Sometimes credit counselors deliver on their promises. Other times, consumers wind up much worse off. The following article will tackle the pros and cons of credit counseling.

AmeriDebt insisted that it helped hundreds of thousands of consumers pay their bills and avoid bankruptcy. It continued insisting, in fact, right up until the Federal Trade Commission sued the company in 2003. The FTC said AmeriDebt lied to its customers about the fees it charged and the services it offered, leaving many of them worse off.

What’s more, regulators said, AmeriDebt posed as a nonprofit company while actually funneling money to a for-profit arm. AmeriDebt responded by closing its doors to new customers-but sending them to another heavily advertised credit counselor making similar claims of quick-and-easy solutions to debt problems.

Credit counseling used to be a sleepy field dominated by the National Foundation for Credit Counseling, a truly nonprofit organization that was funded in large part by contributions from banks and credit card companies. Its mission was to negotiate lower interest rates and payments for cash strapped consumers so that they could avoid bankruptcy. The lender receiving these payments would return a portion of each check-a contribution known as “fair share”-to the credit-counseling agency to fund its operations.

As consumer debt spiraled in the 1990s, however, a new breed of credit counselor emerged, eager to get a piece of those lender contributions. To boost market share, these new counselors started going after customers who were perfectly able to make their payments but who just wanted a lower interest rate.

Disgusted, the major creditors started dropping their “fair share” contributions, making it tougher for the older agencies to make ends meet. Instead of supporting legitimate counselors, some credit card companies even tried to steer consumers away from counseling, telling them erroneously that such help was as bad for their credit as bankruptcy.

But that wasn’t the worst of it. Many of the new credit counselors kept the first month’s contributions or charged other fat, hidden fees. Some failed to pass along consumers’ contributions at all, causing multiple late payments that devastated scores. Former employees of such firms told Congress that they were forced to use fake names and employ high-pressure “boiler room” tactics to sign up new customers. The emphasis was on collecting fees-not providing counseling or offering education that might help consumers understand how to avoid debt in the future.

The fact that there are so many bad guys out there shouldn’t make you avoid credit counseling entirely if you could benefit from legitimate help. If you’re already behind on your bills, unable to make minimum payments, borrowing from one card to pay another, or otherwise demonstrating signs of extreme financial distress, credit counseling might be preferable to bankruptcy.

Credit counseling is not a good option if you’re current on your bills and able to pay more than the minimums. As I explained in a previous chapter, credit counseling itself won’t hurt your credit score, but the reactions of some of your lenders might.

In short, you need to tread carefully. Here are some of the things you need to consider before signing up with a credit counselor:

Is it accredited? You’ll want a counselor affiliated with the National Foundation for Credit Counseling or the Association of Independent Consumer Credit Counseling Agencies. You can find affiliated agencies at www.nfcc.org or www.aiccca.org

What do regulators say about it? At a minimum, make two calls: one to your local Better Business Bureau and one to your state attorney general’s office. Ask how many complaints have been made about the agency and see if any regulatory actions are pending against them.

What does the agency say about its services? Avoid an outfit that says credit counseling will have no negative impact on your credit or one that promises to settle your debts for less than you owe without affecting your credit. Such unrealistic promises are a clear sign that you’re not dealing with a legitimate operator.

What fees are involved? Legitimate credit counselors have had to raise their fees in recent years, but if you’re paying lots of money to set up your plan, you’re probably paying too much.

When and how much will creditors get paid? You know that missing or late payments can devastate your credit score. Make sure the counselor tells you, preferably in writing, how much of each monthly payment you make will go directly to your creditors and when the payments will arrive.

Delinquencies (30 - 180 days late) remain for 7 years from the date of the initial missed payment.

Collection Accounts remain on your credit report for 7 years from the date of the initial missed payment that led to the collection (the original delinquency date). When a collection account is paid in full, it will be marked “paid collection” on the credit report.

Charged Off remain for 7 years from the date of the initial missed payment that led to the charge off (the original delinquency date), even if payments are later made on the charged-off account.

Closed accounts are accounts that are no longer available for further use. Closed accounts may or may not have a zero balance. Closed accounts with delinquencies remain 7 years from the date they are reported closed, whether closed by the creditor or by the consumer. Positive closed accounts remain at least 10 years.

Lost credit card - If there are no delinquencies, credit cards that are reported lost will continue to be listed for 2 years from the date the card is reported lost. Delinquent payments that occurred before the card was lost are reported for seven years.

