Back to: LAW, RISK, & TRANSACTIONS
Credit Repair Organization Act Definition
The Credit Repair Organization Act also referred to as CROA, is a federal law that requires companies offering credit repair services to customers to act with utmost honesty. The CROA was passed in 1996 and formed a section of the larger Consumer Credit Protection Act laws.
The intention of coming up with CROA was to ensure that credit repair organizations do not engage in unfair business deals, which could lead to consumers experiencing financial hardships. In other words, it protects consumers from organizations that robe them their money, with a false promise of improving their low credit scores based on correct information.
A Little More on What is the Credit Repair Organization Act
Credit repair gives room for those consumers who want to correct errors or mistakes in their credit reports. So, as a customer, you have a right to amend any errors made on your credit report to ensure that you have a clean credit profile and make good use of your credit score.
The CROA is the law that ensures the protection of your rights as a customer throughout the process of credit repair. It is an amendment to the Consumer Credit Protection Act of 1968.
CROA generally protects those prospective customers seeking credit repair services from credit repair organizations so that they can make informed decisions. The law is intended to protect the public from deceptive business practices and advertisements by credit repair organizations.
It points out the required disclosures, prohibited practices, contract requirements, penalties, and liabilities for those who do not comply. Also highlighted is the procedure for reporting non-compliance.
One important part that CROA covers are how credit repair organizations get their payments. It ensures that credit repair companies receive payment only after rendering services.
It achieves this through a payment method where clients pay only after confirming the successful removal of the items from the credit report. So, it means that those credit repair companies that demand upfront payment or charge excess are actually going against the CROA provisions.
However, for those companies that demand advance payment, CROA requires that the contracts be in the form of writing. The contract should also have a provision that gives consumers cancellation rights to the contract.
What does CROA DO?
CROA was established to purposely respond to the growing number of complaints regarding credit repair organizations that were fraudulently promising customer services that the law prohibits. CROA is a law that offers protection to consumers by doing the following:
- It ensures that credit repair companies do not give false information about their services
- It ensures that the credit repair companies provide their customers with a written contract
- It prevents the credit repair organizations from demanding for advance payment before they provide the services to customers
- It ensures that the contract has a provision that gives a customer the right to cancel the contract within three days
Note that as a customer, you have a right to obtain a credit report from a credit repair company, a disclosure known as Consumer Credit File Rights as provided under State and Federal Law. The documents enable you to know your right as far as obtaining your credit report and disputing erroneous information is concerned. It also gives you the right to take legal action against a credit repair company that violates the CROA.
How the CROA Works
A credit score is percentage lending institutions use to measure the creditworthiness of an individual. It a person’s credit score is low, then it means that he or she is a risky borrower. On the other hand, a person with a high credit score means that he or she is likely not capable of missing a loan payment.
Most credit score ranges between 300-850. So, a person with a 720 and above score is within the bracket of people who have an excellent credit score, between 620 and 720 is a fair to good credit score. Those with credit scores below 620 are a high-risk borrower.
Generally, credit scores work in a way that the higher the credit score, the higher of borrowing money from lenders. Also, those with high credit scores are likely to get a loan with more fair terms such as low-interest rates or longer loan payment period.
What makes up your credit score include things such as:
- Loan payment history
- The amount you owe the lender(s)
- Your credit history length
- Your recent credit accounts that you just opened
Credit reporting agencies compile such information and hand it over to an organization known as Fair Isaac Corporation (FICO). FICO is the one that calculates your actual credit score. However, your credit score calculation may vary from one agency to the other because credit reporting agencies may have different credit score history about you.
What are the Credit Repair Contract Requirements?
As a customer, you must be given a contract to sign by a credit repair contract before engaging in any transaction with it. The contract should have the following features:
- Should show the amount to be paid as charges (payment amount)
- A description showing the services the company will perform to repair your credit
- A date by which the company expects to complete the credit repair services (The duration it will take to complete the process)
- A statement that is visible to let you know that you are free to cancel the contract in three business days in case you want to
Note that as a customer, CROA gives the right to cancel a signed contract between you and a credit repair company. The period within which to cancel the contract is usually three business days.
There are no cancellation charges if you cancel the contract within the stipulated time frame. The contract usually has what we call a Notice of Cancellation form, where a customer who wishes to cancel the contract can fill out and return to the organization.
Credit Repair Organization and Fraudulent Activities
There are many ways that credit repair organizations deceive customers that they will delete their negative credit information from a credit report. Such organizations may, for example, eliminate references that show repeated late loan payments, bankruptcies, or even default on loans.
There are usually fee charges these organizations ask (mostly upfront payment) for services you can personally perform. Some even may even try to change a negative credit score by letting you change your identity.
For instance, some may advise you to obtain a new employer identification number. For those credit repair organizations that practice such illegal or fraudulent activities, the FTC has a right to shut them down if they happen to receive complaints from customers.
How to Protect Yourself from the Fraudulent Activity
As a customer, you have the right to take legal action against credit repair organizations if you believe that it has defrauded you without going through the FTC for complaint. For instance, if a credit repair organization fails to offer you a written contract or demands upfront payment, it has violated the CROA. In this case, you have the right to file a lawsuit seeking a refund or your money from the organization.
