BBB offers advice on credit repair
As part of National Consumer Protection Week, the Minnesota Department of Commerce and Better Business Bureau of Minnesota and North Dakota (BBB) are partnering to offer consumers advice on companies offering credit repair services.
In Minnesota, the Department of Commerce regulates two types of firms offering credit repair services: credit service organizations and debt management companies. These firms must offer you a contract describing their fees and services and they must register with the Department of Commerce. Before signing a contract with any firm, always check to see that they’re licensed by visiting mn.gov/commerce/banking-and-finance/consumers/license-lookup/.
Credit Service organizations offer education and personalized advice to consumers for a fee. They advertise that they can improve your credit rating or history, help you obtain credit, and offer credit advice or assistance. Debt management companies also charge a fee for helping over-extended consumers by developing a budget and receiving money from the consumer to re-pay creditors under a specific debt reduction plan.
“There are certainly many reputable firms and organizations that can help you to get out of debt, but there are companies that seek to victimize the debt-ridden consumer,” said Commerce Commissioner Mike Rothman in a news release. “Be wary of any company that promises a quick and painless way out of debt — all with a cost of high upfront fees.”
The Credit Repair Organizations Act (CROA) makes it illegal for credit repair companies to lie about what they can do for you and to charge you before they’ve performed their services. CROA is enforced by the Federal Trade Commission and requires credit repair companies to explain:
• Legal rights in a written contract that also details the services they’ll perform.
• A consumer’s three-day right to cancel without any charge.
• How long it will take to get results.
• The total cost and any guarantees.
If a credit repair company doesn’t live up to its promises, an individual may:
• Sue them in federal court for actual losses or for what was paid them, whichever is more.
• Seek punitive damages — money to punish the company for violating the law.
• Join other people in a class action lawsuit against the company, and if successful, the company has to pay the attorney’s fees.
Here are some things to consider before choosing a credit repair firm:
• Avoid offers of a quick debt reduction or debt settlement plan with high up-front fees (in the hundreds or thousands of dollars) — this should be a red flag the company is not a legitimate firm.
• Some fraudulent agencies will get away with using a nonprofit status just to collect an individual’s money. The scam artists are likely to send a financial planning brochure as “education.” Legitimate agencies should be willing to sit down and discuss spending habits and help a client come up with a budget.
• Beware of unrealistic promises, such as erasing your debt for pennies on the dollar in a short time span or promises to reverse a bad credit score. If it sounds too good to be true, it probably is.
• Work with a Minnesota licensee that has a local office with staff available to answer questions.
• Research the company at bbb.org. Check to see if the firm is a member of a major association, such as the National Foundation for Credit Counseling (www.nfcc.org) or the Association of Independent Credit Counseling Agencies (www.aiccca.org) where the members are nonprofit agencies using certified financial counselors that meet certain quality and ethical standards using certified financial counselors.
Though some credit repair companies may be able to assist certain customers, BBB and the Minnesota Department of Commerce echo the views of the FTC: “The fact is there’s no quick fix for creditworthiness. You can improve your credit report legitimately, but it takes time, a conscious effort, and sticking to a personal debt repayment plan.”
“Running into credit issues usually doesn’t happen overnight and the same goes for repairing your credit — despite what some firms might tell you,” said Dana Badgerow, president and CEO of BBB of Minnesota and North Dakota.