Home Credit repair Business Credit Repair and What the Law Says

Business Credit Repair and What the Law Says

Owners searching for business credit repair run into a federal law written for individuals. Here is what the Credit Repair Organizations Act requires, forbids, and leaves out.

Written

What business credit repair usually means

Business owners go looking for business credit repair for one reason. Something on a credit report is in the way, and they want it gone.

Before hiring anyone, it helps to know the law that governs these companies. It is the Credit Repair Organizations Act, or CROA. It sets the rules for what a credit repair company must do, and what it can never do.

The federal law that governs credit repair companies

The FTC's page says the Credit Repair Organizations Act is Title IV of the Consumer Credit Protection Act. Congress wrote it with two aims. It gives buyers of credit repair services the information they need to make an informed decision. It also guards people from lying ads and unfair business acts by these companies.

The law does not cover everyone who touches credit. Banks and credit unions are left out. So are the firms they own. The law does not count these as credit repair companies.

What CROA requires before and during a contract

The rules start before any contract is signed. CROA requires a written disclosure first. It must come before you sign any contract. The disclosure has to stand alone as a separate document. It may not be tucked into the contract or mixed in with anything else the company gives you.

The disclosure itself says three things. It says you can dispute wrong information yourself. You contact the credit bureau directly. The credit bureau cannot charge you to look into a disputed item again. And a consumer may sue a credit repair organization that violates the Act.

Then comes the contract. CROA says a credit repair organization may not provide services unless a written and dated contract has been signed by the consumer. The contract must state the terms and conditions of payment, including the total amount of all payments. It must include a full and detailed description of the services to be performed, including all guarantees of performance. It must list the company's name and its main business address.

The contract must also have a bold note near the place you sign. That bold statement has to tell the consumer that cancellation is allowed. Every contract has to arrive with a second copy of the form titled Notice of Cancellation.

That cancellation right is short and firm. The CFPB says you can cancel a new credit repair contract for any reason within three business days at no charge.

What CROA forbids

The law's bans are blunt. CROA bans a company from taking any money before it finishes the work. The CFPB puts it plainly: all forms of upfront payment before services are completed are illegal.

CROA also bans false or misleading claims about what a company's services can do. It also bans a trick. A company cannot change who you are on paper to hide bad marks that are true.

The law polices itself. Any waiver by a consumer of its protections is void and may not be enforced by any court. Any attempt to obtain a waiver is treated as a violation. A services contract that does not comply is void and may not be enforced. A person who fails to comply can be liable for actual damages, punitive damages, and attorneys' fees. Enforcement runs under the Federal Trade Commission Act.

Who CROA covers

Here is the part that matters for business owners. The Act defines a consumer as an individual. It says a consumer credit transaction is credit given to a person for personal, family, or home use.

So the rules people expect from credit repair firms protect a person. They are not written for a company. The Act's definitions speak of individuals and of credit for personal, family, or household purposes. That is a reason to read any contract with care before signing.

What a business owner can do themselves, for free

The CFPB says you can dispute errors in your credit reports yourself for free under the Fair Credit Reporting Act. No one needs to be paid to write a letter.

One limit matters. The CFPB says no one can remove accurate and current negative information from your credit report. A dispute is for mistakes, not for marks that are true.

There is another wrinkle. The Fair Credit Reporting Act says the direct dispute duties do not apply to disputes submitted by or prepared by a credit repair organization.

For the steps in detail, see how do I repair my own credit. For a broader look at the field, our page on repair credit walks through the options. Owners who want help beyond disputes can read about assistance with credit repair.

Warning signs

The CFPB names the clearest one. A company that asks you to pay before providing services is a warning sign of a scam. That matches the law's ban on upfront payment. The CFPB also warns that a fraudulent outfit may promise a set jump in your score. A firm making that promise is not one to trust.

Our page on credit repair scams covers the rest of the list.

Where to go next

The free dispute right the CFPB describes is under the Fair Credit Reporting Act, for errors in your credit reports. If a mark is true, no paid service can lawfully remove it, and any company that says otherwise is one to walk away from.

Sources