Minnesota Attorney General's Office
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445 Minnesota Street
St. Paul, MN 55101
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Chapter 6: Other Issues
The Credit Handbook
Did You Know?
Eighty-nine percent of American adults use at least one credit card. But we use other plastic, too. Sixty-one percent of us use ATM cards, 59 percent use membership cards, 37 percent use debit cards, 33 percent use prepaid cards and 29 percent use prepaid phone cards.
Electronic banking, also known as electronic funds transfer (EFT) is the use of electronic means to transfer funds directly from one account to another, rather than by check or cash. EFT is commonly used to deposit paychecks directly into workers' accounts, withdraw money from an ATM, pay certain bills on a regular schedule, and to buy items with a check card.
Debit and ATM cards are not credit cards, because you are not borrowing money when you use them. These cards allow you easy access to your own money. Because they are not credit cards, debit and ATM cards do not help build your credit rating. What they do offer is convenience.
ATM cards, or Automatic Teller Machine cards, are used at ATMs to withdraw cash from your bank account. You type a password (a Personal Identification Number or PIN) into the ATM to verify your identity and activate the card.
Debit Cards or Check Cards
"Check card" is the new name for debit cards. A debit card can be used at the point of purchase to transfer money from your account to the store's account. These cards are used instead of cash, personal checks or credit cards. Sometimes your ATM card and your check card are the same. They are convenient, but keep these drawbacks in mind:
- You have less bargaining power with a check card than with a credit card. With a credit card you have the right to refuse to pay for a purchase if you are not satisfied with it. With a check card you have already paid for the item, so you have less bargaining power.
- A thief with your check card and PIN number can take all the money in your account. The thief can even make point-of-sale purchases with your card.
- Your liability is limited to $50 if you report the check card lost or stolen within two days. If you do not report the card lost or stolen within two days, your liability can jump to $500. After 60 days, you can be responsible for the entire amount. (Visa and MasterCard have voluntarily capped the liability of check cardholders at $50, but this protection is not written into law.)
- You are responsible to enter check card transactions into your checkbook ledger, like you would record checks you write.
Ever wonder how you really rate with creditors? As you know, creditors want to know whether you will be a good credit risk. To help them figure this out, most creditors use scoring systems they have designed over time. Here's how the system works.
Information about you and how you've used credit in the past (your bill paying history, the types of accounts you have, whether you make late payments), is collected from your credit application and your credit report. Scoring models may also consider your job or occupation, length of employment, and whether you own your own home. Creditors use a statistical program to compare this information to the credit performance of similar consumers. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. The total number of points _ the credit score _ helps predict how creditworthy you are.
How Can I Improve My Credit Score?
You may wonder how you can improve your credit score. Credit models are complex and vary widely, so it is better to look at general action you can take, rather than trying to change your score with one particular creditor. These tips can help improve your score:
- Pay your bills on time. Payment history is usually a significant factor in your credit score. It will hurt your score if you pay bills late, have had a bill referred to collections, or have declared bankruptcy.
- Look at your outstanding debt. Many scoring models look at the amount of debt you have and compare this to your credit limits. If the amount you owe is close to your credit limits, this may hurt your score. Paying down your outstanding balances can help your score. Also, try to avoid new debt.
- Give it time. It will help your score if you have a longer track record with credit. Having a fairly new credit history may hurt your score, but this should be offset if you make timely payments and keep low balances.
- Don't apply for too much credit at once. If you have too many "inquiries" on your credit report, indicating that you have applied for credit with different creditors, this could hurt your score. (Remember, not all inquiries are counted. Inquiries by creditors monitoring your account or offering "prescreened" credit cards are not counted.)
- Look at your current accounts. Although a track record is good, having too many credit card accounts can hurt your score. In addition, many credit scoring models look at the types of accounts you have. For example, loans from finance companies may hurt your credit score.
Fighting Credit Card Fraud
If you are the victim of credit card fraud you will spend a lot of time undoing the damage. To help prevent it from happening to you, the Federal Trade Commission recommends these tips:
- Sign your cards as soon as they arrive.
- Carry your cards separately from your wallet, in a zippered compartment, a business-card holder, or another small pouch.
- Keep (in a secure place) a record of your account numbers, their expiration dates, and the phone number and address of each company.
