Federal and state credit laws exist to protect consumers and give them rights at a time they are vulnerable.
Before you even get a credit card or loan, you are shielded from unfair lending practices; for example, the lender must disclose in writing and in plain language the terms, interest rate, and other costs of that loan or line of credit. Were you mailed a promotional-card offer with a spectacular APR and other great terms? That offer must be available to the public—maybe not to you specifically but to qualifying applicants (which the company will specify in the application).
Once you do have a credit card, this law is there to protect you against inaccurate billing charges. If you meet certain guidelines, the Fair Credit Billing Act limits your financial responsibility for unauthorized charges to just $50 and says you don’t have to pay for:
- merchandise that you ordered but never received;
- goods and services that you didn’t accept or were not as promised; and
- double charges and other incorrect charges.
In fact, the power of this law is so great that it is wise to pay for expensive items with a credit card because of all the consumer protection the law offers.
Banks and lenders typically report your credit activity to credit bureaus. The Fair Credit Reporting Act—amended by the Fair and Accurate Credit Transactions Act of 2003—makes sure that the financial data listed in your report is correct. It provides the following protections:
The right to dispute inaccuracies
You may file a report with a credit bureau, which has thirty days to investigate. During that time, a notice of dispute will appear on your report. False or unverifiable information will be removed from your report.
The right to access your credit file
If you are denied credit, you have the right to know which credit report the lender used and to receive a free copy of the report to make sure that the information is correct. Consumers are also guaranteed the right to one free report from each of the credit-reporting bureaus annually—or any time if you suspect fraud.
A time limit for negative information
In most cases, harmful information must eventually be removed from your credit report. Defaults and late payments typically drop off the reports after seven years, while Chapter 7 bankruptcies remain for ten.
Also, don’t think that just anyone can get a look at your credit file. This law stipulates that only those with a need, such as a creditor, insurer, landlord, or a prospective employer, can access your reports.
This is one of our favorite credit laws, since it relieves a huge amount of anxiety from distressed borrowers. The Fair Debt Collection Practices Act defends you against third-party collection abuses. Specifically, collectors are prohibited from
- calling multiple times a day, before 8:00 a.m. or after 9:00 p.m. or at work if you tell them the calls are jeopardizing your job, they should stop their actions;
- discussing your debt with someone other than your spouse without your permission;
- using profanity and making false threats (if they say they are going to sue you, then they have to take that action); and
- misrepresenting themselves or the purpose of the call.
The latest consumer-credit law to be passed—its full name is the Credit Card Accountability, Responsibility, and Disclosure Act—is long, powerful, and detailed. Just a few highlights are given below:
As long as you pay on time and as originally agreed, the interest rate paid on existing balances can’t be raised. You have the right to opt out of credit-card rate increases and to pay off your debts under the original terms. You must be given forty-five days’ notice of rate, fee, and finance-charge increases. Double-cycle billing is banned, which eliminates interest charges on debt you pay on time. (Double-cycle billing takes into account not only the average daily balance of the current billing cycle but also the average daily balance of the previous period.)