Out of the West comes galloping yet another consumer outrage. Practically everything seems to happen first in California, and when the masked bureaucrats with the silver bullets chase the white-shoe boys out of that state, all of the rest of the country had better duck.
This time the game is "credit repair." A company advertises "No Credit? Bad Credit? Bankrupt? No Problem! Fix a Bad Credit Rating. Choose the Credit Card You Prefer." To such a promise flock the wishful and the desperate, the ignorant and the four-flushers, seeking the magic that will fix up their credit records and fit them with a walletful of new plastic.
Fees range all over the lot: sometimes $25, sometimes $650 to $1,000, depending on the service offered and the method of pay. But true credit repair is usually more complicated than you thought, or is something you can do yourself, without paying a fee. Some of the implied promises can't be fulfilled at all.
These services usually advertise a money-back guarantee. But such guarantees may be no good.
Here's a rundown of what the ads or door-to-door salesmen might say, and a running translation of what they might really mean, as supplied by the Better Business Bureau of Metropolitan New York:
*"Want Credit Cards? Guaranteed, Even with Previous Rejection!" To begin with, nothing is guaranteed. But people with poor credit sometimes can get something called a collateralized Visa or MasterCard, which is what these services advertise.
But the ads may not say that to get such a card, you have to put up a lump sum of cash collateral. If you deposit, say, $500 in a passbook savings account, the institution will give you a credit card with a $500 borrowing limit. After a certain period of on-time payment, your credit line may be increased.
If you don't have any up-front cash to invest in a collateralized card, the credit-card service can't do you any good. Also, if your past credit history is really bad, the bank or S&L may not take you under any conditions.
California's attorney general filed a complaint last year against First Credit Services (now doing business as Service One). Last month, the same company entered into a consent agreement with the Federal Trade Commission not to misrepresent its ability to get credit cards for consumers; the Los Angeles BBB says it is now disclosing the fees associated with collateralized cards.
A new law in California requires credit-repair companies to register with the state and explain more fully what they really do. "That has quieted things down," said the BBB's Ron Edels.
In Texas, the Dallas postal inspector recently cracked down on credit-repair companies that "guarantee" to get credit cards for poor risks, but can't deliver. Bill Beckhart of the Dallas BBB told my associate, Virginia Wilson, that the newspapers in Dallas won't accept these companies' ads.
A California-based company called National Credit Bureau has entered into an advertising-disclosure agreement with the U.S. Postal Service.
*"Get Your Credit Cleaned and (Re)Established Fast!" Ads like these imply that a credit repairman can wipe out the bad reports in your credit file. But the content of a credit file is regulated by federal law. You cannot pay to have a true but damaging piece of information expunged. The only way to wipe out a late-payment report is to bring your payment up to date.
The credit correctors may sell you an expensive booklet, showing how to challenge any dubious reports in your credit file. But your local credit bureau will gladly give you a look at your file for a nominal sum (and at no charge, if you've been denied credit within the past 30 days). If you challenge any item, the credit bureau will have to reinvestigate it. If you're having a difference of opinion with a credit granter, the credit bureau is required to include your side of the story in your credit file.
Some individuals abuse the safeguards built into the credit-reporting laws. They hassle the credit bureau by challenging damaging credit reports that they, the borrowers, secretly know to be correct. They hope that the bureau will get so sick of the fight that it will cave in and remove the damaging (though probably accurate) information. Usually, however, harassment doesn't work.
*"Bills Piling Up? Call For Fast Help!" Debt managers offer to get your creditors off your back. You make a monthly payment to the manager, who takes a percentage for himself and uses the rest to pay part of your bills. He promises that your creditors will agree to take less, but that's rarely true.
For a list of acceptable free or nearly free nonprofit debt counselors, write to the National Foundation for Consumer Credit, Suite 601, 8701 Georgia Ave., Silver Spring, Md. 20910.