Credit Reporting Laws
FAIR CREDIT REPORTING ACT
The Federal
Fair Credit Reporting Act (FCRA) is designed to promote
accuracy, fairness, and privacy of information in the files of
every "consumer reporting agency" (CRA). Most CRAs are credit
bureaus that gather and sell information about you -- such as if
you pay your bills on time or have filed bankruptcy -- to
creditors, employers, landlords, and other businesses. You can
find the complete text of the FCRA, 15 U.S.C. 1681-1681u, at the
Federal Trade Commission's web site at www.ftc.gov. The FCRA
gives you specific rights, as outlined below. You may have
additional rights under state law. You may contact a state or
local consumer protection agency or a state attorney general to
learn those rights.
No Secrecy
Anyone who uses information from a CRA to take action against
you -- such as denying an application for credit, insurance, or
employment -- must tell you, and give you the name, address, and
phone number of the CRA that provided the consumer report.
Full Disclosure
At your request, a
CRA must give you the information in your file, and a list of
everyone who has requested it recently. There is no charge for
the report if a person has taken action against you because of
information supplied by the CRA, if you request the report
within 60 days of receiving notice of the action. You also are
entitled to one free report every twelve months upon request if
you certify that (1) you are unemployed and plan to seek
employment within 60 days, (2) you are on welfare, or (3) your
report is inaccurate due to fraud. Otherwise, a CRA may charge
you up to eight dollars.
Dispute Inaccurate
Information
Dispute inaccurate information with
the CRA. Upon proper notice, the CRA must investigate the items
(usually within 30 days) by presenting to its information source
all relevant evidence you submit, unless your dispute is
frivolous. The source must review your evidence and report its
findings to the CRA. (The source also must advise national CRAs
-- to which it has provided the data -- of any error.) The CRA
must give you a written report of the investigation, and a copy
of your report if the investigation results in any change. If
the CRA's investigation does not resolve the dispute, you may
add a brief statement to your file. The CRA must normally
include a summary of your statement in future reports. If an
item is deleted or a dispute statement is filed, you may ask
that anyone who has recently received your report be notified of
the change.
Result of Disputed Information
Inaccurate information must be corrected or deleted. A CRA
must remove or correct inaccurate or unverified information from
its files, usually within 30 days after you dispute it. However,
the CRA is not required to remove accurate data from your file
unless it is outdated (as described below) or cannot be
verified. If your dispute results in any change to your report,
the CRA cannot reinsert into your file a disputed item unless
the information source verifies its accuracy and completeness.
In addition, the CRA must give you a written notice telling you
it has reinserted the item. The notice must include the name,
address and phone number of the information source.
Debt Validation
You can dispute
inaccurate items with the source of the information. If you tell
anyone -- such as a creditor who reports to a CRA -- that you
dispute an item, they may not then report the information to a
CRA without including a notice of your dispute. In addition,
once you've notified the source of the error in writing, it may
not continue to report the information if it is, in fact, an
error.
Outdated information may not be reported. In most
cases, a CRA may not report negative information that is more
than seven years old; ten years for bankruptcies.
File Accessibility
Access to your file
is limited. A CRA may provide information about you only to
people with a need recognized by the FCRA -- usually to consider
an application with a creditor, insurer, employer, landlord, or
other business.
Your consent is required for reports that
are provided to employers, or reports that contain medical
information. A CRA may not give out information about you to
your employer, or prospective employer, without your written
consent. A CRA may not report medical information about you to
creditors, insurers, or employers without your permission.
Mailing Lists
You may choose to
exclude your name from CRA lists for unsolicited credit and
insurance offers. Creditors and insurers may use file
information as the basis for sending you unsolicited offers of
credit or insurance. Such offers must include a toll-free phone
number for you to call if you want your name and address removed
from future lists. If you call, you must be kept off the lists
for two years. If you request, complete, and return the CRA form
provided for this purpose, you must be taken off the lists
indefinitely.
Damages
You may
seek damages from violators. If a CRA, a user or (in some cases)
a provider of CRA data, violates the FCRA, you may sue them in
state or federal court.
Fair Debt Collection Practices Act
If you use credit cards, owe money on a personal loan, or
are paying on a home mortgage, you are a "debtor." If you fall
behind in repaying your creditors, or an error is made on your
accounts, you may be contacted by a "debt collector." You should
know that in either situation, the Fair Debt Collection
Practices Act requires that debt collectors treat you fairly and
prohibits certain methods of debt collection. Of course, the law
does not erase any legitimate debt you owe. This summary may
answer some commonly asked questions about your rights under the
Fair Debt Collection Practices Act. The complete text of the
Fair Debt Collection Practices Act may be obtained at 15 U.S.C.
§1692, et. seq. The State of Florida also has a separate and
distinct act that mirrors the federal act, but is more
protective of the consumer.
What debts are
covered?
Personal, family, and household debts
are covered under the Act. This includes money owed for the
purchase of an automobile, for medical care, or for charge
accounts.
Who is a debt collector?
A debt collector is any person who regularly collects debts
owed to others. This includes attorneys who collect debts on a
regular basis.
How may a debt collector contact
you?
A collector may contact you in person, by
mail, telephone, telegram, or fax. However, a debt collector may
not contact you at inconvenient times or places, such as before
8 a.m. or after 9 p.m., unless you agree. A debt collector also
may not contact you at work if the collector knows that your
employer disapproves of such contacts.
Can you
stop a debt collector from contacting you?
You
can stop a debt collector from contacting you by writing a
letter to the collector telling them to stop. Once the collector
receives your letter, they may not contact you again except to
say there will be no further contact or to notify you that the
debt collector or the creditor intends to take some specific
action. Please note, however, that sending such a letter to a
collector does not make the debt go away if you actually owe it.
You could still be sued by the debt collector or your original
creditor.
May a debt collector contact anyone
else about your debt?
If you have an attorney,
the debt collector must contact the attorney, rather than you.
If you do not have an attorney, a collector may contact other
people, but only to find out where you live, what your phone
number is, and where you work. Collectors usually are prohibited
from contacting such third parties more than once. In most
cases, the collector may not tell anyone other than you and your
attorney that you owe money.
What must the debt
collector tell you about the debt?
Within five
days after you are first contacted, the collector must send you
a written notice telling you the amount of money you owe; the
name of the creditor to whom you owe the money; and what action
to take if you believe you do not owe the money.
May a debt collector continue to contact you if you believe you
do not owe money?
A collector may not contact
you if, within 30 days after you receive the written notice, you
send the collection agency a letter stating you do not owe
money. However, a collector can renew collection activities if
you are sent proof of the debt, such as a copy of a bill for the
amount owed.
What types of debt collection
practices are prohibited?
Harassment. Debt
collectors may not harass, oppress, or abuse you or any third
parties they contact. For example, debt collectors may not:
• use threats of violence or harm
• publish a list of
consumers who refuse to pay their debts (except to a credit
bureau)
• use obscene or profane language
• repeatedly use
the telephone to annoy someone.
False statements
Debt collectors may not use any false or misleading
statements when collecting a debt. For example, debt collectors
may not:
• falsely imply that they are attorneys or
government representatives
• falsely imply that you have
committed a crime
• falsely represent that they operate or
work for a credit bureau
• misrepresent the amount of your
debt
• indicate that papers being sent to you are legal forms
when they are not or
• indicate that papers being sent to you
are not legal forms when they are.
Debt
collectors also may not state that:
• you will
be arrested if you do not pay your debt
• they will seize,
garnish, attach, or sell your property or wages, unless the
collection agency or creditor
intends to do so, and it is
legal to do so
• actions, such as a lawsuit, will be taken
against you, when such action legally may not be taken, or
when they do not intend to take such action.
Debt
collectors may not:
• give false credit
information about you to anyone, including a credit bureau
•
send you anything that looks like an official document from a
court or government agency when it is not
• use a false name.
Unfair practices
Debt collectors may
not engage in unfair practices when they try to collect a debt.
For example, collectors may not:
• collect any amount
greater than your debt, unless your state law permits such a
charge
• deposit a post-dated check prematurely
• use
deception to make you accept collect calls or pay for telegrams
• take or threaten to take your property unless this can be done
legally
• contact you by postcard.
What
control do you have over payment of debts?
If
you owe more than one debt, any payment you make must be applied
to the debt you indicate. A debt collector may not apply a
payment to any debt you believe you do not owe.
Are there any additional duties required by state laws?
State laws may impose additional duties. For example, under
laws in many states, similar provisions may cover creditors
collecting their own accounts. Some, but certainly not all, of
the highlights of the Fair Debt Collection Practices Act are
discussed below.
What can you do if you believe a
debt collector violated the law?
You have the
right to sue a collector in a state or federal court within one
year from the date the law was violated. If you win, you may
recover money for the damages you suffered plus an additional
amount up to $1,000. Court costs and attorney's fees also can be
recovered. A group of people also may sue a debt collector and
recover money for damages up to $500,000, or one percent of the
collector's net worth, whichever is less.
Where
can you report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your
state Attorney General's office and the Federal Trade
Commission. Many states have their own debt collection laws, and
your Attorney General's office can help you determine your
rights.
Consumer Handbook to Credit Protecti0n Laws:
The Consumer Credit Protection Act of 1968--which launched Truth
in Lending disclosures--was landmark legislation. For the first
time, creditors had to state the cost of borrowing in a common
language so that you--the consumer--could figure out what the
charges are, compare costs, and shop for the best credit deal.
Since 1968, credit protections have multiplied rapidly. The
concepts of "fair" and "equal" credit have been written into
laws that bar unfair discrimination in credit transactions,
require that consumers be told the reason when credit is denied,
let borrowers find out about their credit records, and set up a
way for consumers to settle billing disputes.
Each law
was meant to reduce the problems and confusion about consumer
credit, which as it became more widely used in our economy, also
grew more complex. Together, these laws set a standard for how
individuals are to be treated in their financial dealings.
The laws say, for instance,
that you
cannot be denied a credit card just because you're a single
woman that you can limit your risk if a credit card is lost or
stolen that you can resolve errors in your monthly bill without
damage to your credit rating and that you cannot have credit
shut off just because you've reached age 62.
But let the
buyer be aware! It is important to know your rights and how to
use them. This handbook explains how the consumer credit laws
can help you shop for credit, apply for it, maintain your credit
standing, and, if need be, complain about an unfair deal. This
handbook also explains what you should look for when using
credit, details what creditors look for before extending credit,
and reviews the laws' solutions to discriminatory practices that
have made it difficult for women and minorities to get credit.
Shopping Is the First Step
Credit is
a convenience. It lets you charge a meal on your credit card,
pay for an appliance on the installment plan, get a loan to buy
a house, or pay for schooling and vacations. With credit, you
can enjoy your purchase while you're paying for it, or you can
make a purchase when you're lacking ready cash.
But there
are strings attached to credit as well. It usually costs
something. And, of course, what is borrowed must be paid back.
If you are thinking of borrowing or opening a credit account,
your first step should be to figure out how much it will cost
you and whether you can afford it. Then you should shop for the
best terms.
What Laws Apply?
Two laws can help you compare costs:
Truth in Lending requires creditors to give you certain basic
information about the cost of buying on credit or taking out a
loan. These "disclosures" can help you shop for the best deal.
Consumer Leasing disclosures can help you compare the cost
and terms of one lease with another and with the cost and terms
of buying for cash or on credit.
The Finance
Charge and Annual Percentage Rate
Credit costs
vary. By remembering two terms--the finance charge and the
annual percentage rate (APR)--you can compare credit prices from
different sources. Under Truth in Lending, the creditor must
tell you--in writing and before you sign any agreement--what
these terms will be.
The finance charge is the total
dollar amount you pay to use credit. It includes interest costs
and other costs, such as service charges and some credit-related
insurance premiums.
Example:
Suppose you borrow
$100 for one year, and the interest is $10. If there is a
service charge of $1, the finance charge will be $11.
The
annual percentage rate is the percentage cost (or relative cost)
of credit on a yearly basis, which is your key to comparing
costs, regardless of the amount of credit or how long you have
to repay it.
Example:
Again, suppose you borrow
$100 for one year and pay a finance charge of $10. If you can
keep the entire $100 for the whole year and then repay $110 at
year's end, you are paying an APR of 10 percent. But if you
repay the $100 and finance charge (a total of $110) in twelve
equal monthly installments, you don't really get to use $100 for
the whole year. In fact, you get to use less and less of that
$100 each month. In this case, the $10 finance charge amounts to
an APR of 18 percent.
All creditors--banks, stores, car
dealers, credit card companies, finance companies--must state
the cost of their credit in terms of the finance charge and the
APR. Federal law does not set interest rates or other credit
charges. But it does require their disclosure so that you can
compare credit costs. The law says these two pieces of
information must be shown to you before you use a credit card.
Return to top A Comparison
Even when
you understand the terms a creditor is offering, it's easy to
underestimate the difference in dollars that different terms can
make. Suppose you're buying a $7,500 car. You put $1,500 down
and need to borrow $6,000. Compare the three credit arrangements
in the chart on the next page. How do these choices compare? The
answer depends partly on what you need. The lowest cost loan, in
terms of total finance charges and total of payments, is
available from Creditor A.
--------------------------------------------------------------------------------
APR
Length
of Loan
Monthly
Payment
Total Finance
Charge
Total of
Payments
Creditor A
14%
3
years
$205.07
$1,382.52
$7,382,52
Creditor B
14%
4 years
$163.96
$1,870.08
$7,870.08
Creditor C
15%
4 years
$166.98
$2,015.04
$8,015.04
--------------------------------------------------------------------------------
If you were looking for lower monthly payments, you could
get them by repaying the loan over a longer period. However, you
would have to pay more in total costs. A loan from Creditor B,
also at a 14 percent APR, but for four years, will add about
$488 to your finance charge. If that four-year loan were
available only from Creditor C, the APR of 15 percent would add
another $145 or so to your finance charges, compared with
Creditor B.
Other factors, such as the size of the down
payment, will also make a difference. Be sure to look at all the
loan terms before you choose.
Cost of Open-end
Credit
Open-end credit includes bank and
department store credit cards, gasoline company cards, home
equity lines of credit, and check-overdraft accounts that let
you write checks for more than your actual balance with the
bank. Open-end credit can be used again and again, generally
until you reach a certain prearranged borrowing limit. Truth in
Lending requires that open-end creditors tell you the terms of
the credit plan so that you can shop and compare costs.
