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Consumer Sourcebook

Preface | User's Guide | Table of Contents | Print Sourcebook Adobe Acrobat Reader Symbol

Credit Repair

Consumers with less-than-perfect credit ratings may be tempted to enlist the assistance of a company promising to "clean up" or "erase" bad credit. Credit repair companies can do nothing for you that you cannot do for yourself for free, and they may charge you hundreds of dollars to do it. There are no "loopholes" that credit repair companies can use to remove information from your credit report. Negative credit information can be reported for seven years (bankruptcies for 10 years). The only way to "repair" bad credit is to engage in good credit practices.

In this section, the New Hampshire law regulating credit service organizations will be covered along with information on advance fee loans and credit repair scams.

A credit service organization is defined as any person or entity who represents that he or she can or will sell or provide, for a fee, one or more of the following services for consumers:

  • Improve a consumer's credit record, credit history or credit rating
  • Obtain an extension of credit for a consumer
  • Provide advice or assistance to a consumer related to the consumer's credit record, credit history or credit rating.

This definition includes most loan referral credit counseling services, while excluding banks and other initial lenders.

The Law

In 1989, the New Hampshire Legislature enacted the Credit Service Organizations Act, RSA 359-D (CSO Act) in response to abuses in the consumer credit services field. The CSO Act regulates credit service organizations.

The statute regulates these services in four ways. A credit service organization must:

  • Post a bond with the New Hampshire Secretary of State
  • Make detailed disclosures to their customers about the services offered
  • Provide a five-day right to rescind any contract

Refrain from engaging in several specifically prohibited practices

The CSO Act's bonding requirement is intended to ensure that there will be an accessible pool of money available to compensate consumers injured by improper credit service practices. The bond or trust account must be equal to at least 5% of the company's yearly income under credit service contracts, but not less than $5,000 or more than $25,000, adjusted annually. If the company establishes a trust account, it must notify the New Hampshire Secretary of State of the name and address of the depository institution, the name and address of the trustee, and the account number or other identifying data. Any person injured by a credit service organization's violation of the CSO Act may bring an action for damages against the bond or trust account by suing the company, and any trustee of a trust account.

Like the federal Truth-in-Lending Act, the CSO Act requires credit service organizations to provide customers with detailed disclosures regarding the nature and costs of their services. (For more information about Truth-in-Lending, see Credit: Truth-In-Lending.)

A credit service organization is required to provide each customer with an information statement prior to executing any contract or taking any payment from the customer. The information statement must include the following:

  • A statement identifying the bond or trust account maintained by the company, with a description of the consumer's right to proceed against the bond or trust account if the consumer is injured by the consumer service organization's violation of the Act.
  • A complete description of all services which the credit service organization will offer under the contract, and the total cost of the services.
  • A statement informing consumers of their rights under the federal Fair Credit Reporting Act to review any file maintained by any credit reporting agency. Credit reporting agencies must provide a copy of such files free of charge if requested within 30 days after a consumer receives a notice of denial of credit from any person or company, and a statement of approximate charges for such a request under ordinary circumstances.
  • A complete and accurate statement of the consumer's right to dispute inaccuracies in any file maintained by any credit reporting agency.

Note: The last two disclosures are intended to prevent credit service organizations from charging for "services" consumers are entitled to under state and federal law. For more information, refer to the section on Credit Reporting.

Any contract between a credit service organization and consumer must be in writing and must contain the following disclosures:

  • All terms and conditions of payment, including a complete listing of amounts to be paid to the credit service organization and/or to any other party
  • A description of all services to be performed by the credit service organization under the contract, including an estimated timetable for their performance, and any guarantees or refund provisions
  • The credit service organization's business address and the name and address of its "registered agent" (a person appointed by an out-of-state company to receive service of process and court papers within New Hampshire)

All credit service organization contracts must contain an explicit statement (printed in at least 10 point boldface type and positioned next to or above the customer's signature line) of the customer's unqualified right to cancel the contract within five business days after signing. The contract must also be accompanied by a preprinted, multi-part "Notice of Cancellation" which the consumer may use to exercise this right.

To cancel a credit service organization contract, the Notice of Cancellation must be mailed within five business days after signing the contract (the notice is effective when mailed). The credit service organization must refund any money paid by the consumer within five days of receiving the cancellation notice.

