I know a fellow who used to work for a credit repair company. He quit last year, and at the time he seemed disgusted with the whole thing, but I didn't ask him much. Something about they partnered with a new company and he was tired of it and worried about getting in trouble, so he left. Since I'm writing this blog now, I decided to ask him what was up with that. Turns out, he can tell you exactly what not to do, if you're looking for credit counseling or help with debt management. Yeah, I would have gotten out too. Wow.
Stealing Your Own Identity
This is what he did for people. He helped them steal their own identity. The main scam was to tell people they could start over with a new credit report and none of the old bad debts would be on it. When they applied for a credit card or a loan, here's what they were supposed to do:
--Use their real name, because lots of people have the same name.
--Get a new phone number. Sheesh, how hard is that? Lots of free voice mail services, or get a different cell phone service.
--Get a new address. No need to move, just get a mail forwarding service or use a friend's address.
--Get a new number to replace your Social Security Number. This was their special service. He was supposed to tell people it was legal to turn yourself into a small business (an S-corporation, I think he said) and apply for a Federal Tax Identification Number, which has nine digits just like a Social Security Number. It's also called a Federal Employer Identification Number (EIN).
It really is legal for some businesses to get an EIN number and use it on their tax forms and for their identification. Problem is, people aren't small businesses. You're still you, and creditors know that.
My friend said that people would be happy to see their slate wiped clean, and they'd go apply for a store credit card or something and get approved, and think their problems were over. But as soon as they applied for anything worthwhile, like a car loan or a mortgage or a credit card with a high limit, the lender would either look at the EIN and be able to tell it was an EIN, and say, "so what's your real Social Security Number?" Or the lender would look at the EIN and say, "I see your small business has no credit history. Therefore we'll need you to guarantee this debt personally. What's your Social Security Number?"
So much for that clean slate. You're right back where you started. Only worse. Because I googled on this, and it's called "file segregation." Spammers are even sending emails about it. It's so well known to the feds, if it goes to court, any judge is going to see right through what you're trying to do and declare that you were applying for an EIN for fraudulent reasons, to conceal your real Social Security Number. Heck, the FTC even has a whole page on it, with nasty little facts like it's a federal crime to get an EIN under false pretenses, and to misrepresent your Social Security number. It could be mail or wire fraud to use your EIN to apply for credit by mail or phone. And they say it could be fraud under state laws too.
Generous soul that he is, my friend didn't say he was worried about his customers being charged with a crime. He was worried that he'd get charged for advising them to break Federal law and he wouldn't be able to pass the buck to his boss. So eventually he quit.
But not before he found out a few more things, that I'll write about next time.
What to Look for in a Credit Repair Service
If you're looking for a credit repair service, you know one thing not to look for now. But here's some good stuff. There's a Credit Repair Organizations Act (CPOA) that's designed to protect you from scamming credit repair places, if you know how to use it. Chances are, if a credit repair place is ignoring the obvious things that are required by the act, they're also ignoring other legalities too.
Before you sign a contract with them, they have to give you a copy of "Consumer Credit File Rights Under State and Federal Law." (You can see what it says at the link above--all about how to contact the credit bureaus to repair your credit yourself.) They have to list all their services and fees on the contract, tell you how long they think it will take and what they're actually guaranteeing. They can't make you pay for anything before they've performed the service.
The contract has to be in writing and they can't start doing anything until you've signed it and waited three days, because you have three days to cancel and get your money back if you change your mind.
You can read the actual CPOA at the link above. If you think a company has violated anything in the act, walk away if you can, and contact your state's Attorney General (search for your state and Attorney General or consumer protection). If you're already stuck with a credit repair company that seems to be in all kinds of violation, you could also try getting a free consultation with a lawyer to ask what you can do.
If you read the CPOA, you'll notice a loophole. Nonprofit credit repair places aren't included. You can bet that credit repair companies noticed that and started applying for non-profit status. So now, non-profit places are divided into two categories, the really good ones that are trying to help people out of debt while just collecting enough money to pay the electric bill, and the bad ones that are only non-profit so they can sneak around the law. You can probably figure out which kind a company is, pretty quick.
Honestly, you can do a lot of credit repair things yourself. But if you want to hire a credit repair place to help, don't anything that's too good to be true. They can take care of a lot of the hassle and paperwork, but they can't perform miracles.
8:35 p.m. February 10
These guys know how to work with the credit bureaus, though. They can do stuff that you or I can't.
8:46 p.m. February 10
Is that what one of them told you?
8:59 p.m. February 10
Yes. I want to sign up but I don't know. He said if I get in a debt management plan with them, they can get a lot of the places to settle for less than the whole debt and get it wiped off my credit report.
9:11 p.m. February 10
9:12 p.m. February 10
Debt management plans. Yeah, I want to post about that. They're kinda like signing up with Weight Watchers or Jenny Craig. You could just eat less, but paying to join a group like that gives you self-discipline. Problem is, it costs money when you're already in debt. Did the company recommend it right off?
9:34 p.m. February 10
They said that's what they do for people.
9:41 p.m. February 10
Don't do it. Read up on debt management plans first. Lot of places are basically in business to sell them, and not always in your best interest. Let me get a couple more things written and I'll tell you what I found out from my friend about them.
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