When you're shopping for an open-end plan, the APR is only the
periodic rate that you will be charged, figured on a yearly
basis. (For instance, a creditor that charges 12 percent
interest each month would quote you an APR of 18 percent.)
Annual membership fees, transaction charges, and points, for
example, are listed separately; they are not included in the
APR. Keep these fees in mind and compare all the costs involved
in the plans, not just the APR.
Creditors must tell you
when finance charges begin on your account, so you know how much
time you have to pay your bill before a finance charge is added.
Creditors may give you a 25-day grace period, for example, to
pay your purchase balance in full before you must pay a finance
charge. Creditors also must tell you the method they use to
figure the balance on which you pay a finance charge; the
interest rate they charge is applied to this balance to compute
the finance charge. Creditors use a number of different methods
to arrive at the balance. Study them carefully; they can
significantlyaffect your finance charge.
Some creditors,
for instance, take the amount you owed at the start of the
billing cycle and subtract any payments made during that cycle.
New purchases are not counted. This is called the adjusted
balance method.
With the previous balance method,
creditors simply use the amount owed at the start of the billing
cycle to compute the finance charge.
Under one of the
most common methods, the average daily balance method, creditors
add your balances for each day in the billing cycle and then
divide that total by the number of days in the cycle. Payments
made during the cycle are subtracted to get the daily amounts,
and depending on the plan, new purchases may or may not be
included. Under another method, the two-cycle average daily
balance method, creditors use the average daily balances for two
billing cycles to compute your finance charge. Again, payments
will be subtracted to get the balances, but new purchases may or
may not be included.
Be aware that the amount of the
finance charge will vary considerably depending on the method
used, even for the same pattern of purchases and payments.
If you receive a credit card offer or an application, the
creditor must give you information about the APR and other
important terms of the plan (for example, annual fees and late
payment fees) at that time. Likewise, with a home equity line of
credit, this information must be given to you with an
application. Truth in Lending does not set the rates or tell the
creditor how to calculate finance charges; it requires only that
the creditor tell you the method that it uses. You should ask
for an explanation of any terms you don't understand.
Leasing Costs and Terms
A lease is a
contract between a lessor (the property owner) and a lessee (the
property user) for the use of a vehicle or property subject to
stated terms and limitations for a specified period and at a
specified payment. Leasing has become a popular alternative to
buying--under certain circumstances. For instance, you might
consider leasing furniture for an apartment you'll use only for
a year. The Consumer Leasing Act requires lessors to give you
the facts about the costs and terms in their contracts, to help
you decide whether leasing is a good idea.
A consumer
lease is a contract between a lessor and lessee for the use of
personal property primarily for personal, family, or household
purposes for a period of more than four months and with a total
contractual obligation of no more than $25,000. A lease meeting
all of these criteria is covered by the Consumer Leasing Act. It
covers, for example, long-term leases of cars, furniture, and
appliances, but it does not cover daily car rentals or apartment
leases.
Certain information on cost and terms must be
grouped together and separated or segregated from other
information in the lease documents and presented in a prescribed
format. First, these disclosures provide a snapshot of what you
will pay at the beginning of the lease - which means the amount
you will pay at lease signing or delivery during the lease -
that is, the monthly or periodic payments other charges that you
will face and the total amount you will pay over the lease term.
For vehicle leases, the disclosures require an itemization of
the amount due at lease signing and how that amount will be
paid. The disclosures also provide a mathematical progression
showing the way the monthly payment was determined. Starting
with the agreed-upon value of the vehicle and the gross
capitalized cost, this calculation shows the additions,
subtractions, and divisions that lead to the monthly payment.
The final section of the segregated disclosures includes
information on early termination, excess wear and use, mileage
limits and excess mileage charges, and any purchase option at
the end of the lease and directs you to other disclosures and
lease terms.
Open-end and Closed-end Leases
There are open-end and closed-end leases and your rights and
obligations at lease-end are different in each of these. Both
types of leases estimate the lease-end value of the item and use
this to project depreciation, which is the basis for calculating
your base monthly payment. In an open-end lease, at lease-end,
you are responsible for the difference between the estimated
lease-end value (the residual value) determined at the beginning
of the lease and the actual lease-end value (the realized
value). In a closed-end lease, you are not responsible for the
item's value at lease-end, but you are responsible for the
condition of the item you lease (that is, an excess wear and use
charge may be imposed). In an open-end lease, you may receive a
refund of any gain and are responsible for any deficiency. In a
closed-end lease the lessor usually keeps any gain and assumes
any loss due to overestimating the residual value.
The
Consumer Leasing Act provides consumers with some protections
against unreasonable end-of-term charges in open-end leases.
Assuming that you have met the wear-and-use standards, the
residual value is considered unreasonable if it exceeds the
realized value by more than three times the base monthly payment
(the "Three Payment Rule"). If you believe the amount owed at
the end of the lease term is unreasonable and refuse to pay, the
lessor may attempt to prove that the residual value was
reasonable when it was set at the beginning of the lease.
However, if you cannot reach a settlement with the lessor, you
cannot be forced to pay the excess amount unless the lessor
brings a successful court action and pays your reasonable
attorney's fees. For example, assume that the residual value in
an open-end vehicle lease is $12,000, the realized value is
$11,000, and the base monthly payment is $250. The end-of-term
deficiency is $1,000. However, under the Three Payment Rule, the
maximum charge should not exceed $750 (assuming that there is no
excess wear-and-use charge) rather than the full $1,000
deficiency unless the lessor can prove the residual value was
reasonable when set.
You have the right to an independent
appraisal of the property's worth at the end of the lease term;
however, you must pay the appraiser's fee.
The Federal
Reserve pamphlet "Keys to Vehicle Leasing: A Consumer Guide"
also contains useful information on leasing and provides a
sample of some of the disclosures you should receive when
leasing a vehicle.
FAIR CREDIT REPORTING ACT
The Federal Fair Credit Reporting Act (FCRA) is designed to
promote accuracy, fairness, and privacy of information in the
files of every "consumer reporting agency" (CRA). Most CRAs are
credit bureaus that gather and sell information about you --
such as if you pay your bills on time or have filed bankruptcy
-- to creditors, employers, landlords, and other businesses. You
can find the complete text of the FCRA, 15 U.S.C. 1681-1681u, at
the Federal Trade Commission's web site at www.ftc.gov. The FCRA
gives you specific rights, as outlined below. You may have
additional rights under state law. You may contact a state or
local consumer protection agency or a state attorney general to
learn those rights.
No Secrecy
Anyone who uses information from a CRA to take action against
you -- such as denying an application for credit, insurance, or
employment -- must tell you, and give you the name, address, and
phone number of the CRA that provided the consumer report.
Full Disclosure
At your request, a
CRA must give you the information in your file, and a list of
everyone who has requested it recently. There is no charge for
the report if a person has taken action against you because of
information supplied by the CRA, if you request the report
within 60 days of receiving notice of the action. You also are
entitled to one free report every twelve months upon request if
you certify that (1) you are unemployed and plan to seek
employment within 60 days, (2) you are on welfare, or (3) your
report is inaccurate due to fraud. Otherwise, a CRA may charge
you up to eight dollars.
Dispute Inaccurate
Information
Dispute inaccurate information with
the CRA. Upon proper notice, the CRA must investigate the items
(usually within 30 days) by presenting to its information source
all relevant evidence you submit, unless your dispute is
frivolous. The source must review your evidence and report its
findings to the CRA. (The source also must advise national CRAs
-- to which it has provided the data -- of any error.) The CRA
must give you a written report of the investigation, and a copy
of your report if the investigation results in any change. If
the CRA's investigation does not resolve the dispute, you may
add a brief statement to your file. The CRA must normally
include a summary of your statement in future reports. If an
item is deleted or a dispute statement is filed, you may ask
that anyone who has recently received your report be notified of
the change.
Result of Disputed Information
Inaccurate information must be corrected or deleted. A CRA
must remove or correct inaccurate or unverified information from
its files, usually within 30 days after you dispute it. However,
the CRA is not required to remove accurate data from your file
unless it is outdated (as described below) or cannot be
verified. If your dispute results in any change to your report,
the CRA cannot reinsert into your file a disputed item unless
the information source verifies its accuracy and completeness.
In addition, the CRA must give you a written notice telling you
it has reinserted the item. The notice must include the name,
address and phone number of the information source.
Debt Validation
You can dispute
inaccurate items with the source of the information. If you tell
anyone -- such as a creditor who reports to a CRA -- that you
dispute an item, they may not then report the information to a
CRA without including a notice of your dispute. In addition,
once you've notified the source of the error in writing, it may
not continue to report the information if it is, in fact, an
error.
Outdated information may not be reported. In most
cases, a CRA may not report negative information that is more
than seven years old; ten years for bankruptcies.
File Accessibility
Access to your file
is limited. A CRA may provide information about you only to
people with a need recognized by the FCRA -- usually to consider
an application with a creditor, insurer, employer, landlord, or
other business.
Your consent is required for reports that
are provided to employers, or reports that contain medical
information. A CRA may not give out information about you to
your employer, or prospective employer, without your written
consent. A CRA may not report medical information about you to
creditors, insurers, or employers without your permission.
Mailing Lists
You may choose to
exclude your name from CRA lists for unsolicited credit and
insurance offers. Creditors and insurers may use file
information as the basis for sending you unsolicited offers of
credit or insurance. Such offers must include a toll-free phone
number for you to call if you want your name and address removed
from future lists. If you call, you must be kept off the lists
for two years. If you request, complete, and return the CRA form
provided for this purpose, you must be taken off the lists
indefinitely.
Damages
You may
seek damages from violators. If a CRA, a user or (in some cases)
a provider of CRA data, violates the FCRA, you may sue them in
state or federal court.
Fair Debt Collection Practices Act
If you use credit cards, owe money on a personal loan, or
are paying on a home mortgage, you are a "debtor." If you fall
behind in repaying your creditors, or an error is made on your
accounts, you may be contacted by a "debt collector." You should
know that in either situation, the Fair Debt Collection
Practices Act requires that debt collectors treat you fairly and
prohibits certain methods of debt collection. Of course, the law
does not erase any legitimate debt you owe. This summary may
answer some commonly asked questions about your rights under the
Fair Debt Collection Practices Act. The complete text of the
Fair Debt Collection Practices Act may be obtained at 15 U.S.C.
§1692, et. seq. The State of Florida also has a separate and
distinct act that mirrors the federal act, but is more
protective of the consumer.
What debts are
covered?
Personal, family, and household debts
are covered under the Act. This includes money owed for the
purchase of an automobile, for medical care, or for charge
accounts.
Who is a debt collector?
A debt collector is any person who regularly collects debts
owed to others. This includes attorneys who collect debts on a
regular basis.
How may a debt collector contact
you?
A collector may contact you in person, by
mail, telephone, telegram, or fax. However, a debt collector may
not contact you at inconvenient times or places, such as before
8 a.m. or after 9 p.m., unless you agree. A debt collector also
may not contact you at work if the collector knows that your
employer disapproves of such contacts.
Can you
stop a debt collector from contacting you?
You
can stop a debt collector from contacting you by writing a
letter to the collector telling them to stop. Once the collector
receives your letter, they may not contact you again except to
say there will be no further contact or to notify you that the
debt collector or the creditor intends to take some specific
action. Please note, however, that sending such a letter to a
collector does not make the debt go away if you actually owe it.
You could still be sued by the debt collector or your original
creditor.
May a debt collector contact anyone
else about your debt?
If you have an attorney,
the debt collector must contact the attorney, rather than you.
If you do not have an attorney, a collector may contact other
people, but only to find out where you live, what your phone
number is, and where you work. Collectors usually are prohibited
from contacting such third parties more than once. In most
cases, the collector may not tell anyone other than you and your
attorney that you owe money.
What must the debt
collector tell you about the debt?
Within five
days after you are first contacted, the collector must send you
a written notice telling you the amount of money you owe; the
name of the creditor to whom you owe the money; and what action
to take if you believe you do not owe the money.
May a debt collector continue to contact you if you believe you
do not owe money?
A collector may not contact
you if, within 30 days after you receive the written notice, you
send the collection agency a letter stating you do not owe
money. However, a collector can renew collection activities if
you are sent proof of the debt, such as a copy of a bill for the
amount owed.
What types of debt collection
practices are prohibited?
Harassment. Debt
collectors may not harass, oppress, or abuse you or any third
parties they contact. For example, debt collectors may not:
• use threats of violence or harm
• publish a list of
consumers who refuse to pay their debts (except to a credit
bureau)
• use obscene or profane language
• repeatedly use
the telephone to annoy someone.
False statements
Debt collectors may not use any false or misleading
statements when collecting a debt. For example, debt collectors
may not:
• falsely imply that they are attorneys or
government representatives
• falsely imply that you have
committed a crime
• falsely represent that they operate or
work for a credit bureau
• misrepresent the amount of your
debt
• indicate that papers being sent to you are legal forms
when they are not or
• indicate that papers being sent to you
are not legal forms when they are.
Debt
collectors also may not state that:
• you will
be arrested if you do not pay your debt
• they will seize,
garnish, attach, or sell your property or wages, unless the
collection agency or creditor
intends to do so, and it is
legal to do so
• actions, such as a lawsuit, will be taken
against you, when such action legally may not be taken, or
when they do not intend to take such action.
Debt
collectors may not:
• give false credit
information about you to anyone, including a credit bureau
•
send you anything that looks like an official document from a
court or government agency when it is not
• use a false name.
Unfair practices
Debt collectors may not engage in
unfair practices when they try to collect a debt. For example,
collectors may not:
• collect any amount greater than
your debt, unless your state law permits such a charge
•
deposit a post-dated check prematurely
• use deception to
make you accept collect calls or pay for telegrams
• take or
threaten to take your property unless this can be done legally
• contact you by postcard.
What control do you
have over payment of debts?
If you owe more than
one debt, any payment you make must be applied to the debt you
indicate. A debt collector may not apply a payment to any debt
you believe you do not owe.
Are there any additional
duties required by state laws?
State laws may impose
additional duties. For example, under laws in many states,
similar provisions may cover creditors collecting their own
accounts. Some, but certainly not all, of the highlights of the
Fair Debt Collection Practices Act are discussed below.
What can you do if you believe a debt collector violated
the law?
You have the right to sue a collector
in a state or federal court within one year from the date the
law was violated. If you win, you may recover money for the
damages you suffered plus an additional amount up to $1,000.