Bankruptcy- Chapters 7, 11, and 12 remain for 10 years from the filing date. Chapter 13 remains 7 years from the filing date. Accounts included in bankruptcy remain 7 years from the date they were reported as included in the bankruptcy.

Judgments (child support, civil & small claims) remain on your report for 7 years from the date the judgment is filed.

Tax Liens - (city, county, state, and federal) Unpaid tax liens remain 15 years from the filing date. Paid tax liens remain 7 years from the paid date of the lien.

Inquiries remain on your credit report for 2 years, with those in the last 6 months usually given the most consideration.

Positive Accounts remain indefinitely and paid positive accounts remain 10 years.

The credit experts at Trust Financial Credit know credit law and how to use the laws to your advantage. Trust Financial Credit works with you during the dispute process to achieve the best possible outcome in eliminating negative items that are impacting your credit life. Our credit experts will analyze your credit report to target for removal the inaccurate, misleading and unverifiable items. The good news is that the reporting system itself is flawed, 96.7% of negative items are on the report WRONG! Don’t become a victim to high interest rates and absurd fees.

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So what that means is … even if you are the best at what you do- and consumers are happy and you think everything is going well… in an instant the rug could be pulled out from under you by the regulators!

The Credit Repair Organizations Act commonly known as CROA is Federal legislation that governs ALL credit repair organizations. NO ONE is EXEMPT from the act…. INCLUDING ATTORNEY’S !!!!

The Act has many consumer protections contained therein… as well as provisions that could inhibit certain businesses… The act was born out of necessity – due to the overwhelming amount of complaints from consumers being defrauded by credit repair companies….

My TRUE belief is that people don’t get into the credit repair business with the intentions of defrauding consumers… Maybe I have visions of grandeur and I am living in a fantasy world… BUT I truly believe that the “Bad Guys” in the credit repair industry are born out of ill execution, not ill intention…

As you will learn soon, there are an abundance of credit repair business laws. But the credit repair business laws are not always commonly known! The business has virtually no self regulation, and until recently has not organized itself at all… now with the emergence of CreditBootCamp information about the industry is being circulated much more!

So the problem starts with accessibility of information and people willing to help and share… Until the credit boot camp, there was no “non self-serving” education available for those who operate a credit repair business. Credit repair training still is not a widely known or accepted function in the industry. Most industries have formal methods to train and educate about the business…

BUT this business has not… That is one of the reasons for my blog… I want this industry to rid itself of the stigma’s and become a respectable industry to be a part of… I know- if you are reading this article this far… You do TO!!! So…. Read on and help to make the industry better… share information that can help consumers… and be a part of something that you can be proud to be a part of…

This starts with making sure that you are compliant with all state and federal statutes and understanding how to maintain compliance… Compliance doesn’t start and end with the law… You should always have higher standards for your company… I analogize it with the building industry… In the building industry- if a contractor were to state “I build everything exactly to County and State construction CODE” ….. ultimately what he is saying is he builds it to the minimum standard allowed by law to be built… and he is doing the minimum to get by….

I always believe in standing out from the norm… There are many ways that you can in this biz… first is to understand what the “Minimum” standard requirements are… Then… find ways to ensure that perception is correct… because even if you are doing things perfectly legitimately, if it is perceived or could be perceived that you aren’t… you might as well be guilty… because PERCEPTION IS REALITY!!!

So be sure to do a “Perception Test” of all your materials … this test should have higher standards than a simple compliance test…

So… here’s some of the details of the law:

#1 - Don’t make deceptive claims
Do not make false representations or guarantees. It is important to understand there are no guarantees involved with Credit Repair. Just like in a court of law, an attorney could never guarantee a client that the judge or jury would find in their favor. It is also important that you do not lie or misrepresent your credit repair services. Honesty is the best approach. If you want to make claims about how successful your services are, give actual statistics and examples of what your other clients have experienced. “Our average clients see 4 – 10 items removed in 90 days” is a great way to pitch your service. Remember, you don’t have to lie or deceive to sell your service. The largest credit repair organizations out there are still in business because they are truthful.