- Keep an eye on your card during the transaction, and get it back as quickly as possible. Make sure you get your own card back.
- Void incorrect receipts.
- Destroy carbons.
- Save receipts to compare with billing statements.
- Open bills promptly and reconcile accounts monthly, just as you would do with your checking account.
- Report any questionable charges promptly, and in writing, to the card issuer.
- Notify card companies in advance of a change in address.
- Lend your card(s) to anyone.
- Leave cards or receipts lying around.
- Sign a blank receipt. When you sign a receipt, draw a line through any blank spaces above the total.
- Write your account number on a postcard or the outside of an envelope.
- Give out your account number over the phone unless you're calling a company you know is reputable. If you have questions about a company, check it out with your local consumer protection office or Better Business Bureau.
Stop Identity Thieves in Their Tracks
Identity theft is a growing concern for citizens across Minnesota and the rest of the country. A few vital bits of personal data are a gold mine for information crooks looking to steal your identity. An impostor using personal information like your address, birth date, and Social Security number can acquire phony credit cards, siphon money from your checking or savings accounts, get a mortgage, and even give you a criminal record.
Maybe the identity theft is first noticed when you don't receive your monthly credit card statement. Or, you receive your bill and it contains charges from places you have never been. Either way, you may be the latest victim of a crime that can wreak havoc on your personal finances.
Worse, you may not even be aware your identity has been stolen until something goes wrong. Over the last decade, the explosion of information available to businesses and companies about individuals is staggering. In addition, creditors are often willing to give consumers access to thousands of dollars of credit quickly and with little information.
Make Yourself Less Vulnerable to Identity Theft
While there is no guaranteed way to stop a thief, there are ways to become a less attractive target:
- Watch your credit cards.
- Keep and carry as few credit cards as possible. After completing a credit card transaction, make sure that the card you get back is your own. Cancel all credit accounts you don't use and when you open a new credit account, ask that a password is used before any changes or inquiries can be made.
- Review statements. Carefully review all bank and credit card statements, canceled checks, and phone and utility bills. Report any discrepancies. If statements don't arrive on time, contact the post office and the creditor to ensure your mail is not being diverted. With respect to accounts that have been opened fraudulently or tampered with, contact the creditor and ask to speak with someone in their fraud department. Be sure to follow up in writing, file a police report and keep copies of all documents for your records.
- Guard your information. Your checks should not have your driver's license number or phone number preprinted on them. Never put your Social Security number on a check. Don't let a merchant write a credit card number on your check. Shred all personal documents before you discard them so a thief who picks through your garbage will come up empty. If you have reason to think someone else is using your Social Security number, call the Social Security Administration to verify the accuracy of your account.
- Use your telephone with caution. Avoid giving out your credit card number or other personal information over the telephone unless you have a trusted business relationship with the company. Do not provide personal information over unencrypted wireless communications such as cordless or cellular telephones.
- Check your credit report. Order a copy of your credit report each year from the three major credit bureaus. (See Page 18 for more information.) Make sure the report is accurate and includes only those activities you have authorized. Tell each credit bureau to flag your file with a fraud alert including a statement that creditors should contact you for permission before they open new accounts in your name.
- Be vigilant. These steps to protect your personal information will make it more difficult for someone to steal your good name, but be vigilant because, as technology makes the transfer of information easier, crooks will try to find ways around today's safeguards.
For more information about privacy and identity theft, request a free copy of the Attorney General's newest publication, Guarding Your Privacy.
The Rent-to-Own Trap
Rent-to-own stores often target low-income consumers who do not have credit cards. These stores charge the equivalent of 100 to 125% average annual interest rates. Rent-to-own businesses offer items such as televisions, washers and dryers, refrigerators, couches, and more. They set up short-term rental-purchase agreements. No down payment or credit check is usually required. The renter pays over time to "rent" an item. If the renter makes all the required payments, the renter then owns the item. The catch is, the renter usually makes payments that add up to much more than the cost of the item, or the cost of the item bought through a traditional credit card. Rent-to-own deals should be avoided when other options are available.
Chapter 7: Credit Laws and Your Credit Rights
The Credit Handbook
Did You Know?