Court costs and attorney's fees also can be recovered. A group
of people also may sue a debt collector and recover money for
damages up to $500,000, or one percent of the collector's net
worth, whichever is less.
Where can you report a
debt collector for an alleged violation?
Report
any problems you have with a debt collector to your state
Attorney General's office and the Federal Trade Commission. Many
states have their own debt collection laws, and your Attorney
General's office can help you determine your rights.
Consumer
Handbook to Credit Protecti0n Laws:
The Consumer Credit
Protection Act of 1968--which launched Truth in Lending
disclosures--was landmark legislation. For the first time,
creditors had to state the cost of borrowing in a common
language so that you--the consumer--could figure out what the
charges are, compare costs, and shop for the best credit deal.
Since 1968, credit protections have multiplied rapidly. The
concepts of "fair" and "equal" credit have been written into
laws that bar unfair discrimination in credit transactions,
require that consumers be told the reason when credit is denied,
let borrowers find out about their credit records, and set up a
way for consumers to settle billing disputes.
Each law
was meant to reduce the problems and confusion about consumer
credit, which as it became more widely used in our economy, also
grew more complex. Together, these laws set a standard for how
individuals are to be treated in their financial dealings.
The laws say, for instance,
that you
cannot be denied a credit card just because you're a single
woman that you can limit your risk if a credit card is lost or
stolen that you can resolve errors in your monthly bill without
damage to your credit rating and that you cannot have credit
shut off just because you've reached age 62.
But let the
buyer be aware! It is important to know your rights and how to
use them. This handbook explains how the consumer credit laws
can help you shop for credit, apply for it, maintain your credit
standing, and, if need be, complain about an unfair deal. This
handbook also explains what you should look for when using
credit, details what creditors look for before extending credit,
and reviews the laws' solutions to discriminatory practices that
have made it difficult for women and minorities to get credit.
Shopping Is the First Step
Credit is
a convenience. It lets you charge a meal on your credit card,
pay for an appliance on the installment plan, get a loan to buy
a house, or pay for schooling and vacations. With credit, you
can enjoy your purchase while you're paying for it, or you can
make a purchase when you're lacking ready cash.
But there
are strings attached to credit as well. It usually costs
something. And, of course, what is borrowed must be paid back.
If you are thinking of borrowing or opening a credit account,
your first step should be to figure out how much it will cost
you and whether you can afford it. Then you should shop for the
best terms.
What Laws Apply?
Two
laws can help you compare costs:
Truth in Lending
requires creditors to give you certain basic information about
the cost of buying on credit or taking out a loan. These
"disclosures" can help you shop for the best deal.
Consumer Leasing disclosures can help you compare the cost and
terms of one lease with another and with the cost and terms of
buying for cash or on credit.
The Finance Charge
and Annual Percentage Rate
Credit costs vary. By
remembering two terms--the finance charge and the annual
percentage rate (APR)--you can compare credit prices from
different sources. Under Truth in Lending, the creditor must
tell you--in writing and before you sign any agreement--what
these terms will be.
The finance charge is the total
dollar amount you pay to use credit. It includes interest costs
and other costs, such as service charges and some credit-related
insurance premiums.
Example:
Suppose you borrow
$100 for one year, and the interest is $10. If there is a
service charge of $1, the finance charge will be $11.
The
annual percentage rate is the percentage cost (or relative cost)
of credit on a yearly basis, which is your key to comparing
costs, regardless of the amount of credit or how long you have
to repay it.
Example:
Again, suppose you borrow
$100 for one year and pay a finance charge of $10. If you can
keep the entire $100 for the whole year and then repay $110 at
year's end, you are paying an APR of 10 percent. But if you
repay the $100 and finance charge (a total of $110) in twelve
equal monthly installments, you don't really get to use $100 for
the whole year. In fact, you get to use less and less of that
$100 each month. In this case, the $10 finance charge amounts to
an APR of 18 percent.
All creditors--banks, stores, car
dealers, credit card companies, finance companies--must state
the cost of their credit in terms of the finance charge and the
APR. Federal law does not set interest rates or other credit
charges. But it does require their disclosure so that you can
compare credit costs. The law says these two pieces of
information must be shown to you before you use a credit card.
Return to top A Comparison
Even when
you understand the terms a creditor is offering, it's easy to
underestimate the difference in dollars that different terms can
make. Suppose you're buying a $7,500 car. You put $1,500 down
and need to borrow $6,000. Compare the three credit arrangements
in the chart on the next page. How do these choices compare? The
answer depends partly on what you need. The lowest cost loan, in
terms of total finance charges and total of payments, is
available from Creditor A.
--------------------------------------------------------------------------------
APR
Length
of Loan
Monthly
Payment
Total Finance
Charge
Total of
Payments
Creditor A
14%
3
years
$205.07
$1,382.52
$7,382,52
Creditor B
14%
4 years
$163.96
$1,870.08
$7,870.08
Creditor C
15%
4 years
$166.98
$2,015.04
$8,015.04
--------------------------------------------------------------------------------
If you were looking for lower monthly payments, you could
get them by repaying the loan over a longer period. However, you
would have to pay more in total costs. A loan from Creditor B,
also at a 14 percent APR, but for four years, will add about
$488 to your finance charge. If that four-year loan were
available only from Creditor C, the APR of 15 percent would add
another $145 or so to your finance charges, compared with
Creditor B.
Other factors, such as the size of the down
payment, will also make a difference. Be sure to look at all the
loan terms before you choose.
Cost of Open-end
Credit
Open-end credit includes bank and
department store credit cards, gasoline company cards, home
equity lines of credit, and check-overdraft accounts that let
you write checks for more than your actual balance with the
bank. Open-end credit can be used again and again, generally
until you reach a certain prearranged borrowing limit. Truth in
Lending requires that open-end creditors tell you the terms of
the credit plan so that you can shop and compare costs.
When you're shopping for an open-end plan, the APR is only the
periodic rate that you will be charged, figured on a yearly
basis. (For instance, a creditor that charges 12 percent
interest each month would quote you an APR of 18 percent.)
Annual membership fees, transaction charges, and points, for
example, are listed separately; they are not included in the
APR. Keep these fees in mind and compare all the costs involved
in the plans, not just the APR.
Creditors must tell you
when finance charges begin on your account, so you know how much
time you have to pay your bill before a finance charge is added.
Creditors may give you a 25-day grace period, for example, to
pay your purchase balance in full before you must pay a finance
charge. Creditors also must tell you the method they use to
figure the balance on which you pay a finance charge; the
interest rate they charge is applied to this balance to compute
the finance charge. Creditors use a number of different methods
to arrive at the balance. Study them carefully; they can
significantlyaffect your finance charge.
Some creditors,
for instance, take the amount you owed at the start of the
billing cycle and subtract any payments made during that cycle.
New purchases are not counted. This is called the adjusted
balance method.
With the previous balance method,
creditors simply use the amount owed at the start of the billing
cycle to compute the finance charge.
Under one of the
most common methods, the average daily balance method, creditors
add your balances for each day in the billing cycle and then
divide that total by the number of days in the cycle. Payments
made during the cycle are subtracted to get the daily amounts,
and depending on the plan, new purchases may or may not be
included. Under another method, the two-cycle average daily
balance method, creditors use the average daily balances for two
billing cycles to compute your finance charge. Again, payments
will be subtracted to get the balances, but new purchases may or
may not be included.
Be aware that the amount of the
finance charge will vary considerably depending on the method
used, even for the same pattern of purchases and payments.
If you receive a credit card offer or an application, the
creditor must give you information about the APR and other
important terms of the plan (for example, annual fees and late
payment fees) at that time. Likewise, with a home equity line of
credit, this information must be given to you with an
application. Truth in Lending does not set the rates or tell the
creditor how to calculate finance charges; it requires only that
the creditor tell you the method that it uses. You should ask
for an explanation of any terms you don't understand.
Leasing Costs and Terms
A lease is a
contract between a lessor (the property owner) and a lessee (the
property user) for the use of a vehicle or property subject to
stated terms and limitations for a specified period and at a
specified payment. Leasing has become a popular alternative to
buying--under certain circumstances. For instance, you might
consider leasing furniture for an apartment you'll use only for
a year. The Consumer Leasing Act requires lessors to give you
the facts about the costs and terms in their contracts, to help
you decide whether leasing is a good idea.
A consumer
lease is a contract between a lessor and lessee for the use of
personal property primarily for personal, family, or household
purposes for a period of more than four months and with a total
contractual obligation of no more than $25,000. A lease meeting
all of these criteria is covered by the Consumer Leasing Act. It
covers, for example, long-term leases of cars, furniture, and
appliances, but it does not cover daily car rentals or apartment
leases.
Certain information on cost and terms must be
grouped together and separated or segregated from other
information in the lease documents and presented in a prescribed
format. First, these disclosures provide a snapshot of what you
will pay at the beginning of the lease - which means the amount
you will pay at lease signing or delivery during the lease -
that is, the monthly or periodic payments other charges that you
will face and the total amount you will pay over the lease term.
For vehicle leases, the disclosures require an itemization of
the amount due at lease signing and how that amount will be
paid. The disclosures also provide a mathematical progression
showing the way the monthly payment was determined. Starting
with the agreed-upon value of the vehicle and the gross
capitalized cost, this calculation shows the additions,
subtractions, and divisions that lead to the monthly payment.
The final section of the segregated disclosures includes
information on early termination, excess wear and use, mileage
limits and excess mileage charges, and any purchase option at
the end of the lease and directs you to other disclosures and
lease terms.
Open-end and Closed-end Leases
There are open-end and closed-end leases and your rights and
obligations at lease-end are different in each of these. Both
types of leases estimate the lease-end value of the item and use
this to project depreciation, which is the basis for calculating
your base monthly payment. In an open-end lease, at lease-end,
you are responsible for the difference between the estimated
lease-end value (the residual value) determined at the beginning
of the lease and the actual lease-end value (the realized
value). In a closed-end lease, you are not responsible for the
item's value at lease-end, but you are responsible for the
condition of the item you lease (that is, an excess wear and use
charge may be imposed). In an open-end lease, you may receive a
refund of any gain and are responsible for any deficiency. In a
closed-end lease the lessor usually keeps any gain and assumes
any loss due to overestimating the residual value.
The
Consumer Leasing Act provides consumers with some protections
against unreasonable end-of-term charges in open-end leases.
Assuming that you have met the wear-and-use standards, the
residual value is considered unreasonable if it exceeds the
realized value by more than three times the base monthly payment
(the "Three Payment Rule"). If you believe the amount owed at
the end of the lease term is unreasonable and refuse to pay, the
lessor may attempt to prove that the residual value was
reasonable when it was set at the beginning of the lease.
However, if you cannot reach a settlement with the lessor, you
cannot be forced to pay the excess amount unless the lessor
brings a successful court action and pays your reasonable
attorney's fees. For example, assume that the residual value in
an open-end vehicle lease is $12,000, the realized value is
$11,000, and the base monthly payment is $250. The end-of-term
deficiency is $1,000. However, under the Three Payment Rule, the
maximum charge should not exceed $750 (assuming that there is no
excess wear-and-use charge) rather than the full $1,000
deficiency unless the lessor can prove the residual value was
reasonable when set.
You have the right to an independent
appraisal of the property's worth at the end of the lease term;
however, you must pay the appraiser's fee.
The Federal
Reserve pamphlet "Keys to Vehicle Leasing: A Consumer Guide"
also contains useful information on leasing and provides a
sample of some of the disclosures you should receive when
leasing a vehicle.
Costs of Settlement on a House
A house is probably the single largest credit purchase for
most consumers, and one of the most complicated. The Real Estate
Settlement Procedures Act, like Truth in Lending, is a
disclosure law. The act, administered by the Department of
Housing and Urban Development, requires the lender to give you,
in advance, certain information about the costs you will pay
when you close the loan. The act also requires that lenders give
you the booklet "Buying Your Home: Settlement Costs and
Information" to help you understand the closing process and shop
for lower settlement costs. To get the booklet, write to:
Deputy Assistant Secretary for Housing
Attention: RESPA Enforcement
U.S. Department of Housing
and Urban Development
451 Seventh Street, S.W.
Room 9416
Washington, DC 20410
Should you need to, phone: (202)
708-4560
The Federal Reserve pamphlet "A Consumer's Guide
to Mortgage Closing Costs" also contains useful information.
Discrimination
When you're ready to
apply for credit, you should know what factors creditors think
are important in deciding whether you're creditworthy. You
should also know what factors they cannot legally consider in
their decisions.
What Law Applies?
The Equal Credit Opportunity Act requires that all credit
applicants be considered on the basis of their actual
qualifications for credit and not be rejected because of certain
personal characteristics.
What do Creditors Look
For?
The Three Cs. Creditors look for an ability
to repay debt and a willingness to do so--and sometimes for a
little extra security to protect their loans. They speak of the
three Cs of credit: capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for employment
information: your occupation, how long you've worked, and how
much you earn. They also want to know your expenses: how many
dependents you have, whether you pay alimony or child support,
and the amount of your other obligations.
Character. Will
you repay the debt? Creditors will look at your credit history
(see section on Credit Histories and Records): how much you owe,
how often you borrow, whether you pay bills on time, and whether
you live within your means. They also look for signs of
stability: how long you've lived at your present address,
whether you own or rent your home, and the length of your
present employment.
Collateral. Is the creditor fully
protected if you fail to repay? Creditors want to know what you
may have that could be used to back up or secure your loan and
other resources you have for repaying debt other than income,
such as savings, investments, or property.
Creditors use
different combinations of these facts to reach their decisions.
Some set unusually high standards; others simply do not make
certain kinds of loans. Creditors also use different rating
systems. Some rely strictly on their own instinct and
experience. Others use a "credit-scoring" or statistical system
to predict whether you're a good credit risk. They assign a
certain number of points to each of the various characteristics
that have proved to be reliable signs that a borrower will
repay. Then they rate you on this scale.
Different
creditors may reach different conclusions based on the same set
of facts. One may find you an acceptable risk, whereas another
may deny you a loan.
