Are You or Your Clients Handling Other People’s Credit? Watch Out for CROA

As attorneys, there are a number of situations when we may be called upon to assist consumers with their credit.

 You may have a client that is a victim of identity theft, and now has items on his or her credit that shouldn’t be there. Maybe you deal in real estate, and every now and again, you have to help a client better his or her credit, to help qualify for loans.

 Lawyers Must Follow CROA 

Many people, especially lawyers, understand that there are laws that have to be followed when assisting people with repairing credit. But because lawyers tend to be exempt from so many different kinds of laws, and are regulated by state bar rules, lawyers often forget that they too have to follow what is known as the Credit Repair Organizations Act or CROA.

Attorneys have to follow CROA, even if credit repair is just a small part of their practice, or a “now and then” type of thing. And business owners who may occasionally assist clients with credit matters must follow CROA as well. Even if a business is doing “legitimate” credit repair.

Why CROA Exists

You do not have to be an attorney to repair other people’s credit, which is, in part, why the law exists: too many people are scamming innocent consumers with “fix your credit now” type schemes. The rise of many of these companies has led to many that simply lie to credit repair organizations and to creditors, in order to repair consumer credit.

Or worse, they lie to consumers about possible outcomes after the credit repair is done.

 How to Comply

There are a number of requirements to comply with CROA, but the major one, and the one that gets most businesses in trouble, is the requirement that the credit repair organization (or law firm) cannot take any money for any credit repair type service, until the repair job is complete.

For law firms, that means no billing by the hour (it is not clear whether taking a retainer just to secure future payment would violate CROA). For businesses, that means no up front fees, or recurring monthly fees.

It is not clear whether payment can be required if the consumer cancels the services, or if the services cannot be performed because the consumer doesn’t cooperate—but because there is no up front fee allowed, even if you could charge the consumer in such a situation, you would be left to chase after the consumer for payment.

Contract Requirements

Whatever contract the consumer signs, must clearly say what services are being performed and how many hours the service is expected to take. This means that if you quote a consumer a price, and the job is more complex than first anticipated, you won’t be able to go back and ask for more money later on.

Many attorneys make a good living suing other attorneys, and businesses, that fix credit without complying with the CROA. Don’t get yourself in trouble if you are handling consumer credit for your clients or customers.

Call the West Palm Beach business litigation lawyers at Pike & Lustig today to make sure your business is compliant with government regulations and federal laws.

Sources:

ftc.gov/legal-library/browse/statutes/credit-repair-organizations-act

consumer-action.org/helpdesk/articles/credit_repair_organizations_act_croa