Scrutiny of so-called free credit report services is increasing as the Federal Trade Commission, in keeping with its consumer protection mission, has intensified its ongoing scrutiny of credit-related services due to concerns that, among other things, scores can affect would-the ability to get a loan.
The FTC last month said it was in the process of warning 18 Internet websites offering "free" credit reports to consumers that they must clearly disclose that free reports are available under federal law. Often these websites offer the "free" reports in addition to other credit monitoring or restoration services. The websites are required to provide on each webpage that mentions "free" credit reports a disclosure that can be seen at the tops of users' screens. The disclosure must have links to the FTC's government website as well as to the "big three" credit reporting agencies' AnnualCreditReport.com website as sources of cost-free credit report information.
The FTC's Free Credit Reports Rule, which took effect April 2, requires certain disclosures are needed to help consumers distinguish between ads for free credit reports that often require them to purchase credit monitoring or other services and the federally mandated free credit reports available from the two aforementioned websites. Penalties can be as high as $3,500 per violation.
Companies selling credit "repair" must provide a disclosure called the Consumer Credit File Rights Under State and Federal Law before they sign a contract, and the borrowers must received a written contract that spells out their rights and obligations, according to the FTC. The contract must specify payment terms for services, including the total cost; a detailed description of the services the company will perform; how long it will take to achieve the result; any guarantees the company offers; and the company's name and business address.
Many states have additional laws in this area.
Under the Credit Repair Organizations Act, companies in this business cannot force clients to pay until they have completed the services they have promised.
If one is counseling borrowers about what they can do to improve or restore their credit, the best thing to do is to advise them of their rights and what they can do for themselves for free, the FTC's guidelines suggest. Consumers should know that contacting any of the "big three" is an option.
Fraud to be wary of in this area includes misrepresentation of one's credit history, and borrowers should be aware that even if they do this due to advice from a scam artist they could be liable.
What borrowers legally can do is ask for an investigation of information that they rightfully dispute as inaccurate or complete at no charge.
According to the FTC, under the Fair Credit Reporting Act, borrowers can receive a free report if a company takes "adverse action" against them, such as denying their application for credit.
The request for the report must be made within 60 days of receiving notice of the action. The notice should include the name, address and phone number of the company taking the action. Those unemployed, planning to look for a job within 60 days on welfare or stuck with an inaccurate report due to fraud such as identity theft also are entitled to a free report.
In addition, the big three must provide anyone who asks with a free credit report annually but one has to be careful how one does this to avoid a charge. The FTC recommends the aforementioned AnnualCreditReport.com website for this.