Information the Creditor
Can't Use
The Equal Credit Opportunity Act does
not guarantee that you will get credit. You must still pass the
creditor's tests of creditworthiness. But the creditor must
apply these tests fairly and impartially. The act bars
discrimination based on age, gender, marital status, race,
color, religion, and national origin. The act also bars
discrimination because you receive public income, such as
veterans benefits, welfare or social security, or because you
exercise your rights under federal credit laws, such as filing a
billing error notice with a creditor. This protection means that
a creditor may not use any of these grounds as a reason to
discourage you from applying for a loan refuse you a loan if you
qualify lend you money on terms different from those granted
another person with similar income, expenses, credit history,
and collateral close an existing account because of age, gender,
marital status, race, color, religion, national origin, receipt
of public income or because you exercise your rights under
federal credit laws.
Although creditors may not
discriminate on the basis of national origin, they may consider
your immigration status when making a loan decision.
Special Rules
Age. In the past, many
older persons have complained about being denied credit because
they were over a certain age. Or when they retired, they often
found their credit suddenly cut off or reduced. So the law is
very specific about how a person's age may be used in credit
decisions. A creditor may ask your age, but if you're old enough
to sign a binding contract (usually 18 or 21 years old depending
on state law), a creditor may not: turn you down, offer you less
credit, or offer you less favorable credit terms because of your
age ignore your retirement income in evaluating your application
close your credit account or require you to reapply for it
because you reach a certain age or retire deny you credit or
close your account because credit life insurance or other
credit-related insurance is not available to a person your age.
Creditors may "score" your age in a credit-scoring system,
but if you are 62 or older you must be given at least as many
points for age as any person under 62.
Because
individuals' financial situations can change at different ages,
the law lets creditors consider certain information related to
age, such as how long until you retire or how long your income
will continue. An older applicant might not qualify for a large
loan with a very low down payment and a long term, but might
qualify for a smaller loan, with a larger down payment, and a
shorter term. Remember that although declining income may be a
handicap if you are older, you can usually offer a solid credit
history to your advantage. The creditor has to consider all the
facts and apply the usual standards of creditworthiness to your
particular situation.
Public Assistance. You may not be
denied credit just because you receive social security or public
assistance, such as Temporary Assistance to Needy Families
(TANF). But as is the case with age, certain information on this
source of income could clearly affect creditworthiness. A
creditor may consider such things as how old your dependents are
(because you may lose benefits when they reach a certain age) or
whether you will continue to meet the eligibility requirements
for receiving benefits.
This information helps the
creditor determine the likelihood that your public-assistance
income will continue.
Housing Loans. The Equal Credit
Opportunity Act covers your application for a mortgage or
home-improvement loan. The act bars discrimination because of
characteristics such as your race, color, gender or because of
the race or national origin of the people in the neighborhood
where you live or want to buy your home. Creditors may not use
any appraisal of the value of the property that considers the
race of the people in the neighborhood.
Also, you are
entitled to receive a copy of an appraisal report that you paid
for in connection with an application for credit, provided you
make a written request for the report.
Discrimination against Women
Both men and women
are protected from discrimination based on gender or marital
status. But many of the law's provisions were designed to stop
particular abuses that generally made it difficult for women to
get credit. For example, denying credit or offering less
favorable credit terms based on the misperception that single
women ignore their debts when they marry, or that a woman's
income "doesn't count" because she'll stop work to have and
raise children, is unlawful in credit transactions. The general
rule is that you may not be denied credit because you are a
woman or because you are married, single, widowed, divorced, or
separated. Here are some important protections:
Gender and Marital Status.
Usually, creditors
may not ask your gender on an application form (one exception is
on a loan to buy or build a home). You do not have to use Miss,
Mrs., or Ms. with your name on a credit application. But in some
cases, a creditor may ask whether you are married, unmarried, or
separated (unmarried includes single, divorced, and widowed).
Childbearing Plans. Creditors may not ask about your
birth-control practices or your plans to have children, and they
may not assume anything about those plans.
Income and
Alimony. The creditor must count all of your income, even income
from part-time employment. Child support and alimony payments
are a source of income for many women. You don't have to
disclose these kinds of income, but if you do, creditors must
count them.
Telephones. Creditors may not consider
whether you have a telephone listing in your name because this
factor would discriminate against many married women. (However,
you may be asked if there's a telephone in your home.)
A
creditor may consider whether income is steady and reliable, so
be prepared to show that you can count on uninterrupted income,
particularly if the source is alimony payments or part-time
wages. Your Own Accounts. Many married women once were turned
down for credit in their own name. Or a husband had to cosign an
account--that is, agree to pay if the wife didn't--even when a
wife made sufficient income to easily repay the loan. Single
women couldn't get loans because they were thought to be somehow
less reliable than other applicants. You now have the right to
your own credit, based on your own credit records and earnings.
Your own credit means a separate account or loan in your own
name, not a joint account with your husband or a duplicate card
on his account. Here are the rules:
Creditors may not
refuse to open an account because of your gender or marital
status. You can choose to use your first name and maiden name
(Mary Smith), your first name and husband's last name (Mary
Jones), or a combined last name (Mary Smith-Jones). If you're
creditworthy, a creditor may not ask your husband to cosign your
account, with certain exceptions when property rights are
involved. Creditors may not ask for information about your
husband or ex-husband when you apply for your own credit based
on your own income unless that income is alimony, child support,
or separate maintenance payments from your spouse or former
spouse.
This last rule, of course, does not apply if your
husband is going to use your account or be responsible for
paying your debts on the account or if you live in a community
property state. (Community property states are Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin.)
Change in Marital Status.
Married women have sometimes faced severe hardships when cut off
from credit after their husbands died. Single women have had
accounts closed when they married, and married women have had
accounts closed after a divorce. The law says that creditors may
not make you reapply for credit because you marry or become
widowed or divorced. Nor may they close your account or change
the terms of your account on these grounds. There must be some
sign that your creditworthiness has changed. For example,
creditors may ask you to reapply if you relied on your
ex-husband's income to get credit in the first place.
Setting up your own account protects you by establishing your
own history of how you handle debt. You can rely on this record
if your financial situation changes if you become widowed or
divorced. If you're getting married and plan to take your
husband's surname, write to your creditors and tell them you
want to keep a separate account.
If You're Turned
Down
Remember, your gender or race may not be
used to discourage you from applying for a loan. And creditors
may not hold up or otherwise delay your application on those
grounds. Under the Equal Credit Opportunity Act, you must be
notified within 30 days after your application has been
completed whether your loan has been approved or not. If credit
is denied, this notice must be in writing, and it must explain
the specific reasons that you were denied credit or tell you of
your right to ask for an explanation. You have the same rights
if an account you have had is closed.
If you are denied
credit, be sure to find out why. Remember, you may have to ask
the creditors for this explanation. It may be that the creditor
thinks you have requested more money than you can repay on your
income. It may be that you have not been employed or lived long
enough in the community. You can discuss terms with the creditor
and ways to improve your creditworthiness. The next section
explains how to improve your ability to get credit.
If
you think you have been discriminated against, cite the law to
the creditor. If the creditor still says no without a
satisfactory explanation, you may contact a federal enforcement
agency for assistance (the federal agency you should contact
should be included in the notice you receive from the creditor),
or you may bring legal action, as described in the Filing A
Credit Complaint section of this handbook.
Building a Good Record
On your first attempt to
get credit, you may face a common frustration: sometimes it
seems you have to already have credit to get credit. Some
creditors will look only at your salary and job and the other
financial information that you put on the application. But most
also want to know about your track record in handling credit,
namely, how reliably you've repaid past debts. They turn to the
records kept by credit bureaus or credit-reporting agencies,
whose business is to collect, store, and report information
about borrowers that is routinely supplied by many lenders.
These records include the amount of credit you have received and
how faithfully you've repaid.
What Laws Apply?
The following laws can help you start your credit history
and keep your record accurate:
THE EQUAL CREDIT
OPPORTUNITY ACT gives women a way to start their own credit
history and identity.
THE FAIR CREDIT REPORTING ACT sets
up a procedure for correcting mistakes on your credit record.
Credit Histories for Women
Under the
Equal Credit Opportunity Act, reports to credit bureaus must be
made in the names of both husband and wife if both use an
account or are responsible for repaying the debt. Some women who
are divorced or widowed may not have separate credit histories
because their credit accounts were listed only in their
husbands' names. But divorced and widowed women can still
benefit from such a record. Under the Equal Credit Opportunity
Act, creditors must consider the credit history of accounts
women have held jointly with their husbands. Creditors must also
look at the record of any account held only in the husband's
name if a woman can show that it also reflects her own
creditworthiness. If the record is unfavorable--for example, if
an ex-husband is a bad credit risk--she can try to show that the
record does not reflect her own creditworthiness. Remember that
a wife may also open her own account to ensure starting her own
credit history.
Example:
Mary Jones, when married
to John Jones, always paid their credit card bills on time from
their joint checking account. But the card was issued in John's
name, and the credit bureau kept all records in John's name. Now
Mary is a widow and wants to take out a new card, but she's told
she has no credit history. To benefit from the good credit
record already established in John's name, Mary should point out
that she handled all accounts properly when she was married and
that bills were paid by checks from their joint checking
account.
Maintaining Complete and Accurate Credit Records
Mistakes on your credit record can cloud your credit future.
Your credit rating is important, so be sure that credit-bureau
records are complete and accurate. The Fair Credit Reporting Act
says that you must be told what's in your credit file and have
any errors corrected.
Negative Information. If a lender
refuses you credit because of unfavorable information in your
credit report, you have a right to get the name and address of
the agency that keeps your report. Then, you may either request
information from the credit bureau by mail or in person. You may
not get an exact copy of the file, but you will learn what's in
the report. The law also says that the credit bureau must help
you interpret the data in the report because the raw data may
take experience to analyze. If you're questioning a credit
refusal made within the past 60 days, the bureau cannot charge a
fee for giving you information.
If you notify the bureau
about an error, generally the bureau must investigate and
resolve the dispute within 30 days after receiving your notice.
The bureau will contact the creditor who supplied the data and
remove any information that is incomplete or inaccurate from
your credit file. If you disagree with the findings, you can
file a short statement (100 words) in your record, giving your
side of the story. Future reports to creditors must include this
statement or a summary of it.
Old Information. Sometimes
credit information is too old to give a good picture of your
financial reputation. There is a limit on how long certain
information may be kept in your file: Bankruptcies must not be
reported after 10 years. However, information about any
bankruptcies at any time may be reported if you apply for life
insurance with a face value over $150,000, for a job paying
$75,000 or more, or for credit with a principal amount of
$150,000 or more.
Suits and judgments paid, tax liens, and
most other kinds of unfavorable information must not be reported
after 7 years.
Your credit record may not be given to
anyone who does not have a legitimate business need for it.
Stores to which you are applying for credit may examine your
record; curious neighbors may not.
Prospective
employers may examine your record with your permission.
Billing Mistakes. In the next chapter, you will find the
steps to take if there's an error on your bill. By following
these steps, you can protect your credit rating. The best way to
maintain your credit standing is to repay all debts on time. But
there may be complications. To protect your credit rating, you
should learn how to correct mistakes and resolve
misunderstandings. When there's a problem, first try to deal
directly with the creditor. Credit laws can help you settle your
complaints without a hassle.
What Laws Apply?
THE FAIR CREDIT BILLING ACT sets up procedures requiring
creditors to promptly credit your payments and correct billing
mistakes and allows you to withhold payments on defective goods.
TRUTH IN LENDING gives you three days to change your mind
about certain credit transactions that use your home as
collateral; it also limits your risk on lost or stolen credit
cards.
Billing Errors
The Fair
Credit Billing Act requires creditors to correct errors promptly
and without damage to your credit rating.
A Case of
Error? The law defines a billing error as any charge for
something you didn't buy or for a purchase by someone not
authorized to use your account that is not properly identified
on your bill or is for an amount different from the actual
purchase price or was entered on a date different from the
purchase date for something that you did not accept on delivery
or that was not delivered according to agreement.
Billing errors also include:
*errors in
arithmetic
*failure to show a payment or other credit to your
account
*failure to mail the bill to your current address,
provided you told the creditor about an address change at
least 20 days before the *end of the billing period
*an item
on your bill for which you need more information.
In Case
of Error. If you think your bill is wrong, or want more
information about it, follow these steps:
1. Notify the
creditor in writing within 60 days after the first bill was
mailed that showed the error. Be sure to write to the address
the creditor lists for billing inquiries and to tell the
creditor:
*your name and account number
*that you
believe the bill contains an error and why you believe it is
wrong and
*the date and suspected amount of the error or the
item that you want explained.
2. Pay all parts of the
bill that are not in dispute. But while waiting for an answer,
you do not have to pay the amount in question (the "disputed
amount") or any minimum payments or finance charges that apply
to it.
The creditor must acknowledge your letter within
30 days unless the problem can be resolved within that time.
Within two billing periods, but in no case longer than 90 days,
either your account must be corrected, or you must be told why
the creditor believes that the bill is correct.
If the
creditor made a mistake, you do not pay any finance charges on
the disputed amount. Your account must be corrected, and you
must be sent an explanation of any amount you still owe.
If no error is found, the creditor must send you an explanation
of the reasons for that finding and promptly send a statement of
what you owe, which may include any finance charges that have
accumulated and any minimum payments you missed while you were
questioning the bill. You then have the time usually given on
your type of account to pay any balance.
3. If you still
are not satisfied, you should notify the creditor in writing
within the time allowed to pay your bill.
Return to top
Maintaining Your Credit Rating. A creditor may not threaten your
credit rating while you're resolving a billing dispute.
Once you have written about a possible error, a creditor must
not release information to other creditors or credit bureaus
that would hurt your credit reputation. And, until your
complaint is answered, the creditor also cannot take any action
to collect the disputed amount.
After the creditor has
explained the bill, if you do not pay in the time allowed, you
may be reported as delinquent on the amount in dispute, and the
creditor may take action to collect. Even so, you can still
disagree in writing. Then the creditor must report that you have
challenged your bill and give you the name and address of each
person who has received information about your account. When the
matter is settled, the creditor must report the outcome to each
person who has received that information.
Remember that
you may tell your own side in your credit record with a 100-word
explanation.
Defective Goods or Services
Your new sofa arrives with only three legs. You try to
return it; no luck. You ask the merchant to repair or replace
it; still no luck. The Fair Credit Billing Act allows you to
withhold payment on any damaged or poor-quality goods or
services purchased with a credit card, as long as you have made
a real attempt to solve the problem with the merchant.
