The Credit Handbook
Credit Laws and Your Credit Rights
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 federal 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:
- Regulates advertising of credit terms.
- Prohibits credit card issuers from sending unrequested cards.
- Limits a cardholder’s liability to $50 for unauthorized uses of their card.
- Requires a written itemization of the amount borrowed and all charges not included as part of the finance charge.
Fair Credit Billing Act
This federal 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 (provided 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 obtain a free copy of your credit report from each of the three national consumer reporting agencies once per year. 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 credit report for ten years.
Electronic Funds Transfer Act
The federal 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 voluntarily implemented zero liability policies, though some requirements and exceptions may apply, and 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, another federal law, 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 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 federal 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 that the creditor does not intend to take.
- Collecting more from you than you owe.
- It establishes the procedure for debt collection:
- First, within five days after the debt collector’s initial contact with you, the debt collector must send you a statement of the amount you owe 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.
- It limits debt collector contact with third parties (except to locate you).
- It requires that if you owe several debts, the money you provide must be applied as you wish.
- It restricts debt collectors from trying to collect any debt in dispute.