Legislative Framework for Reducing Fraud in the Credit Repair Industry

Abstract

Large computer databases collect and distribute information about the creditworthiness of most American adults. Businesses use this data to gauge the solvency of potential customers. Yet the information in these vast computer files is often partly or wholly inaccurate. Incorrect entries in his credit file may render a consumer unable to obtain credit until such information is deleted. Removing this data is often difficult and costly. In recent years a new industry has arisen to assist consumers in their efforts to correct inaccuracies in their files. Companies, in exchange for a fee, promise to improve a person's credit rating by challenging negative information that appears on her credit report. Unfortunately, instances of poor service and fraud in the credit repair industry are widespread, causing a rising tide of consumer complaints. As a result, several states have sought to regulate the activities of credit repair organizations, but with limited success. In this Article Professor Nehf claims that credit repair organizations have flourished because the Fair Credit Reporting Act makes it difficult for consumers to remove mistakes from their credit reports without outside assistance. He argues that in- stances of fraud would be greatly reduced if Congress would simply amend the Act to require better disclosure and simplify the labor that consumers must undertake to investigate and remove errors. Such a revision would reduce the need for consumers to seek assistance from credit repair organizations. Professor Nehf also argues that federal regulation of the credit repair industry is needed to combat widespread fraud; he then analyzes current state statutes regulating credit repair organizations in order to provide a legislative framework for reform.