FTC encourages customers to directly approach any credible credit reporting agencies in case their credit report has some errors. It is possible to make corrections to your credit report free of charge.
References for Credit Repair Organization
Academic Research on Credit Repair Organization
Legislative Framework for Reducing Fraud in the Credit Repair Industry, A, Nehf, J. P. (1991). Legislative Framework for Reducing Fraud in the Credit Repair Industry, A. NCL Rev., 70, 781.
Giving Arbitration Some Credit: The Enforceability of Arbitration Clauses Under the Credit Repair Organizations Act, Hanft, G. (2010). Giving Arbitration Some Credit: The Enforceability of Arbitration Clauses Under the Credit Repair Organizations Act. Fordham L. Rev., 79, 2761.
Is the Right to Sue Really the Right to Sue-Examining Arbitration and the Language of the Credit Repair Organization Act, MacCaskey, M. B. (2011). Is the Right to Sue Really the Right to Sue-Examining Arbitration and the Language of the Credit Repair Organization Act. U. Louisville L. Rev., 50, 131.
Credit Counseling: A Panacea or Just Another Consumer Scam?, Brown, L. S. (2004). Credit Counseling: A Panacea or Just Another Consumer Scam?. Michigan Poverty Law Program.
Trust in crisis: Organizational and institutional trust, failures and repair, Bachmann, R., Gillespie, N., & Kramer, R. (2011). Trust in crisis: Organizational and institutional trust, failures and repair. Organization Studies, 32(9), 1311-1313.
Credit Repair Organizations after Regulations-Wolves in Nonprofits’ Clothing, Moakley, M. L. (2003). Credit Repair Organizations after Regulations-Wolves in Nonprofits’ Clothing. Fla. BJ, 77, 28.
The Credit Card Market and Regulation: In Need of Repair, Carter, C., Renuart, E., Saunders, M., & Wu, C. C. (2006). The Credit Card Market and Regulation: In Need of Repair. NC Banking Inst., 10, 23.
Values in repair, Houston, L., Jackson, S. J., Rosner, D. K., Ahmed, S. I., Young, M., & Kang, L. (2016, May). Values in repair. In Proceedings of the 2016 CHI conference on human factors in computing systems (pp. 1403-1414). ACM. This paper examines the question of “values in repair” — the distinct forms of meaning and care that may be built into human-technology interactions through individual and collective acts of repair. Our work draws on research in HCI and the social sciences and findings from ethnographic studies in four sites — two amateur “fixers” collectives’ in Brooklyn and Seattle, USA and two mobile phone repair communities in Uganda and Bangladesh — to advance two arguments. First, studies of repair account for new sites and processes of value that differ from those appearing at HCI’s better-studied moments of design and use. Second, repair may embed modes of human interaction with technology and with each other in ways that surface values as contingent and ongoing accomplishments, suggesting ongoing processes of valuation that can never be fully fixed or commoditized. These insights help HCI account for human relationships to technology built into the world through repair.
A quick fix? Credit repair in Australia, Ali, P., O’Brien, L., & Ramsay, I. (2015). A quick fix? Credit repair in Australia. A poor credit history can preclude an individual from obtaining loans, credit cards and even access to basic utilities. Credit repair companies claim to assist people in this situation, by deleting adverse information from their credit histories. As financial hardship becomes more widespread, increasing numbers of Australians are turning to credit repair. Yet critics maintain that these companies charge high fees for services that are available for free through ombudsman schemes. In this way, they often increase their clients’ financial hardship, while subverting the objectives of the ombudsman schemes. This article examines the Australian credit repair industry, including the regulatory context and the industry’s attempts at self-regulation. It discusses several case studies from a Melbourne community legal centre, and describes the regulation of credit repair in the United States and the United Kingdom. It considers various law reform options that would address the problems posed by credit repair in Australia.
Financialization and the consumer credit boom, Langley, P. (2008). Financialization and the consumer credit boom. Competition & Change, 12(2), 133-147. Viewed in retrospect, the concept of ‘financialization’ highlights the massive growth in the issue and trading of ownership claims on all manner of instruments. It has also opened the way for research linking these changes in the financial markets to disciplinary transformations in corporate management and governance. There are, however, future prospects for financialization research once the concept is re-worked from a cultural political economy perspective and changes in the financial markets are linked to the consumer credit boom in Anglo-American economies. Grounded in the calculative creation and management of default risk by lenders, markets for asset-backed securities and credit derivatives have emerged that trade claims on the future repayments of borrowers on car loans, credit cards and so on. Disciplinary transformations also arise in everyday financial self-government. Thrift and prudence are no longer paramount in extending individual freedom and security, but are displaced by the responsible and entrepreneurial meeting, management and manipulation of outstanding obligations.
Are Claims Arising under the Credit Repair Organizations Act Subject to Arbitration under a Predispute Arbitration Clause in a Consumer Contract (10-948), Grenig, J. E. (2011). Are Claims Arising under the Credit Repair Organizations Act Subject to Arbitration under a Predispute Arbitration Clause in a Consumer Contract (10-948). Preview US Sup. Ct. Cas., 39, 7.