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What Is the Credit Repair Organizations Act?

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In a Nutshell

The Credit Repair Organizations Act is a federal law that was passed in 1996 in reaction to deceptive practices from companies that were preying on unsuspecting consumers. The CROA was designed to protect consumers against unfair and deceptive business practices by credit repair organizations. This article will discuss how consumers are legally protected from credit repair organizations and what to consider if you’re thinking of using a credit repair organization to fix your bad credit.

Written by Attorney Eric Hansen
Updated October 1, 2021


When money is involved, you better believe there are people and companies that will take shortcuts, stretch the boundaries of the law, lie, and mislead others on the way to hopefully getting that money. In the world of consumer finance and consumer credit, collection agencies and debt collectors have been well documented for acting unscrupulously. Unfortunately, their sibling, the credit repair organization, is not much different. 

Some credit repair organizations provide a much-needed service to consumers. But others use deceptive methods and practices to make a quick buck from their clients, often leaving them in worse shape than before. This article will discuss how consumers are legally protected from credit repair organizations and what to consider if you’re thinking of using a credit repair organization to fix your bad credit.

The Credit Repair Organizations Act (CROA)

The Credit Repair Organizations Act (CROA) is a federal law that was passed in 1996 to regulate the credit repair industry. The law was passed in reaction to deceptive practices from companies that were preying on unsuspecting consumers. Word got to Washington, D.C. that there were a lot of scam companies promising to repair people’s credit and charging a lot of money but not really doing anything to help consumers. 

In a nutshell, the CROA was designed to protect consumers against unfair and deceptive advertising and business practices by credit repair organizations. The CROA ensures consumers get enough information about a prospective credit repair organization to make an informed decision about hiring them to repair their credit. When it comes to credit repair, you have options. You can hire a for-profit company, repair your credit yourself, or work with a nonprofit credit counseling organization.

The CROA protects consumers against unfair credit repair business practices much like the Fair Debt Collection Practices Act protects against unfair debt collection practices by debt collection agencies and bill collectors.

What Is a Credit Repair Organization?

A credit repair organization is any person or company that sells services for the purpose of:

  1. Improving the consumer’s credit history, credit record, or credit score; or

  2. Providing advice or assistance to the consumers to improve their credit.

Credit repair organizations are not creditors, banks, lenders, or most importantly, nonprofit credit counseling agencies and companies. The CROA does not regulate nonprofit organizations that specialize in consumer credit and consumer finance. It focuses on for-profit credit repair organizations.

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Prohibited Practices for Credit Repair Organizations

Before the passage of the CROA, many credit repair organizations would charge exorbitant upfront fees, lie about the extent to which they could repair your credit score, ask you to invent a new credit identity by getting an employer identification number (EIN) and using it instead of your Social Security number, and several other fabrications or fraudulent behaviors. Since the CROA was passed, credit repair companies are prohibited from engaging in several practices.

Credit repair organizations cannot:

  • Lie or advise their clients to lie to a credit bureau or creditors about the client’s creditworthiness;

  • Alter a client’s identity or create an entirely new identity for their clients in order to hide or disguise negative credit information;

  • Make untrue or misleading claims about services they provide to their clients;

  • Engage in fraudulent activities; or

  • Accept upfront fees instead of billing customers once the credit repair services are fully performed.

Though the CROA prohibits these activities, some credit repair organizations still attempt to stretch or skirt the law. If you or a friend or family member decides to use a credit repair organization, watch out for business practices that resemble or feel like one of the prohibited practices under CROA.

Required Disclosures to Prospective Clients of Credit Repair Organizations

Credit repair organizations are required to provide a disclosure statement under the “Consumer Credit File Rights Under State and Federal Law.”  It must be a separate document from the credit repair organization’s contract or any other agreement. It must state in writing the following:

"Consumer Credit File Rights Under State and Federal Law

You have a right to dispute inaccurate information in your credit report by contacting the credit bureau directly. However, neither you nor any 'credit repair' company or credit repair organization has the right to have accurate, current, and verifiable information removed from your credit report. The credit bureau must remove accurate, negative information from your report only if it is over 7 years old. Bankruptcy information can be reported for 10 years.

You have a right to obtain a copy of your credit report from a credit bureau. You may be charged a reasonable fee. There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The credit bureau must provide someone to help you interpret the information in your credit file. You are entitled to receive a free copy of your credit report if you are unemployed and intend to apply for employment in the next 60 days, if you are a recipient of public welfare assistance, or if you have reason to believe that there is inaccurate information in your credit report due to fraud.

You have a right to sue a credit repair organization that violates the Credit Repair Organization Act. This law prohibits deceptive practices by credit repair organizations.

You have the right to cancel your contract with any credit repair organization for any reason within 3 business days from the date you signed it.

Credit bureaus are required to follow reasonable procedures to ensure that the information they report is accurate. However, mistakes may occur.

You may, on your own, notify a credit bureau in writing that you dispute the accuracy of information in your credit file. The credit bureau must then reinvestigate and modify or remove inaccurate or incomplete information. The credit bureau may not charge any fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the credit bureau.

If the credit bureau's reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the credit bureau, to be kept in your file, explaining why you think the record is inaccurate. The credit bureau must include a summary of your statement about disputed information with any report it issues about you.

The Federal Trade Commission regulates credit bureaus and credit repair organizations. For more information contact: The Public Reference Branch, Federal Trade Commission, Washington, D.C. 20580.”

CROA Requires Credit Repair Organizations To Have Written Contracts With Its Customers

You should know what you’re paying for before you hire a credit repair organization. The CROA requires credit repair companies to provide consumers with essential information in writing before they take any action.

Per the CROA, credit repair contracts must contain:

  • The terms and conditions of payment and the total amount that you must pay;

  • An itemized and detailed description of the services to be performed, including any guarantees and time estimates for long the services will take;

  • The name and physical address of the credit repair organization, not just a P.O. box or an email address;

  • Information about your cancellation rights, including your right to cancel the contract without penalty; and

  • CROA-compliant terms and conditions throughout the contract.

It’s also important to note that the contract can’t include a waiver of your CROA rights. Any credit repair organization attempting to have you give up your CROA rights is in violation of CROA. Also, any contract that doesn’t comply with the requirements of CROA is void and unenforceable.

Who Enforces the Law When There’s a Violation of CROA?

Several organizations help enforce the CROA by investigating violations. First, you can pursue a civil suit against a credit repair company that violates the CROA. A consumer protection attorney can recover actual damages, punitive damages, and attorney’s fees if successful in a lawsuit. If you believe there has been a violation you should consult with a private attorney and get some legal advice. The Federal Trade Commission (FTC) and your state’s attorney general also help enforce the CROA. These federal and state enforcers routinely pursue unscrupulous credit repair organizations in civil and criminal cases.

Let’s Summarize...

If your credit has been damaged and you want to repair it, you may be considering hiring a credit repair organization. If so, be sure the organization complies with the CROA. This law was passed to protect consumers from unfair and deceptive business practices in the credit repair industry. If you want to hire a credit repair company, remember to be careful and do your research. If the company doesn’t comply with the requirements of the CROA, there are several ways to report and act on violations, including suing the company or reporting them to various agencies.



Written By:

Attorney Eric Hansen

Eric D. Hansen is an experienced Minnesota attorney within a number of varying and nuanced practice areas. He has operated his own solo practice as well as worked at small suburban boutique firms and large diversified downtown law firms. Eric has a wealth of experience in busines... read more about Attorney Eric Hansen

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