Credit Repair Organizations and the Law

October 05, 2009
By Aaron Reese


Credit Repair Organizations (CRO) have drawn bad press lately.  The industry has attracted the attention of nearly every consumer protection agency.  Since taking office in April 6, 2009 Missouri Attorney General Chris Koster has filed suit against six (6) credit repair organization that illegally operated in Missouri and has a dozen more investigation underway. [1] On March 24, 2009, the Federal Trade Commission presented a statement to the House of Representatives about the growing concerns in the industry.  Noting its own problems with CROs, this year, the Better Business Bureau reevaluated and adjusted the rating system for CROs. [2]


Much legislation has been passed concerning CROs with additional enforcement policies enacted by the FTC, IRS and State Attorneys General.  With volumes of laws, statutes and rules, consumers often find themselves at a severe disadvantage when dealing with seemingly legitimate businesses. The average person is ill-equipped to decode the meaning of more complex laws and lacks funds for hiring attorneys to explain them.  Consumers in need may not even be able to find the laws that apply to their situation.  Luckily, fraudulent CROs are easy to spot once one knows what to look for.


The single most important thing to know about CROs is that advance fees for credit repair are illegal.  The Credit Repair Organizations Act states that “no credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed." [3] This not only means that up-front fees are illegal, but also illegal are any charge made before the services outlined in the contract are completed.  Consumers should be wary of companies that offer ‘free’ credit repair in return for purchasing other services.  This could be considered illegal because the statute also forbids “other valuable consideration” in exchange for credit repair services.


Before agreeing to do business with a Credit Repair Organization, consumers should ask their local Better Business Bureau and Attorney General’s Office if the company has a pattern of complaints.  Carefully read the contract or agreement.  If the company becomes impatient with a consumer’s thoroughness, it may be in the consumer’s best interest to decline further dealings with the business. For further research, consumers can also contact the appropriate occupational licensing agencies to ensure the company is operating legally.

When doing business with an unknown company, research is necessary.  While many CROs are reputable, imposters will mimick legitimate business practices to acquire clientele. No consumer can afford to take a company's word that it is truthful and reputable.  Checking out a company can be tedious, but can save a consumer from much bigger headaches and even financial ruin. Take the time. Make the effort. It's worth it.

[1] “Koster Files Lawsuit Against Kansas City Company.” Missouri Attorney General News Release. Aug 13, 2009.

[2]  Committee on Reports Meeting Minutes. May 6,  2009

[3] Credit Repair Organization Act, 1996