California currently has legislation pertaining to credit repair. These laws apply to the state that the consumer is located in, not the credit repair company. Keep this in mind if you plan on doing business out of state.
**DISCLAIMER - The following information is not legal advice. We strive to keep all information updated to the best of our knowledge but regulations are subject to change frequently, without our immediate awareness. The information on this page may not be 100% accurate. We strongly urge you to do your own research and to consult with a legal professional or your local legislators before making any decisions.
Some states require registration with the overseeing entity. There may also be municipal or county regulations regarding business licensing or permits depending on your location. Consult with your local government to determine licensing requirements.
Surety bonds are required in certain states in order to prove that the credit repair organization is operating in an ethical manner. The amount and requirements vary from state to state.
All credit repair organizations are subject to both state and federal regulations. According to federal law, the Credit Repair Organizations Act (CROA) requires all CRO's to provide contracts outlining the terms and descriptions of their services to their customers. Each individual state has different requirements regarding the language of those contracts.
Anyone performing credit repair services and receiving compensation for said services is subject to the regulations in this act. However, occupations in related professions may also perform duties that may be considered credit repair. Usually, as long as someone is behaving within the course and scope of their profession and not collecting compensation, they are considered exempt from these regulations. However, these exemption requirements vary from state to state. See 1789.12(b).
This title shall be known and may be cited as the “Credit Services Act of 1984.”
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
The Legislature finds and declares that:
(a) The ability to obtain and use credit has become of great importance to consumers, who have a vital interest in establishing and maintaining their credit worthiness and credit standing. As a result, consumers who have experienced credit problems may seek assistance from credit services organizations which offer to obtain credit or improve the credit standing of such consumers.
Certain advertising and business practices of some credit services organizations have worked a financial hardship upon the people of this state, often those who are of limited economic means and inexperienced in credit matters. Credit services organizations have significant impact upon the economy and well-being of this state and its people.
(b) The purposes of this title are to provide prospective buyers of services of credit services organizations with the information necessary to make an intelligent decision regarding the purchase of those services and to protect the public from unfair or deceptive advertising and business practices.
(c) This title shall be construed liberally to achieve these purposes.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
As used in this title:
(a) “Credit services organization” means a person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that he or she can or will sell, provide or perform, any of the following services, in return for the payment of money or other valuable consideration:
(1) Improving a buyer’s credit record, history, or rating.
(2) Obtaining a loan or other extension of credit for a buyer.
(3) Providing advice or assistance to a buyer with regard to either paragraph (1) or (2).
(b) “Credit services organization” does not include any of the following:
(1) Any person holding a license to make loans or extensions of credit pursuant to the laws of this state or the United States who is subject to regulation and supervision with respect to the making of those loans or extensions of credit by an official or agency of this state or the United States and whose business is the making of those loans or extensions of credit.
(2) Any bank, as defined in Section 102 of the Financial Code, or any savings institution, as specified in subdivision (a) or (b) of Section 5102 of the Financial Code, whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation.
(3) Any person licensed as a prorater by the Department of Business Oversight when the person is acting within the course and scope of that license.
(4) Any person licensed as a real estate broker performing an act for which a real estate license is required under the Real Estate Law (Pt. 1 (commencing with Sec. 10000), Div. 4, B. & P.C.) and who is acting within the course and scope of that license.
(5) Any attorney licensed to practice law in this state, where the attorney renders services within the course and scope of the practice of law, unless the attorney is an employee of, or otherwise directly affiliated with, a credit services organization.
(6) Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission where the broker-dealer is acting within the course and scope of the regulation.
(7) Any nonprofit organization described in Section 501(c)(3) of the Internal Revenue Code that, according to a final ruling or determination by the Internal Revenue Service, is both of the following:
(A) Exempt from taxation under Section 501(a) of the Internal Revenue Code.
(B) Not a private foundation as defined in Section 509 of the Internal Revenue Code.
An advance ruling or determination of tax-exempt or foundation status by the Internal Revenue Service does not meet the requirements of this paragraph.
(c) “Buyer” means any natural person who is solicited to purchase or who purchases the services of a credit services organization.
(d) “Extension of credit” means the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes.
(e) “Consumer credit reporting agency” means a consumer credit reporting agency subject to the Consumer Credit Reporting Agencies Act, Title 1.6 (commencing with Section 1785.1).