This right may be limited if the card was a bank or travel and
entertainment card or any card not issued by the store where you
made your purchase. In such cases, the sale must have been for
more than $50 and must have taken place in your home state or
within 100 miles of your home address.
Prompt
Credit for Payments and Refunds for Credit Balances
Some creditors will not charge a finance charge if you pay
your account within a certain period of time, often called a
grace period. In this case, it is especially important that you
get your bills, and get credit for paying them, promptly. Check
your statements to ensure that your creditor follows these
rules:
Prompt Billing. Look at the date on the postmark.
If your account is one on which no finance or other charge is
added before a certain due date, then creditors must mail their
statements at least 14 days before payment is due.
Prompt
Crediting. Look at the payment date entered on the statement.
Creditors must credit payments on the day they arrive, as long
as you pay according to payment instructions, for example,
sending your payment to the address listed on the bill.
Credit Balances. If a credit balance results on your account
(for example, because you pay more than the amount you owe or
you return a purchase and the purchase price is credited to your
account), the creditor must make a refund to you. The refund
must be made within seven business days after your written
request or automatically if the credit balance still in exists
after six months.
Return to top Canceling a
Mortgage
Truth in Lending gives you a chance to
change your mind on one important kind of transaction--when you
use your home as security for a credit transaction. For example,
when you are financing a major repair or remodeling and use your
home as security, you have three business days, usually after
you sign a contract, to think about the transaction and to
cancel it if you wish. The creditor must give you written notice
of your right to cancel, and if you decide to cancel, you must
notify the creditor in writing within the three-day period. The
creditor must then return all fees paid and cancel the security
interest in your home. Until the three days are up, a contractor
may not start work on your home, and a lender may not pay you or
the contractor. If you must have the credit immediately to meet
a financial emergency, you may give up your right to cancel by
providing a written explanation of the circumstances.
The
right to cancel (or right of rescission) was provided to protect
you from decisions that are hasty or made under pressure,
possibly putting your home at risk if you are unable to repay
the loan. The law does not apply to a mortgage to finance the
purchase of your home; for that, you commit yourself as soon as
you sign the mortgage contract. If you use your home to secure
an open-end credit line--a home equity line, for instance--you
have the right to cancel when you open the account or when your
security interest or credit limit is increased. (In the case of
an increase, only the increase would be cancelled.)
Lost or Stolen Credit Cards
If your
wallet is stolen, your greatest cost may be inconvenience
because your liability on lost or stolen cards is limited under
Truth in Lending. You do not have to pay for any unauthorized
charges made after you notify the card company of loss or theft
of your card. So keep a list of your credit card numbers and
notify card issuers immediately if your card is lost or stolen.
The most you will have to pay for unauthorized charges is $50 on
each card even if someone runs up several hundred dollars worth
of charges before you report a card missing.
Unsolicited Cards
It is illegal for card issuers
to send you a credit card unless you ask for or agree to receive
one. However, a card issuer may send, without your request, a
new card to replace an expiring one.
Example:
On
his way home last Friday night, John Jones realized that he had
no cash for the weekend. The bank was closed, but John had his
bank debit card and the code to use it. He inserted the card
into an automated teller machine outside the front door of the
bank; then, using a number keypad, he entered his code and
pressed the buttons for a withdrawal of $50. John's cash was
dispensed automatically from the machine, and his bank account
was electronically debited for the $50 cash withdrawal.
John's debit card is just one way to use electronic fund
transfer (EFT) systems that allow payment between parties by
substituting an electronic signal for cash or checks.
Are
we heading for a checkless society? Probably not. But making a
dent in the large number of paper checks in the country's
banking system is clearly one advantage to electronic banking.
Today, the cost of moving checks through the banking system
is estimated to be about $3.00 per check, including the costs of
paper, printing, and mailing. Moreover, checks except your own
check presented at your own bank take time to cash: time for
delivery, endorsement, presentation to another person's bank,
and winding through various stations in the check-clearing
system. Technology now can lower the costs of the payment
mechanism (to about $1.50 per transaction) and make it more
efficient and convenient by reducing paperwork.
EFT in Operation
The national payment mechanism
moves money between accounts in a fast, paperless way. These are
some examples of EFT systems in operation:
Automated
Teller Machines (ATMs). Consumers can do their banking without
the assistance of a teller, as John Jones did to get cash, or to
make deposits, pay bills, or transfer funds from one account to
another electronically. These machines are used with a debit or
EFT card and a code, which is often called a personal
identification number or "PIN."
Point-of-Sale (POS)
Transactions. Some debit or EFT cards (sometimes referred to as
check cards) can be used when shopping to allow the transfer of
funds from the consumer's account to the merchant's. To pay for
a purchase, the consumer presents an EFT card instead of a check
or cash. Money is taken out of the consumer's account and put
into the merchant's account electronically.
Preauthorized
Transfers. This is a method of automatically depositing to or
withdrawing funds from an individual's account, when the account
holder authorizes the bank or a third party (such as an
employer) to do so. For example, consumers can authorize direct
electronic deposit of wages, social security, or dividend
payments to their accounts. Or they can authorize financial
institutions to make regular, ongoing payments of insurance,
mortgage, utility, or other bills.
Telephone Transfers.
Consumers can transfer funds from one account to another--from
savings to checking, for example--or can order payment of
specific bills by phone.
What Law Applies?
THE ELECTRONIC FUND TRANSFER ACT answers several basic
questions consumers have about using
EFT services.
A
check contains information that authorizes a bank to withdraw a
certain amount of money from one person's account and pay that
amount to another person. Most consumer questions center on the
fact that EFT systems transmit the information without the
paper:
What record will I have of my transactions?
How
do I correct errors?
What if someone steals money from my
account?
What about mail solicitations for debit cards?
Do
I have to use EFT services?
Here are the answers the EFT
Act gives to consumer questions about these systems.
What at Record Will I Have of My Transactions?
A cancelled check is permanent proof that a payment has been
made. What proof of payment is available with EFT services?
If you use an ATM to withdraw money or make deposits or a
POS terminal to pay for a purchase, you can get a written
receipt, much like a sales receipt you get with a cash purchase,
showing the amount of the transfer, the date it was made, and
other information. This receipt is your record of transfers
initiated at an electronic terminal.
Your periodic bank
statement must also show electronic transfers to and from your
account, including those made with debit cards, by a
preauthorized arrangement, or under a telephone transfer plan.
The statement will also name the party to whom payment has been
made and show any fees for EFT services (or the total amount
charged for account maintenance) and your opening and closing
balances.
How Do I Correct Errors?
The way to report errors is somewhat different with EFT
services than it is with credit cards (see the section on
correcting credit billing errors). But as with credit cards,
financial institutions must investigate and promptly correct any
EFT errors that you report.
If you believe there has been
an error in an electronic fund transfer relating to your
account:
1. Write or call your financial institution
immediately if possible, but no later than 60 days from the date
the first statement that you think shows an error was mailed to
you. Give your name and account number and explain why you
believe there is an error, what kind of error, and the dollar
amount and date in question. If you call, you may be asked to
send this information in writing within 10 business days.
2. The financial institution must promptly investigate an
error and resolve it within 45 days. For errors involving new
accounts (opened in the last 30 days), POS transactions, and
foreign transactions, the institution may take up to 90 days to
investigate the error. However, if the financial institution
takes longer than 10 business days to complete its
investigation, generally it must put back into your account the
amount in question while it finishes the investigation. For new
accounts, the financial institution may take up to 20 business
days to credit your account for the amount you think is in
error.
3. The financial institution must notify you of
the results of its investigation. If there was an error, the
institution must correct it promptly, for example, by making a
recredit final.
If it finds no error, the financial
institution must explain in writing why it believes no error
occurred and let you know that it has deducted any amount
recredited during the investigation. You may ask for copies of
documents relied on in the investigation.
What
about Loss or Theft?
It's important to be aware
of the potential risk in using an EFT card, which differs from
the risk on a credit card.
On lost or stolen credit
cards, your loss is limited to $50 per card (see Lost or Stolen
Credit Cards). On an EFT card, your liability for an
unauthorized withdrawal can vary:
Your loss is limited to
$50 if you notify the financial institution within two business
days after learning of loss or theft of your card or code. But
you could lose as much as $500 if you do not tell the card
issuer within two business days after
learning of loss or
theft. If you do not report an unauthorized transfer that
appears on your statement within 60 days after the statement is
mailed to you, you risk unlimited loss on transfers made after
the 60-day period. That means you could lose all the money in
your account plus your maximum overdraft line of credit, if any.
Example:
On Monday, John's debit card and PIN were
stolen. On Tuesday, the thief withdrew $250, all the money John
had in his checking account. Five days later, the thief withdrew
another $500, triggering John's overdraft line of credit. John
did not realize his card was stolen until he received his bank
statement, showing withdrawals of $750 he did not make. He
called the bank right away. John's liability is $50.
Now
suppose that when John got his bank statement he didn't look at
it and didn't call the bank. Seventy days after the statement
was mailed to John, the thief withdrew another $1,000, reaching
the limit on John's line of credit. In this case, John would be
liable for $1,050 ($50 for transfers before the end of the 60
days; $1,000 for transfers made more than 60 days after the
statement was mailed).
What about Mail
Solicitations for Debit Cards?
A financial
institution may send you an EFT card that is VALID FOR USE only
if you ask for one, or to replace or renew an expiring card. The
financial institution must also give you the following
information about your rights and responsibilities:
A
notice of your liability in case the card is lost or stolen
A
telephone number for reporting loss or theft of the card or an
unauthorized transfer
A description of its error resolution
procedures
The kinds of electronic fund transfers you may
make and any limits on the frequency or dollar amounts of such
transfers
Any charge by the institution for using EFT
services
Your right to receive records of electronic fund
transfers
How to stop payment of a pre-authorized transfer
The financial institution's liability to you for any failure to
make or to stop transfers and
The conditions under which a
financial institution will give information to third parties
about your account.
Generally, you must also get advance
notice of any change in the account that would increase your
costs or liability, or would limit transfers. A financial
institution may send you a card that you did not request only if
the card is NOT VALID FOR USE. An unsolicited card can be
validated only at your request and only after the institution
makes sure that you are the person whose name is on the card. It
must also be sent with instructions on how to dispose of an
unwanted card.
Do I Have to Use EFT?
The EFT Act forbids a creditor from requiring you to repay a
loan or other credit by EFT, except in the case of overdraft
checking plans. With some exceptions, your employer or a
government agency can require you to receive your salary or a
government benefit by electronic transfer. However, you have the
right to choose the financial institution that will receive your
funds.
Special Questions about Preauthorized
Plans
Q. How will I know that a preauthorized
deposit has been made?
A. There are various ways in which you
may be notified. Notice may be given by your employer (or
whoever is sending the funds) that the deposit has been sent to
your financial institution. Otherwise, a financial institution
may provide notice when it has received the credit or will send
you a notice only when it has not received the funds. Financial
institutions also have the option of giving you a telephone
number you can call to check on a preauthorized deposit.
Q. How do I stop a preauthorized payment?
A. You may stop any
preauthorized payment by calling or writing the financial
institution, but your order must be received at least three
business days before the payment date. Written confirmation of a
telephone notice to stop payment may be required. You should
also contact the merchant or organization you authorized to
debit your account.
Q. If the payments I preauthorize
vary in amount from month to month, how will I know how much
will be transferred out of my account?
A. You have the right
to be notified of all varying payments at least 10 days in
advance. Or you may choose to specify a range of amounts and to
be told only when a transfer falls outside that range. You may
also choose to be told only when a transfer differs by a certain
amount from the previous payment to the same company.
Q.
Do the EFT Act protections apply to all preauthorized plans?
A. No. They do not apply to automatic transfers from your
account to the institution that holds your account or vice
versa. For example, they do not apply to automatic payments made
on a mortgage held by the financial institution where you have
your EFT account. The EFT Act also does not apply to automatic
transfers among your accounts at one financial institution.
Filing a Complaint with Federal Enforcement Agencies
First try to resolve your complaint directly with the
creditor or bank involved. If you are still unable to resolve
the problem, you may file a written complaint with federal
agencies responsible for enforcing consumer credit protection
laws.
If you have a complaint about a bank or other
financial institution, the Federal Reserve System may be able to
help you. The Federal Reserve System investigates consumer
complaints received against state-chartered banks that are
members of the System. Complaints about these types of banks
will be investigated by one of the 12 Federal Reserve Banks
around the country. The Federal Reserve will refer complaints
about other institutions to the appropriate federal regulatory
agency and let you know where your complaint has been referred.
Or you may write directly to the appropriate federal agency by
referring to the listing at the end of this publication. Many of
these agencies do not handle individual complaints; however,
they will use information about your credit experiences to help
enforce the credit laws.
When writing to the Federal
Reserve, you should submit your complaint to
Federal
Reserve Consumer Help
PO Box 1200
Minneapolis, MN 55480
888-851-1920 (Phone)
877-766-8533 (TTY)
877-888-2520 (Fax)
Email: ConsumerHelp@FederalReserve.gov
www.FederalReserveConsumerHelp.gov
Be sure to provide the
complete name and address of the bank, a brief description of
your complaint, and any documentation that may help us
investigate your complaint. Please do not send original
documents, only copies; remember to sign and date your letter.
The Federal Reserve will acknowledge your complaint within 15
business days, letting you know whether a Federal Reserve Bank
will investigate your complaint or your complaint will be
forwarded to another federal agency for attention.
For
complaints investigated by the Federal Reserve (those involving
state-chartered member banks), the Reserve Bank will analyze the
bank's response to your complaint to ensure that your concerns
have been addressed and will send you a letter about the
findings. If the investigation reveals that a Federal Reserve
regulation has been violated, the Reserve Bank will inform you
of the violation and the corrective action the bank has been
directed to take.
Although the Federal Reserve
investigates all complaints about the banks it regulates, it
does not have the authority to resolve all types of problems,
such as contractual or factual disputes or disagreements about
bank policies or procedures. In many instances, however, if you
file a complaint, a bank may voluntarily work with you to
resolve your situation. If the matter is not resolved, we will
advise you whether you should consider legal counsel to resolve
your complaint.
Penalties under the Laws
If you decide to bring a lawsuit against a creditor, here
are the penalties a creditor must pay if you win.
