Debt-relief scams are on the rise. Here’s how to spot them:
1.) They ask for up-front fees or payments. If any debt-relief counseling or assistance organization or salesperson demands an up-front fee to ‘fix your credit,’ tell them no, and report them to the Federal Trade Commission. Federal law makes it illegal to charge an up-front fee for credit repair services.
2.) They make false claims of government affiliation. If you are solicited by an organization claiming to be able to help you fix your credit or settle your debts, they won’t be affiliated with the government. You can take that to the bank.
But many unscrupulous debt assistance companies deliberately create a false impression that they are government agencies or government endorsed. For example, one company advertised itself as “FTC Credit Solutions.” The Federal Trade Commission didn’t think too highly of that, and shut them down.
In another case, two companies – the American Bill Pay Foundation and the American Benefits Foundation – told consumers that they were non-profits affiliated with the Recovery Accountability and Transparency Board. This was a flat out lie on both counts: They had no such affiliation with the Recovery Accountability and Transparency Board, and they were decidedly for-profit, not non-profit, corporations.
3.) They make claims that they can take accurate information off of your credit report. Yes, there are ways to challenge items on your credit report that you believe to be inaccurate. But no creditor and no credit bureau is required to remove any entries on your credit report that are in fact accurate. Any company that tells you they can guarantee they can remove negative items from your credit report that are actually accurate is lying to you.
4.) They refuse to provide free information about services unless you pay them or provide them with your bank account information or other sensitive data.
5.) They are located outside of the U.S. This is a definite sign they are not legitimate.
6.) They advise you to put false or fraudulent information on an application for a loan. Debt consolidation loans are a legitimate practice and helpful for some people. But it is never ok to lie on a loan application. Report any credit repair service that tries to get you to commit fraud on a loan application to the Federal Trade Commission
7.) They promise to help you establish a new credit identity. This scam usually involves a credit repair company getting you to apply for an Employer Identification Number (EIN) from the IRS. Or they may even issue you some other number, which could be a stolen EIN or Social Security number, or it could just be a worthless, made-up number. The idea is for you to use this number to apply for credit. Yes, legitimate businesses do use EINs to apply for credit. But fraudulently applying for personal credit using any of these numbers or obtaining an EIN under false pretenses are federal crimes.
8.) They are a for-profit entity and they don’t inform you of your rights under the Credit Repair Organization Act (CROA). This federal law requires credit counseling organizations to provide you with the following information:
- Your right to a written contract specifically describing the services to be performed and how they will be compensated
- Your right to obtain a credit report from the credit bureau
- Your right to contact the credit bureaus directly
- Your right to dispute accurate information on your credit report with these credit bureaus.
- Your right to cancel the arrangement within three days of signing a contract without charges.
- How long you can expect the process to take
- The total fees or costs you will pay
- Your right to sue any company that violates CROA
- Any guarantees made by the company