Credit repair laws for each state

State Credit Repair Laws

Some states have state laws regulating credit repair organizations in addition to the federal laws. Many states prohibit any payment by the client prior to the credit repair organization rendering services. Some state laws define terms and reiterate business and financial industry laws as they relate to the credit repair organizations operating within their state. You should become familiar with the state laws for each state within which your credit repair organization operates.

Federal Laws Governing Credit Repair

The Credit Repair Organizations Act (CROA) is a federal law passed in September 1996 that regulates organizations whose purpose is increasing consumer’s credit score through credit repair. This law is moderated and enforced by the Federal Trade Commission (FTC), so the FTC has the authority to close down any credit repair organizations that are operating outside the parameters of these laws (like fraudulent or illegal activities).

The main sections include mandates that:

You can’t misrepresent your services (no false claims about what you will do for the client and definitely no promise of working and then not doing the work).
You must provide a written contract between you and the client that the client signs.
Your clients have three days to cancel the contract.
You can’t charge until services are rendered (most companies will do some initial document processing and then charge the client for the work they have just done).
Consumers can sue and get refunded all money paid (plus legal fees and damages) if the credit repair organization is found to have violated the CROA with that consumer.
State laws can’t change or render any of the CROA ineffective.

Simply put, these laws were put in place to protect people from credit repair companies using scammy business practices. As long as you’re not trying to be sketchy and scam people, you should be able to stay compliant easily!

To read the Credit Repair Organizations Act in full, visit the United States House of Representatives’ record of the act here.

Many credit repair organizations have new clients "sign up" on their site, in person or over Zoom, as sales specifically conducted over the telephone must follow State and Federal telemarketing laws. For more information on the Federal Telemarketing Sales Rule (The "TSR") visit https://www.ftc.gov/tips-advice/business-center/guidance/complying-telemarketing-sales-rule.

Legal disclaimer: The information contained on this site and our guides are for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice. Persons seeking legal advice should consult with legal counsel familiar with their particular situation as consumer credit laws vary by state.