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Home Credit Repair What Is the Credit Repair Organizations Act (CROA)?

What Is the Credit Repair Organizations Act (CROA)?

Credit Repair Organizations Act protecting a man from credit repair scams

At a glance

The Credit Repair Organizations Act (CROA) is a federal law designed to protect consumers from scams and immoral business practices in the credit repair industry.

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Written by Victoria Scanlon

Reviewed by Robert Jellison

Aug 22, 2022

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If you’ve hired someone to fix your credit for you or you’ve been approached by someone offering credit repair services, then you should be aware that you have certain rights and protections granted by the Credit Repair Organizations Act (CROA).

Understanding what your rights are and what restrictions apply to credit repair organizations will help you avoid getting involved with illegal credit repair operations or falling victim to credit repair scams.

Table of Contents

  1. How does the CROA work?
  2. Who does the CROA apply to?
  3. Other laws that apply to credit repair companies
  4. What to do if a credit repair company violates your rights

How does the CROA work?

The Credit Repair Organizations Act is intended to regulate credit repair companies and protect consumers.

It sets clear ground rules for what credit repair companies can and can’t do. You can review the full text of the CROA here, but there are really just a few key points you need to know. The CROA places restrictions on:

  • How credit repair companies can market their services
  • What information they need to provide to you
  • When they can charge you money
  • What they can say to lenders or the credit bureaus
  • When they’re allowed to deny your request to cancel your contract

Before the act was introduced, it was all too easy for people calling themselves “credit repair experts” to take advantage of desperate consumers by tricking them into paying big bucks for results that they had no way (or intention) of achieving.

These days, it’s a lot easier to find a legitimate credit repair company, as long as you know what to look out for.

What credit repair practices are illegal under the CROA?

The Credit Repair Organizations Act makes it illegal for credit repair companies to do any of the following things:

  1. Misrepresent their services: There are no guarantees in credit repair. Companies that promise they’ll be able to wipe your credit clean or raise your credit score by a certain number of points are lying to you and violating the CROA.
  2. Charge you for services upfront: It’s against the law for any credit repair company to charge you upfront for services they haven’t yet completed. They have to actually do something to fix your credit before they can ask you for money.
  3. Fail to disclose your rights: All credit repair organizations are required to provide you with a written statement summarizing your rights titled “Consumer Credit File Rights Under State and Federal Law.” Failing to do so is a violation of the CROA.
  4. Lie to the credit bureaus or creditors: Credit repair companies aren’t allowed to falsely represent your credit history or ask you to lie about your credit history to any credit reporting agency or lender.
  5. Require you to waive your rights: Your rights under the CROA are guaranteed, and it’s a violation of the act for a credit repair company to require you to waive those rights.
  6. Offer you a new identity to access credit: Using a credit privacy number (CPN), employer identification number (EIN), or someone else’s Social Security number (SSN) on credit applications in an attempt to trick lenders into giving you a loan or credit card is against the law, so credit repair companies can’t legally offer these services.

What credit repair practices are still legal under the CROA?

Despite these legal restrictions, the CROA doesn’t stop credit repair companies from taking the following measures to fix your credit legally:

  • Obtaining copies of your credit reports
  • Checking your credit score
  • Disputing items on your credit report
  • Communicating with your creditors
  • Negotiating with your debt collectors
  • Sending letters of recommendation to lenders

Other important disclosures required by the CROA

As part of the written disclosure that they must give you, the credit repair agency is also required to inform you that you also have the right to dispute items on your credit report on your own for free.

You have the right to know that you don’t need a professional to fix your credit for you. There’s nothing credit repair companies can do for you that you can’t also do; they just save you the time and hassle of doing it on your own.

You can remove negative marks from your credit report by yourself and use online tools and resources to get free credit repair and rebuild your credit on your own.

Who does the CROA apply to?

The Credit Repair Organizations Act applies to any company that may be considered a credit repair organization.

A “credit repair organization” is defined as any person or company that sells services that are designed to improve a consumer’s credit record, credit history, or credit rating, or that provides advice or assistance to any consumer on how they can improve their credit. 1

In short, the CROA applies to anyone who offers to fix your credit and improve our credit score in exchange for some sort of payment. In addition to self-described credit repair companies, this can also include lawyers and prospective lenders.

