Consumer Credit Laws You Should Be Familiar With
There are a few laws that guide your rights in the credit world. If you're not in the legal profession, you probably won't read the text of each of these laws. You should, at a minimum, be familiar with the laws and your rights. Being aware of your rights and the responsibilities of creditors, lenders, and other businesses in the credit industry will help you know how to properly respond to issues that arise.
The Equal Credit Opportunity Act
The ECOA prevents lenders from discriminating against people or businesses based on non-financial factors. The ECOA is one of the few important consumer laws that applies to consumers and businesses—most others apply to consumers only. The ECOA says that a lender cannot discourage you from applying or discriminate against you based on factors that include:
- Marital status
- Age (unless you're too young to sign a contract)
- Whether the applicant receives public assistance
Lenders may ask for this information in certain situations, but the information cannot be used to decide whether to give credit and it cannot be used to set the terms for applicants who are approved. For example, the lenders cannot assign interest rates based on an applicant's age.
The ECOA limits the information lenders can ask about an applicant's spouse only in certain situations, like a joint application, when you're relying on your spouse's income to pay the account, or applicants made in community property states. The lender isn't allowed to ask whether an applicant is widowed or divorced. Only the terms married, unmarried, and separated can be used.
The ECOA applies to all businesses that regularly extend credit and businesses like mortgage brokers, who simply arrange financing.
Under the ECOA, lenders are required to send an explanation to applicants whose application for credit is denied. The explanation must be made within 60 days of the decision and must include the specific reasons for the decision.
If you were offered less favorable terms, you have the right to know why, but only when you reject the terms.
The Fair Credit Reporting Act
The FCRA defines how consumer credit information can be collected and used. It governs credit bureaus like Equifax, Experian, and TransUnion, and other consumer reporting agencies.
Under the FCRA, you have a right to review your credit report upon request. You can receive one free copy of your credit report each from each consumer reporting agency.
The three major credit bureaus make your free annual credit report available through AnnualCreditReport.com.
You have the right to an accurate credit report and can dispute errors with the credit bureaus who are required to investigate the information you dispute. After receiving your dispute and investigating, the credit bureau must correct or delete inaccurate information.
Depending on the type of information, outdated negative information must be removed from your credit report after seven to ten years.
Instructions for Information Furnishers
The FCRA also gives specific instructions for companies that report information to the credit bureaus and consumer reporting agencies. These companies aren't allowed to report inaccurate information, must let you know if negative information has been reported to the credit bureaus, must update inaccurate information that was previously given to the credit bureaus, and cannot report any accounts that you've notified them are the result of identity theft.
Credit Report Access
You have the right to know who has accessed your credit report. This information won't be sent to you automatically but will be included in a separate section of your credit report specifically dedicated to inquiries.
Adverse Action and Violation of Rights
You have the right to know if information in your credit has been used against you. If you make a credit-based application and you're turned down because of information in your credit report, the business is required to notify you, give you the reasons you were denied, and inform you of your right to view a free copy of the credit report that was used in the decision.
You can sue businesses that violate your rights under the FCRA. You can file a lawsuit in Federal court for up to $1,000 or your actual damages.
The Fair Debt Collection Practices Act
The FDCPA doesn't pertain to your credit directly, but it governs what third-party debt collectors (who do have some impact on your credit) can do when they're collecting a debt from you. The law applies to personal debts, not business debts. The FDCPA is a Federal law that applies to all third-party debt collectors, even collection attorneys, regardless of the state where the debt collector practices. Most states have separate debt collection laws.
The FDCPA applies to third-party debt collectors, not the company you originally created the debt with.
If a debt collector contacts someone you know—a friend or family member—to get information about you so they can contact you, the collector isn't allowed to reveal that they're collecting a debt.
The FDPCA defines when debt collectors can contact you—between the hours of 8 a.m. and 9 p.m. unless you've given them permission to call you at another time.
You can stop debt collectors from calling you by sending them a written cease and desist letter letting them know that you want their calls to stop.
Prohibited Collection Practices and Violation or Rights
When they're collecting a debt from you, collectors cannot make false statements, threaten you, harass you, call you repeatedly to annoy you, or threaten to take any legal action that they're not allowed to make or that they do not intend to make. For example, a debt collector can't threaten to sue you if they're not allowed to sue you or if they do not plan to sue you.
Under the FDPCA, you have the right to sue a debt collector who violates your rights. You could receive up to $1,000 in addition to actual damages and attorney fees.
The Truth in Lending Act
The TILA defines what information must be disclosed to consumers who are being offered credit products, including personal credit cards and loans. The law applies to business or commercial credit cards and loans. Under the TILA, the lender must disclose:
- Annual percentage rate
- Finance charges, including application fees, late fees, and prepayment penalties
- Amount financed
- Payment schedule
- Total repayment amount over the lifetime of the loan
These details not only have to be presented to the consumer before they sign for the credit but must also plainly appear on billing statements.
The TILA does not restrict the amount of interest that can be charged and it does not specify whether credit must be granted. It simply requires lenders to be upfront about how much credit will cost the consumer.
Credit Card Pricing
Over the years, amendments have been made to the TILA so that it continues to protect consumers. In 2009, the Credit CARD Act made significant changes to the law requiring credit card issuers to disclose pricing information for credit products when issuing new credit cards. Other requirements under the Credit CARD Act include:
- Credit card companies must consider a consumer's ability to repay before issuing a new credit card or raising the credit limit on an existing one
- Give consumers a 45-day advance notice before increasing the interest rate
- Send billing statements 21 days before the due date
- Disclose the cost of making minimum payments and the time it will take to pay off the balance with minimum only payment
- Only charge an over-the-limit fee when the cardholder has opted-in to having over-the-limit transactions processes
- Not offer tangible incentives, like t-shirts or gifts, in exchange for college students who sign up for a credit card
Protection Against Unfair Billing Practices
The Fair Credit Billing Act protects consumers from unfair billing practices and gives consumers the right to dispute, in writing, errors on their billing statements. While a billing error is being investigated, the consumer is not required to pay the disputed amount and cannot be penalized for withholding payment for amounts that are in dispute.
The Credit Repair Organizations Act
Consumers who are considering using the services of a credit repair company should know how the law protects them. The CROA applies to any person or business that takes money in exchange for improving your credit.
Prohibited Credit Repair Practices
Under the CROA, credit repair companies cannot lie to your creditors about your credit history. They also cannot encourage you to lie to current or future creditors.
Credit repair companies are prohibited from altering your identity in an attempt to get a new credit history.
The company must be completely honest about the services provided to you. They cannot misrepresent that they are providing you.
You should not be asked to pay for services before they have been provided.
All credit repair companies have to provide you with a disclosure that details your right to obtain a credit report and dispute inaccurate information yourself.
Contact Requirements and Waiver of Rights
The credit repair company, before performing any services for you, should give you a contract and allow you a 3-day "cooling off" period after you've signed the contract. You're allowed to cancel the contract within three days with no cancellation fee.
Any company that asks you to waive your rights under the CROA is violating the law. Any waiver you sign is void and will not be enforced.
Dealing With Businesses Who Break the Law
You can complain to the Consumer Financial Protection Bureau about most financial companies that violate these rights. With enough complaints, the CFPB may impose a fine or penalty against the company and may even require the company to make full or partial refunds.
The Federal Trade Commission and your state Attorney General or other entities you can complain about companies who break the law.
If you believe you're owed damages, consult with an attorney to find out the process for filing a lawsuit against a company who has violated your rights.