(f) “Person” includes an individual, corporation, partnership, joint venture, or any business entity.
(Amended by Stats. 2015, Ch. 190, Sec. 4. (AB 1517) Effective January 1, 2016.)
A credit services organization and its salespersons, agents, representatives, and independent contractors who sell or attempt to sell the services of a credit services organization shall not do any of the following:
(a) Charge or receive any money or other valuable consideration prior to full and complete performance of the services the credit services organization has agreed to perform for or on behalf of the buyer.
(b) Fail to perform the agreed services within six months following the date the buyer signs the contract for those services.
(c) Charge or receive any money or other valuable consideration for referral of the buyer to a retail seller or other credit grantor who will or may extend credit to the buyer, if either of the following apply:
(1) The credit that is or will be extended to the buyer (A) is upon substantially the same terms as those available to the general public or (B) is upon substantially the same terms that would have been extended to the buyer without the assistance of the credit services organization.
(2) The money or consideration is paid by the credit grantor or is derived from the buyer’s payments to the credit grantor for costs, fees, finance charges, or principal.
(d) Make, or counsel or advise a buyer to make, a statement that is untrue or misleading and that is known, or that by the exercise of reasonable care should be known, to be untrue or misleading, to a consumer credit reporting agency or to a person who has extended credit to a buyer or to whom a buyer is applying for an extension of credit, such as statements concerning a buyer’s identification, home address, creditworthiness, credit standing, or credit capacity.
(e) Remove, or assist or advise the buyer to remove, adverse information from the buyer’s credit record which is accurate and not obsolete.
(f) Create, or assist or advise the buyer to create, a new credit record by using a different name, address, social security number, or employee identification number.
(g) Make or use untrue or misleading representations in the offer or sale of the services of a credit services organization, including either of the following:
(1) Guaranteeing or otherwise stating that the organization is able to delete an adverse credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, that this can be done only if the credit history is inaccurate or obsolete and is not claimed to be accurate by the creditor who submitted the information.
(2) Guaranteeing or otherwise stating that the organization is able to obtain an extension of credit, regardless of the buyer’s previous credit problems or credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, the eligibility requirements for obtaining an extension of credit.
(h) Engage, directly or indirectly, in an act, practice, or course of business that operates or would operate as a fraud or deception upon a person in connection with the offer or sale of the services of a credit services organization.
(i) Advertise or cause to be advertised, in any manner, the services of the credit services organization, without being registered with the Department of Justice.
(j) Fail to maintain an agent for service of process in this state.
(k) Transfer or assign its certificate of registration.
(l) Submit a buyer’s dispute to a consumer credit reporting agency without the buyer’s knowledge.
(m) Use a consumer credit reporting agency’s telephone system or toll-free telephone number to represent the caller as the buyer in submitting a dispute of a buyer or requesting disclosure without prior authorization of the buyer.
(n) Directly or indirectly extend credit to a buyer
(o) Refer a buyer to a credit grantor that is related to the credit services organization by a common ownership, management, or control, including a common owner, director, or officer.
(p) Refer a buyer to a credit grantor for which the credit services organization provides, or arranges for a third party to provide, services related to the extension of credit such as underwriting, billing, payment processing, or debt collection.
(q) Provide a credit grantor with an assurance that a portion of an extension of credit to a buyer referred by the credit services organization will be repaid, including providing a guaranty, letter of credit, or agreement to acquire a part of the credit grantor’s financial interest in the extension of credit.
(r) Use a scheme, device, or contrivance to evade the prohibitions contained in this section.
(Amended by Stats. 2008, Ch. 179, Sec. 30. Effective January 1, 2009.)
Prior to the execution of a contract or agreement between the buyer and a credit services organization, the credit services organization shall provide the buyer a statement in writing, containing all the information required by Section 1789.15. The credit services organization shall maintain on file or microfilm for a period of two years an exact copy of the statement, personally signed by the buyer, acknowledging receipt of a copy of the statement.
(Amended by Stats. 1992, Ch. 651, Sec. 4. Effective January 1, 1993.)
The information statement shall include all of the following:
(a) A complete and detailed description of the services to be performed by the credit services organization for or on behalf of the buyer and the total amount the buyer will have to pay, or become obligated to pay, for the services.
(b) The buyer’s right to proceed against the bond under the circumstances and in the manner set forth in Section 1789.18.
