Credit Repair Organizations Act (CROA) Definition
What is the Credit Repair Organizations Act (CROA)?
The Credit Repair Organizations Act (CROA) is a piece of consumer protection legislation that regulates the behavior of companies offering credit repair services. These companies charge customers a fee to help them improve their credit scores. Typically, this is done by challenging false and negative information in their report.
While such services may be useful to consumers, CROA aims to prevent misleading advertising, such as exaggerating the extent of the improvement likely to be achieved.
Key points to remember
- The CROA is a consumer protection law that regulates credit repair companies.
- These companies contact credit reporting agencies on behalf of their clients, in order to improve their credit rating.
- In the past, some credit repair companies overstated their services, taking advantage of unsuspecting customers.
How CROA works
The CROA is one of many pieces of legislation designed to protect consumers in the United States from abusive or deceptive marketing practices. In particular, the CROA is part of the broader Consumer Credit Protection Act of 1968and was written in response to the actions of some unscrupulous credit repair companies.
Companies in the credit repair industry help consumers by advocating on their behalf, contacting credit reporting agencies in an effort to have negative information removed from the customer’s credit report. In some cases, these customers may have been victims of fraud, such as when a credit card or identity thief racks up large purchases using the victim’s credit card. In these cases, the customer may be able to explain the situation to the credit reporting agency and reverse some of the negative effects on their credit rating. If the customer does not have the time or inclination to contact the credit bureau directly, they can hire a credit repair company to do so on their behalf.
Although in principle there is nothing wrong with this basic transaction, the problem arises when credit repair companies misrepresent or overestimate the scope of their services. For example, an unethical company might claim or imply that it is able to improve the customer’s score even though the items on their credit report are in fact true, such as in cases where the customer was not the victim of fraud but simply spent more than they could afford. In these cases, an involuntary customer could be required to pay significant fees for services of questionable value.
When considering these services, it is important for consumers to keep in mind that credit repair agencies do not have any special powers that the customers themselves do not have. While they may be successful in having certain erroneous or fraudulent issues removed from the customer’s file, they do not have the ability to compel the credit bureau or have accurate information removed. Fortunately, CROA helps ensure that companies in this industry advertise their services clearly and transparently. pull off a scam.
Concrete example of CROA
Kyle has been struggling with credit card debt for many years, which has unfortunately caused his credit rating to drop significantly. To make matters worse, he suspects his score may have been negatively affected by the identity theft. After all, some of the charges that appear on his credit card statements seem unfamiliar to him, causing him to wonder if one of his cards has been stolen.
To help solve this problem, Kyle hires a credit repair company to advocate on his behalf. Upon contacting the credit repair agency, he was told that they would carefully review his credit report and determine if any of the negative information on it is inaccurate or due to fraud. If such cases are detected, then they will contact the credit reporting agency and seek to have these items removed from Kyle’s file, in order to improve his credit rating.
The credit repair company agent was careful to explain that if he wished, Kyle could also contact the credit reporting agency and do this work on his own behalf. In other words, the agent clarified that the credit repair company did not have any unique credentials, but was merely providing a service for convenience. He also provided advance information on the company’s fees, while stating that they could not guarantee that an improvement in Kyle’s credit rating would be feasible.
Kyle appreciated this transparency and diligence and agreed to engage the company’s services. What he didn’t know was that the credit repair company’s franchise in disclosing these facts was mandated by the CROA.