Unscrupulous companies that charged upfront fees for credit repair services led to so many complaints to the Federal Trade Commission (FTC) that the FTC banned this practice. However, some jurisdictions allow a few exceptions to this rule. Also, this does not stop businesses from trying to charge upfront fees, even when it is illegal to do so.
Identification
As of 2010, provisions in the Credit Repair Organizations Act make it illegal for credit repair companies to charge upfront fees, according to the FTC. Some companies charged customers hundreds of dollars before providing services. Furthermore, credit repair companies typically perform services or provide information freely available to anyone, such as disputing errors with the credit bureaus.
Considerations
States may have laws that allow companies to charge fees for credit repair before performing any services. Usually, these laws only allow upfront charges for professions that are heavily regulated. For example, if the state licenses credit repair companies, it may permit a licensed company to charge an upfront fee.
Warning
Despite the existence of a federal law banning most upfront fees for credit repair, this may not stop all companies from attempting to collect upfront fees. If you were charged an upfront fee for credit repair, the Privacy Rights Clearinghouse suggests complaining to the FTC. Your state's attorney general can help you recover upfront fees from a credit repair company.
Tip
Research any credit repair company or service before enlisting its assistance. This research may include checking with the Better Business Bureau for complaints about the company. A legitimate credit repair company must and will provide you with a contract listing all their services, guarantees and total cost. Often, credit repair companies are unnecessary, and you should first consider credit counseling through a nonprofit counselor associated with the National Foundation for Consumer Credit.
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