However, the CROA does not apply to nonprofit organizations or creditors who offer credit repair assistance to existing customers.

Other laws that apply to credit repair companies

In addition to the Credit Repair Organizations Act, there are a few other laws that regulate what companies can and can’t do to repair your credit.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a federal law designed to ensure the accuracy of credit reporting and give you more control over the information shown on your credit report. The act has several major implications for credit repair: 2

  • You have the right to obtain free copies of your credit report
  • You have the right to dispute information on your credit report
  • You have the right to check your credit score
  • Credit reporting agencies must delete unverifiable information from your credit report
  • Credit reporting agencies must delete negative items after a certain number of years (usually 7)

These rules can work to your advantage. You or a credit repair company you’ve hired to fix your credit can take advantage of these rights and restrictions to monitor your credit and improve your credit rating.

Telemarketing Sales Rule

The Telemarketing Sales Rule is a federal law regulating the actions and business practices of telemarketers. It applies to any person or company that uses telemarketing to get you to make a purchase or sign up for a particular product or service.

While the Telemarketing Sales Rule is broad in scope, it includes a section that specifically prohibits any company from accepting payment for credit repair services until the following conditions are met: 3

  1. All credit repair services have been provided and your contract has expired.
  2. The company has provided you with a copy of your credit report showing that the promised results were achieved more than 6 months ago.

This effectively means that the Telemarketing Sales Rule makes it illegal for companies that have used telemarketing to charge you for credit repair until 6 months have passed since they fixed your credit.

State credit repair laws

Credit repair laws don’t just exist at the federal level. Some states have introduced their own laws to protect consumers from abusive credit repair practices. For example, although credit repair is legal at the federal level, state law actually makes it illegal in Georgia. 4

To find out the specific laws on credit repair in your state, consider searching through your state government’s website or your state attorney general’s webpage or consulting an attorney who’s familiar with the credit repair laws in your state.

What to do if a credit repair company violates your rights

If a credit repair company breaks the law or violates your rights, you should immediately report the violation to the authorities. You can begin by taking these steps:

  1. File a fraud report with the Federal Trade Commission (FTC) at ReportFraud.ftc.gov.
  2. Submit a complaint with the Consumer Financial Protection Bureau (CFPB).
  3. Report the company to your state attorney general.

Once you’ve taken appropriate measures to report the company, you can also consider taking legal action against them. Consult a lawyer to find out whether you have grounds to sue the company for damages.

Takeaway: The Credit Repair Organizations Act (CROA) is a federal law regulating what credit repair companies can do.

  • The CROA regulates how credit repair companies represent their services, what information they must disclose to you, and when they can charge you.
  • Credit repair companies must provide you with a written statement summarizing your rights, and they’re not allowed to require you to waive your rights or charge you upfront.
  • Under the CROA, you also have the right to cancel your credit repair contract within 3 business days if you change your mind.
  • Other laws also regulate what credit repair companies can and can’t do, including the Fair Credit Reporting Act, Telemarketing Sales Rule, and state credit repair laws.
  • If a credit repair company violates your rights or breaks the law, then you should report them to the authorities. You can also sue them for damages.

Article Sources

  1. U.S. Code. "Subchapter II–A—Credit Repair Organizations" Retrieved August 22, 2022.
  2. Federal Trade Commission. "Fair Credit Reporting Act 15 U.S.C § 1681" Retrieved August 22, 2022.
  3. Code of Federal Regulations. "Part 310 - Telemarketing Sales Rule" Retrieved August 22, 2022.
  4. Georgia.gov. "O.C.G.A. Section 16-9-59" Retrieved August 22, 2022.

Victoria Scanlon

Credit & Finance Editor

View Author

Victoria Scanlon is a professional writer, editor, and researcher for FinanceJar. She has experience editing research for publication in academic journals and writing educational content. Her goal is to help non-experts better understand topics related to personal finance and credit repair so that they can make more-informed financial decisions.

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