The Better Business Bureau is one of the most well-known organizations for protecting consumers’ rights and allowing them to get satisfaction from the companies they do business with. Recently, the BBB turned their attention to the credit repair industry and released a report on credit repair scams. The public’s perception of credit repair is not good, which is why so many people avoid trying to repair their credit.
It’s too bad because there are some legitimate credit repair services out there and they do an excellent job at helping people restore their good credit rating. Fortunately, several state have joined the FTC in clamping down on the scam artists.
What it boils down to is a clear illustration of how important it is to make sure you’re not being lured into a scam when you are just trying to get your credit repaired.
According to the study, the average paid by individual consumers to (often unsuccessfully) repair their credit is around $816, and for debt settlement the cost goes up to $2,000. While you might feel more secure dealing with a company that offers a money-back guarantee, in practice you may end up disappointed.
A lot of the fraudulent companies claim that consumers will get a refund if they don’t get the progress they want- – and this study finds the average refund is only $67.
Signs of Bad Credit Repair and Debt Settlement Companies
Credit repair scams can occur in many forms. A common scam is the credit repair “clinic” that appeals to people with poor credit by promising to be able to remove any information, accurate or not. No credit repair company can remove legitimate, accurate items from your credit file if they are verified by the creditor. Any company that promises or implies that they can is a sure sign of a credit repair scam. The best they can do is dispute negative items that are inaccurate or questionable information. However, if the credit is able to verify the information the negative item simply can not be removed. It’s important to note that any time you sign up with a credit repair service, the outcome of the disputes filed on your behalf can not be guaranteed.
Debt Settlement Scams
Debt settlement companies don’t fare any better. They typically want you to pay a monthly fee directly to them that is supposed to cover their cost as well as the cost of your debts after they’ve negotiated with your creditors to reduce the amount you owe.
They might tell you not to pay your creditors anymore, and send the payments to them. If the company is legitimate, then this can work, but at the cost of your good credit — every missed payment is another black mark on your credit report that lowers your scores.
However, most individuals don’t even get the minor benefits of debt consolidation because a shocking number of debt settlement companies don’t pay anything to the creditors at all. The money simply vanishes in this scam, with the consumer paying the price of both ruined credit and losing thousands to a scam artist.
The BBB wants several changes, and the report encourages federal and state agencies to get tougher and work harder to get the scam artists aggressively taken out before they damage more people’s credit and wallets.
It’s a sad fact that the debt settlement and credit repair industries are full of conmen, and that makes it difficult for people who are legitimate credit repair specialists to be taken seriously. Note: if you are considering credit repair, always choose a company that has a good reputation in the industry and that is backed by independent reviews.
The BBB also wants Congress to amend the CROA to specifically rule out compulsory arbitration in lawsuits alleging violation of the act. Compulsory or mandatory arbitration can strip consumers of their right to go to court. This effectively means that if you get into a dispute with someone protected by compulsory arbitration, you could lose the right to sue.
Arbitration means that a neutral third party hears both sides and makes the decisions about the dispute. While arbitration can be much faster, averaging 8.6 months instead of up to 2 years for a court case, it is not necessarily good for the consumer. Not only is it not up to a court – the “neutral” person judging the case is probably going to be hired by the very people with whom you’re in conflict.
Always look at the contract or anything else before you sign away your rights. Make sure the FTC, and your State attorney general do not have negative reports about someone to whom you are about to give over your trust.
Finally, the BBB wants consumer oriented agencies to increase consumer education about credit repair and seeking help with debt. The Better Business Bureau wants consumers to make smart choices, not just about credit repair, but about their finances over all, and about how to choose companies who will help get bad credit back on track.