New Federal Law Protecting Consumers from Credit Repair Con Artists Becomes Effective Today; 47 Credit Repair Sites on the Internet Put on Notice
In its continuing effort to educate consumers with credit problems about their rights, the Federal Trade Commission today announced a number of new important tools to combat fraudulent credit repair organizations. Beginning, April 1st, a new federal law outlawing deceptive claims made by credit repair organizations and giving consumers important new legal rights goes into effect. The FTC also introduced a new consumer education campaign that includes a handbook for consumers and a new Web page on credit repair. The book was produced cooperatively by the FTC, the Better Business Bureau of Northern Illinois and the Consumer Counseling Service of Chicago. In addition, the result of the agency’s "surfing the Web" for credit repair advertisements was announced.
"Every year people fall prey to credit repair scams," said Jodie Bernstein, Director of the FTC’s Bureau of Consumer Protection. "The schemes often target consumers who are unemployed, divorced, or have medical bills -- people who are vulnerable and susceptible to scams. These con artists charge hundreds of dollars and claim they can ?fix’ credit reports so that accurate timely information about the consumer’s credit history will no longer appear. These claims are false. The new tools announced today will provide consumers with better protection against these pernicious schemes."
The new statute is the first federal law targeting credit repair scams. Passed by Congress in September 1996, the Credit Repair Organization Act applies to those companies operating intrastate as well as those operating interstate, and regardless of whether they deal with consumers over the telephone. It will be enforced by the Federal Trade Commission and state attorneys general. The most important new consumers’ rights under the statute:
- It prohibits all credit repair organization from taking money from consumers before services are fully performed.
- It requires credit repair organizations to give consumers a written disclosure explaining their legal rights about their credit history, before any contract is signed.
- It requires credit repair organizations to give consumers a written contract with all the terms and conditions of payment, a detailed description of the services to be provided, including any guarantees of performance and an estimate of how long it will take to perform the contract.
- It gives consumers a three day cooling off period, or right to cancel, any agreement they sign with a credit repair organization.
- It states that any contract made between a consumer and a credit repair organization that doesn’t comply with the law is void.
The FTC staff has been surfing the Internet in a search for credit repair advertisements. Forty-seven credit repair companies were found on the World Wide Web and the Usenet. E-mail messages were sent to these advertisers to provide them with information about the federal credit laws and to direct them to the FTC’s Website for more information. Follow-up searches will be conducted in May. The FTC staff also sent similar letters to over a thousand credit repair operations.
The consumer education campaign’s new book, titled "Getting Back in the Black," outlines legal alternatives to help consumers get solvent; explains consumers’ legal rights; warns of scams they may be specially vulnerable to and lists place to go for help. The book is available free from the FTC’s Public Reference Branch at the address listed below.
Since the 1980s, the FTC has been working to shut down fraudulent credit repair schemes. In cooperation with state attorneys general, the agency has brought numerous law enforcement actions, held credit repair summits, conducted consumer education campaigns and worked with Congress to enact strong, effective legislation.
Copies of the consumer education materials are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
Office of Public Affairs
Chicago Regional Office
(202) 326-2180 (Tuesday, April 1st)
Division of Credit Practices