I’m a CPA and have retired from the federal government with over 38 years in Finance. I am interested is starting up a credit clean-up / repair business to help people in my community and church. I have also been a mortgae loan officer since 2001 and have some experience in reviewing credit reports. Since I don’t have any previous experience in the credit repair business, eEHow suggested that I consider working with “Credit Repair Businss” of Dallar, TX 75227.
Do you know anything about this company? Also, can you advise me on how to learn about this business to do it the right way?
We need a new site, eReally?
Prepare to enter a world of regulation.
Texas Credit Repair Guidance
In Texas, credit service organizations are governed by Chapter 393 of the Finance Code and the secretary of state’s administrative rules found in 1 Texas Administrative Code Chapter 74, as well as any other applicable state or federal law.
What is a credit services organization (“CSO”)?
A person who provides, or represents that the person can or will provide, for the payment of valuable consideration any of the following services with respect to the extension of consumer credit by others:
- improving a consumer’s credit history or rating;
- obtaining an extension of consumer credit for a consumer; or
- providing advice or assistance to a consumer with regard to Paragraph (A) or (B).
Tex. Fin. Code § 393.001(3).
CSOs are often identified as credit repair companies.
FAQs for Credit Services Organizations
Yes, § 393.101, Finance Code, provides that before conducting business in Texas, a CSO must register with the secretary of state. See Form 2801. A registration must be accompanied by proof of security or a statement explaining why proof of security is not required and the registration fee. Each registration is effective for one year and may be renewed.
The following persons, however, are exempt from Chapter 393, Finance Code, and are not required to register with the secretary of state:
- a person:
- authorized to make a loan or grant an extension of consumer credit under the laws of this state or the United States; and
- subject to regulation and supervision by this state or the United States;
- a lender approved by the United States secretary of housing and urban development for participation in a mortgage insurance program under the National Housing Act (12 U.S.C. Section 1701 et seq.);
- a bank or savings association the deposits or accounts of which are eligible to be insured by the Federal Deposit Insurance Corporation or a subsidiary of the bank or association;
- a credit union doing business n this state;
- a nonprofit organization exempt from taxation under Section 501(c)(3), Internal Revenue Code of 1986 (26 U.S.C. Section 501(c)(3));
- a real estate broker or salesperson licensed under Chapter 1101, Occupations Code, who is acting within the course and scope of that license;
- an individual licensed to practice law in this state who is acting within the course and scope of the individual’s practice as an attorney;
- a broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission acting within the course and scope of that regulation;
- a consumer reporting agency;
- a person whose primary business is making loans secured by liens on real property;
- a mortgage broker or loan officer licensed under Chapter 156, Finance Code, who is acting within the course and scope of that license; or
- an electronic return originator who:
- is an authorized Internal Revenue Service e-file provider; and
- makes, negotiates, arranges for, or transacts a loan that is based on a person’s federal income tax refund on behalf of a bank, savings bank, savings and loan association, or credit union.
Tex. Fin. Code § 393.002.
- a person:
The fee for an original certificate of registration or renewal is $100. In addition, a CSO must accompany an application for certificate of registration with proof of security or a statement explaining why proof of security is not required.
Generally, a security deposit is required when consumers will be charged or pay in advance.
According to § 393.302, Finance Code, “a credit services organization or a representative of the organization may charge or receive from a consumer valuable consideration before completely performing all the services the organization has agreed to perform for the consumer only if the organization has obtained a surety bond for each of its locations or established and maintained a surety account for each of its locations in accordance with Subchapter E.”
$10,000.00 for each location. Tex. Fin. Code §§ 393.302, 393.403. The security deposit must be in favor of the State of Texas for the benefit of any person damaged by any violation of Chapter 393, Finance Code.
A CSO may satisfy the security requirement by obtaining a surety bond or establishing a surety account in favor of the secretary of state.See Forms 2802, 2803.
The surety bonding company determines the cost of a surety bond. Contact the surety company to obtain the cost of the bond.
Additional locations may be added to the CSO’s registration statement, but each location must have its own security. Tex. Fin. Code. § 393.302. Although multiple certificates of registration are not required, for a $15 fee, the secretary of state will issue a certificate of registration for a particular additional location.
FAQs for Credit Services Organization Consumers
Chapter 393, Texas Finance Code permits charging of fees in advance only if the CSO has obtained a surety bond or maintains a surety account for each of its locations and a copy of the bond or information relating to the account is on file with the secretary of state. Tex. Fin. Code § 393.302. However, for many CSOs, charging advance fees could be a violation of the FTC’s Telemarketing Sales Rule, which was amended in October 2010 to apply to a wider range of businesses and to prohibit advance fees. In addition to complying with Chapter 393, a CSO considering whether to charge fees in advance should review the Telemarketing Sales Rule as well as other applicable federal or state law. FTC Guide for Complying with the Telemarketing Sales Rule.
Each contract for the purchase of CSO services by a consumer must be in writing, dated, and signed by the consumer. Tex. Fin. Code § 393.201. The contract must contain the payment terms, a description of the services the CSO is to perform, an estimated period for performing the services, the address of the CSO’s principal place of business, and the name and address of the CSO’s registered agent. Id. The written contract must also notify consumers of their right to cancel within three days after signing the contract. Tex. Fin. Code § 393.202.
No. A waiver of any provision of Chapter 393 is void. Tex. Fin. Code § 393.003.
Some CSOs offer payday loans as part of their services under Chapter 393, Finance Code. As CSOs, the services of the CSO are subject to Chapter 393 but apparently are not subject to the small-loan laws and regulations by the Consumer Credit Commissioner according to the Fifth Circuit Court of Appeals decision in Lovick v. Ritemoney Ltd, No. 03-20917 (5th Cir. July 14, 2004).
The names of CSOs that have registered with the secretary of state may be searched using our Credit Service Organization Search.
Chapter 393, Finance Code, provides for both civil remedies and criminal penalties. Tex. Fin. Code §§ 393.501–.503. A consumer may take private legal action against a CSO for failing to comply with its contractual obligations. In addition, a consumer may file a complaint with the attorney general if the consumer feels that the CSO has violated Chapter 393, Finance Code, by engaging in a false, misleading, or deceptive act or practice.
Operating an unregistered CSO is a violation of Chapter 393, Finance Code, and may also be a criminal offense. The attorney general or a district or county attorney may investigate an alleged violation of the Act. If you notify the secretary of state, this office will notify the CSO of the registration requirement and, if necessary, refer the matter to the attorney general for investigation. Please report the names of any CSOs that are not registered to:
Statutory Documents Section
Office of the Secretary of State
P. O. Box 13550
Austin, Texas 78711-3550
The secretary of state is a filing officer for CSO registrations and security and does not have authority to regulate the business practices of a CSO. The secretary of state cannot resolve disputes about CSO services, investigate the business practices of a CSO, or determine whether a consumer is entitled to a refund.
You may also report any problems that you have with a CSO to the Federal Trade Commission. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. Complaints with the FTC may be filed online or by calling 1-877-382-4357.
Consumers may also wish to file a complaint with the Better Business Bureau.
For additional information please call (512) 475-0775.
Federal Credit Repair Guidance
You had better become intimately familiar with the Credit Repair Organizations Act and learn how that cover what you may do in credit repair.
Breaking the rules when it comes to selling credit repair services can have serious consequences. Don’t embark on this calling without first learning the requirements.
If this effort is only for member of your church, maybe you could have your church start a credit repair outreach and then it would probably be exempt for much of the regulation.
Please post your responses and follow-up messages to me on this in the comments section below.