Credit Repair Scams

You may be surprised to know that there are many common types of scams in the credit repair industry.  Under federal law any deceptive or fraudulent act by a credit repair organization is considered a credit repair scam but other acts can also be unlawful. Many states also have similar prohibitions.

Deceptive Representations

The most common credit repair rip-offs occur when the credit repair organization falsely promises or implies that it can achieve specific, improbable, or illegal results or that it has some special authority that other companies lack. Under the Credit Repair Organizations Act (CROA) such implications are prohibited. Numerous credit repair organizations commit this violation; however, it occurs most often with credit repair companies who use commissioned salesman to enroll clients. Because sales are driven by commissions, the truth is often obscured by false promises and outright deceptions.

Failure to Adhere to State Registration Requirements

In most states, credit repair organizations are required to register with the state as a credit repair organization. Many companies ignore this requirement and choose instead to operate unlawfully without the registration. Doing so violates not only many state deceptive sales practices acts but also violates CROA. A lack of the required registration is a credit repair scam because it constitutes an untrue or misleading representation of the credit repair organizations services and also constitutes a fraud or deception that the company is operating lawfully when it is not. This violation is surprisingly common.

Charging Fees before the Work is Fully Performed

Another commonly used tactic is to charge the consumer fees before the credit repair firm has fully completed the promised work. This ordinarily occurs when the firm charges a fee to setup the case without performing any substantive work or charges a monthly fee without performing any work the previous month. Indeed, such billing practices are fairly common in the industry.

Failure to Provide Required Disclosures

A less prevalent though still significant credit repair scam arises when the credit repair company fails to provide the consumer with the federally required disclosures. Under federal law, these companies are required to provide certain disclosures to the consumer to instruct the consumer of their legal rights.  Some companies fail to provide the disclosures in any form while others provide only partial disclosures. Either way is unlawful.

Conclusion

There are numerous other scams or rip-offs related to credit repair but the few discussed above are the most common. To avoid these swindles you should only hire a credit repair company who takes its ethical and legal obligations seriously and specifically charges you only for actual work performed rather than charging you junk fees to merely start your case. Use diligence and don’t rely solely on website reviews or a high volume of advertised clients to choose a credit repair partner. In most cases, your best partner in credit repair is going to be a local consumer law attorney who will work with you personally and in strict adherence to CROA and his state bar requirements.

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