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Special Reports
Credit Restoration
FTC Gives Warning About Credit Repair Fraudsters
By Bonnie Sinnock
Credit restoration efforts are ones that the Federal Trade Commission and other
regulatory bodies advise a cautious approach to, especially in the wake of the inordinate global, market-shaking
troubles associated with mortgages in the credit-impaired category.
Credit repair should be approached carefully as it has been found in some cases
to be linked with fraud, according to the FTC. "Some fraudsters convince consumers that they can help them
remove truthful, negative information from their credit report, or establish a new credit record. They can't,"
the FTC said.
The commission also advises borrowers to be wary of "advance-fee loan scams,
in which consumers pay a fee for a 'guaranteed' loan or credit card ... but [do] not receive the promised loan
or card."
By law, "credit repair companies cannot require [borrowers] to pay until
they have completed the services they have promised," according to the commission.
The Credit Repair Organizations Act "prohibits a variety of false and misleading
statements, as well as fraud by credit repair organizations," according to the FTC.
In addition to being prohibited from receiving payment before any promised service
is "fully performed," credit repair firms must offer services under a written contract, "which must
include a detailed description of the services and contract performance time. CROs must provide the consumer with
a separate written disclosure statement describing the consumer's rights before entering into the contract. Consumers
can sue to recover the greater of the amount paid or actual damages, punitive damages, costs, and attorney's fees
for violations of the CROA. The states and the FTC may also enforce the CROA," the commission said.
Warning signs that a credit repair or restoration company may be a "scam"
are the following, according to a commission report on the topic:
* Companies that want borrowers to pay for credit repair services before they
provide any services.
* Companies that do not tell borrowers their legal rights and what they can do
for themselves for free.
* Companies that recommend that borrowers not contact a credit reporting company
directly.
* Companies that suggest borrowers try to invent a "new" credit identity
- and then, a new credit report - by applying for an Employer Identification Number to use instead of their Social
Security numbers.
* Companies that advise borrowers to dispute all information in their credit reports
or take any action that seems illegal, like creating a new credit identity.
The FTC warns that borrowers who "follow illegal advice and commit fraud
... may be subject to prosecution."
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