In 1997, there were 1.3 million personal bankruptcy filings _ an all-time record. The years 1995-1997 saw more bankruptcies filed than were filed during the 1970s. Credit laws help reduce the problems and confusion people have when they use credit. Together, a number of laws set a standard for how you should be treated in your financial dealings. For example, you cannot be turned down for a credit card because you are a single woman; your credit won't disappear just because you've turned 65; you have protections from abusive debt collection practices; your risk is limited if your credit card is lost or stolen, and much more. It is important to know your rights, so that you can use them to your advantage.
Truth in Lending Act
The Truth in Lending Act requires creditors to give you certain basic information about the cost of credit. The Act requires open-end creditors to tell you the terms of the credit they are offering, so you can shop for the best deal. The following information must be disclosed in writing:
- The amount financed.
- The total number of payments and their amounts.
- A description of any security held by the creditor.
- The Annual Percentage Rate (APR).
- The finance charge (creditors must also tell you the method they use to figure the finance charge).
- Other fees you'll pay including annual membership fees, transaction charges, and points.
- Other loan terms and conditions such as the payment due date, grace periods, late payment and prepayment penalties.
In addition, the Act does the following:
- It regulates advertising of credit terms.
- It prohibits credit card issuers from sending unrequested cards.
- It limits a cardholder's liability to $50 for unauthorized uses of their card.
- It requires a written itemization of the amount borrowed and all charges not included as part of the finance charge.
Fair Credit Billing Act
This law sets up procedures to promptly correct billing mistakes, to withhold payments for defective goods, and protect you from credit card fraud. Specifically, the act protects you from the following types of errors:
- Charges not made or authorized by you.
- Charges listing the wrong price, description or date.
- Failure to credit your account for items you did not accept or which were not delivered as promised.
- Accounting errors.
- Failure to credit payments on returned items.
- Charges for which you have requested an explanation or written proof of purchase.
- Bills that are not mailed or are sent to another address (providing you gave at least a 20-day notice if your address changed).
In addition, the Fair Credit Billing Act sets the procedures to follow if you have a billing dispute. Periodically, creditors must send you a copy of the procedures. These include:
- If you find a billing error, you have 60 days to notify the creditor in writing.
- Your letter must be acknowledged within 30 days of receipt, unless the problem is resolved within that period.
- The creditor must correct the mistake or explain why the bill is correct within two billing cycles or 90 days.
- If you do not accept the creditor's explanation, you have 10 days to inform the creditor that you still refuse to pay the disputed amount.
- Legally, at this point, the creditor may begin collection procedures. However, any reports to a credit reporting agency must include a note that your refusal to pay was due to a billing dispute.
- A creditor may not threaten your credit rating during the billing dispute. Once you have notified the creditor, the business must not give information to credit bureaus that would damage your credit record.
- You have the right to withhold payment on any damaged or poor quality goods or services purchased with a credit card, as long as you make a serious attempt to resolve the problem with the merchant.
Fair Credit Reporting Act
This federal law sets up procedures to correct information in your credit report. It gives you the following rights:
- You have the right to receive a copy of your credit report. The copy you receive must contain all the information in your report at that time.
- You have the right to know who has received your report in the last year, and two years for employment purposes.
- If you are denied credit because of information in your credit report, the creditor must tell you the name and address of the credit reporting agency used.
- You have the right to a free copy of your credit report when your application for credit is denied due to information in the credit report. Your request for a free report must be made within 60 days of receiving the denial notice.
- If you contest the accuracy or completeness of your credit report, you should file a dispute with the credit reporting agency and with the creditor that provided the information. Both the credit bureau and the company providing the data are required to reinvestigate your complaint.
- You have a right to add a brief explanation to your credit report if the dispute is not resolved to your satisfaction.
- Outdated information may not be reported. In most cases, information will drop off after seven years. Bankruptcy stays on your report for 10 years.
Electronic Funds Transfer Act
The Electronic Funds Transfer Act of 1978, along with the Federal Reserve Board's Regulation "E" provide guidelines for electronic banking. Together, these regulations provide the following protections:
- A valid EFT card can be sent to you only if you request it.
- Unsolicited cards can be issued only if the card cannot be used until it is validated.
- The financial institution must tell you your rights by providing a written Disclosure Statement, including the procedures to use to correct errors in your statements.