Truth
in Lending and Consumer Leasing Acts. If any creditor fails to
disclose information required under these acts, or gives
inaccurate information, or does not comply with the rules about
credit cards or the right to cancel certain home-secured loans,
you as an individual may sue for actual damages and any money
loss you suffer. In addition, you can sue for twice the finance
charge in the case of certain credit disclosures, or if a lease
is concerned, 25 percent of total monthly payments. In either
case, the least the court may award you if you win is $100, and
the most is $1,000. In any lawsuit that you win, you are
entitled to reimbursement for court costs and attorney's fees.
Class action suits are also permitted. A class action suit
is one filed on behalf of a group of people with similar claims.
Equal Credit Opportunity Act. If you think you can prove
that a creditor has discriminated against you for any reason
prohibited by this act, you as an individual may sue for actual
damages plus punitive damages--that is, damages for the fact
that the law has been violated--of up to $10,000. In a
successful lawsuit, the court will award you court costs and a
reasonable amount for attorney's fees. Class action suits are
also permitted.
Fair Credit Billing Act. A creditor who
breaks the rules for the correction of billing errors
automatically loses the amount owed on the item in question and
any finance charges on it, up to a combined total of $50 even if
the bill was correct. You as an individual may also sue for
actual damages plus twice the amount of any finance charges, but
in any case not less than $100 nor more than $1,000. You are
also entitled to court costs and attorney's fees in a successful
lawsuit. Class action suits are also permitted.
Fair
Credit Reporting Act. You may sue any credit-reporting agency or
creditor for breaking the rules about who may see your credit
records or for not correcting errors in your file. Again, you
are entitled to actual damages, plus punitive damages that the
court may allow if the violation is proved to have been
intentional. In any successful lawsuit, you will also be awarded
court costs and attorney's fees. A person who obtains a credit
report without proper authorization or an employee of a
credit-reporting agency who gives a credit report to
unauthorized persons may be fined up to $5,000 or imprisoned for
one year or both.
Electronic Fund Transfer Act. If a
financial institution does not follow the provisions of the EFT
Act, you may sue for actual damages (or in certain cases when
the institution fails to correct an error or recredit an
account, for three times actual damages) plus punitive damages
of not less than $100 nor more than $1,000. You are also
entitled to court costs and attorney's fees in a successful
lawsuit. Class action suits are also permitted.
If an
institution fails to make an electronic fund transfer or to stop
payment of a preauthorized transfer when properly instructed by
you to do so, you may sue for all damages that result from
failure.
GLOSSARY of TERMS
Annual
Percentage Rate (APR)--The cost of credit expressed as a yearly
rate.
Appraisal Fee--The charge for estimating the value
of property offered as security.
Automated Teller
Machines (ATMs)--Electronic terminals located on bank premises
or elsewhere, through which customers of financial institutions
may make deposits, withdrawals, or other transactions as they
would through a bank teller.
Balloon Payment--A large
extra payment that may be charged at the end of a loan or lease.
Billing Error--Any mistake in your monthly statement as
defined by the Fair Credit Billing Act.
Business
Days--Check with your institution to find out what days it
counts as business days under the Truth in Lending and
Electronic Fund Transfer Acts.
Closed-End Lease--A lease
in which you are not responsible for the difference if the
actual value of the item at the scheduled end of the lease is
less than the residual value, but you may be responsible for
excess wear-and-use charges and for other lease requirements.
Collateral--Property, such as stocks, bonds or a car,
offered to support a loan and subject to seizure if you default.
Cosigner--Another person who signs your loan and assumes
equal responsibility for it.
Credit--The right granted by
a creditor to pay in the future to buy or borrow in the present;
a sum of money due a person or business.
Credit
Bureau--An agency that keeps your credit record; also called a
credit-reporting agency.
Credit Card--Any card, plate, or
coupon book used periodically or repeatedly to borrow money or
buy goods or services on credit.
Credit History--The
record of how you've borrowed and repaid debts.
Creditor--A person or business from whom you borrow or to whom
you owe money.
Credit Insurance--Health, life, accident,
or disruption of income insurance designed to pay the
outstanding balance on a debt.
Credit-Scoring System--A
statistical system used to rate credit applicants according to
various characteristics relevant to creditworthiness.
Creditworthiness--Past, present, and future ability to repay
debts.
Debit Card (EFT Card)--A plastic card, which looks
similar to a credit card, that consumers may use at an ATM or to
make purchases, withdrawals, or other types of electronic fund
transfers.
Default--Failure to repay a loan or otherwise
meet the terms of your credit agreement.
Disclosures--Information that must be given to consumers about
their financial dealings.
Elderly Applicant--As defined
in the Equal Credit Opportunity Act, a person 62 years or older.
Electronic Fund Transfer (EFT) Systems--A variety of systems
and technologies for transferring funds electronically rather
than by check.
Finance Charge--The total dollar amount
credit will cost.
Home Equity Line of Credit--A form of
open-end credit in which the home serves as collateral.
Joint Account--A credit account held by two or more people so
that all can use the account and all assume legal responsibility
to repay.
Late Payment--A payment made later than agreed
upon in a credit contract and on which additional charges may be
imposed.
Lessee--The party to whom the item is leased. In
a consumer lease, the lessee is you, the consumer. The lessee is
required to make payments and to meet other obligations
specified in the lease agreement.
Lessor--The person or
organization who regularly leases, offers to lease, or arranges
for the lease of the item.
Liability on an Account--Legal
responsibility to repay debt.
Open-End Credit--A line of
credit that may be used repeatedly, including credit cards,
overdraft credit
accounts, and home equity lines.
Open-End Lease--A lease agreement in which the amount you owe at
the end of the lease term is based on the difference between the
residual value of the leased property and its realized value.
Your lease agreement may provide for a refund of any excess if
the realized value is greater than the residual value. In an
open-end consumer lease, assuming you have met the use and wear
standards, the residual value is considered unreasonable if it
exceeds the realized value by more than three times the base
monthly payment (sometimes called the "three-payment rule").
Overdraft Checking--A line of credit that allows you to
write checks or draw funds with an EFT card for more than your
actual balance, with an interest charge on the overdraft.
Point-of-Sale (POS)--A method by which consumers can pay for
purchases by having their deposit accounts debited
electronically without the use of checks.
Points and
Origination Fees--Fees paid to the lender for the loan. One
point equals 1 percent of the loan amount. Points are usually
paid in cash at closing. In some cases, the money needed to pay
points can be borrowed, but doing so will increase the loan
amount and the total costs. An origination fee covers the
lender's work in preparing your mortgage loan.
Realized
Value--(1) The price the lessor or assignee receives for the
leased item at disposition, (2) the highest offer for the leased
item at disposition, or (3) the fair market value of the leased
item at termination. The realized value may be either the
wholesale or the retail value as specified in the lease
agreement.
Rescission--The cancellation of a contract.
Residual Value--The end-of-term value of the item
established at the beginning of the lease and used in
calculating your base monthly payment. The residual value is
deducted from the adjusted capitalized cost to determine the
depreciation and any amortized amounts. It is an estimate that
may be determined in part by using residual value guidebooks.
The residual value may be higher or lower than the realized
value at the scheduled end of the lease.
Security--Property pledged to the creditor in case of a default
on a loan; see collateral.
Security Interest--The
creditor's right to take property or a portion of property
offered as security.
Service Charge--A component of some
finance charges, such as the fee for triggering an overdraft
checking account into use.
A house is probably the single
largest credit purchase for most consumers, and one of the most
complicated. The Real Estate Settlement Procedures Act, like
Truth in Lending, is a disclosure law. The act, administered by
the Department of Housing and Urban Development, requires the
lender to give you, in advance, certain information about the
costs you will pay when you close the loan. The act also
requires that lenders give you the booklet "Buying Your Home:
Settlement Costs and Information" to help you understand the
closing process and shop for lower settlement costs. To get the
booklet, write to:
Deputy Assistant Secretary for
Housing
Attention: RESPA Enforcement
U.S.
Department of Housing and Urban Development
451 Seventh
Street, S.W.
Room 9416
Washington, DC 20410
Should
you need to, phone: (202) 708-4560
The Federal Reserve
pamphlet "A Consumer's Guide to Mortgage Closing Costs" also
contains useful information.
Discrimination
When you're ready to apply for credit, you should know what
factors creditors think are important in deciding whether you're
creditworthy. You should also know what factors they cannot
legally consider in their decisions.
What Law
Applies?
The Equal Credit Opportunity Act
requires that all credit applicants be considered on the basis
of their actual qualifications for credit and not be rejected
because of certain personal characteristics.
What
do Creditors Look For?
The Three Cs. Creditors
look for an ability to repay debt and a willingness to do
so--and sometimes for a little extra security to protect their
loans. They speak of the three Cs of credit: capacity,
character, and collateral.
Capacity. Can you repay the
debt? Creditors ask for employment information: your occupation,
how long you've worked, and how much you earn. They also want to
know your expenses: how many dependents you have, whether you
pay alimony or child support, and the amount of your other
obligations.
Character. Will you repay the debt?
Creditors will look at your credit history (see section on
Credit Histories and Records): how much you owe, how often you
borrow, whether you pay bills on time, and whether you live
within your means. They also look for signs of stability: how
long you've lived at your present address, whether you own or
rent your home, and the length of your present employment.
Collateral. Is the creditor fully protected if you fail to
repay? Creditors want to know what you may have that could be
used to back up or secure your loan and other resources you have
for repaying debt other than income, such as savings,
investments, or property.
Creditors use different
combinations of these facts to reach their decisions. Some set
unusually high standards; others simply do not make certain
kinds of loans. Creditors also use different rating systems.
Some rely strictly on their own instinct and experience. Others
use a "credit-scoring" or statistical system to predict whether
you're a good credit risk. They assign a certain number of
points to each of the various characteristics that have proved
to be reliable signs that a borrower will repay. Then they rate
you on this scale.
Different creditors may reach
different conclusions based on the same set of facts. One may
find you an acceptable risk, whereas another may deny you a
loan.
Information the Creditor Can't Use
The Equal Credit Opportunity Act does not guarantee that you
will get credit. You must still pass the creditor's tests of
creditworthiness. But the creditor must apply these tests fairly
and impartially. The act bars discrimination based on age,
gender, marital status, race, color, religion, and national
origin. The act also bars discrimination because you receive
public income, such as veterans benefits, welfare or social
security, or because you exercise your rights under federal
credit laws, such as filing a billing error notice with a
creditor. This protection means that a creditor may not use any
of these grounds as a reason to discourage you from applying for
a loan refuse you a loan if you qualify lend you money on terms
different from those granted another person with similar income,
expenses, credit history, and collateral close an existing
account because of age, gender, marital status, race, color,
religion, national origin, receipt of public income or because
you exercise your rights under federal credit laws.
Although creditors may not discriminate on the basis of national
origin, they may consider your immigration status when making a
loan decision.
Special Rules
Age.
In the past, many older persons have complained about being
denied credit because they were over a certain age. Or when they
retired, they often found their credit suddenly cut off or
reduced. So the law is very specific about how a person's age
may be used in credit decisions. A creditor may ask your age,
but if you're old enough to sign a binding contract (usually 18
or 21 years old depending on state law), a creditor may not:
turn you down, offer you less credit, or offer you less
favorable credit terms because of your age ignore your
retirement income in evaluating your application close your
credit account or require you to reapply for it because you
reach a certain age or retire deny you credit or close your
account because credit life insurance or other credit-related
insurance is not available to a person your age.
Creditors may "score" your age in a credit-scoring system, but
if you are 62 or older you must be given at least as many points
for age as any person under 62.
Because individuals'
financial situations can change at different ages, the law lets
creditors consider certain information related to age, such as
how long until you retire or how long your income will continue.
An older applicant might not qualify for a large loan with a
very low down payment and a long term, but might qualify for a
smaller loan, with a larger down payment, and a shorter term.
Remember that although declining income may be a handicap if you
are older, you can usually offer a solid credit history to your
advantage. The creditor has to consider all the facts and apply
the usual standards of creditworthiness to your particular
situation.
Public Assistance. You may not be denied
credit just because you receive social security or public
assistance, such as Temporary Assistance to Needy Families
(TANF). But as is the case with age, certain information on this
source of income could clearly affect creditworthiness. A
creditor may consider such things as how old your dependents are
(because you may lose benefits when they reach a certain age) or
whether you will continue to meet the eligibility requirements
for receiving benefits.
This information helps the
creditor determine the likelihood that your public-assistance
income will continue.
Housing Loans. The Equal Credit
Opportunity Act covers your application for a mortgage or
home-improvement loan. The act bars discrimination because of
characteristics such as your race, color, gender or because of
the race or national origin of the people in the neighborhood
where you live or want to buy your home. Creditors may not use
any appraisal of the value of the property that considers the
race of the people in the neighborhood.
Also, you are
entitled to receive a copy of an appraisal report that you paid
for in connection with an application for credit, provided you
make a written request for the report.
Discrimination against Women
Both men and women
are protected from discrimination based on gender or marital
status. But many of the law's provisions were designed to stop
particular abuses that generally made it difficult for women to
get credit. For example, denying credit or offering less
favorable credit terms based on the misperception that single
women ignore their debts when they marry, or that a woman's
income "doesn't count" because she'll stop work to have and
raise children, is unlawful in credit transactions. The general
rule is that you may not be denied credit because you are a
woman or because you are married, single, widowed, divorced, or
separated. Here are some important protections:
Gender and Marital Status
Usually, creditors may
not ask your gender on an application form (one exception is on
a loan to buy or build a home). You do not have to use Miss,
Mrs., or Ms. with your name on a credit application. But in some
cases, a creditor may ask whether you are married, unmarried, or
separated (unmarried includes single, divorced, and widowed).
Childbearing Plans. Creditors may not ask about your
birth-control practices or your plans to have children, and they
may not assume anything about those plans.
Income and
Alimony. The creditor must count all of your income, even income
from part-time employment. Child support and alimony payments
are a source of income for many women. You don't have to
disclose these kinds of income, but if you do, creditors must
count them.
Telephones. Creditors may not consider
whether you have a telephone listing in your name because this
factor would discriminate against many married women. (However,
you may be asked if there's a telephone in your home.)
A
creditor may consider whether income is steady and reliable, so
be prepared to show that you can count on uninterrupted income,
particularly if the source is alimony payments or part-time
wages. Your Own Accounts. Many married women once were turned
down for credit in their own name. Or a husband had to cosign an
account--that is, agree to pay if the wife didn't--even when a
wife made sufficient income to easily repay the loan. Single
women couldn't get loans because they were thought to be somehow
less reliable than other applicants. You now have the right to
your own credit, based on your own credit records and earnings.
