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Fair Credit Reporting: 17.1.3 The Surprising Reach of Credit Repair Laws

A signal characteristic of state and federal credit repair laws is their surprising reach. The federal statute includes a broad definition of “credit repair organization” that may apply to credit counseling agencies, debt settlement providers, debt collectors, retail sellers, and other entities that are not traditional credit repair organizations.25 Moreover, many of the federal statute’s prohibitions apply to any person, not just credit repair organizations.26

Fair Credit Reporting: 17.2.2.2.1 Broad definition covers wide array of entities

The Credit Repair Organizations Act contains an exceptionally broad definition of “credit repair organization.”43 A credit repair organization is:

[A]ny person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of—

Fair Credit Reporting: 17.2.2.2.2 “In return for the payment of money or other valuable consideration”

To be a credit repair organization, the organization must offer or provide its services “in return for the payment of money or other valuable consideration.”59 To meet this requirement, some courts require that the consumer pay additional consideration for the credit repair services, separate from any fee for other goods or services.60 However, when the cost of the credit repair service is bundled with fees for other services, the fact that a fee is not paid separately is unlikely to defeat coverage

Fair Credit Reporting: 17.2.2.2.4 Types of services and advertisements that meet the definition

An entity is a credit repair organization even if its services are offered for the implied rather than the express purpose of credit repair.73 A contract that implicitly promises to attempt to improve the consumer’s credit record, history, or rating falls within the definition, even if it uses phrases from the FCRA and other consumer protection statutes to describe the services that will be performed and even if it states that the contracting party is not a credit repair organization.74

Fair Credit Reporting: 17.2.2.2.5 Credit building: services that claim to help consumer develop future creditworthy behavior

A few courts have held that the definition of credit repair organization does not encompass organizations that offer only prospective credit advice to consumers or provide information to consumers so that they can take steps to improve their credit in the future.88 These courts construe the definition as applying only to organizations that claim to be able to improve a credit record that is based on past events.

Fair Credit Reporting: 17.2.2.2.6 Whether the agency actually performs the services it promises is irrelevant; disclaimers

Whether an organization actually performs the services it promises is irrelevant to the question of whether it meets the definition of “credit repair organization,”92 as the definition includes entities that merely represent that they can or will perform credit repair services.93 Simply advertising or claiming to provide credit repair services makes an entity a credit repair organization, as long as it meets the payment and interstate commerce requirements.94

Fair Credit Reporting: 17.2.2.2.7 Other definitions

Other definitions in the Act may be important from time to time in determining whether the Act applies to a given circumstance. For the most part, these definitions track those in other titles of the Consumer Credit Protection Act.

Fair Credit Reporting: 17.2.2.3.2 Non-profit organizations

The first exception to the definition of credit repair organization is “any nonprofit organization which is exempt from taxation under section 501(c)(3)” of the IRS Code.107 Accordingly, non-profit legal services programs and non-profit credit counseling organizations are excluded from the definition if they have received 501(c)(3) status from the IRS.

Fair Credit Reporting: 17.2.2.4 Credit Repair Services That Are Ancillary to Another Activity

An entity does not have to be primarily in the business of credit repair to be a credit repair organization—courts find no statutory language supporting such an exception.128 If an entity is offering or providing services, for a fee, for the express or implied purpose of improving a consumer’s credit rating, it meets the statutory definition of “credit repair organization” regardless of whether those activities are ancillary to its primary business activities.

Fair Credit Reporting: 17.2.2.5 Attorneys

The Act applies to lawyers who offer or provide credit repair activities as defined by the Act. An earlier version of the bill exempted attorneys,131 but this exemption did not get into the final bill. Exemptions for attorneys in state credit repair statutes cannot be read into the federal statute.132

Fair Credit Reporting: 17.2.2.6 Debt Collectors

Several courts have held that debt collectors may be credit repair organizations if they promise improvement of the debtor’s credit record in return for payment of the debt. In Bigalke v.

Fair Credit Reporting: 17.2.2.7 Sellers Who Advertise Credit Repair

Another potential application of the Act is to sellers who advertise credit repair as part of the sales pitch for their product. For example, one car dealer advertised: “Have you wrecked your credit? . . . Reestablish your credit through one of the largest banks in Ohio!”149 Such ads are surprisingly common among low-end automobile dealers. However, so far most courts have been unwilling to conclude that these advertisements bring dealers within the definition of “credit repair organization.”

Fair Credit Reporting: 17.2.3 Credit Repair Organizations Must Make Specific Disclosures

A credit repair organization must provide a form disclosure to the consumer prior to executing any agreement with the consumer.160 All organizations meeting the definition of “credit repair organization” must comply with this requirement. Failure to provide this disclosure gives rise to liability regardless of whether the organization is engaging in fraudulent activities.161

Fair Credit Reporting: 17.2.4 Requirements for Credit Repair Contracts

A credit repair organization may not provide services without a signed written and dated contract,166 or before the expiration of a three-day right to cancel.167 Similar language in a state credit repair law has been interpreted as requiring not only the initial contract, but also all modifications of that contract, to be in writing and signed.168 The consumer must be given a copy of the completed contract, the disclosure form, and any other docume

Fair Credit Reporting: 17.2.5 Three-Day Right to Cancel

A consumer has the right to cancel any contract with a credit repair organization within three business days, ending at midnight of the third day after the date the agreement is executed.175 The contract must include a conspicuous, bold face disclosure of this three-day right to cancel “in immediate proximity” to the consumer’s signature.176 In addition, each contract must be accompanied by a notice of cancellation form, in duplicate, explaining the right.17

Fair Credit Reporting: 17.2.6 Prohibition of Advance Payment to Credit Repair Organization

CROA prohibits a credit repair organization from “charg[ing] or receiv[ing] any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed.”186 This prohibition is intended to prevent credit repair organizations from cheating their customers by obtaining payment for services that turn out to be worthless.187

Fair Credit Reporting: 17.2.7.1.1 Introduction

A number of key CROA prohibitions apply to any “person,”201 and not just to credit repair organizations. Thus, the plain language of the Act provides that these prohibitions can be applied to persons and entities that do not meet the definition of “credit repair organization.” “Person” is clearly a broader term than “credit repair organization,” and courts should give effect to the apparent intent of Congress when it chose this broader term to define the scope of these prohibitions.202

Fair Credit Reporting: 17.2.7.1.2 Decisions that limit the scope of any “person”

A number of courts have resisted a broad application of any “person” and held that the substantive prohibitions apply only to credit repair organizations.207 Some have done so on the theory that, if the prohibitions are not confined to credit repair organizations, there is no requirement of a tie to interstate commerce, and the Act would then exceed the authority of Congress.208 However, these courts misread the statute: the CROA prohibitions that apply to any “person” do limit themselves to int