If you’ve been in the credit industry for a while, you’ve probably had a customer contact you about operating a professional credit sweep service. Credit sweeps are a service that is frequently advertised and promoted by credit repair companies. Unfortunately, for many unwary people wanting to enhance their credit, the credit sweep is a deceptive and illegal technique. What exactly are credit sweeps? Is credit sweep legal? Let’s take a closer look.
What is a Credit Sweep?
A credit sweep is an agreement between a company and its bank in which the bank uses all extra funds in a deposit account to lower the company’s outstanding line of credit. The amount of cash swept out of the deposit account is determined by a threshold level that the company wishes to keep in the account; any money above this baseline amount is used to pay off debt. If the balance in the account falls below a certain threshold, the bank that provides this service may also provide the reverse service, in which cash is transferred from the line of credit into the deposit account.
How Credit Sweeps Work
Credit sweep providers employ a range of strategies, but there are certainly common themes. Credit sweeps primarily refer to the practice of disputing all entries (or maybe all negative things) on one’s credit reports, usually by claiming that the accounts were the result of identity theft. That is why it is referred to as a credit sweep — credit sweeps are attempts to clear credit reports of all negative information.
There are a number of issues with this method. First and foremost, it is illegal.
Claiming that an account was created as a result of identity theft when it wasn’t can lead to criminal charges. This is true for both corporations that encourage this behavior and people who fake their own identity theft reports. Submitting fake police reports is unlawful in general, and claiming identity theft usually entails filing a police complaint.
Tradeline Pros, a Las Vegas-area company, had their clients fake over 170 police reports and pretend to be victims of identity theft. Tradeline Pros was giving phony police reports in several of these cases. A number of Tradeline Pros employees and executives were charged with crimes.
When Should You Use a Credit Sweep Arrangement?
Credit sweeps are especially beneficial for larger organizations with several bank accounts that are difficult to track manually on a regular basis and have high levels of balance variability. Using a credit sweep ensures that cash balances in deposit accounts are kept to a minimum while simultaneously lowering the amount (and thus the cost) of the line of credit.
A small business, on the other hand, rarely makes sense to join into a credit sweep agreement since its financing structure is easily monitored, making it less worthwhile to pay the bank’s credit sweep fee.
An Example of a Credit Sweep
Company ABC has a one-million-dollar credit line with Bank XYZ. ABC is currently borrowing $300,000 of the $ 1 million that must be repaid. ABC also has a cash deposit account with Bank XYZ, which is utilized for regular business payments or for any other business purposes. Company ABC establishes a target balance that states that any amount in the deposit account that exceeds $285,000 on any given day can be utilized to repay the outstanding $300,00 loan. On a Friday of one week, the deposit account balance is $295,000, thus Bank XYZ uses the extra $10,000 above the target balance to pay off $10,000 of the $300,000 borrowed amount.
Bank Sweep Accounts
On a more technical level, banks employ sweep accounts to circumvent the prohibition on paying interest on business checking accounts. Idle cash can be more successful in earning marginally higher returns by “sweeping” assets overnight to some type of investment vehicle. Sweep investment vehicles are frequently linked to the money market, notably “Eurodollar Sweeps” and “Repo Sweeps.”
Sweep arrangements come in a variety of shapes and sizes. Because commercial banks can afford more intricate arrangements, they can pursue more aggressive methods that often yield a greater rate of return. Smaller businesses may employ a sweep account for the sake of ease. As a result, while setting up a sweep arrangement, several degrees of service is usual.
Unfortunately, this type of bad activity is extremely common in the credit sweep industry. In Miami, a credit-scanning company collaborated with dishonest police officers to file bogus identity theft claims.
Credit sweeps are clearly a bad idea by this point. But what should you do instead?
Beware of Credit Sweep Scams
Be wary of mimicking other credit repair organizations’ practices if they offer quick results.
Making false or misleading representations to credit repair clients is not only immoral and illegal under the Credit Repair Organizations Act, but it can also lead to criminal penalties.
The term credit sweep should not even be spoken until your client has a police report indicating their identity was stolen. If your customer indicates they know of a company that has a workaround or can file a police complaint retrospectively, it’s time to have a “serious chat” with them.