Your own credit means a separate account or loan in your own
name, not a joint account with your husband or a duplicate card
on his account. Here are the rules:
Creditors may not
refuse to open an account because of your gender or marital
status. You can choose to use your first name and maiden name
(Mary Smith), your first name and husband's last name (Mary
Jones), or a combined last name (Mary Smith-Jones). If you're
creditworthy, a creditor may not ask your husband to cosign your
account, with certain exceptions when property rights are
involved. Creditors may not ask for information about your
husband or ex-husband when you apply for your own credit based
on your own income unless that income is alimony, child support,
or separate maintenance payments from your spouse or former
spouse.
This last rule, of course, does not apply if your
husband is going to use your account or be responsible for
paying your debts on the account or if you live in a community
property state. (Community property states are Arizona,
California, Idaho, Louisiana, Nevada, New Mexico, Texas,
Washington, and Wisconsin.)
Change in Marital Status.
Married women have sometimes faced severe hardships when cut off
from credit after their husbands died. Single women have had
accounts closed when they married, and married women have had
accounts closed after a divorce. The law says that creditors may
not make you reapply for credit because you marry or become
widowed or divorced. Nor may they close your account or change
the terms of your account on these grounds. There must be some
sign that your creditworthiness has changed. For example,
creditors may ask you to reapply if you relied on your
ex-husband's income to get credit in the first place.
Setting up your own account protects you by establishing your
own history of how you handle debt. You can rely on this record
if your financial situation changes if you become widowed or
divorced. If you're getting married and plan to take your
husband's surname, write to your creditors and tell them you
want to keep a separate account.
If You're Turned
Down
Remember, your gender or race may not be
used to discourage you from applying for a loan. And creditors
may not hold up or otherwise delay your application on those
grounds. Under the Equal Credit Opportunity Act, you must be
notified within 30 days after your application has been
completed whether your loan has been approved or not. If credit
is denied, this notice must be in writing, and it must explain
the specific reasons that you were denied credit or tell you of
your right to ask for an explanation. You have the same rights
if an account you have had is closed.
If you are denied
credit, be sure to find out why. Remember, you may have to ask
the creditors for this explanation. It may be that the creditor
thinks you have requested more money than you can repay on your
income. It may be that you have not been employed or lived long
enough in the community. You can discuss terms with the creditor
and ways to improve your creditworthiness. The next section
explains how to improve your ability to get credit.
If
you think you have been discriminated against, cite the law to
the creditor. If the creditor still says no without a
satisfactory explanation, you may contact a federal enforcement
agency for assistance (the federal agency you should contact
should be included in the notice you receive from the creditor),
or you may bring legal action, as described in the Filing A
Credit Complaint section of this handbook.
Building a Good Record
On your first attempt to
get credit, you may face a common frustration: sometimes it
seems you have to already have credit to get credit. Some
creditors will look only at your salary and job and the other
financial information that you put on the application. But most
also want to know about your track record in handling credit,
namely, how reliably you've repaid past debts. They turn to the
records kept by credit bureaus or credit-reporting agencies,
whose business is to collect, store, and report information
about borrowers that is routinely supplied by many lenders.
These records include the amount of credit you have received and
how faithfully you've repaid.
What Laws Apply?
The following laws can help you start your credit history
and keep your record accurate:
THE EQUAL CREDIT
OPPORTUNITY ACT gives women a way to start their own credit
history and identity.
THE FAIR CREDIT REPORTING ACT sets
up a procedure for correcting mistakes on your credit record.
Credit Histories for Women
Under the
Equal Credit Opportunity Act, reports to credit bureaus must be
made in the names of both husband and wife if both use an
account or are responsible for repaying the debt. Some women who
are divorced or widowed may not have separate credit histories
because their credit accounts were listed only in their
husbands' names. But divorced and widowed women can still
benefit from such a record. Under the Equal Credit Opportunity
Act, creditors must consider the credit history of accounts
women have held jointly with their husbands. Creditors must also
look at the record of any account held only in the husband's
name if a woman can show that it also reflects her own
creditworthiness. If the record is unfavorable--for example, if
an ex-husband is a bad credit risk--she can try to show that the
record does not reflect her own creditworthiness. Remember that
a wife may also open her own account to ensure starting her own
credit history.
Example:
Mary Jones, when married
to John Jones, always paid their credit card bills on time from
their joint checking account. But the card was issued in John's
name, and the credit bureau kept all records in John's name. Now
Mary is a widow and wants to take out a new card, but she's told
she has no credit history. To benefit from the good credit
record already established in John's name, Mary should point out
that she handled all accounts properly when she was married and
that bills were paid by checks from their joint checking
account.
Maintaining Complete and Accurate Credit
Records
Mistakes on your credit record can cloud
your credit future. Your credit rating is important, so be sure
that credit-bureau records are complete and accurate. The Fair
Credit Reporting Act says that you must be told what's in your
credit file and have any errors corrected.
Negative
Information. If a lender refuses you credit because of
unfavorable information in your credit report, you have a right
to get the name and address of the agency that keeps your
report. Then, you may either request information from the credit
bureau by mail or in person. You may not get an exact copy of
the file, but you will learn what's in the report. The law also
says that the credit bureau must help you interpret the data in
the report because the raw data may take experience to analyze.
If you're questioning a credit refusal made within the past 60
days, the bureau cannot charge a fee for giving you information.
If you notify the bureau about an error, generally the
bureau must investigate and resolve the dispute within 30 days
after receiving your notice. The bureau will contact the
creditor who supplied the data and remove any information that
is incomplete or inaccurate from your credit file. If you
disagree with the findings, you can file a short statement (100
words) in your record, giving your side of the story. Future
reports to creditors must include this statement or a summary of
it.
Old Information. Sometimes credit information is too
old to give a good picture of your financial reputation. There
is a limit on how long certain information may be kept in your
file: Bankruptcies must not be reported after 10 years. However,
information about any bankruptcies at any time may be reported
if you apply for life insurance with a face value over $150,000,
for a job paying $75,000 or more, or for credit with a principal
amount of $150,000 or more.
Suits and judgments paid, tax
liens, and most other kinds of unfavorable information must not
be reported after 7 years.
Your credit record may not be
given to anyone who does not have a legitimate business need for
it. Stores to which you are applying for credit may examine your
record; curious neighbors may not.
Prospective
employers may examine your record with your permission.
Billing Mistakes. In the next chapter, you will find the
steps to take if there's an error on your bill. By following
these steps, you can protect your credit rating. The best way to
maintain your credit standing is to repay all debts on time. But
there may be complications. To protect your credit rating, you
should learn how to correct mistakes and resolve
misunderstandings. When there's a problem, first try to deal
directly with the creditor. Credit laws can help you settle your
complaints without a hassle.
What Laws Apply?
THE FAIR CREDIT BILLING ACT sets up procedures requiring
creditors to promptly credit your payments and correct billing
mistakes and allows you to withhold payments on defective goods.
TRUTH IN LENDING gives you three days to change your mind
about certain credit transactions that use your home as
collateral; it also limits your risk on lost or stolen credit
cards.
Billing Errors
The Fair
Credit Billing Act requires creditors to correct errors promptly
and without damage to your credit rating.
A Case of
Error? The law defines a billing error as any charge for
something you didn't buy or for a purchase by someone not
authorized to use your account that is not properly identified
on your bill or is for an amount different from the actual
purchase price or was entered on a date different from the
purchase date for something that you did not accept on delivery
or that was not delivered according to agreement.
Billing errors also include:
*errors in
arithmetic
*failure to show a payment or other credit to your
account
*failure to mail the bill to your current address,
provided you told the creditor about an address change at
least 20 days before the *end of the billing period
*an item
on your bill for which you need more information.
In Case
of Error. If you think your bill is wrong, or want more
information about it, follow these steps:
1. Notify the
creditor in writing within 60 days after the first bill was
mailed that showed the error. Be sure to write to the address
the creditor lists for billing inquiries and to tell the
creditor:
*your name and account number
*that you
believe the bill contains an error and why you believe it is
wrong and
*the date and suspected amount of the error or the
item that you want explained.
2. Pay all parts of the
bill that are not in dispute. But while waiting for an answer,
you do not have to pay the amount in question (the "disputed
amount") or any minimum payments or finance charges that apply
to it.
The creditor must acknowledge your letter within
30 days unless the problem can be resolved within that time.
Within two billing periods, but in no case longer than 90 days,
either your account must be corrected, or you must be told why
the creditor believes that the bill is correct.
If the
creditor made a mistake, you do not pay any finance charges on
the disputed amount. Your account must be corrected, and you
must be sent an explanation of any amount you still owe.
If no error is found, the creditor must send you an explanation
of the reasons for that finding and promptly send a statement of
what you owe, which may include any finance charges that have
accumulated and any minimum payments you missed while you were
questioning the bill. You then have the time usually given on
your type of account to pay any balance.
3. If you still
are not satisfied, you should notify the creditor in writing
within the time allowed to pay your bill.
Return to top
Maintaining Your Credit Rating. A creditor may not threaten your
credit rating while you're resolving a billing dispute.
Once you have written about a possible error, a creditor must
not release information to other creditors or credit bureaus
that would hurt your credit reputation. And, until your
complaint is answered, the creditor also cannot take any action
to collect the disputed amount.
After the creditor has
explained the bill, if you do not pay in the time allowed, you
may be reported as delinquent on the amount in dispute, and the
creditor may take action to collect. Even so, you can still
disagree in writing. Then the creditor must report that you have
challenged your bill and give you the name and address of each
person who has received information about your account. When the
matter is settled, the creditor must report the outcome to each
person who has received that information.
Remember that
you may tell your own side in your credit record with a 100-word
explanation.
Defective Goods or Services
Your new sofa arrives with only three legs. You try to
return it; no luck. You ask the merchant to repair or replace
it; still no luck. The Fair Credit Billing Act allows you to
withhold payment on any damaged or poor-quality goods or
services purchased with a credit card, as long as you have made
a real attempt to solve the problem with the merchant.
This right may be limited if the card was a bank or travel and
entertainment card or any card not issued by the store where you
made your purchase. In such cases, the sale must have been for
more than $50 and must have taken place in your home state or
within 100 miles of your home address.
Prompt
Credit for Payments and Refunds for Credit Balances
Some creditors will not charge a finance charge if you pay
your account within a certain period of time, often called a
grace period. In this case, it is especially important that you
get your bills, and get credit for paying them, promptly. Check
your statements to ensure that your creditor follows these
rules:
Prompt Billing. Look at the date on the postmark.
If your account is one on which no finance or other charge is
added before a certain due date, then creditors must mail their
statements at least 14 days before payment is due.
Prompt
Crediting. Look at the payment date entered on the statement.
Creditors must credit payments on the day they arrive, as long
as you pay according to payment instructions, for example,
sending your payment to the address listed on the bill.
Credit Balances. If a credit balance results on your account
(for example, because you pay more than the amount you owe or
you return a purchase and the purchase price is credited to your
account), the creditor must make a refund to you. The refund
must be made within seven business days after your written
request or automatically if the credit balance still in exists
after six months.
Return to top Canceling a
Mortgage
Truth in Lending gives you a chance to
change your mind on one important kind of transaction--when you
use your home as security for a credit transaction. For example,
when you are financing a major repair or remodeling and use your
home as security, you have three business days, usually after
you sign a contract, to think about the transaction and to
cancel it if you wish. The creditor must give you written notice
of your right to cancel, and if you decide to cancel, you must
notify the creditor in writing within the three-day period. The
creditor must then return all fees paid and cancel the security
interest in your home. Until the three days are up, a contractor
may not start work on your home, and a lender may not pay you or
the contractor. If you must have the credit immediately to meet
a financial emergency, you may give up your right to cancel by
providing a written explanation of the circumstances.
The
right to cancel (or right of rescission) was provided to protect
you from decisions that are hasty or made under pressure,
possibly putting your home at risk if you are unable to repay
the loan. The law does not apply to a mortgage to finance the
purchase of your home; for that, you commit yourself as soon as
you sign the mortgage contract. If you use your home to secure
an open-end credit line--a home equity line, for instance--you
have the right to cancel when you open the account or when your
security interest or credit limit is increased. (In the case of
an increase, only the increase would be cancelled.)
Lost or Stolen Credit Cards
If your
wallet is stolen, your greatest cost may be inconvenience
because your liability on lost or stolen cards is limited under
Truth in Lending. You do not have to pay for any unauthorized
charges made after you notify the card company of loss or theft
of your card. So keep a list of your credit card numbers and
notify card issuers immediately if your card is lost or stolen.
The most you will have to pay for unauthorized charges is $50 on
each card even if someone runs up several hundred dollars worth
of charges before you report a card missing.
Unsolicited Cards
It is illegal for card issuers
to send you a credit card unless you ask for or agree to receive
one. However, a card issuer may send, without your request, a
new card to replace an expiring one.
Example:
On
his way home last Friday night, John Jones realized that he had
no cash for the weekend. The bank was closed, but John had his
bank debit card and the code to use it. He inserted the card
into an automated teller machine outside the front door of the
bank; then, using a number keypad, he entered his code and
pressed the buttons for a withdrawal of $50. John's cash was
dispensed automatically from the machine, and his bank account
was electronically debited for the $50 cash withdrawal.
John's debit card is just one way to use electronic fund
transfer (EFT) systems that allow payment between parties by
substituting an electronic signal for cash or checks.
Are
we heading for a checkless society? Probably not. But making a
dent in the large number of paper checks in the country's
banking system is clearly one advantage to electronic banking.
Today, the cost of moving checks through the banking system
is estimated to be about $3.00 per check, including the costs of
paper, printing, and mailing. Moreover, checks except your own
check presented at your own bank take time to cash: time for
delivery, endorsement, presentation to another person's bank,
and winding through various stations in the check-clearing
system. Technology now can lower the costs of the payment
mechanism (to about $1.50 per transaction) and make it more
efficient and convenient by reducing paperwork.
EFT in Operation
The national payment mechanism
moves money between accounts in a fast, paperless way. These are
some examples of EFT systems in operation:
Automated
Teller Machines (ATMs). Consumers can do their banking without
the assistance of a teller, as John Jones did to get cash, or to
make deposits, pay bills, or transfer funds from one account to
another electronically. These machines are used with a debit or
EFT card and a code, which is often called a personal
identification number or "PIN."