(c) The name and address of the surety company which issued the bond.
(d) A complete and accurate statement of the availability of nonprofit credit counseling services.
The information statement shall be printed in at least 10-point boldface type and shall include the following statement or any substantially equivalent alternative that is approved by the Department of Justice:
You have a right to obtain a copy of your credit file from a consumer credit reporting agency. You may be charged a reasonable fee not exceeding eight dollars ($8). There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The consumer credit reporting agency must provide someone to help you interpret the information in your credit file.
You have a right to dispute inaccurate information by contacting the consumer credit reporting agency directly. However, neither you nor any credit repair company or credit services organization has the right to have accurate, current, and verifiable information removed from your credit report. Under the Federal Fair Credit Reporting Act, the consumer credit reporting agency must remove accurate, negative information from your report only if it is over seven years old. Bankruptcy information can be reported for 10 years.
If you have notified a credit reporting agency in writing that you dispute the accuracy of information in your credit file, the consumer credit reporting agency must then reinvestigate and modify or remove inaccurate information. The consumer credit reporting agency may not charge a fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the consumer credit reporting agency.
If reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the consumer credit reporting agency to keep in your file, explaining why you think the record is inaccurate. The consumer credit reporting agency must include your statement about disputed information in any report it issues about you.
You have a right to cancel the contract for any reason within five working days from the date you signed it. If for any reason you do cancel the contract during this time, you do not owe any money.
You have a right to sue a credit services organization if it misleads you.”
(Amended by Stats. 1992, Ch. 651, Sec. 5. Effective January 1, 1993.)
(a) A credit services organization shall not provide any service to a buyer except pursuant to a written contract that complies with this section. Every contract between the buyer and a credit services organization for the purchase of the services of the credit services organization shall be in writing, shall be dated, signed by the buyer, and include all of the following:
(1) A conspicuous statement in size equal to at least 10-point boldface type, in immediate proximity to the space reserved for the signature of the buyer, as follows:
“You, the buyer, may cancel this contract at any time prior to midnight of the fifth day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right.”
(2) The terms and conditions of payment, including the total of all payments to be made by the buyer, whether to the credit services organization or to some other person.
(3) A full and detailed description of the services to be performed by the credit services organization for the buyer, including all guarantees and all promises of full or partial refunds, and the estimated date by which the services are to be performed, or the estimated length of time for performing the services not to exceed six months or a shorter period consistent with the purposes of this title as may be prescribed by the Department of Justice.
(4) The credit services organization’s principal business address and the name and address of its agent, other than the Secretary of State, in the State of California, authorized to receive service of process.
(b) The contract shall be accompanied by a completed form in duplicate, captioned “Notice of Cancellation,” which shall be attached to the contract and easily detachable, and which shall contain in type of at least 10-point the following statement written in the same language as used in the contract:
“You may cancel this contract, without any penalty or obligation, within five days from the date the contract is signed.
“If you cancel, any payment made by you under this contract must be returned within 15 days following receipt by the seller of your cancellation notice.
“To cancel this contract, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, to
_____ (name of seller) _____ at
_____ (address of seller)(place of business) _____
not later than midnight (date).
“I hereby cancel this transaction.”
(date) _____ (purchaser’s signature) _____
A copy of the fully completed contract and all other documents the credit services organization requires the buyer to sign shall be given to the buyer at the time they are signed.
(Amended by Stats. 1994, Ch. 792, Sec. 3. Effective January 1, 1995.)
The seller’s breach of a contract under this title or of any obligation arising therefrom shall constitute a violation of this title.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
No credit services organization shall conduct business in this state unless the credit services organization has first obtained a surety bond in the principal amount of one hundred thousand dollars ($100,000) issued by an admitted surety and the bond complies with all of the following:
(a) The bond shall be in favor of the State of California for the benefit of any person who is damaged by any violation of this title. The bond shall also be in favor of any individual damaged by those practices.
(b) Any person claiming against the bond for a violation of this title may maintain an action at law against the credit services organization and against the surety. The surety shall be liable only for actual damages and not the punitive damages permitted under Section 1789.21. The aggregate liability of the surety to all persons damaged by a credit services organization’s violation of this title shall in no event exceed the amount of the bond.
(c) The bond shall be maintained for two years following the date on which the credit services organization ceases to conduct business in this state.
A copy of the bond shall be filed with the Secretary of State.
