A credit repair agency is a business that offers to improve people’s lingering financial woes for a fee starting from typically, around $100 per month via credit card payments. A high-risk merchant account for credit repair allows for online payments for these services with recurring billing options.
These credit repair companies ask for a copy of your credit report, review it for charge-offs, bankruptcies, tax liens, and other bad marks.
After this is done, the company grafts out an action plan for disputing these errors and negotiates with creditors to remove these items from your report.
Unfortunately, helping people repair their credit scores can be a high-risk endeavor, with companies resorting to sharp and illicit practices to get customers to comply.
Even though the Credit Repair Organizations Act makes it unlawful for credit repair companies to be misleading about their services, the Consumer Financial Protection Bureau (CFPB) is constantly bombarded with complaints.
According to the Consumer Financial Protection Bureau over 36% of the complaints made about credit repair services are traced back to scams or fraudulent cases.
These grievances mainly revolve around deceitful advertising, missing disclosures, unnecessary credit repair costs, hidden fees, and crappy customer service.
Due to this high level of consumer mistrust, traditional payment processors see credit card repair providers as high risk and refrain from offering these companies merchant account services.
If you are interested in helping your clients improve their credit scores and want to accept payments for services rendered, a high-risk merchant account approved for credit repair is the only way forward.
Businesses in the Credit Repair Industry
Not sure if you need a high-risk merchant account for your credit repair business?
Here are some businesses in the credit repair industry that financial institutions classify as high risk:
- Settlement assistance fee companies
- Cease and desist collections processing businesses
- Credit repair consultation businesses
- Credit repair firms
- Debt collection agencies
- Judgment recovery agencies
- Credit and debt counseling businesses
- Financial coaching firms
- Credit reporting services or firms
- Dispute settlement firms
- Collection and debt portfolio managers
- Repossession service firms
- Cash checking service firms
Why Credit Repair Businesses Are Seen as Risky
All it takes is a few bad apples to spoil a whole bunch. Unfortunately, this applies to the credit repair industry as well.
While a majority of credit repair companies do not fall foul of the Federal Trade Commission (FTC), a few unscrupulous ones take advantage of desperate individuals seeking to repair their credit.
The reputation of these dishonest providers has tarnished the industry as a whole and contributed greatly to the reluctance of banks and other financial institutions to get involved in a profitable credit repair industry market size worth over $3.4 billion dollars.
Other reasons why credit repair businesses are considered risky by merchant service providers include:
- High ticket services priced at $100 or more
- Recurring plans (subscription payments)
- Excessive chargebacks
- High fraud incidents
- Card-not-present transactions (online and phone)
- Friendly fraud (cash-strapped people can easily dispute authentic credit card transactions)
Types of Payments Your High-Risk Credit Merchant Account Must Accept
- Accept credit and debit payments – A high-risk merchant account for any credit repair business must accept and process card payments quickly.
- Recurring payments – Unrestricted and recurring payment plans make it easy for customers to make payments regularly.
- Multiple payment options – Accept payments via mobile devices and websites. Virtual terminals for mail/telephone (MOTO) orders and batch uploads (bulk processing)
- Electronic checks – Most people who use credit repair companies do not use credit cards because of their poor credit scores. However, most of them have bank accounts and can make payments via electronic checks.
Why Echecks Are Important to Your Credit Repair Business
In spite of the popularity of card payments, over 30% of Americans still choose not to own debit and credit cards.
When considering a high-risk merchant account for a credit repair business, a merchant account that accepts electronic checks via a payment gateway should be your top priority.
Even if your customer is willing to make payment by card, it is still a smart move to offer echecks as an alternative means of payment because cards can be declined.
Moreover, echeck payments have lower chargeback rates than credit card transactions because there is a timeline when it comes to filing disputes.
With a debit or credit card transaction, all it takes is for a customer to reach out to their card-issuing bank and initiate a dispute.
When it comes to checks, the customer must visit the bank and provide physical evidence that the transaction was illegal.
In most cases, the customer disputing the transaction is also expected to swear an affidavit attesting to the unauthorized exchange. This is a time-consuming process that is way harder than a 5-minute phone conversation.
Another reason why it is a good idea to have a high-risk merchant account for credit repair that accepts e-checks is that you stand a better chance of getting paid for your services.
Automatic deductions are much easier to make from bank accounts than credit cards.
Another reason why getting paid by e-checks is easier is that a majority of salaries are deposited in bank accounts. Bank account numbers hardly change, unlike cards that expire or are easily misplaced.
Excessive chargebacks are common in the credit repair industry. E-check payments can help confirm if the customer can be trusted to make payments or whether they are unreliable down the line.
How to Get a High-Risk Merchant Account for Your Credit Repair Business
Business owners will be asked to complete an application and submit the following documents:
- Government issued-ID
- Voided check or bank letter
- Bank statements for the last 3 months
- Processing statements for the last 3 months
- Employer Identification Number or Social Security Number
- Proof that your chargeback ratio is under 2%
An application for a high-risk merchant account for a credit repair business is always free to open without any obligations.
However, to qualify for an account, a minimum monthly processing volume of $25,000 is usually required.
Credit Card processing account approvals usually take 5-7 business days to open from the time the application is received.
What High-Risk Merchant Account Providers Really Want
Applying for a high-risk merchant account for your credit repair company does not always end with submitting your paperwork and application.
The underwriting team that reviews the file may ask for additional information. Ensure you supply that information as quickly as possible.
Tips to help you get fast approval include:
- Compliance: Follow all the rules and regulations that apply to running a credit repair company. Underwriters scrutinize your payment processing history for red flags and can refuse your application if they find any.
- Healthy credit score: A good credit score improves your odds of getting a credit repair merchant account. Do not try to fool the underwriting department by using your own services because you are desperate for approval.
- Reduce debt: Underwriters show little confidence in credit repair businesses with too much debt, paying off as much as you possibly can.