Credit-repair firms often don’t deliver what they promise

By Kenneth Harney Comments 0
Published: November 8, 2008

WASHINGTON — With foreclosures, short sales and credit-card defaults at record levels, an aggressive breed of firms has sprung up offering to power-wash consumers’ damaged credit files and boost their credit scores — thereby eliminating records of bankruptcies and mortgage delinquencies, even when the information is accurate.

Such services — promoted widely on the Internet and in radio ads — are especially attractive to people who want to buy a house but whose credit scores are too low for a mortgage through the Federal Housing Administration, Fannie Mae or Freddie Mac.

What’s the catch?

The problem with these companies that are offering to fix credit scores, say federal and state authorities, is that all of their promises may be deceptive and illegal.

On Oct. 23, the Federal Trade Commission and 24 state agencies announced the kickoff of "Operation Clean Sweep,” targeting credit fix-up operations nationwide that allegedly take consumers’ money in exchange for boosts in credit scores that they cannot deliver.

In the first phase of the campaign, the FTC filed suits against seven companies, alleging multiple violations of both the Credit Repair Organizations Act and the Federal Trade Commission Act.

What the law says

Under the credit repair law, organizations or individuals cannot collect fees up front from customers before rendering services to amend their credit bureau files.

That law also prohibits companies from promising improvements that are not feasible, this also includes elimination of accurate records on foreclosures and bankruptcies that typically remain on national bureau files for seven to 10 years.

The FTC said the new legal actions were prompted by the receipt of more than 4,400 consumer complaints against firms in 22 states.

Working with state agencies and information from local Better Business Bureaus, the commission investigated credit repair companies’ Internet pitches and other advertising media, and sometimes had investigators pose as potential clients to document allegedly illegal pitches.

Lesson for buyers

Resolution of the cases in Operation Clean Sweep will be up to federal courts in the coming months. But the takeaway for home buyers and others seeking to rapidly boost their credit scores is this:

Whatever sales people may tell you, it is impossible legally to remove a valid record of a severe default, bankruptcy or foreclosure from your files.