The CSO Act contains a list of expressly forbidden acts and practices. A credit service organization must not:

  • Charge or take any money (or anything else of value) from consumers before fully performing all services promised unless the company has posted the required bond or maintains a trust account as called for by the Act
  • Charge or take any money (or anything else of value) from consumers solely for the purpose of providing them with credit applications
  • Make untrue statements to a credit reporting agency in order to effect a fraudulent "repair" of a consumer's credit rating, or counsel consumers to commit similar fraud
  • Make or use any misleading, untrue or deceptive statement, or engage in any misleading or deceptive act or practice in marketing, advertising or selling their services to consumers.

Be Aware of … Problems Requesting Annual Free Credit Report

Consumers now have expanded rights in getting a mistake on their credit reports corrected.

  • If a consumer provides evidence of an error, the mistake must be corrected.
  • Providers of credit information are required to investigate disputed charges.
  • Once disputed information is removed from a consumer's credit file, it cannot be reinserted unless the accuracy of the information is certified by the source of the information.
  • Consumers have the right to remove their names from lists to be "pre-approved" for credit card offers.
  • National credit reporting agencies must have staffed, toll-free telephone numbers.

Consumers now have expanded rights in getting a mistake on their credit reports corrected.

  • If a consumer provides evidence of an error, the mistake must be corrected.
  • Providers of credit information are required to investigate disputed charges.
  • Once disputed information is removed from a consumer's credit file, it cannot be reinserted unless the accuracy of the information is certified by the source of the information.
  • Consumers have the right to remove their names from lists to be "pre-approved" for credit card offers.
  • National credit reporting agencies must have staffed, toll-free telephone numbers.

Credit Repair Scams

A form of consumer credit services fraud may arise in connection with "credit repair" offers. Credit repair services help consumers who have bad credit to improve their credit ratings for a fee. Credit repair services can range from the legitimate to the completely fraudulent

A credit repair service might issue a "credit card" to the consumer which is really a kind of checking account; this is referred to as a funded credit card. The consumer deposits a sum of money with the issuer and signs an agreement giving the issuer a right to seize that money if the consumer falls behind on the "credit card" payments. Theoretically, the consumer's successful use of the "credit card" will help build up a good credit rating. In its basic form this practice is completely legal. However, failure to disclose material aspects of the transaction to consumers (such as not informing the consumer of the issuer's right to seize the deposited money) may amount to an unfair or deceptive practice under New Hampshire's Consumer Protection Act.

Some credit repair services are really nothing more than home equity lines of credit, under which the consumer grants the card issuer a "security interest" in the consumer's home in return for issuance of a "credit card." Failure to fully disclose the details of this kind of transaction may also be an unfair and deceptive practice.

Note: Funded credit cards or lines of credit of the kind discussed here are also "consumer credit transactions" subject to all the disclosure requirements of the federal Truth-in-Lending Act. For more information, refer to the sections on Credit: Truth-In-Lending and Home Equity Loans and Second Mortgages.

Another popular form of credit repair service is provided by an agency which typically provides advice and information, for a fee, to consumers with credit problems. Some of these so-called counselors will also assist consumers to compile their assets and present payment plans to creditors.

Example: Jane is finding it difficult to obtain financing for a car loan because she defaulted on an auto loan and voluntarily surrendered her car to a finance company in 2004, a fact which appears on her credit report. One day, she sees an ad in the paper that says: "Bad Credit? Bankruptcy? Foreclosure? No Problem! Clear credit in 60 days. Guaranteed results!!" She contacts the company by phone and is promised that, for a $400.00 payment, the company will clear the derogatory information and she will be able to qualify for a new auto loan. Under the Fair Credit Reporting Act, there is no way the company can legitimately cause the information concerning Jane's prior default to be erased from her credit report. The company is clearly violating New Hampshire's Consumer Protection Act and CSO Act. In addition, because the company made its promise over the telephone, it also falls under the FTC's telemarketing rules which prohibit any credit repair telemarketer from accepting payment for services until six months after the supposed services have been rendered.

The basic service of credit counseling is legal. Problems may arise if the credit repair service misrepresents its services, for example, by promising that its services will result in "repair" of bad credit ratings, or by accepting money then failing to deliver promised services. If a business offers "counseling service" to provide the consumer with credit (or help the consumer to obtain credit) to pay other creditors, it may be shading over into an advance fee loan offer subject to both the New Hampshire Consumer Protection Act and the federal Truth-in-Lending Act. In addition, the Federal Trade Commission's (FTC) telemarketing rule makes it illegal for credit repair companies to accept payment for "repairing" credit until six months after the assistance has been rendered. (For more information on telemarketing and the FTC rule, refer to Telemarketing)

Advance Fee Loan Scams

The typical advance fee loan scam usually starts with an ad placed in the classified section of a newspaper or tabloid. Ads may also appear on radio or cable TV, or be included in bulk mail.

