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(SACRAMENTO) – Attorney General Bill Lockyer today warned consumers who have experienced credit problems that some businesses promise help they can't deliver.
"Consumer debt is at an all-time high, and more than one out of every 80 households in California has had someone file for bankruptcy," Lockyer said. "As a result, many consumers may have difficulty obtaining credit because of negative items on their credit reports. Unfortunately, some businesses try to take advantage of consumers' credit problems by promising to clear up their credit record or to help them establish a clean, new record, charging them high fees for services the business cannot provide."
State and federal laws give consumers the right to have inaccurate information corrected, or information that doesn't apply to a consumer removed from his or her credit report. But accurate negative information generally cannot be removed and is allowed to remain on a credit report for seven years. Bankruptcies remain for 10 years.
Under California law, "credit services organizations," more commonly known as credit repair companies, are defined as businesses that provide advice, assistance and services regarding improving a consumer's credit record or obtaining a loan or an extension of credit. Their ads typically claim that they can "Erase bad credit!" or "Clean up your credit report!"
To protect consumers from unscrupulous credit repair companies, California law prohibits these companies from asking for or taking any payment before the promised services are fully performed. Credit repair companies also are required to obtain a $100,000 bond and be registered with the Office of the Attorney General.
A few types of companies, including banks, real estate agents, attorneys, and some non-profit organizations are exempt from these provisions of state law.
Credit repair organizations must give consumers they do business with all of the following:
* A written and dated contract with a detailed description of the services to be performed and the total charge for those services;
* A notice of the consumer's right to cancel the contract for any reason within five days from the date of the transaction;
* The name and address of the company that issued the $100,000 bond and notice of the consumer's right to proceed against the bond for violation of the law.
Lockyer warned consumers to be aware of what a company may and may not do under the law. "Too often, these companies charge high fees for a service they can't provide," Lockyer said. "The bottom line is consumers need to be careful in dealing with any company that offers credit repair."
Credit repair organizations are generally different from "debt negotiators," although the same company may claim it can provide both services. Debt renegotiation companies often advertise that they will help consumers get out of debt by negotiating with a consumer's creditors to lower interest rates or payments or reduce the total amount a consumer owes. The California Department of Consumer Affairs today issued a consumer alert about these types of companies, some of which charge fees up front and then fail to renegotiate debts or pay creditors. For more information on debt negotiation companies and a free legal guide on Credit Repair Services, visit the Department of Consumer Affairs web site or contact the agency at 1-800-952-5210.
Consumers may file complaints about credit repair companies using the form available on the Attorney General's web site, or by writing to the Attorney General's Public Inquiry Unit at P.O. Box 944255, Sacramento, CA 94244-2550. Consumers also may find free advice on credit repair at the web sites of the Federal Trade Commission, the Better Business Bureau, and the American Bankruptcy Institute's Consumer Corner.
Credit repair companies are regulated in California by Civil Code sections 1789.10-1789.26. Consumers can call to see if a credit repair company is registered as required by state law by contacting the Attorney General's Public Inquiry Unit at (800) 952-5225.