What Is a Credit Repair Contract?
The primary purpose of a credit repair contract is to establish the legal relationship between the consumer and the credit repair business. It consumes most of the space in the contract, but it’s not the only provision:
It has to identify the credit repair service being provided – whether it’s disputing accounts, helping consumers to get debts paid, helping consumers attend credit counseling classes, etc. If the contract does not say that the credit repair business is going to correct errors on the consumer’s credit report , then the credit repair business is not obligated to correct errors on the consumer’s credit report. When contemplating whether a service is covered by a credit repair contract, follow the steps below: Many states have specific requirements for a valid credit repair contract, and a credit repair business must always be careful to follow all requirements in the state in which the contract is signed (and then also any state in which consumers may be signing the contract). The FTC, therefore, provides a state-specific set of guidelines on their website.
Key Components of a Credit Repair Contract Template
Regardless of which services are offered, credit repair contracts should contain certain key elements. These include the scope of services to be performed, the payment terms, and the cancellation policies.
Almost every credit repair contract begins with a provision that describes in detail the services which are being offered by the credit repair agency. For instance, if the credit repair service is going to assist the client with dispute letters, then the contract should specify letters to be sent, information that will be requested; the time frame for delivering the letters, and the process to be followed with each credit bureau.
This clause is important because credit repair clients expect to have their credit reports improved in three to six months and they want specific items removed from their credit reports. Therefore, the contract should outline the scope of the work. The scope of work clause also protects the credit repair company from liability for failing to achieve results in a timely manner. That part of the contract can say that the company will only assist in the removal of those items identified and agreed upon in writing in the monthly report. The scope of work section is important because it puts the client on warning that there are no guarantees that items will be removed from their credit report.
The second major clause of the contract lists the fees to be charged for services. This can range from as low as $30/month to as high as $1000 for extensive negotiations. If the fees are in excess of $100 for monthly services, it must be noted that the credit repair company is complying with the Credit Repair Organizations Act. During the early 2000s, many companies were either using no contract, or telling clients that contracts were "illegal." Now, the Credit Repair Organization Act ("CROA") requires a credit repair contract that is signed prior to services being performed. Learning from the mistakes of others, the FTC has embarked on a full and detailed campaign to educate credit repair service providers about CROA and its requirements.
The third major clause concerns the unavoidable cancellation situation. Almost every credit repair client will want to cancel his or her contract at some point. Some will cancel every month, but under the law, no contract can have an automatic renewal, meaning it must be signed and re-signed. To make your credit repair services more efficient, present the client with the entire contract at once, including all of the cancellation and dispute clauses.
Advantages of Using a Credit Repair Contract Template
A properly drafted credit repair contract is very important for the success of your business. When presented well, the following benefits can be derived from the provision of a credit repair contract to clients:
- Clients are more likely to accept the credit repair services they are being offered if they are given a relationship blueprint.
- The writing of a contract reaffirms the intent of the relationship between the parties under the relevant agreement.
- The contract can outline the critical components of credit repair services, explaining each step in the process. This will inform a client on what specifically to expect at each stage of the credit repair process.
- It protects your business by ensuring that any promises made to the client are written in the contract; this will also minimize the risk of you having to go back on your word as to how you intend to help the client.
- By documenting the different elements of the agreement with your client in writing, both you and the client will be better able to keep track of progress.
- A contract will cover you legally should the client chose to take you to court or otherwise complain to a third party about your credit repair services.
Legal Implications of Credit Repair Contracts
The universe of credit repair is filled with issues when attorneys are asked to review the form contracts that people are using. Sadly, I seldom encounter any contract that complies with the lofty federal standards of compliance, let alone the multiple state laws that people violate when they enter into these contracts.
In our NINA newsletter last week, we mentioned cases in Illinois and New York that provide a cautionary view of the consequences of failing to comply with the federal and state laws that regulate credit repair businesses and their owners; namely, the Credit Repair Organizations Act (CROA) and various state laws governing credit repair organizations.
The CROA provides guidance for credit repair forms. Regardless of whether the organization is a for profit, non-profit, or a government agency seeking to correct the credit for a one time fee or to provide services to many clients. The law nationwide is deceptively simple. The agency must abide by the CRFA. It is federal and governs all.
Almost all states also have their own regulatory challenges that will come from the Attorney General’s office or the consumer protection agency in your state. Oregon’s statute reads as follows:
155.1350 Certificate of registration required. (2) A person may not engage in the business of credit repair organization without a certificate of registration issued under this subsection.
Then come the mandated disclosures that must be included in the contract, etc.
155.1355 Required statements in contract. (1) A credit repair organization shall provide the following to a consumer in writing: (a) 1. That a contract is void if any of the requirements of ORS 646A.604 are not met; and 2. The date by which the services agreed to will be provided by the credit repair organization; (b) The date on which payment for the services agreed to is required; (c) If the credit repair organization is not registered, that the credit repair organization is not registered and that registration is not required in Oregon until a home solicitation sale is made; (d) That the consumer may cancel the contract without penalty or obligation within three business days after the day on which the consumer signs a contract with the credit repair organization. The cancellation notice must be in bold face type at least 10 points in size and in substantially the following form:
"You may cancel this contract within three business days from the date you sign it. See attached notice of cancellation form."
