The ins and outs of credit repairTerry W. Clemanscredit repair, sub-prime market, Fair Credit Reporting Act, Credit Repair Organizations Act, Fair Isaac, National Credit Reporting Association Inc. Brokers, be warned: Being closely involved with credit repair may bring with it some major consequences. The cover story of the last issue of Broker Magazine caught my eye, as it discussed various methods of credit restoration and improvement. The mortgage marketplace, specifically the sub-prime market, has drastically shifted over the past year, and so it is easy to understand the increased awareness in the maximization of a consumers credit score. Now more than ever, approval decisions seem to hang on the smallest of credit scoring margins. While the article discussed several methods of correcting, improving or repairing credit, its author overlooked two very important aspects of credit repairaspects that brokers must carefully consider when working with their clients and credit repair companies. Brokers, be warned: Being closely involved with credit repair may bring with it some major consequences. After reading the aforesaid article, a broker might consider adding fee-based credit repair to their existing business model. This would be a great way to generate revenue from clients not yet ready for a mortgage loan, right? While this may seem like a very normal method of business diversification and a conventional way to expand your potential mortgage client base, is the potential revenue from the credit repair service worth losing the ability to offer mortgage loans? Aspect number one involves legality, specifically with regard to credit repair. In addition to the Fair Credit Reporting Act (FCRA), there are very specific and strict laws about credit repair. One of the most important laws, and one of the most frequently unrecognized, is the Credit Repair Organizations Act (CROA). This is the primary governing law for credit repair companies and it strictly prohibits many practices that are, unfortunately, still in use by many credit repair companies today. For a credit repair company to be compliant with the most basic of CROA regulations, they must start with a clear contract spelling out exactly what they will do for the consumer, inform them of their rights and not charge the consumer any fees until all terms of the contract have been completed. Many of these companies have program policies that barely meet the requirements of the law, and would likely fail a CROA legal challenge by a consumer or government enforcement agency. Even a few of the national credit repositories and Fair Isaac and company were surprised by CROA litigation challenges regarding the sale of their credit reports, scores and credit correction/improvement programs on the Web for violating the pre-payment portion of CROA. If you are interested in further detail, log on to www.ftc.gov/ro/chro/credit.shtm for a complete copy of the CROA. Aspect number two, and the issue with the greatest potential impact on your ability to continue your mortgage origination business, is related to the three national credit repositories and their policies prohibiting the sale of credit reports to companies in the business of credit repair. Any accurate derogatory data on a consumers credit report cannot be removed through legal methods until the statute of limitations expires (seven years for everything other than bankruptcy, which is 10 years). Companies that make claims other than that should have their practices carefully reviewed for both FCRA and CROA compliance. Since any firm that is found to be in the business of credit repair no longer qualifies to purchase credit reports, if you are discovered and listed on a Do Not Sell list of the repositories for being involved in credit repair, what is going to happen to your mortgage originations? This also affects any company that shares office space with a credit repair company. In other words, starting a new company to shelter the connection with your Mortgage Broker business will not work if you are sharing physical office space with the other company. This is one of the items reviewed during the mandatory site inspections prior to receiving clearance for the purchase of credit reports. In a down market, it is natural to seek new ways to expand your consumer base and look for new revenue streams. When doing so, careful evaluation should be given to the potential consequences for both your consumer and your mortgage origination business if credit repair is something you are considering. Make sure that any company you are considering referring to your consumers meets all of the federal guidelines for legally offering credit repair. The FTC brochure, which can be found online at www.ftc.gov/bcp/conline/pubs/credit/repair.shtm, will help you to determine if the company you are planning to refer is worthy of consideration by your consumer. And of course, if you are considering getting into this business, remember that being involved in a credit repair company impacts your ability to access credit report information. If this becomes known and you can no longer access credit reports for your mortgage operations, will it be worth it? Terry W. Clemans is the executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail [email protected].