There are firms that specialize in helping you negotiate your credit balances and settle your debt accounts for a fee.  Then there are collection companies.  Each type of firm answers to a different set of regulations.  If you feel a creditor is mishandling your debt, you should certainly check into it.  Just be aware that the judge will have the final say on whether the creditor is misrepresenting themselves, and also be aware, based on the type of firm, which regulations apply to that creditor.

A debtor sued an ARM (account receivables management) company for violations of the CROA (Credit Repair Organizations Act) claiming that the firm was offering to repair the debtor’s credit, if they agreed to make payments to the ARM company. 

Image by mohamed Hassan from Pixabay

The case, Kielty et al v Midland Credit Management, Inc. asserted that language such as “We can help you get back on track…” combined with an offer to mark the accounts as paid in full on their credit reports meant Midland Credit Management had positioned itself as a credit repair organization. According to the complaint, marking the account as paid in full when it was not paid in full is a violation of the Fair Credit Reporting Act (FCRA). If Midland Credit Management was acting as a credit repair company, those promises were violations of the fair Credit Reporting Act (FCRA), the Fair Debt Collections Practices Act (FDCPA) and the Rosenthal Fair Debt Collection Practices Act in California.

What happened in the Case?

The Judge ruled that Midland Credit Management, Inc had not, in fact, misled the debtors.  Midland had disclosed their role as a debt collection company, and since they were in position to make an new agreement with the debtor, they were not violating the CROA nor the FCRA when they offered to report the debt for less than the original amount owed – in effect, repairing the debtor’s credit. It may be important to note that Midland did not use the phrase repair your credit, but had offered to report the account, which was currently being reported as in default, as paid in full.  Midland asked the court to dismiss all claims on the grounds that Midland Credit Management, Inc. is not a credit repair organization, and thus is not regulated by the mandates of the CROA.  Since Midland did not claim to do something outside its ability, and since the complaint did not assert that Midland collects fees for repairing credit, the firm does not in fact fall under the guidance of the CROA.  Case dismissed with leave to amend, should plaintiffs so choose.

Credit repair is not an automatic outcome of debt settlement, because not every creditor will automatically report the updated status of the debt as settled or even closed.  Debt Settlement involves a structured repayment while your debt settlements are being negotiated.  This results in a reduction of your debt load, and may lead to improvement in your credit score.  Credit repair is paid assistance in disputing the errors on your credit report, so your credit score, and your credit profile improves.  You can do both yourself, but if you are looking for experienced professionals to walk you through the steps to debt freedom, visit DebtFreedompros.com and get connected to a friendly debt resolution specialist who can help you get back on track financially.