Finance Globe

U.S. financial and economic topics from several finance writers.
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FTC Cracking Down on Credit Repair Scams

The Federal Trade Commission (FTC) reported earlier this week that Payneless Credit Repair, LLC and its owner, located in Richardson, Texas, has agreed to settle charges that the company's business practices violated federal law.

The FTC charges against the company, filed in July 2008, are part of the FTC's crackdown on credit repair agencies, "Operation Clean Sweep."

The company made false claims claiming they could fix a consumer's credit, charging advance fees of anywhere from $500 to as much as $2500. The settlement of $210,000 for consumer redress has been suspended due to the company's inability to pay, but will be reinstated if it turns out that the company misrepresented their financial situation.

It's good to know that the FTC is actively going after shady credit repair agencies. But consumers who wish to improve their credit should be aware of what can actually be accomplished with a credit repair agency.

Credit repair agencies don't have any special rights or privileges in dealing with creditors. In reality, a credit repair agency can't do anything for your credit that you can't do yourself.

Legitimate credit repair agencies will help clean up inaccurate credit reports, negotiate with your creditors for legitimate debts, help you draw up a budget, and may even collect payments from you for a debt repayment plan. Some will set up a debt-consolidation loan.

Legitimate credit repair agencies charge fees for these services, for doing the legwork that every consumer can do on their own. Credit repair takes time, effort and discipline, and the money to pay back the debts. A legitimate credit repair agency will tell you all that, and also that you can repair your credit on your own for free.

But scam credit repair agencies often make promises to wipe away your bad credit and clean up your credit report, and often claim to have legitimate debts erased from your credit file. They may claim to have special knowledge of the system. They are "experts."

Scam agencies may suggest that the consumer take illegal measures to trick the credit reporting agencies. They may have negative marks temporarily removed from your credit file by illegally disputing all negatives whether they are accurate or not. And they often want to take your money for "fees" before they really do much of anything.

It's very possible to work out repayment with collection agencies for less than what you really owe. And your credit report will be improved when negative marks are marked as "paid" or possibly even completely removed from your credit report if the creditor is willing to do so in return for payment. There are legitimate ways for troubled borrowers to pay back their debts and improve their credit. But it won't happen overnight, or even over a month.

It's a long, hard road to fix your credit. It will take time to rebuild your credit once you settle your past-due debts. Creditors will need to see that you've gotten your debts under control before they will issue new credit. That's just how it is.

Shady credit repair agencies are just like those "Get rich quick" schemes or the "Lose 20 pounds in 10 days" diets. Do they work? No, but people still spend their money hoping that they can buy some miracle. It may work for a minute and then the consumer realizes that they've been had.

I particularly like what was said by New Zealand's Consumer Affairs Minister Judith Tizard on fraud prevention, "If it's too good to be true, then it's probably a scam."

Payneless Credit Repair is only one of 36 credit repair agencies targeted by the FTC in Operation Clean Sweep. The credit repair industry provides shady businesses with an opportunity to prey on hard-working people who are down on their luck and can't seem to get ahead. Victims of these types of agencies are often at wit's end, afraid to answer their phones out of fear of it being a debt collector.

Troubled consumers who look to scam credit repair agencies don't know what to do on their own, and they don't know how to fix the problem. They allow themselves to be tricked when they meet with a fraudulent agency that claims to be able to take away all their problems.

The frustrated consumer may feel the hefty credit repair fee is worth it to fix their troubles - until they realize that their problems are dumped back on them when the credit reporting agencies figure out that the disputed debts truly are legitimate debts. Then they're back to square-one after losing money to the scam credit repair agency, still stuck with bad credit. Even worse, consumers who follow the bad advice of a scam credit repair agency may be criminally charged with fraud.
  • Fix your credit without paying for useless, fraudulent, illegal tactics.
  • Know your rights and understand the process in cleaning up your credit.
  • Don't allow yourself to be a victim of scam credit repair agencies.Get your free credit report from all three credit reporting agencies, once a year from
  • Dispute inaccurate or outdated negative accounts in your credit report. There's a 7 year time limit on negative reports, 10 year for bankruptcy.
  • Talk to your creditors about your situation and work out a repayment plan.
  • Use your extra money to pay down your debts, rather than paying for a useless credit repair service.
  • Tackle one debt at a time and then move on to the next.
  • Stay in control of your new debt and use credit wisely.
If you've been a victim of a scam - whether of a fraudulently operating credit reporting agency or any other type of business that doesn't do what they promise - report it to the Federal Trade Commission at The FTC is the nation's consumer protection agency, and works to protect consumers from unethical, illegal, or dishonest business practices.

Federal Trade Commission
Ministry of Consumer Affairs - New Zealand
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Saturday, 28 January 2023

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