#2 – Ask you clients which items to dispute
The second biggest violation credit repair companies make is disputing items that are known to be accurate. Although it is a rare thing to find credit reports “completely accurate” across all three credit bureaus, if the client indicates that “yeah, that is right” then you better leave that item alone. As Brad Elbein, Director of the FTC’s Southwest Regional Office says “no credit repair company has the right to remove accurate, current information from a credit report.” Stick with disputing items the client instructs you to. This is as simple as taking 10 minutes to run over the credit report with your client. Using DisputeSuite.com, you can input customer instructions, such as “My payment was never late”, into the software for each item.

#3 – Provide consumers with their rights
As a credit repair organization, you must provide a copy of the “Consumer Credit File Rights Under State and Federal Law” before you have your client sign a contract. You must also inform your client that they have a right to cancel your contract. Visit this link to get a copy.

#4 – Make sure you have a contract in place
If you don’t already have one in place, you must get a contract in place immediately. Make sure your contract hits these talking points:

• The payment terms for services, including their total cost
• A detailed description of the services to be performed
• Any guarantees or refund policies (if offered)
• Power of attorney
• The expected time it will take to achieve results (use estimates)
• A copy of the FTC’s “Consumer Credit File Rights”
• A cancellation notice (in bold font). Clients have 3 business days afterwards to legally cancel.
• Your company’s name and business address

You can find tons of sample credit repair agreements on the internet by Google’ing “credit repair agreement”. However, I recommend you have a lawyer look over the contract to ensure its legality. Make sure you have the client sign and date it (in ink). Make 2 copies of the agreement, one for the client’s records and one for yours. It is a MUST to keep copies of your clients’ contracts for a minimum of 2 years.

#5 – First perform then collect payment
That’s right, perform credit repair services then collect money. Seems like a backwards way of billing but the CROA states a credit repair organization is not allowed to collect payment for any services that have not been performed. The organization can only collect payment after they have performed their end of the deal. This is why I recommend monthly billing. (See my article on fixed vs. monthly billing.) With monthly billing, you are billing for work previously performed.

Now… that may seem like a bit harsh to some of you…. But the reality is – you can’t change it…. And you can still make a fortune staying within the boundaries of it..

Ok… as I mentioned – you don’t want to be like the contractor who does the minimum standard… you want everything to be above and beyond the requirements of the law…

So…. Here are some tips for your credit repair business:

Prepare yourself for an audit or investigation… The fact is this…. If you run a business that is successful, at some point you will have a complaint with a regulator… I know what you’re thinking… “If you do the right thing- no one will complain”…

BUT this blog is about reality not FICTION…

Reality is- there are unreasonable people and stupid employees out there…. Along with BAD DAYS… Everyone has a bad day… Sooo… if you do enough business you will run into a problem with a bad employee doing the wrong thing, a customer who is wrongfully dissatisfied, or you simply messing up… It will happen… BUT- you must be able to prove that this complaint was an isolated incident….

If you don’t prepare for this complaint and remain proactive- then you will not have the ammunition needed to win the audit and stay in business…. In the eyes of the auditor/regulator you are guilty until proven innocent and this “first” complaint is just the first time you were caught… most likely they will think that you fracture the law repeatedly, lie, cheat, and steal like many of the people that they investigate…

WOW… you have a lot to overcome… and many people will have to adjust their business and that’s ok… Many people have asked me, what to do to convince the regulators that you are one of the good guys…

The only thing that can do that is PROOF…. You must be able to provide proof of your intent to do the right thing… now proof of your intent to do right, does not necessarily excuse you of doing wrong in the credit repair business, but it will help!

Now, how do you prove it….
One of the problems of the credit repair business is accepting clients into a credit repair program that cannot benefit from the program. Some consumers are better served with debt settlement as alternatives to credit repair. Many successful credit repair companies forge relationships with bankruptcy attorneys and debt settlement companies so they have a means to refer clients who are better served with those resources… But… you must have the proof…. What I suggest is keeping a companywide log of the clients that you do not accept into the program….. Mark the reason for not accepting the client, along with the clients name and contact information.

Advanced credit repair software, or credit repair management software is not needed for this- a simple spreadsheet will do the trick for most credit repair companies. NOW… once you have this company wide list- you can easily show PROOF to a regulator that you do what you say…

Saying that you don’t approve just anyone for your program means nothing…. BUT showing proof of all of the people that you have denied access to your program will mean a lot!

Keep an eye out for upcoming posts on successful habits of legal, moral and ethical credit repair companies.
I hope this article helps shed some light on credit repair business laws. Be sure to stay in compliance for business longevity.