How to Start a Credit Repair Business

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If you want to start a profitable credit repair business, you need to understand the industry rules and regulations to ensure compliance. Just like any other industry, there are both Federal and State laws and every state is different. Some states have specific requirements for bonding, licensing, registering as a credit service organization and many have specific requirements on how much you can charge consumers, when you can charge them and many require the contracts you give your clients to disclose it. Understanding it is not complicated but is important so you can safely navigate and make decisions.

None of the information on this page is legal advice, it is public information that we assembled to help save you time. Rules and regulations do change and we have made every effort to ensure the accuracy of the information listed on this page; however, it is ultimately your responsibility to make sure the information you use to make business or legal decisions are accurate. We highly recommend you do your own additional research and seek assistance from a competent legal professional for any decisions you make.

Percentage of Credit Reports that Have Errors

79%

Approximate Total Number of People Living in California

39.94 Million

Average Debt on Credit Report

$5,700

Percent of Population with Credit Scores Below 700

44.3%

Percent of Home Buyers Getting a Mortgage for Their Home Purchase

88%

Federal Law

There are both Federal and State laws that regulate the Credit Repair Industry. This section covers the Federal Law, below is a summary of the Credit Repair Organization Act also known as CROA:

What Is the Credit Repair Organizations Act?

The Credit Repair Organization Act is title IV of the Consumer Credit Protection Act, which was signed into Law in 1996 by President Bill Clinton. It’s a federal law put in place to protect consumers from dishonest credit repair companies. The law’s intent is to prevent credit repair companies from taking advantage of consumers and help consumers make informed decisions when hiring a credit repair company.

Credit Repair Organizations Act Prohibits

Lying or advising consumers to lie about their credit history.
Altering consumers identity, applying for a new EIN or creating a new identity or attempting to obtain false credit history.
Misrepresenting the services they provide.
Asking consumers to pay for services before they have been provided.

Credit Repair Contract Requirements

Before a credit repair company can perform any services, they are required to provide a contract signed by the consumer and the contract must include the following:

A disclosure called “Consumer Credit File Rights under State and Federal Law” that advises consumers of their rights.
A description of the services that will be performed to repair your credit.
An estimate of the time it will take to complete the services (or a date by which the services will be completed)
A visible statement letting you know you can cancel the contract within 3 business days
Duplicate Notice of Cancellation forms

Read the Full Credit Repair Organization Act

CLICK HERE

State Laws

Every state has different rules, regulations and requirements. If you are providing services to consumers in your home state, where your business is based, you must follow the law for your state. If you are providing services to any consumers in other states, you must also follow the laws for the states your clients live in. For those of you that are just getting started in the credit repair business, there is no need to worry about states other than your own - there are plenty of consumers that need your help in your home state; however, if you decide to branch out into other states, please remember that the rules apply to the state the consumer resides. So in other words, you must follow the law for the state the consumer lives in.

Credit Repair Laws in California

Are there state laws for credit repair in California?

Yes

What is the name of the state law?

Credit Services Act of 1984

What are the specific statutes?

Civ. Code §§ 1789.10 et seq.

Who is the authority for credit repair in California?

Department of Justice Attorney General's Office

P.O. BOX 944255

Sacramento, CA 94244-2550

(800) 952-5225

https://oag.ca.gov/contact

http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1864

Note: As of 10/26/20 California has enacted Assembly Bill 1864 which will also oversee financial services companies including credit repair, so be sure to research this entity.

Laws often change, so make sure you do your own research and do not rely on this information to be 100% accurate.

Bond Requirements in California

What is a surety bond?

A surety bond is a three-party agreement that legally binds your credit repair company (who needs the bond), the state (who requires the bond) and a surety company that sells the bond. If you fail to perform or cause consumers harm, the bond will cover resulting damages or losses.

Is a surety bond required in California?

Some states require a surety bond to provide credit repair services within their state.
California does require a surety bond.
See Cal. Civ. Code. §1789.18
http://www.sos.ca.gov/business/sf/forms/sf-sb-411.pdf

What is the bond requirement amount in California?

$100,000

How much do bonds cost?

Surety bonds typically cost between 1% and 10% of the face value based on the owner's personal credit. For example: If the face value of the bond is $10,000; it may cost as low as $100 per year or as high as $1,000 per year.

Where can I obtain a bond?

There are many insurance companies that offer surety bonds. Do a quick google search for “Credit Repair Surety Bond” and you will find many. It’s always a good idea to compare rates.

