Credit Repair Organization Act: Cancellation Rights

As wider use of credit became the norm, many rushed to amass great credit debt. Soon, however, they were faced with the reality that they eventually need to repay their debt. Their glorious lifestyle slowly slipped away and they began experiencing difficulties such as the inability to purchase homes, cars or rent apartments, and many were even unable to get decent jobs. In desperation, people sought the help and advice from credit repair companies hoping they’d assist them with correcting their morbid situations. Relief was yet to come as they soon found themselves in unchanged or even worse positions.

The Credit Repair Organizations Act

Congress found that some companies in the business of credit repair servicing were engaging in marketing and industry practices which resulted in financial hardships upon consumers. The Credit Repair Organizations Act (“CROA”) was enacted in September 1996 under Title IV of the Consumer Credit Protection Act and it directly refers to companies that offer credit repair services to the public. Some of the regulations put forth states that when companies are offering their credit repair services, they are forbidden to make deceptive and/or outright false representations, demand advance payments or advise a client to alter their identification by creating a new identity for the sole purpose of concealing their damaged credit history.

Regarding their contracts:

  • Credit repair contracts MUST be in writing; and
  • Consumers MUST be given certain contractual cancellation rights.

In the contract, the following must be included:

  • A comprehensive, detailed description of the services to be provided by the credit repair company
  • The terms and conditions of payment plus the expected total amount to be paid by the consumer
  • An estimate of the length of the time needed to provide said services; and
  • An estimated date of completion of said services.

Once a contract has been drawn up and signed (executed), clients are given 3 business days to review it and decide whether or not to keep it. The moment the contract is signed begins the countdown toward the 3rd business day. Along with the contract, consumers should be given a form in duplicate entitled “Notice of Cancellation”. These forms should read in bold type (so there’s no room for misunderstanding): The consumer has the right to cancel the contract, without penalty or obligation, at any time before midnight of the third day which begins the moment after the consumer has signed the contract (paraphrased).

To officially cancel:

Notice of Cancellationit’s to {the name of the credit repair agency} at {the address of the credit repair agency} before midnight on {date of the 3rd business day}“I hereby cancel this transaction.”

Consumers must mail or deliver a signed, dated copy of the Notice of Cancellation they were given at the time of signing, before midnight of the 3rd business day.

Also acceptable will be a written notice to the credit repair agency which states specifically it’s to {the name of the credit repair agency} at {the address of the credit repair agency} before midnight on {date of the 3rd business day}. The body should read “I hereby cancel this transaction.”, and it should then be dated and signed by the consumer.

Thus, consumers must review their contracts within the 3 day period to consider whether they wish to remain in the agreement.

The Unfair Practices of Some Credit Repair Companies

The purpose of this Act is to regulate the credit repair industry by offering protection for the public against corrupt business practices. Credit repair companies came under fire when it was discovered that many were taking advantage of the misery seen in potential clients by misrepresenting themselves in order to gain the public’s business

Penalties for Non-Compliance of the CROA Rules

The CROA regulations make it clear that any contract for services that doesn’t comply with the CROA provisions:

  • Shall be treated as void; and
  • Will not be enforced by any court in Federal or State government

The CROA laws further state that non-compliance by the credit repair agencies will result in civil and criminal penalties. Any violation can be prosecuted by government attorneys (city, state and district) as a misdemeanor and these attorneys would be within their rights to seek injunctions against the named credit repair company. Also, consumers who are harmed by a company who violates CROA laws is in the position to recover damages of at least the amount they paid to the company plus costs and equitable attorney fees. Plaintiffs in these cases may also be awarded punitive damages.


Credit Repair Organization Act defines a very clear and strict framework for credit repair companies to protect the most vulnerable consumers. It also stipulates harsh penalties when these requirements are violated. Consumers benefit from knowing their rights with regards to credit restoration contracts and their cancellations.