(Amended by Stats. 1992, Ch. 651, Sec. 7. Effective January 1, 1993.)
(a) Any waiver by a buyer of the provisions of this title shall be deemed contrary to public policy and shall be void and unenforceable. Any attempt by a credit services organization to have a buyer waive rights given by this title shall constitute a violation of this title.
(b) In any proceeding involving this title, the burden of proving an exemption or an exception from a definition is upon the person claiming it.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
(a) Any person who violates any provision of this title is guilty of a misdemeanor. Any superior court of this state shall have jurisdiction in equity to restrain and enjoin the violation of any provision of this title.
The duty to institute actions for violation of this title, including equity proceedings to restrain and enjoin such a violation, is hereby vested in the Attorney General, district attorneys, and city attorneys. The Attorney General, any district attorney, or any city attorney may prosecute misdemeanor actions or institute equity proceedings, or both.
This section shall not be deemed to prohibit the enforcement by any person of any right provided by this or any other law.
(b) The misdemeanor provision of this section does not apply to a seller’s breach of a contract subject to this title.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
(a) Any buyer injured by a violation of this title or by the credit services organization’s breach of a contract subject to this title may bring any action for recovery of damages, or for injunctive relief, or both. Judgment shall be entered for actual damages, but in no case less than the amount paid by the buyer to the credit services organization, plus reasonable attorney’s fees and costs. An award, if the trial court deems it proper, may be entered for punitive damages.
(b) Any person, including, but not limited to, a consumer credit reporting agency, as defined in subdivision (d) of Section 1785.3, and any consumer of, or user of, a consumer credit report under the Consumer Credit Reporting Agencies Act (Title 1.6 (commencing with Section 1785.1)), and any furnisher of credit information under the Consumer Credit Reporting Agencies Act, may bring an action for the recovery of damages or for injunctive relief, or both, for a violation of this title. Any person bringing such an action who prevails in the action shall be entitled to reasonable attorney’s fees and costs.
(Amended by Stats. 2004, Ch. 183, Sec. 33. Effective January 1, 2005.)
The provisions of this title are not exclusive and do not relieve the parties or the contracts subject thereto from compliance with any other applicable provision of law.
The remedies provided in this title for violation of any section of this title shall be in addition to any other procedures or remedies for any violation or conduct provided for in any other law.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
If any provision of this title or if any application thereof to any person or circumstance is held invalid, the remainder of the title and the application of the provision to other persons and circumstances shall not be affected thereby.
(Added by Stats. 1984, Ch. 1177, Sec. 1.)
(a) When a deposit has been made in lieu of a bond pursuant to Section 995.710 of the Code of Civil Procedure, the person asserting a claim against the deposit shall, in lieu of proceeding under Section 996.430 of the Code of Civil Procedure, establish the claim by furnishing evidence to the Secretary of State of a money judgment entered by a court, together with evidence that the claimant is a person described in subdivision (b) of Section 1789.18.
(b) When a person has established the claim with the Secretary of State, the Secretary of State shall review and approve the claim and enter the date of approval thereon. The claim shall be designated an “approved claim.”
(c) When the first claim against a particular deposit has been approved, it shall not be paid until the expiration of a period of 240 days after the date of its approval by the Secretary of State. Subsequent claims that are approved by the Secretary of State within the same 240-day period shall similarly not be paid until the expiration of the 240-day period. Upon the expiration of the 240-day period, the Secretary of State shall pay all approved claims from that 240-day period in full unless the deposit is insufficient, in which case each approved claim shall be paid a pro rata share of the deposit.
(d) When the Secretary of State approves the first claim against a particular deposit after the expiration of a 240-day period, the date of approval of that claim shall begin a new 240-day period to which subdivision (c) shall apply with respect to any amount remaining in the deposit.
(e) After a deposit is exhausted, no further claims shall be paid by the Secretary of State. Claimants who have had their claims paid in full or in part pursuant to subdivision (c) or (d) shall not be required to return funds received from the deposit for the benefit of other claimants.
(f) When a deposit has been made in lieu of a bond, as specified in subdivision (a), the amount of the deposit shall not be subject to attachment, garnishment, or execution with respect to an action or judgment against the credit services organization, other than as to an amount as no longer needed or required for the purpose of this title which would otherwise be returned to the credit services organization by the Secretary of State.
