Summary: According to US law, credit repair services cannot charge customers up front. If you're trying to improve your credit, beware of upfront credit repair fees. The CFPB caught CreditRepair.com and Lexington Law illegally charging consumers. These companies are out of the credit repair game for the time being, but there are still unscrupulous companies out there, so beware.
Seeing the best in people is admirable. But when it comes to businesses (and especially credit repair businesses), it’s good to be a little more discerning. Recent events have helped more consumers learn their rights when it comes to credit repair — specifically, that it’s illegal for credit repair companies to charge fees up front.
Here’s what happened and what you can do to protect yourself.
What do credit repair companies do?
Credit repair companies do pretty much what the name suggests. In exchange for a fee, they help their clients improve their credit.
So what goes into this credit-improving magic? It’s usually pretty simple. In most cases, these companies contact credit bureaus and work to have negative items on your credit report removed before they naturally fall off. To see how this can help average consumers, let’s take a look at an example.
Example: Chloe gets a copy of her credit report and sees that her score is lower than she expected. When she looks closer, she sees the reason — she has three late payments on record from when she was seriously financially struggling two years ago. She knows that late payments stay on your credit report for seven years, but she’s hoping to get a car loan in the next year. Chloe decides to hire a credit repair company, and the company gets to work contacting credit bureaus. Sure enough, the late payments come off Chloe’s report early, and her score goes back up.
Of course, credit repair doesn’t always go that smoothly. That’s largely why credit repair companies are disallowed from charging customers fees up front; credit repair doesn’t always work.
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The law prohibits these credit repair companies from charging upfront fees
Fortunately, the United States has several laws protecting consumers from predatory sales practices. One of the best-known laws like this is the Telecommunications Consumer Protection Act of 1991 (TCPA), which tightly regulates the way telemarketers can use telemarketing equipment.
Another law is the Credit Repair Organizations Act. This law includes a few provisions surrounding companies offering credit repair services. These are some of the most important ones:
- Credit repair services cannot require customers to pay anything up front.
- All contracts between credit repair companies and their customers must be in writing.
- Under some circumstances, consumers can withhold payment if they aren’t satisfied with the results of the credit repair company’s efforts.
The laws are pretty clear on the illegality of credit repair companies charging fees up front. Today’s credit repair companies should avoid violating a law that’s so completely clear. But as you’ll see in a moment, some credit repair companies take advantage of unsuspecting customers.
Some credit repair companies have been sued recently
If you follow consumer protection news at all, you might already know about the credit repair scandal of late 2023.
A group of large credit repair companies, including Lexington Law and CreditRepair.com reached a massive $2.7 billion settlement with the Consumer Financial Protection Bureau (CFPB). They also were banned from offering credit repair services through telemarketing for 10 years.
The reason? The companies charged consumers fees in advance via telemarketing, and that violated federal law. On an individual level, these fees might not sound like much. If someone signed up for credit repair with CreditRepair.com or Lexington Law, they were charged a $15 sign-up fee. Two weeks later, they started to be charged $15 per month.
However, the credit repair companies charged more than four million customers. In total, these illegally collected fees added up to $3.1 billion. It gets even worse, however, when you consider the agreements the companies asked consumers to sign.
Before signing up, each customer had to sign a contract stating that the company guaranteed no results at all. Customers had to agree that they were paying for the credit repair companies’ efforts to fix their credit, not the actual results they obtained.
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The companies did more than collect illegal fees
The credit repair companies involved in the case also referred to outside businesses that helped customers secure rent-to-own homes. The customers were advised to use Lexington Law or CreditRepair.com to repair their credit in order to get better rates on homes from the contractors in question.
How to protect yourself from unethical credit repair companies
One of the best ways to protect yourself is simple: if a company asks you to pay up front, don’t. However, unscrupulous companies are good at being sneaky, and they’re often hard for consumers to spot. The CFPB offers a few signs of credit repair scams:
- The company claims to be able to remove all negative information, even if it’s accurate.
- The company says you need to invent a new credit identity.
- The company can’t or won’t answer basic questions like the total cost of its services or what it specifically does to repair credit.
- The company promises a specific result (like a certain increase in your score or the removal of every single negative thing on your report).
Ultimately, it’s important to listen to your gut feelings. If a credit repair company sounds too good to be true, it probably is.
SoloSuit helps consumers like you stand up for your rights
Unscrupulous credit repair companies don’t have a monopoly when it comes to taking advantage of consumers. Some debt collectors also behave unethically. Don’t let them! When you use SoloSuit to validate your debt, respond to a lawsuit, or settle your debt, you’re protecting your financial health. Get started today!