In addition:
(2) If a person that has been paid by a consumer for credit services enters into a contract with the consumer, the contract must include: (a) The date the contract is entered into. (b) The name of any person the credit repair organization is acting on behalf of. (c) A description of the services to be provided to the consumer. (d) The address to which the person is required to send correspondence. (e) The date by which the services agreed to are to be provided. (f) If the credit repair organization is not registered, that the credit repair organization is not registered. (g) The date on which payment for services is to be made. (h) That the consumer may cancel the contract within three business days after the day on which the consumer signs a contract with the credit repair organization. The cancellation notice must be in bold face type at least 10 points in size and in substantially the following form:
"You may cancel this contract within three business days from the date you sign it. See attached notice of cancellation form."
And then there is more to this section that goes into disclosure on payments, interests, and late fees. It should be clear from this that it is essential to abide by these rules if you intend to comply with state and federal regulation.
There is a way to draft the contract so that even all the state law issues with respect to payments, interests, and the like are included, and we have perfected that process so you do not have to reinvent the wheel. Again, our Shield, available on our website, gives you the proper language and the required language for all these issues, but most importantly, you should refer to the matrix that is included so you can ascertain where your state laws demand special treatment and the compliance issues are extremely important.
Writing Your Own Credit Repair Contract Template
It’s important to have all of the details that you want in your contract because these contracts come into play when a legal issue arises. Your contract should also conform to any local or state law requirements, and that’s where you need the assistance of a company like Credit Repair Cloud.
Customizing your credit repair contract template isn’t hard, but it does take some time. It’s also well worth it because it can really set you apart from your competition. Most companies will simply buy a Plausible Credit Repair Contract Template or other templates and won’t do anything to customize it . Your customers want to know their money is being spent wisely, and if you can alleviate their concerns by having a custom-made contract template for them, it will give you a leg up on the competition.
Make sure every aspect of the contract reflects your business model. Your business model is how you’re going to be charging your clients for services, what type of services you will be providing, and all of the other little details that make your company unique.
Are you going to be a flat-rate business or are you going to be charging by the service? The credit repair contract template needs to reflect how you will be charging your clients for services.
Typical Pitfalls in Credit Repair Contracts
A quick google search will show you that there are a ton of both free and paid credit repair contracts out there. Most of them look like contracts you used to sign when opening a credit card in the 1990s, but, in reality, they are some of the worst contracts you could use for your credit repair business.
First, these contracts are usually template contracts that you can purchase for a small fee, or download for free from websites that don’t understand the FTC Rule, or even from lawyers who do not understand the FTC Rule. The biggest issue with the templates is that they do not contain the required disclosures in the mortgage disclosure format required by the FTC Rule. The template contracts usually have the super generic "no guarantee" language that the FTC Rule clearly prohibits and does not contain any of the other required disclosures. In fact, many of the template contracts you find online will have language that says "We Guarantee 90% Removal of Negative Information from your Report" and this will likely be used against you if you are caught using it.
Another significant problem with the contracts you find online is they do not address the credit repair services you are offering or how you are providing those credit repair services. For example, the contract should address if your company is allowed to charge your customers a monthly fee in addition to the initial fee. Many contracts I find just require payment in full up front for the credit repair services, but the FTC Rule prohibits upfront payments of credit repair services. I’ve also seen credit repair contracts that list all of the credit repair services the credit repair company is allowed to provide. At face value, this does not seem like a big issue. However, the FTC Rule prohibits a credit repair business from offering services regarding FCRA or FTC violations. The best practice is not to include the services side of things and just offer to complete authorized consumer disputes, which includes communicating directly with the credit bureaus if necessary.
Other mistakes I’ve seen include contracts that require both parties to submit to binding arbitration. The FTC Rule allows a credit repair company to include waivers/limitations of damages or no fault clauses in their contracts, but it would be very difficult for an arbitration clause to satisfy this FTC Rule. Instead, the contract should limit the remedies available only to actual damages. This is not only the requirement under the FTC Rule, but it also allows the consumer to file suit for violations of state law without being compelled to arbitration. Also, a credit repair business cannot waive its statutory right of attorney’s fees (because this is a violation of consumer’s rights and contract law), so the arbitration clause should make sure that both parties have the right to attorney fees. Further, if you require binding arbitration in your contract, you may run afoul of the FTC Rule’s prohibition on aggressive credit repair practices as mandatory binding arbitration would be an aggressive practice.
There are many more issues that can arise from template contracts and various credit repair contracts I’ve seen over the years, but the basic idea is you should not use the template contracts from the internet. The FTC Rule does not allow you to charge upfront fees and does not allow for binding arbitration. Instead, make sure you follow all the FTC Rule’s requirements like including the mortgage style disclosures, limiting liability to actual damages and making sure that your company is allowed to charge monthly fees (if that is your business model).
If you have any questions, I’m happy to help you draft or review your contracts. I’ve done a lot of work on credit repair and the federal Fair Credit Reporting Act (FCRA) and have a deep understanding of the legal requirements and potential pitfalls for your business.
Finding Credible Credit Repair Contract Templates
For those looking for professionally-created credit repair contract templates, consider the following sources:
Credit Repair Organizations Act (CROA) Legal Resources: The Federal Trade Commission contains a wealth of material on CROA. Review their CROA rule page for a variety of sample documents and other helpful links relating to the legislation.
Credit Repair Alliance (CRA): The CRA is the only trade association for the credit repair industry. They have a variety of resources available for members—including contract templates for various services.
American Society for Consumer & Civil Rights Attorneys (ASCCRAT): This organization offers a few legal resources for a fee through their Legal Download Center. They are not specific to CROA , but if you’re in search of an attorney to help you draft or review your contract, they may be able to help you out.