies offer little assistance for secured debts like car payments or mortgages, or government debts like taxes and student loans. Make sure you receive the right service for your needs.
What kinds of measures are used to protect your information? Check to see that the credit counseling organization has some process to keep your financial information and identity confidential and secure. Be sure you know the agency’s privacy policy. It is important that the agency you select has sufficient security in place to protect your confidential information.
Be careful with any credit counseling organization that guarantees they will be able to remove your debts or promise that these debts will be paid off for far less than you owe ( debt reductions are likely but no firm can assure it will happen ) or organizations that require large monthly fees or upfront fees or promise that using their system will have no negative impact on your credit report or claim that they can remove accurate negative information from your credit report. Credit help and credit score help shouldn’t cost an arm and a leg.