Credit repair is a fairly new phenomenon. But it has been borne out of a real gap in the ability for the average consumer to handle the information on their credit report as it relates to agencies, the creditor and credit reporting legislation. So we are very much needed. But we also need to act with integrity. So what is the best way to charge clients for the service of credit repair? What is in the best interests of the consumer – a fee for service approach or a no-win-no fee approach? And what are the rules for how to best help consumers ethically?

By Graham Doessel, Founder and CEO of MyCRA Credit Rating Repairs and www.fixmybadcredit.com.au.

Recently I read an article in the Sydney Morning Herald Tougher Stand Taken on Credit Files about the new credit laws currently in Parliament and how they could help consumers. But it came with it a warning at the end about credit repair companies. It seems on the whole we don’t get a good rap out there. Consumers are warned against credit repairers because we are charging for something people can technically do for themselves.

Yes, technically they can. There is no secret to that. But in reality, this is not happening.

Consumers we meet are getting told that they can’t get their listings removed – at best they can be marked as paid if the debt has been settled. They have been told the debt is valid when it isn’t; they have also had information changed on their accounts; they have not been given the right amount of notice and more.

Consumers are meant to know how to tackle these big guys without knowing the legislation. With this in mind, how are they meant to have success in removing their own credit rating errors?

However NSW Consumer Credit Legal Centre, Karen Cox, in this article reports on some pretty dodgy practices amongst credit repairers out there, and this is also a concern of mine.

“Some have used aggressive tactics to try to persuade the lender or credit reporting agency to remove legitimate listings.
And in some instances that Cox’s staff have dealt with, the credit repair company has persuaded the consumer to enter Part IX insolvency arrangements, which they subsequently administer for a fee,” the SMH reports.

So how do we rise out of these criticisms as an industry and provide the much-needed ethical version of credit rating repair? By addressing our fees and in turn our ethics.

Earlier this year, I wrote an article on fee structure in the credit repair industry http://grahamdoessel.com/wp/credit-rating-repair-customer-costs-a-tale-of-two-business-models/, investigating the two customer payment business models current in the credit rating repair industry, ‘fee for service’ and ‘no win no fee’ payments.

I also found in my research that the credit rating repair industry was falling way down in its credibility. Some companies weren’t advertising their fees, some were charging way too much and delivering too little – and this was creating mistrust across the board and tarnishing the reputation of what is actually a necessary service.

Here are the two types of payment structure I investigated:

Fee for service
‘Fee for service’ in the credit rating repair industry, means a fixed amount charged to a client for an agreed level of service. This is charged based on the level of service and or performance. This means that the fee structure is provided to the client up front, and as the client approaches each stage of service, the fee for that service will be due.

No win no fee
‘No win no fee’ cost agreements are also known as conditional cost agreements. No win no fee broadly means that the client only pays credit rating repair costs if their claim is successful. I found that the definition of a “successful claim” varied greatly between credit rating repairers.

I found that no one single method suited the industry entirely. Both had their merits for consumers and should be allowed to co-exist alongside some basic best practice methods which crossed both approaches.

Pros of fee for service
Upfront fees give the consumer more reassurance they will be told what they are going to get, how much it will cost, and because money has changed hands – the credit rating repairer will be bound to deliver what they have promised.

This model allows the credit rating repairer to give better service to the consumer, through the increased level of commitment by the consumer.

What I found important in a fee for service model, was the refundable assessment fee. This takes the benefits of fee for service to another level – by assuring those that enter into this business payment model are refunded any monies should they not proceed beyond the assessment stage of credit rating repair.

Cons of fee for service
The difficulty in a fee for service model is its restriction on consumers who can’t afford upfront payment, and can’t borrow due to a bad credit rating. At the same time, the fee for service credit rating repairer would likely impose less ‘defaults’ on consumer credit files.

Recently MyCRA Credit Rating Repairs (who runs a fee for service model) implemented a payment plan system, to accommodate those clients who couldn’t afford to pay a large sum up front.

Cons of no win no fee
I found hidden costs let down this customer payment method significantly from a ‘best practice’ standpoint. Extra costs; and hidden costs dumped on consumers regardless of their success in credit rating repair can lead to confusion and anger over fees and charges.

There is also the potential to skip vital steps in assessment which can lead to an inadequate volume of information prior to the engagement of credit repair – potentially leading to promises of credit repair not based in fact.

Furthermore, should non-payment arise, the company may be forced to place defaults on credit files– a woeful situation that no credit rating repairer wishes to be in.

Pros for no win no fee
I found the no win no fee business payment model had merit due to the ability to help those people who otherwise could not afford credit repair.

Other industries
In deciding which customer business payment model to adopt for the credit rating repair industry, I address other professions where these debates have occurred.

The financial planning industry is on the cusp of streamlining a fee for service payment model across the entire financial planning sector. This has been in response to demand for better transparency to combat criticism of conflict of interest – and uses a ‘best interest’ approach.

This consumer ‘best interest’ approach has strong merit when constructing any best practice customer payment model in the credit rating repair industry.

In the legal arena, the no win no fee model popular in personal injury claims has been criticised for misleading advertising and hidden costs, something which the credit rating repair industry should keep in mind when making any reforms.

Recommendations for payment models
I found both business models had merits for credit rating repair, provided these changes were made:

– Refundable upfront fees
–  Full disclosure of all fees, charges, terms and conditions on advertising.

These changes would make customer payments fair and simple to understand.

These best practice reforms would create transparency and credibility and would vastly contribute to providing a valid place for credit rating repair in Australasia’s credit reporting landscape in the future.

Ethics in credit rating repair
Ethics in credit rating repair should not be an anomaly.

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