(g) The Secretary of State shall retain a cash deposit for two years from the date the Secretary of State receives written notification from the assignor of the deposit that the assignor has ceased to engage in the business of a credit services organization or has filed a bond pursuant to Section 1789.18, provided that there are no outstanding claims against the deposit. The written notice shall include all of the following: (1) name, address, and telephone number of the assignor; (2) name, address, and telephone number of the bank at which the deposit is located; (3) account number of the deposit; and (4) a statement whether the assignor is ceasing to engage in the business of a credit services organization or has filed a bond with the Secretary of State. The Secretary of State shall forward an acknowledgment of receipt of the written notice to the assignor at the address indicated therein, specifying the date of receipt of the written notice and anticipated date of release of the deposit.
(h) This section shall apply to all deposits retained by the Secretary of State.
(i) A judge of a superior court may order the return of the deposit prior to the expiration of two years upon evidence satisfactory to the judge that there are no outstanding claims against the deposit or order the Secretary of State to retain the deposit for a sufficient period beyond the two years specified in subdivision (g) to resolve outstanding claims against the deposit account.
(Amended by Stats. 2002, Ch. 784, Sec. 13. Effective January 1, 2003.)
(a) Every credit services organization shall file a registration application with, and receive a certificate of registration from, the Department of Justice before conducting business in this state. The Department of Justice shall not issue a certificate of registration until the bond required by Section 1789.18 has been filed with the office of the Secretary of State and the department establishes that the organization seeking a certificate satisfies the requirements of subdivision (f). The application shall be accompanied by a registration fee of one hundred dollars ($100). The registration application shall contain all of the following information:
(1) The name and address where business is actually conducted of the credit services organization.
(2) The names, addresses, and driver’s license numbers of any and all persons who directly or indirectly own or control 10 percent or more of the outstanding shares of stock in the credit services organization.
(3) Either of the following:
(A) A full and complete disclosure of any litigation commenced against the credit services organization or any resolved or unresolved complaint that relates to the operation of the credit services organization and that is filed with the Attorney General or any other governmental authority of this state, any other state, or the federal government. With respect to each resolved complaint identified by the disclosure, the disclosure shall include a brief description of the resolution.
(B) An acknowledged declaration under penalty of perjury stating that no litigation has been commenced and no unresolved complaint relating to the operation of the organization has been filed with the Attorney General or any other governmental authority of this state, any other state, or the federal government.
(4) Other information that the Department of Justice requires, either at the time of application or thereafter.
(b) The Department of Justice may conduct an investigation to verify the accuracy of the registration application. If the application involves investigation outside this state, the applicant credit services organization may be required by the Department of Justice to advance sufficient funds to pay the actual expenses of the investigation. Any nonresident applying for registration under this section shall designate and maintain a resident of this state as the applicant’s agent for the purpose of receipt of service of process.
(c) Each credit services organization shall notify the Department of Justice in writing within 30 days after the date of a change in the information required by subdivision (a), except that 30 days’ advance notice and approval by the Department of Justice shall be required before changing the corporate name or address, or persons owning more than 10 percent of the shares of stock in the organization. Each credit services organization registering under this section may use no more than one fictitious or trade name and shall maintain a copy of the registration application in its files. The organization shall allow a buyer to inspect the registration application upon request.
(d) A certificate of registration issued pursuant to this section shall expire annually on the last day of December but may be renewed by filing a renewal application accompanied by a fee not to exceed the Department of Justice’s costs of administration.
(e) The credit services organization shall attach to the registration statement a copy of the contract or contracts which the credit services organization intends to execute with its customers and a copy of the required bond.
(f) The Department of Justice shall not issue a certificate of registration under this title to any person who has engaged in, or proposes to engage in, any activity that is in violation of Section 1789.13, any law prohibiting the use of untrue or misleading statements, or any law related to the extension of credit to persons for personal, family, or household purposes.
(Amended by Stats. 2007, Ch. 91, Sec. 2. Effective January 1, 2008.)
(a) The Secretary of State shall enforce the provisions of this title that govern the filing and maintenance of bonds and deposits in lieu of bonds.
(b) The Secretary of State shall charge and collect a filing fee not to exceed the cost of filing the bond or the deposit in lieu of a bond pursuant to Section 995.710 of the Code of Civil Procedure.
(Added by Stats. 1996, Ch. 633, Sec. 5. Effective January 1, 1997.)