Credit Repair Licensing in California

Does California require a credit repair license?
We are not aware of any “state” license requirements specifically for credit repair; however depending on your city and county you may be required to obtain a local tax receipt, permit or local professional license. Most counties and cities in the state require business licenses or permits for all businesses, including one-person, home-based operations. If you’re conducting business within a city’s limits, check with your city government to determine licensing requirements. If you’re in an unincorporated area, check with the county government. If you have an office in more than one city or county, you might need to get a license for each one.

CSO(Credit Service Organizations) Registration in California

What is “CSO Registration”?

Federal and State governments call credit repair companies “Credit Service Organizations”. The acronym “C.S.O.” is an abbreviation for the term. Some states require CSO’s to register with one or more of the specific state agencies to know exactly who is practicing credit repair within their state. Some states publicly post a list of CSO’s online that have registered so consumers can check the listing to confirm a credit repair company is registered or not. All of the information below is public information found on the states website. We’ve made every attempt to ensure the information posted is accurate; however, the state may change its policies, procedures or requirements therefore we are not responsible for any discrepancies. We strongly encourage you to do your own research or hire a competent legal professional prior to making any business or legal decisions.

Is CSO (Credit Service Organizations) registration required in California?
Yes, California does require CSO registration.

What agencies CSO’s (Credit Service Organizations) required to register with?
California requires registration with the California Department of Justice, Attorney General's Office.

What is the process and fee to register as a CSO (Credit Service Organizations) in California?

$100.00

Civ. Code §§ 1789.25

https://oag.ca.gov/sites/all/files/agweb/pdfs/consumers/jus-8906.pdf

P.O. BOX 85266, San Diego, CA 92186-5266

https://oag.ca.gov/sites/all/files/agweb/pdfs/consumers/jus-8906.pdf

https://oag.ca.gov/consumers/general/csoform

(800) 952-5225

(916) 323-5341

Credit Repair Contracts

If you are providing credit repair services to consumers, under Federal law (CROA) you are required to provide a contract for those consumers. On a state level, each state has different requirements for many different aspects of how you conduct business including but not limited to how much you can charge, when you charge, how long you can charge, when clients can cancel or receive a refund that need to be included in the contracts for consumers who reside in that state as well as state specific disclosures that are required to be included. This section can help you understand how you may choose to customize your contracts. All of the information below is public information found on the states website. We’ve made every attempt to ensure the information posted is accurate; however, the state may change its requirements therefore we are not responsible for any discrepancies. We strongly encourage you to do your own research or hire a competent legal professional prior to making any business or legal decisions.

Does California have specific contract requirements?
Yes

What is the statute specific to California credit repair contracts?
Cal. Civ. Code. §1789.16

Does California have a Term requirement?
Yes, California prohibits contract terms from exceeding 6 months. This means a new contract will be required if the 6 month term expires.

Does California have a Cancellation requirement?
Yes, California allows consumers to cancel at any time within 5 business days from the time the consumer signs the contract.

Does California have a Refund requirement?
Yes, California requires CSO’s to allow consumers a full refund within 15 days from the time they sign the contract.

Does California require specific Disclosures in their contract?
Yes, California requires several disclosures:
See Civ. Code §§ 1789.16

Additional Notes:
https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?division=3.&part=4.&lawCode=CIV&title=1.6E.

None of the information on this page is legal advice, it is public information that we assembled to help save you time. Rules and regulations do change and we have made every effort to ensure the accuracy of the information listed on this page; however, it is ultimately your responsibility to make sure the information you use to make business or legal decisions are accurate. We highly recommend you do your own additional research and seek assistance from a competent legal professional for any decisions you make.

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How to Start a Credit Repair Business

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Navigating the Rules & Regulations of the Credit Repair Industry

Cost VS Return on Investment

Cost of starting a credit repair business

Example: Cost to obtain the required $100,000 bond:

Potential profit based on realistic goal of 300 active clients

Market Potential for a California Repair Business

Market Temperature:

Percentage of Credit Reports that Have Errors

Approximate Total Number of People Living in California

Average Debt on Credit Report

Percent of Population with Credit Scores Below 700

Percent of Home Buyers Getting a Mortgage for Their Home Purchase

Federal Law

What Is the Credit Repair Organizations Act?

Credit Repair Organizations Act Prohibits

Credit Repair Contract Requirements

Read the Full Credit Repair Organization Act

State Laws

Credit Repair Laws in California

Bond Requirements in California

Credit Repair Licensing in California

CSO(Credit Service Organizations) Registration in California

What is “CSO Registration”?

Credit Repair Contracts

How to Profit with a Credit Repair Business in California

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