The Credit Repair Organizations Act (CROA): Who Must Comply?

The Consumer Credit Protection Act contains numerous and varied provisions to curb consumer abuse, including requirements for debt collection, credit reporting, and credit repair.  One such provision is found in 15 U.S.C.  1679, et seq., commonly referred to as the Credit Repair Organizations Act (CROA).

The intent of CROA is to prevent credit repair organizations from engaging in unfair business practices, to the detriment of consumers.  This is especially relevant in the balance billing arena, in which firms may offer assistance repairing a patient’s credit after disputed charges are resolved.

What is prohibited by CROA?

CROA covers several prohibited practices, including excessive charges to consumers for credit repair services, and the lack of full disclosure of credit repair services to be provided.  The following are highlights of CROA’s requirements:

  • A credit repair organization (“CRO”) can only be compensated after services are rendered. No up-front fees are allowed.
  • A CRO cannot charge excessive set-up fees.
  • A CRO cannot make false or misleading statements to a credit reporting agency.
  • A CRO cannot make a statement, or advise a consumer/client to make a statement, with the intent of altering a consumer’s identity to enable them to receive better credit.
  • A written contract between a CRO and consumer/client is required, in addition to specific disclosures to the consumer/client.
  • There must be a written/signed right to cancel the contract.

Who is covered by CROA?

A CRO is broadly defined in the statute as:

“any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of—

      (i) improving any consumer’s credit record, credit history, or credit rating; or

      (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i)…”

15 U.S.C. § 1679a (emphasis added).  Several federal appeals courts have confirmed a broad definition of CRO.  See, e.g., Stout v. FreeScore, LLC, 743 F.3d 680 (9th Cir. 2014).

Must a law firm comply with CROA?

Yes, based on the consensus of case-law.  See, e.g., Day v. Persels & Associates, LLC, Case No. 8:10-CV-2463-T-TGW (U.S. District Ct., M.D. Florida, Jan. 30, 2015); Ducharme v. Heath, Case No. C 10-02763 CRB (U.S. District Ct., N.D. California, Dec. 16, 2010).    This is significant for firms providing a package of balance billing services, including credit repair, to patients and health plans.

Must an organization be compensated by the consumer/client in order to be a COA?

No.  CROA specifically states that the service provided by the organization or firm must be “… in return for the payment of money or other valuable consideration …”  15 U.S.C. § 1679a.  Thus, if an organization receives any form of consideration, not necessarily the direct payment of money from the consumer/client, then it may be a CRO subject to the mandates of the Act.  See Parker v. 1-800 Bar None, A Financial Corp., Case No. 01 C 4488, at page 12 (U.S. Dist. Ct., N.D. Ill., Feb. 12, 2002) (15 U.S.C. § 1679a(3)(A) “does not specifically require that the credit repair organization receive the consideration directly from the consumer, only that the credit repair organization receive consideration.”).

What are the consequences of a failure to comply with CROA?

The consequences for any failure to comply with CROA could be significant.  The statute allows courts to exercise discretion in awarding punitive damages. (   See 15 U.S.C. § 1679g.  The successful party in every lawsuit for violation of CROA is entitled to attorney fees.  Class action relief is available.  CROs are also subject to administrative enforcement under the Federal Trade Commission Act.