Credit Repair Clinics Could Clean You Out

Credit repair clinics, or “credit doctors,” are flourishing. But while they promise to clean up your credit problems, in many cases they only clean out your pocketbook. By preying on the ignorance of debt-troubled consumers, the clinics defraud them of millions of dollars, government investigators say.

Fortunately, unscrupulous operators can be easy to spot. And anything they claim that they can legitimately do, you can do on your own at little or no cost.

“A lot of people who use these clinics are really unaware of the law and believe there is something mysterious these companies can do for them,” says Herschel Elkins, a California senior assistant attorney general.

Credit clinics have thrived largely because of consumers’ growing use and overuse of credit, resulting in rising personal bankruptcies and credit card delinquencies.


For debt-ridden consumers, the clinics’ pitch sounds tempting. Often through newspaper advertisements, the clinics claim that they can eliminate your credit problems by removing adverse information, such as records of late payments or collection actions, from your files. Such information is contained in records maintained by such credit bureaus as TRW Credit Data, Transunion or CBI. TRW, for example, maintains files on about 143 million consumers, with information provided by lenders.

The law requires that accurately reported information may remain in your credit file for seven years, or 10 years if you declare personal bankruptcy. But credit bureaus are required under the Fair Credit Reporting Act to investigate and respond to consumer disputes about such information within a reasonable time. The Federal Trade Commission, the U.S. agency charged with enforcing the act, deems 30 days from receipt of a dispute as a reasonable response time.

Credit clinics seek to exploit this loophole by overwhelming bureaus with so many challenges of adverse information that the bureaus won’t be able to verify the data within the 30-day limit. Thus, the clinics hope, the adverse information will be removed.

But if the credit information is correct, it cannot be removed legitimately. If eliminated, it is likely to be reinstated when the lender files new reports with credit bureaus.


The law also allows credit bureaus to refuse to investigate frivolous disputes. TRW has even gone further, refusing to respond to third-party inquiries and dealing only with consumers directly, spokeswoman Susan Murdy says.

Nonetheless, credit clinics charge as much as $1,000 for their services--and often get it. But some don’t perform promised services or do just a minimal amount of work. Others have gone belly up, leaving customers without refunds.

Credit clinics also charge exorbitant fees for services you can easily perform yourself for little or no cost. For example, some clinics charge hundreds of dollars to provide you with a copy of your credit report and a sample application for a secured credit card--the type that requires a bank account or other assets as collateral. But you can get both for free or for a nominal charge.

Federal legislation has been proposed to crack down on abuses. Among other things, the legislation would require that clinics advise you of your rights before signing a contract, fully disclose their services and the cost and allow you to cancel the contract.


California already has such a law. But it hasn’t been enough to stop the abuses because state and federal agencies say they don’t have adequate staff to police unscrupulous operators. “We could bring actions against 30 or 40 companies next week if we had a large enough staff,” Elkins says.

The FTC and the Attorney General’s office have filed civil suits and obtained restraining orders against some of the largest and worst offenders, charging that they could not guarantee credit repair as touted. For example, in what may be one of the largest settlements of such a case, a California firm, Action Credit Systems, agreed earlier this year to refund $1.2 million to customers to settle an FTC complaint.

The state Attorney General’s office also forced a California man to quit holding seminars in which he charged each person $90 for information on how to repair credit records. The agency plans to increase actions against other abusive practices in the next two months, Elkins says.

But stronger enforcement and tougher laws alone are not enough. The real solution will come when consumers become more informed. Here are some tips:


- Know your credit rights. If you act within 30 days of being denied credit, federal law entitles you to review the credit report that the lender used in making the decision, at no charge. Otherwise, the fee is typically $5 to $15.

Call the credit bureau first to find out the procedure. The two biggest credit bureaus in the Los Angeles area are TRW and CBI. Others are listed in the phone book.

If you challenge information in your file as inaccurate or fraudulent, credit bureaus must investigate and delete information that cannot be verified. If the credit bureau deems the information correct and you disagree, you can submit a brief statement, which becomes part of your file.

Three free booklets, “Building a Better Credit Record,” “The Fair Credit Reporting Act” and “Fix Your Own Credit Problems and Save Money,” can be obtained from the FTC, Room B-3, 6th and Pennsylvania Ave. N.W., Washington, D.C. 20580.


- Recognize credit repair rip-offs. Avoid services that claim they can clean up your credit record or that are vague about the services they provide. Steer clear of those offering to assist you in obtaining your credit report for a fee. And avoid those promising to get you a credit card, regardless of your credit history. In many cases they will provide you only with an application.

- Complain if you’ve been duped. In the Los Angeles area, write to the Attorney General’s Office, 3580 Wilshire Blvd., Los Angeles, Calif. 90010. Also complain to the Federal Trade Commission, 11000 Wilshire Blvd., Room 13209, Los Angeles, Calif. 90024, or call its complaint line at (213) 209-7575 between 8:30 a.m. and noon weekdays.

You also can sue in small claims court, suggests Ann Guler, an FTC public information officer.

- Know how to get legitimate credit counseling. Reputable, low-cost help on repaying your creditors, managing debt and setting up a budget is available. One service is provided by Consumer Credit Counselors, a nonprofit organization with 400 offices nationwide.


For referrals to the office nearest you, call (213) 386-7601 in Los Angeles County, (714) 547-8281 in Orange County, (619) 224-2922 in San Diego County and (714) 781-0114 in Riverside County. Elsewhere, call the National Foundation for Consumer Credit in Silver Springs, Md., at (301) 589-5600.

- Know how to get a secured credit card on your own. Consumer Action, a San Francisco consumer group, offers a free list of California institutions that offer low-cost, secured cards directly to the public. Send a self-addressed, stamped envelope to the organization at 116 New Montgomery St., Suite 223, San Francisco, Calif. 94105.

The Bankcard Holders of America also provides lists of secured card issuers, along with a pamphlet on credit clinics. Send $3 to the organization at 460 Spring Park Place, Suite 1000, Herndon, Va. 22070.

Bill Sing welcomes readers’ comments and suggestions for columns but regrets that he cannot respond individually to letters. Write to Bill Sing, Personal Finance, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.