The Credit Repair Organizations Act (CROA) is a piece of legislation that protects consumers from illegitimate credit companies that charge clients fees based on false promises. These bad actors have done damage to the credit repair industry, but luckily they are in the minority.
To stay compliant with CROA, and prove your legitimacy as a credit repair specialist, you must take a few precautions to protect yourself, and your clients from shady operations.
Robby Birnbaum at the 2019 Credit Repair Expo (Photo/Nichole Bensel)
Robby Birnbaum, the top attorney for the credit repair business, shared some of his techniques with the audience at Credit Repair Expo 2019. Read on to hear Robby’s advice for protecting your business, and your clients.
1. Establish Your Business
The first step toward starting a compliant credit repair business is to make it legitimate in the government’s eyes. To do this, you’ll need to decide on a business formation. The most common options for business formations are:
- Limited Liability Company (LLC)
Despite the number of options, most companies — especially small businesses — are LLCs. As Robby says, “LLCs are easier to work with. They have more flexible rules.”
Pro tip: Robby says when small business owners enter into an LLC, “you need to check the ’S selection’ box on your paperwork. This alerts the government you’re a small business, which means you won’t be taxed for certain things that larger companies or corporations are on the hook for.”
After establishing the type of business that works for you and formally documenting it, you’ll need to take two more steps:
- Go to the IRS website and get an Employer Identification Number (EIN)
- With your company formation paperwork and EIN in hand, go into a bank and set up a bank account for your new company
After completing these three simple steps, you’ve created a legitimate business, and are ready to start offering services. If you have any questions at this point, reach out to a credit repair expert who has done it before and ask for advice. You can also consult with an accountant or a lawyer who knows the ropes.
2. Introduce Transparency to Your Clients
Once your business is formed, you can start accepting clients. Welcoming new clients with transparency is among the most important aspects of legit credit repair.
Start by sending a welcome letter to new clients and include:
- Introduction: Take time to describe who you are, why you got into the credit repair industry, and what qualifications you have. The more personalized you can make this section the better. Let your clients know you’re a real person, too.
- Action list: To make credit repair work, you need to form a partnership with your clients. There will be items you need to collect from them, and there will be steps they need to take for you to do your job. Make this very clear from the beginning.
- Details of which services will be performed: In addition to describing what your clients need to do, inform them what they can expect from you. Detail which services you’ll perform, and include expected timeframes to set a precedent.
Welcome your clients, involve them in the process, let them know what they can expect from you, as well as what you expect from them. By doing so, you are investing in a real partnership as opposed to participating in a business transaction.
3. Cover Your Bases
The Federal Trade Commission regulates credit repair businesses heavily. For this reason, you must cover your bases to prove you are a legitimate credit repair business.
When entering into a partnership with your clients, each and every one of them will need to sign a contract. In every contract you send to your clients, before rendering services, ensure you include language covering:
- Consumer obligations: Reinforce the importance of participation from your clients. In your contract, have your clients sign language that ensures they will be honest and open with the information they provide to you. How can you perform services well if you are missing information, or deliberately sending false information? Also, ask your clients for confirmation that they will identify items they don’t recognize on their credit reports. This helps you enter into the partnership informed and able to help.
- Costs of services: Consumers need to know how much services cost, so they aren’t blindsided by shady credit practices. To protect yourself, make sure to clearly detail the amount your clients will need to pay, and when. It’s also wise to include language that describes what happens if the customer doesn't have the funds.
When it comes to collecting fees, Robby warns you need to double and triple check your state’s laws so you don’t get yourself into trouble. “In some states, like Colorado, you have to fully and completely deliver services before collecting fees.”
It’s essential to pay attention to detail when creating your contracts. Oversights, like forgetting the client's name, or excluding your business name can all negatively impact the legitimacy of the agreement.
Don’t just grab a contract off the internet; take time to learn what’s in the document you’re presenting to clients so you can protect yourself and your customers.
4. Protect Your Customers
Robby Birnbaum at the 2019 Credit Repair Expo (Photo/ Nichole Bensel)
Part of operating a legitimate credit repair business also includes proving to your clients that you will protect them. For that reason, your credit repair contracts should also include disclaimers like:
- Merchant processor agreement page
- Specific state disclosures
- Written cancellation notices
- CROA disclosure
- Consent to communicate digitally, including eSignatures
These disclaimers provide your clients with education and resources, which are crucial components of the way a legitimate credit repair company operates.
Do Your Due Diligence to Create Happy Partnerships
The contract is one of the most important components of creating a successful credit repair business. Still, they can be intimidating for first-time business owners. Don’t let legal jargon or contracts make you fearful of operating a credit repair business.
Instead, think of each contract as a component of your business that will empower your growth and longevity. When built on a sturdy foundation, your credit repair company will be able to increase your profits over the long haul.
Are you ready for more tips on starting or running a credit repair business?
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