- You are entitled to a written receipt when making deposits or withdrawals from an ATM or using a card to make a purchase. The receipt must include the amount, the date and the type of transfer.
- Statements must confirm the amount of all transfers, the dates and types of transfers, the types of accounts used, and the address and phone number to use to make inquiries about the statement.
You have 60 days from the date a problem or error appears on your written receipt or statement to notify your financial institution. If you miss the 60-day period, you may have little recourse.
If you report an ATM or EFT card missing before it is used without your permission, the card issuer cannot hold you responsible for any unauthorized withdrawals. If unauthorized use occurs before you report the card lost, the amount for which you can be held responsible depends upon how quickly you report the loss.
- If you report the loss within two days, the most you can be charged is $50.
- If you report the loss after two days, but before 60 days, the most you could lose is $500. (Visa and Mastercard have agreed to cap losses at $50, even if reported after the two-day time frame. However, this protection is not written into law.)
- If you do not report the loss within 60 days, you risk losing all the money in your account plus any unused portion of your line of credit.
Equal Credit Opportunity Act
The Equal Credit Opportunity Act prohibits discrimination in granting credit. Creditors may not consider the following factors when deciding whether to grant credit: sex, marital status, race, color, religion, national origin, age, or income from public assistance. Creditors may not discriminate against you because you have used your legal rights, such as contacting a creditor about a billing error. The Equal Credit Opportunity Act applies to companies that regularly extend credit including banks, credit unions, finance companies, retail and department stores and credit card companies.
Specifically, the Equal Credit Opportunity Act requires that:
- Creditors must not:
- Ask your sex.
- Ask your marital status.
- Ask you to choose a courtesy title (Mr., Ms., Mrs.).
- Ask for information about your spouse or former spouse unless:
- you live in a community property state.
- your income comes from alimony or your spouse's support.
- your spouse will also use the account.
- Require a co-signer or your spouse's signature.
- Require you to reapply for credit if there is a change in your marital status.
- Creditors must let you know within 30 days if your credit application was rejected.
- Creditors must provide a written statement explaining why your application was rejected.
- Creditors are required to report information to the credit bureaus in the names of both spouses if you have a joint account.
- You have the right to have reliable public assistance considered in the same manner as other income.
- Creditors may develop their own criteria to judge potential customers as good credit risks. Items that a creditor may legally ask you about include:
- Your income, savings and investments.
- Your occupation and how long you've been with your present employer.
- How long you have lived at your present address.
- Whether you own or rent your home.
Consumer Leasing Act
The Consumer Leasing Act requires the disclosure of important lease terms and costs so that you can compare one lease with another or compare the cost of buying with cash to buying on credit. This law applies to personal property leased by a consumer for more than four months. It covers cars, furniture, appliances and other personal property.
The Consumer Leasing Act does not cover:
- Daily or month-to-month car rentals.
- Leases for apartments or houses.
- Property leased to companies for business use.
The law requires a written contract with the following costs and terms stated:
- Total price of the item.
- Amount of any down payment, such as a security deposit.
- Total number of payments.
- Amount of payments.
- Due date for payments.
- Amount of license, registration, taxes, maintenance or other fees.
- Cost of late payment or default penalties.
- Type of insurance required.
- Type of warranty.
- Person or department responsible for maintenance and service.
- Procedure and penalty to cancel contract.
- Purchase option cost.
- Wear and tear standards.
Fair Debt Collection Practices Act
This law was established to ensure that consumers are treated fairly by debt collectors. All kinds of personal and household debts are covered in the law, including automobile loans, medical expenses, credit card debts, and more. However, the law does not apply to businesses collecting their own debts. The Act provides the following protections:
- It prohibits debt collectors from using abusive, deceptive and unfair practices such as:
- Using abusive language or making threats.
- Using the telephone to annoy you.
- Contacting you at inconvenient times or places.
- Misrepresenting themselves to you.
- Threatening a lawsuit or other action.
- Collecting more from you than you owe.
- It establishes the procedure for debt collection:
- First, within five days after the initial contact, the debt collector must send a statement of the amount you owe to the creditor, and what action you can take if you dispute owing the money.
- Second, if you send a letter within 30 days disputing that you owe the money, then the debt collector cannot make further collection efforts until you receive proof of the debt.
- Third, the debt collector cannot collect for any debt that cannot be verified.