Unfortunately, there are some unscrupulous apples in the industry that would go as far as filing fraudulent police reports in order to quickly erase negative items from a credit repair. You have a moral obligation to safeguard your client from this type of scam, which could land them in serious jeopardy.
For example, after a year-long investigation by the Las Vegas Metropolitan Police Department and the United States Secret Service, a company called Tradeline Pros found itself in deep water for credit sweeps in 2013.
Tradeline Pros advertised on its website that it would “eliminate 75% of bad stuff from your reports in the first month.” As it turns out, these incredible outcomes were just that. Unbelievable.
Tradeline Pros falsified 174 police records claiming that their clients were victims of identity theft when they were not.
The defendants in the case were charged with a litany of offenses, including racketeering, forgery laboratory establishment, and forgery.
What Is a Better Option Than a Credit Sweep?
Disputing in stages — using the factual dispute approach — is an efficient and, more crucially, lawful — method for achieving the greatest results for your clients.
With a factual dispute, you’ll go over a client’s credit report for mistakes and devise a strategy to challenge them.
Account inaccuracies can range from inaccurate account numbers, dates, account status, and account kinds to missing dates, account numbers, and balances.
Look for inconsistencies or inaccuracies in:
- Inquiries
- Payments that are late
- Collections
- Bankruptcies
- Foreclosures
- Repossessions
- Judgments
- Charge-offs
- Incorrect/conflicting Personal Data
Credit bureaus may also be missing supporting paperwork for all items reported on a credit report, which is grounds for a dispute.
The only legal option to credit sweep is to practice credit repair is to go through the factual dispute process.
Do Credible Disputes Take a Long Time to Resolve?
A credit sweep has the advantage of being rapid, comprehensive, and requiring lesser documentation (unless you get slapped with criminal charges.) Even if credit sweeps were completely lawful, it’s worth noting that factual disagreements are resolved in less than one negative credit sweep (assuming you use the correct tools).
Legal vs. Illegal Credit Repair
To be clear, credit repair is not unlawful in and of itself. Credit repair, at least the legal sort, is simply the process of removing incorrect or unverifiable information from a consumer’s credit report. This is accomplished by disputing negative items with credit reporting organizations (CRAs, AKA credit bureaus). Credit report information can also be disputed through the financial institution that provides the data to the CRAs.
Credit repair is legal as long as it follows federal and state rules and legislation that govern the credit repair sector.
Hiring a Credit Repair Firm to Repair Your Credit
Although the credit dispute process is free, credit repair organizations provide credit sweeps to consumers for a fee in order to erase bad information from the consumer’s credit reports.
Although there are trustworthy credit repair professionals, there are also plenty of “scumbags” in the field who take advantage of clients and utilize illegal and fraudulent techniques to gain money, in John’s words.
As a result, it’s critical to conduct thorough research before selecting to deal with a credit repair company.
Conclusion
Credit sweeps and other credit repair scams appear to be widespread on the Internet. It’s easy to fall for these “quick and cheap” cures, but the repercussions can be serious.
Fortunately, you have options. Understand your rights and check your credit reports. Seek expert assistance if necessary. A higher credit score, and consequently a better way of life, is only around the corner.
Operating morally and honestly is the foundation of your reputation, what will benefit your clients the most, and what will demonstrate to people all over the country that credit repair is a respectable profession with fantastic outcomes!
Credit Sweep FAQs
Are credit sweeps legit?
Credit sweep is not only not legal but it’s also unlawful in most circumstances! The procedure of “sweeping a credit report” can only be accomplished by lying to the police and filing false reports to credit bureaus, and you could end up in JAIL!
How long does a credit sweep last?
The FCRA requires that unfavorable material on a credit report be erased after seven years (with the exception of a Chapter 7 bankruptcy, which can stay on your credit report for up to 10 years).
Is it worth paying someone to fix your credit?
Paying a credit repair firm to “correct” your credit report is usually a waste of money because you may dispute credit report information for free. In either scenario, information will be removed or changed only if it is incorrect.
Why was my car loan removed from credit report?
A car loan may be absent from your credit report because the information has not yet been reported to the credit bureaus, your lender does not report to all credit bureaus, or an error happened.
