Know Your Rights: A Legal Summary of the Credit Repair Organizations Act (CROA)

The Credit Repair Organizations Act- (15 U.S.C. Chapter 41, Subchapter II-A)

As a consumer bankruptcy attorney and law professor, I advise clients on their financial lives. This includes avoiding financial fraud and the Credit Repair Organizations Act (CROA).

CROA (15 U.S.C. § 1679 et seq.) is a federal statute passed in 1996 specifically to regulate the credit repair industry and protect consumers from deceptive, unfair, and illegal business practices. This page is a summary of the Credit Repair Organization Act to help you understand what your rights are and how to protect yourself, including signs that the agency might be violating the law.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

What Credit Repair Organizations Cannot Do (§ 1679b)

Here is a summary of the key protections and prohibitions established by the Act.

Prohibited Practice	Legal Summary	Why It Matters
Payment in Advance	A Credit Repair Organization (CRO) cannot charge or receive any money before the service is fully performed.	This is the most violated rule. If a CRO demands an upfront fee, they are likely violating federal law.
False/Misleading Statements	CROs cannot make (or advise consumers to make) any statement that is untrue or misleading to a credit bureau or a creditor.	This includes “credit washing,” telling consumers to file false reports on identity theft to remove legitimate, accurate debts.
Identity Issues	CROs cannot advise consumers to use a Credit Profile Number/CPN or EIN Number to create a new profile.	Identity fraud and file segregation is illegal & could subject the consumer to criminal charges.

Mandatory Disclosures: The Truth Before You Sign (§ 1679c)

CROA requires that the organization provide a clear, separate written statement of your rights before you sign any contract.

The most critical statement you must receive, and what every consumer needs to know, is this: “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.”

This mandatory disclosure is the definitive statement that disproves the claim of any CRO that claims they can simply erase accurate debt! The disclosure also confirms your right to:

• Dispute inaccurate information for free, on your own.
• Cancel the contract within three business days.
• Be aware that accurate bankruptcy information can be reported for up to 10 years. So when a CRO says otherwise, it is simply false!

Contract Requirements & Cancellation Rights (§1679d & §1679e)

CROA provides consumers with contract protections under §1679(d) & §1679(e).

• Written Contract Required: All services must be provided under a written, signed, and dated contract.
• Detailed Terms: The contract must clearly state the total amount of all payments, provide a full description of services, detail any guarantees, and provide an estimate of when services will be complete.
• 3-Day Right to Cancel: You have the right to cancel the contract without penalty or obligation anytime before midnight of the 3rd business day after signing it. The contract must include a specific, bold-faced “Notice of Cancellation” form in duplicate. Services cannot begin until this 3-day period has expired.

Void Contracts and Waivers § 1679(f)

This section provides additional protections for the consumer.

• Any attempt by a CRO to get a consumer to waive a right under CROA is void and cannot be enforced in any court.
• Any contract for services that does not comply with all provisions of the CROA will be considered void and legally unenforceable. In essence, it is an illegal contract.

Enforcement and Penalties for Failure to Comply with the CROA (§ 1679g & § 1679h)

CROA is enforced by the Federal Trade Commission (FTC) and grants consumers the power to sue when violations occur.

Civil Liability Under the Credit Repair Organizations Act

If a CRO violates the Act, they are liable to the consumer for:

Actual Damages: The greater of the amount of actual damage or the amount paid to the CRO.

Punitive Damages: The court may award additional punitive damages, especially in cases of frequent or intentional noncompliance. Punitive damages are penalties intended to severely punish companies that engage in willful, reckless, or fraudulent conduct. Punitive damages serve as a severe financial penalty and warning to those in the industry.

Attorneys’ Fees: If the consumer wins, the CRO must pay the costs of the action, including reasonable attorneys’ fees.

Statute of Limitations: Note that, except for charges of murder, laws have a statute of limitations, meaning the time period that a lawsuit must be filed or is forever barred. In this case, consumers have 5 years from the date of the violation to bring an action.

Professor’s Take

The Credit Repair Organizations Act demonstrates that Congress had to step in to stop the spread of abuse and deception in this industry.

If a “credit repair” company tries to violate any of the five key provisions referenced above, especially charging an upfront fee or promising to remove accurate information, they are violating federal law.

Instead of spending your hard-earned money, use the legal rights provided to you under the FCRA to contest inaccurate claims on your credit report. In this post, you can use the sample letters I have created.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

You can find additional categories by clicking below or by using the search feature at the top of this page:

• Bankruptcy
• Insights & Analysis

Please note that the information on this site does not constitute legal advice and should be considered for informational purposes only.