Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Ashley Fricker
In 1996, the Credit Repair Organizations Act (CROA) began protecting U.S. consumers from disreputable credit repair companies.
Imagine being excited about moving to a new city, but shocked when your application for an apartment is denied. Puzzled, you research your credit reports, only to find that someone has stolen your identity and run up thousands of dollars in unpaid debt on a car loan under your name!
You’re now left scrambling for a place to live while trying to straighten out your credit. You’re not sure where to turn but you contact a credit repair organization.
These days, thanks to the CROA, you’re much more likely to find a reputable company to help you resolve the damage done to your credit. Before the CROA was enacted, consumers were left on their own trying to figure out which credit repair companies may be on the up-and-up and which ones may just be a sham.
The illegitimate organizations often wouldn’t actually help repair credit — and many times simply made things even worse. In this article, we’ll dive deeper into exactly what the CROA is, explore some of our favorite (and compliant) credit repair companies, and look at how to report CROA violations.
CROA Prevents Unfair Business Practices in Credit Repair
The 1996 CROA, which is Title IV of the Consumer Credit Protection Act, requires credit repair organizations to communicate honestly with consumers.
It’s meant to punish dishonest companies that charge clients for services never rendered and to prevent false promises, such as removing accurate derogatory information from a credit report.
The Act came about as a response to evidence that credit repair organizations were cheating money out of consumers looking to improve their credit scores by claiming to remove negative items from credit reports.
The CROA provides consumers with several legal protections by directing credit repair organizations to adhere to rules, including:
- Requiring these organizations to provide you all pertinent information about their services and fees before you sign an agreement
- Telling consumers that credit repair was available without using the organization
- Preventing upfront charges
- Requiring the organization show proof of their activities before charging you for those activities
Consumers are also granted cancellation rights they didn’t previously have before CROA, and credit repair companies can only collect payment after services have been rendered.
How to Report CROA Violations
If you believe that a credit reporting organization has violated the CROA, contact the Consumer Financial Protection Bureau and submit a complaint.
Several credit repair organizations are legitimate and do a good job cleaning up mistakes on credit reports. It’s important to use an organization with high ratings and to be aware of your rights under the CROA. If a credit repair organization asks you for an upfront payment or in any other way violates the CROA, report it to the CFPB and find another credit repair service provider.
