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What is the Credit Repair Organizations Act?

Article Details
  • Written By: N. Madison
  • Edited By: Jenn Walker
  • Last Modified Date: 08 November 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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The Credit Repair Organizations Act is a United States law intended to protect consumers from unscrupulous credit repair organizations and help them make informed decisions. The law covers actions credit repair organizations cannot take and prohibits them from misrepresenting their services. It also requires these organizations to inform consumers of their rights, provide proper contracts, and allow consumers to cancel within three business days of signing the contract. Consumers can sue organizations that violate the Credit Repair Organizations Act.

Under the Credit Repair Organizations Act, there are a number of things credit repair organizations cannot do. They cannot misrepresent the purpose of their companies or what they can do for consumers. For example, they cannot provide consumers with new credit files, and they are prohibited from stating that they can do so. They are also prohibited from lying about a consumer's credit history or encouraging a consumer to do so himself. Additionally, they are not allowed to create a new identity for a consumer or help him to secure a new tax ID number.

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Part of the Credit Repair Organizations Act involves the disclosure credit repair organizations must provide to their potential customers. Essentially, this law requires credit repair organizations to inform potential customers that they are not bound to using a for-pay credit repair organization and can take steps to improve their credit files on their own. The law also prohibits credit repair organizations from asking or allowing consumers to waive their rights under this law.

The Credit Repair Organizations Act also governs the contracts credit repair organizations must have their customers sign. These contracts must meet the guidelines set by the law and include information consumers need to make informed decisions. For example, a credit repair contract must describe the services the organization will provide and list the amount of money the organization will charge for its services. It must also provide an estimate of the time frame for the completion of the credit repair tasks.

A credit repair organization must also allow a consumer to cancel a contract within three business days of signing it. As long as the consumer cancels within three days, he won't incur any charges or face any penalties. Additionally, credit repair organizations are required to disclose the cancellation period in a written statement.

When credit repair organizations in the United States violate the Credit Repair Organizations Act, there are consequences they may face. For example, a consumer can sue a credit repair organization for violating the act. Depending on the circumstances, a consumer may sue for a range of damages, attorney's fees, and court costs as well.

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