Expensive credit repair kits not likely to go away

NEW YORK — Consumers with low credit scores, many of whom already pay high interest rates on subprime loans, may be paying too much for something else: kits that claim to patch up their credit.
MAY 14, 2007
By  Bloomberg
NEW YORK — Consumers with low credit scores, many of whom already pay high interest rates on subprime loans, may be paying too much for something else: kits that claim to patch up their credit. “Lots of credit repair agencies are capitalizing on people who are in dire straits,” said Michael Baras, an independent certified financial planner in West Hempstead, N.Y. “The last thing financially pressed people need to do is buy another product.” But it is hard to say no to a product such as Suze Orman’s FICO Kit, which is endorsed by the personal-finance expert, author and host of CNBC’s “Suze Orman Show” and available on Fair Isaac Corp.’s website, myfico.com. Ms. Orman’s kit is just one of the products mentioned in a class action against Fair Isaac of Minneapolis and Atlanta-based Equifax Inc., which market services that promise to give “customized advice on what you need to do to improve your credit,” according to court documents.
The suit alleges that the companies violated the Credit Repair Organization Act by collecting payment before rendering their services and that they made misleading statements about their products. After more than two years of litigation, the agencies settled the matter Feb. 5 by agreeing to refrain from promoting their services by using such words as “improving” or “boosting.” Fair Isaac also agreed to pay the attorneys’ fees (a total of $4 million) and to provide class action members with three months of its Score Watch service for free. The credit score quick fix typically is the last step in a series of mistakes. After consumers rack up big credit card balances and find that they no longer can afford a mortgage or additional credit, they turn to products that claim to help fix their credit ratings. Although the credit fix kits don’t come with costly strings, such as high-interest debt consolidations, they can run up to $49.95 apiece, which planners contend is a high price to pay for basic information. “People who buy these kits have to understand what they are,” Mr. Baras said. “They are telling people to pay on a timely basis, to make sure that they’re paying more than the minimum on the debts they owe and to check for errors on their reports.” In short, cash-strapped consumers may be paying for something they can get free of charge. “These products offer useful advice, but nothing more than someone can find by doing a little homework,” said Ted Sarenski, a CFP at DB&B Financial Services LLC of Syracuse, N.Y. He recommended that consumers take advantage of free credit reports, which they can receive from three different agencies, and check them for suspicious items, such as old credit card accounts that are open and unused. Consumers are allowed one free report from each of the three reporting companies every year, so it is possible to get a credit report every four months, he added. Some websites, such as 360 Degrees of Financial Literacy (360financialliteracy.org), which is sponsored by the American Institute of Certified Public Accountants in New York, also offer assistance on tackling financial hurdles and cleaning up credit scores, Mr. Sarenski said. Debtors who are mired in red ink and can’t afford professional help also can turn to non-profit agencies that provide credit counseling and financial educational services, such as the National Foundation for Credit Counseling of Silver Spring, Md. “You do some forensic accounting when you’re cleaning up credit,” said Mr. Baras, who has helped a number of clients trim their debt. “It’s a matter of knowing where the money is going, finding out where the costs are and making the tough decisions of cutting expenses.” But that doesn’t mean credit score kits will disappear anytime soon. “We’re still a free-enterprise economy, and Congress won’t be reactive enough to come up with legislation against the way these products are marketed unless it becomes a case of widespread fraud,” Mr. Sarenski said.

Latest News

JPMorgan tells fintech firms to start paying for customer data
JPMorgan tells fintech firms to start paying for customer data

The move to charge data aggregators fees totaling hundreds of millions of dollars threatens to upend business models across the industry.

FINRA snapshot shows concentration in largest firms, coastal states
FINRA snapshot shows concentration in largest firms, coastal states

The latest snapshot report reveals large firms overwhelmingly account for branches and registrants as trend of net exits from FINRA continues.

Why advisors to divorcing couples shouldn't bet on who'll stay
Why advisors to divorcing couples shouldn't bet on who'll stay

Siding with the primary contact in a marriage might make sense at first, but having both parties' interests at heart could open a better way forward.

SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives
SEC spanks closed Osaic RIA for conflicts, over-charging clients on alternatives

With more than $13 billion in assets, American Portfolios Advisors closed last October.

William Blair taps former Raymond James executive to lead investment management business
William Blair taps former Raymond James executive to lead investment management business

Robert D. Kendall brings decades of experience, including roles at DWS Americas and a former investment unit within Morgan Stanley, as he steps into a global leadership position.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.