Note: Illegitimate companies will often avoid the mails to escape notice by US Postal authorities, and broadcast TV to avoid FCC jurisdiction.) Typically, the ad will promise "guaranteed credit" or assistance in locating credit and will often contain statements like "Bad Credit? No Problem!!!"

Example: Joe needs $20,000 to start a small business but, because he has numerous other debts, has been unable to secure a bank loan. He responds to an ad in a national newspaper which reads: "Credit for start-up businesses. Over $10,000,000 in Investment Capital available for immediate disbursement. Call Contact Capital Access, Inc. at 1-800-xxx-xxxx." Joe calls and is assured by the person he speaks with at Capital Access that his business idea is sound and that he will qualify for funding from one of the company's many sources. He is asked for an application fee of $250 which he charges to his credit card. Two days later, he receives a letter from the company, assuring him that he will receive the loan he needs and seeking another $100 in processing fees. Accompanying the letter is a so-called "Universal Application for Credit" which Joe completes with his personal financial information and returns. Weeks later, Joe receives another series of turn-downs from banks across the country. He looks back at his paperwork and finds disclaimers saying that Contact Capital Access, Inc. cannot promise that lenders will provide credit to its customers. Contact Capital Access has violated the FTC telemarketing rule which forbids loan brokers, who guarantee or suggest that applicants will receive credit, from accepting payment before credit is secured. In addition, the company may have violated New Hampshire's Consumer Protection Act by leading Joe to believe that he would receive a loan when its own paperwork disclaimed any such guarantee.

The scam may be as simple as requiring the consumer to call an 800, 888 or 900 number for information without clearly disclosing that charges are assessed for either the phone call or so-called "information services." This practice is almost certainly a violation of New Hampshire's Consumer Protection Act.

A more subtle variation arises when the "loan company" requires an up-front cash or credit card payment in return for "guaranteed credit" or assistance in locating credit. Once the "loan company" has the consumer's money, it either fails to deliver promised services or delivers nothing more than a standard credit application. A company that does not comply with the extensive bonding and disclosure requirements for credit service organizations in New Hampshire is in clear violation of the law. In addition, the FTC telemarketing rule makes it illegal for a company to accept any payment before a customer's loan is actually approved by a lender. (For further information on the FTC rule, refer to Telemarketing)

Points To Remember

  • Be wary of ads which promise easy credit despite a bad credit rating.
  • Remember, no credit repair company can do anything for you that you can't do for yourself, for free.
  • Never agree to pay money over the phone without demanding to see the offer or agreement in writing and reviewing the offer or agreement carefully.
  • Never give your credit card number, checking account number or social security number over the phone to persons or companies that are unfamiliar to you. This information can be used to make unauthorized charges and/or withdrawals against your credit card or bank account.
  • Never do business with any credit service organization without first checking to see if the company has posted the required bond with the New Hampshire Secretary of State.
  • Beware of any credit repair company that encourages you to omit or lie about bad credit experiences, tells you to use a different name, or says it is legal to establish a new credit identity when you are applying for new credit.
  • Always check with the Better Business Bureau and/or the NH Consumer Protection and Antitrust Bureau to see if there are complaints on record against the company.

Where To Go If You Have A Problem

If you want to find out if there are complaints on record against a particular credit service organization or credit repair company, contact the Better Business Bureau:

Better Business Bureau
25 Hall Street, Suite 102
Concord, NH 03301
603-224-1991, 603-228-3789, or 603-228-3844

Contact the NH Consumer Protection and Antitrust Bureau if you have a problem with a credit service organization or if you think a credit repair company has taken advantage of you. You will need to provide the Bureau with a written complaint and copies of all documentation provided to you by the company which appears to have pulled a consumer credit scam. The Bureau typically forwards these complaints to the Consumer Protection Bureau in the state where the company is located, and to the FTC and US Postal Inspectors. The Bureau would consider taking action against companies which are preying on a significant number of New Hampshire citizens.

NH Consumer Protection & Antitrust Bureau
33 Capitol Street
Concord, NH 03301-6397
603-271-3641

If you have credit problems and want to work them out, a legitimate, nonprofit credit counseling service is available to consumers throughout the state. The Consumer Credit Counseling Service has offices in a number of New Hampshire towns and cities. Look in your local telephone book for the office nearest you.

Consumer Credit Counseling Service of NH and VT
105 Loudon Road
Concord, NH 03301
1-800-327-6778 (toll free)

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New Hampshire Department of Justice | 33 Capitol Street | Concord, NH | 03301
Telephone: 603-271-3658