Credit Repair in the Mortgage Industry

Credit repair is an estimated $6.6 billion national industry, with well over 40,000 credit repair companies in the United States as of 2023.[1] Typically charging a few hundred dollars, a credit repair company can review a consumer credit report, identify the sources of bad credit, help dispute inaccurate information, communicate with creditors, and provide educational resources, all of which may improve the consumer’s credit score.[2]

Mortgage companies often offer credit repair services.

Apart from standalone credit repair companies, mortgage companies frequently offer credit repair services to help loan applicants obtain loan approvals. With tools such as specialized software, AI, and plain human intervention, they can correct inaccurate information, draft explanatory letters to credit reporting companies, and negotiate repayment options to improve a bad credit report, among other things.

Credit repair fraud, however, is common, with the FTC reporting 3,151 consumer complaints involving credit repair services in 2021 alone.[3]  As such, the regulatory landscape is as wide as it is diverse, and mortgage companies looking to enter the credit repair industry need to be prepared to address applicable state and federal regulatory requirements, including requirements regarding contracts, disclosures, credit repair fees, and licensing and bonding.  Regarding the latter, Pennsylvania, for example, requires a bond (with no set amount) but no registration,[4] while Maryland requires a license and $950 in license and application fees in addition to a $50,000 bond.[5]

Are mortgage companies exempt from licensing and bonding requirements?

Exceptions for mortgage companies from licensing and other requirements need to be scrutinized for each state. Are mortgage companies exempt from licensing and bonding requirements? Well, they are in Maryland[6] and Ohio[7], but not in Kansas.[8] What if the mortgage company offers credit repair services for free to potential customers — is it exempt then? Most likely it is in DC[9], but not necessarily in Idaho.[10]

As always, we recommend that any mortgage company looking to get into this business carefully review the laws of each state and continue monitoring them as regulations and enforcement in this area evolves.

This article was written by AJ Esral, Esq. AJ recently completed a nationwide review of the license requirements and exemptions for mortgage lenders that provide credit repair services.  The information contained herein is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from Shumaker Williams P.C. or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. This blog is current as of the date of original publication.

[1]               Consumer Affairs. “Credit repair statistics 2024 [2024]” ConsumerAffairs.com. Apr. 09, 2024, https://www.consumeraffairs.com/finance/credit-repair-statistics.html.

[2]               Id.

[3]               See FTC, Consumer Sentinel Network Data Book 2021 (February 2022) (“Sentinel Data”), Appendix B3, p. 85, available at https://www.ftc.gov/system/files/ftc_gov/pdf/CSN%20Annual%20Data%20Book%202021%20Final%20PDF.

[4]       73 P.S. § 2187.

[5]               See Md. Code Ann., Com. Law §§14-1901 et seq.

[6]               Md. Code Ann., Com. Law §14-1901.

[7]               ORC Ann. 4712.01.

[8]               See K.S.A. §§  50-1116 et seq.

[9]               See D.C. Code, § 28–4601(2)(A).

[10]             See Idaho Code § 26-2223(8).