Point-of-Sale (POS)
Transactions. Some debit or EFT cards (sometimes referred to as
check cards) can be used when shopping to allow the transfer of
funds from the consumer's account to the merchant's. To pay for
a purchase, the consumer presents an EFT card instead of a check
or cash. Money is taken out of the consumer's account and put
into the merchant's account electronically.
Preauthorized
Transfers. This is a method of automatically depositing to or
withdrawing funds from an individual's account, when the account
holder authorizes the bank or a third party (such as an
employer) to do so. For example, consumers can authorize direct
electronic deposit of wages, social security, or dividend
payments to their accounts. Or they can authorize financial
institutions to make regular, ongoing payments of insurance,
mortgage, utility, or other bills.
Telephone Transfers.
Consumers can transfer funds from one account to another--from
savings to checking, for example--or can order payment of
specific bills by phone.
What Law Applies?
THE ELECTRONIC FUND TRANSFER ACT answers several basic
questions consumers have about using
EFT services.
A
check contains information that authorizes a bank to withdraw a
certain amount of money from one person's account and pay that
amount to another person. Most consumer questions center on the
fact that EFT systems transmit the information without the
paper:
What record will I have of my transactions?
How
do I correct errors?
What if someone steals money from my
account?
What about mail solicitations for debit cards?
Do
I have to use EFT services?
Here are the answers the EFT
Act gives to consumer questions about these systems.
What at Record Will I Have of My Transactions?
A cancelled check is permanent proof that a payment has been
made. What proof of payment is available with EFT services?
If you use an ATM to withdraw money or make deposits or a
POS terminal to pay for a purchase, you can get a written
receipt, much like a sales receipt you get with a cash purchase,
showing the amount of the transfer, the date it was made, and
other information. This receipt is your record of transfers
initiated at an electronic terminal.
Your periodic bank
statement must also show electronic transfers to and from your
account, including those made with debit cards, by a
preauthorized arrangement, or under a telephone transfer plan.
The statement will also name the party to whom payment has been
made and show any fees for EFT services (or the total amount
charged for account maintenance) and your opening and closing
balances.
How Do I Correct Errors?
The way to report errors is somewhat different with EFT
services than it is with credit cards (see the section on
correcting credit billing errors). But as with credit cards,
financial institutions must investigate and promptly correct any
EFT errors that you report.
If you believe there has been
an error in an electronic fund transfer relating to your
account:
1. Write or call your financial institution
immediately if possible, but no later than 60 days from the date
the first statement that you think shows an error was mailed to
you. Give your name and account number and explain why you
believe there is an error, what kind of error, and the dollar
amount and date in question. If you call, you may be asked to
send this information in writing within 10 business days.
2. The financial institution must promptly investigate an
error and resolve it within 45 days. For errors involving new
accounts (opened in the last 30 days), POS transactions, and
foreign transactions, the institution may take up to 90 days to
investigate the error. However, if the financial institution
takes longer than 10 business days to complete its
investigation, generally it must put back into your account the
amount in question while it finishes the investigation. For new
accounts, the financial institution may take up to 20 business
days to credit your account for the amount you think is in
error.
3. The financial institution must notify you of
the results of its investigation. If there was an error, the
institution must correct it promptly, for example, by making a
recredit final.
If it finds no error, the financial
institution must explain in writing why it believes no error
occurred and let you know that it has deducted any amount
recredited during the investigation. You may ask for copies of
documents relied on in the investigation.
What
about Loss or Theft?
It's important to be aware
of the potential risk in using an EFT card, which differs from
the risk on a credit card.
On lost or stolen credit
cards, your loss is limited to $50 per card (see Lost or Stolen
Credit Cards). On an EFT card, your liability for an
unauthorized withdrawal can vary:
Your loss is limited to
$50 if you notify the financial institution within two business
days after learning of loss or theft of your card or code. But
you could lose as much as $500 if you do not tell the card
issuer within two business days after
learning of loss or
theft. If you do not report an unauthorized transfer that
appears on your statement within 60 days after the statement is
mailed to you, you risk unlimited loss on transfers made after
the 60-day period. That means you could lose all the money in
your account plus your maximum overdraft line of credit, if any.
Example:
On Monday, John's debit card and PIN were
stolen. On Tuesday, the thief withdrew $250, all the money John
had in his checking account. Five days later, the thief withdrew
another $500, triggering John's overdraft line of credit. John
did not realize his card was stolen until he received his bank
statement, showing withdrawals of $750 he did not make. He
called the bank right away. John's liability is $50.
Now
suppose that when John got his bank statement he didn't look at
it and didn't call the bank. Seventy days after the statement
was mailed to John, the thief withdrew another $1,000, reaching
the limit on John's line of credit. In this case, John would be
liable for $1,050 ($50 for transfers before the end of the 60
days; $1,000 for transfers made more than 60 days after the
statement was mailed).
What about Mail
Solicitations for Debit Cards?
A financial
institution may send you an EFT card that is VALID FOR USE only
if you ask for one, or to replace or renew an expiring card. The
financial institution must also give you the following
information about your rights and responsibilities:
A
notice of your liability in case the card is lost or stolen
A
telephone number for reporting loss or theft of the card or an
unauthorized transfer
A description of its error resolution
procedures
The kinds of electronic fund transfers you may
make and any limits on the frequency or dollar amounts of such
transfers
Any charge by the institution for using EFT
services
Your right to receive records of electronic fund
transfers
How to stop payment of a pre-authorized transfer
The financial institution's liability to you for any failure to
make or to stop transfers and
The conditions under which a
financial institution will give information to third parties
about your account.
Generally, you must also get advance
notice of any change in the account that would increase your
costs or liability, or would limit transfers. A financial
institution may send you a card that you did not request only if
the card is NOT VALID FOR USE. An unsolicited card can be
validated only at your request and only after the institution
makes sure that you are the person whose name is on the card. It
must also be sent with instructions on how to dispose of an
unwanted card.
Do I Have to Use EFT?
The EFT Act forbids a creditor from requiring you to repay a
loan or other credit by EFT, except in the case of overdraft
checking plans. With some exceptions, your employer or a
government agency can require you to receive your salary or a
government benefit by electronic transfer. However, you have the
right to choose the financial institution that will receive your
funds.
Special Questions about Preauthorized Plans
Q. How will I know that a preauthorized deposit has been
made?
A. There are various ways in which you may be notified.
Notice may be given by your employer (or whoever is sending the
funds) that the deposit has been sent to your financial
institution. Otherwise, a financial institution may provide
notice when it has received the credit or will send you a notice
only when it has not received the funds. Financial institutions
also have the option of giving you a telephone number you can
call to check on a preauthorized deposit.
Q. How do I
stop a preauthorized payment?
A. You may stop any
preauthorized payment by calling or writing the financial
institution, but your order must be received at least three
business days before the payment date. Written confirmation of a
telephone notice to stop payment may be required. You should
also contact the merchant or organization you authorized to
debit your account.
Q. If the payments I preauthorize
vary in amount from month to month, how will I know how much
will be transferred out of my account?
A. You have the right
to be notified of all varying payments at least 10 days in
advance. Or you may choose to specify a range of amounts and to
be told only when a transfer falls outside that range. You may
also choose to be told only when a transfer differs by a certain
amount from the previous payment to the same company.
Q.
Do the EFT Act protections apply to all preauthorized plans?
A. No. They do not apply to automatic transfers from your
account to the institution that holds your account or vice
versa. For example, they do not apply to automatic payments made
on a mortgage held by the financial institution where you have
your EFT account. The EFT Act also does not apply to automatic
transfers among your accounts at one financial institution.
Filing a Complaint with Federal Enforcement Agencies
First try to resolve your complaint directly with the
creditor or bank involved. If you are still unable to resolve
the problem, you may file a written complaint with federal
agencies responsible for enforcing consumer credit protection
laws.
If you have a complaint about a bank or other
financial institution, the Federal Reserve System may be able to
help you. The Federal Reserve System investigates consumer
complaints received against state-chartered banks that are
members of the System. Complaints about these types of banks
will be investigated by one of the 12 Federal Reserve Banks
around the country. The Federal Reserve will refer complaints
about other institutions to the appropriate federal regulatory
agency and let you know where your complaint has been referred.
Or you may write directly to the appropriate federal agency by
referring to the listing at the end of this publication. Many of
these agencies do not handle individual complaints; however,
they will use information about your credit experiences to help
enforce the credit laws.
When writing to the Federal
Reserve, you should submit your complaint to
Federal
Reserve Consumer Help
PO Box 1200
Minneapolis, MN 55480
888-851-1920 (Phone)
877-766-8533 (TTY)
877-888-2520 (Fax)
Email: ConsumerHelp@FederalReserve.gov
www.FederalReserveConsumerHelp.gov
Be sure to provide the
complete name and address of the bank, a brief description of
your complaint, and any documentation that may help us
investigate your complaint. Please do not send original
documents, only copies; remember to sign and date your letter.
The Federal Reserve will acknowledge your complaint within 15
business days, letting you know whether a Federal Reserve Bank
will investigate your complaint or your complaint will be
forwarded to another federal agency for attention.
For
complaints investigated by the Federal Reserve (those involving
state-chartered member banks), the Reserve Bank will analyze the
bank's response to your complaint to ensure that your concerns
have been addressed and will send you a letter about the
findings. If the investigation reveals that a Federal Reserve
regulation has been violated, the Reserve Bank will inform you
of the violation and the corrective action the bank has been
directed to take.
Although the Federal Reserve
investigates all complaints about the banks it regulates, it
does not have the authority to resolve all types of problems,
such as contractual or factual disputes or disagreements about
bank policies or procedures. In many instances, however, if you
file a complaint, a bank may voluntarily work with you to
resolve your situation. If the matter is not resolved, we will
advise you whether you should consider legal counsel to resolve
your complaint.
Penalties under the Laws
If you decide to bring a lawsuit against a creditor, here
are the penalties a creditor must pay if you win.
Truth
in Lending and Consumer Leasing Acts. If any creditor fails to
disclose information required under these acts, or gives
inaccurate information, or does not comply with the rules about
credit cards or the right to cancel certain home-secured loans,
you as an individual may sue for actual damages and any money
loss you suffer. In addition, you can sue for twice the finance
charge in the case of certain credit disclosures, or if a lease
is concerned, 25 percent of total monthly payments. In either
case, the least the court may award you if you win is $100, and
the most is $1,000. In any lawsuit that you win, you are
entitled to reimbursement for court costs and attorney's fees.
Class action suits are also permitted. A class action suit
is one filed on behalf of a group of people with similar claims.
Equal Credit Opportunity Act. If you think you can prove
that a creditor has discriminated against you for any reason
prohibited by this act, you as an individual may sue for actual
damages plus punitive damages--that is, damages for the fact
that the law has been violated--of up to $10,000. In a
successful lawsuit, the court will award you court costs and a
reasonable amount for attorney's fees. Class action suits are
also permitted.
Fair Credit Billing Act. A creditor who
breaks the rules for the correction of billing errors
automatically loses the amount owed on the item in question and
any finance charges on it, up to a combined total of $50 even if
the bill was correct. You as an individual may also sue for
actual damages plus twice the amount of any finance charges, but
in any case not less than $100 nor more than $1,000. You are
also entitled to court costs and attorney's fees in a successful
lawsuit. Class action suits are also permitted.
Fair
Credit Reporting Act. You may sue any credit-reporting agency or
creditor for breaking the rules about who may see your credit
records or for not correcting errors in your file. Again, you
are entitled to actual damages, plus punitive damages that the
court may allow if the violation is proved to have been
intentional. In any successful lawsuit, you will also be awarded
court costs and attorney's fees. A person who obtains a credit
report without proper authorization or an employee of a
credit-reporting agency who gives a credit report to
unauthorized persons may be fined up to $5,000 or imprisoned for
one year or both.
Electronic Fund Transfer Act. If a
financial institution does not follow the provisions of the EFT
Act, you may sue for actual damages (or in certain cases when
the institution fails to correct an error or recredit an
account, for three times actual damages) plus punitive damages
of not less than $100 nor more than $1,000. You are also
entitled to court costs and attorney's fees in a successful
lawsuit. Class action suits are also permitted.
If an
institution fails to make an electronic fund transfer or to stop
payment of a preauthorized transfer when properly instructed by
you to do so, you may sue for all damages that result from
failure.
GLOSSARY of TERMS
Annual
Percentage Rate (APR)--The cost of credit expressed as a yearly
rate.
Appraisal Fee--The charge for estimating the value
of property offered as security.
Automated Teller
Machines (ATMs)--Electronic terminals located on bank premises
or elsewhere, through which customers of financial institutions
may make deposits, withdrawals, or other transactions as they
would through a bank teller.
Balloon Payment--A large
extra payment that may be charged at the end of a loan or lease.
Billing Error--Any mistake in your monthly statement as
defined by the Fair Credit Billing Act.
Business
Days--Check with your institution to find out what days it
counts as business days under the Truth in Lending and
Electronic Fund Transfer Acts.
Closed-End Lease--A lease
in which you are not responsible for the difference if the
actual value of the item at the scheduled end of the lease is
less than the residual value, but you may be responsible for
excess wear-and-use charges and for other lease requirements.
Collateral--Property, such as stocks, bonds or a car,
offered to support a loan and subject to seizure if you default.
Cosigner--Another person who signs your loan and assumes
equal responsibility for it.
Credit--The right granted by
a creditor to pay in the future to buy or borrow in the present;
a sum of money due a person or business.
Credit
Bureau--An agency that keeps your credit record; also called a
credit-reporting agency.
Credit Card--Any card, plate, or
coupon book used periodically or repeatedly to borrow money or
buy goods or services on credit.
Credit History--The
record of how you've borrowed and repaid debts.
Creditor--A person or business from whom you borrow or to whom
you owe money.
Credit Insurance--Health, life, accident,
or disruption of income insurance designed to pay the
outstanding balance on a debt.
Credit-Scoring System--A
statistical system used to rate credit applicants according to
various characteristics relevant to creditworthiness.
Creditworthiness--Past, present, and future ability to repay
debts.
Debit Card (EFT Card)--A plastic card, which looks
similar to a credit card, that consumers may use at an ATM or to
make purchases, withdrawals, or other types of electronic fund
transfers.
Default--Failure to repay a loan or otherwise
meet the terms of your credit agreement.
Disclosures--Information that must be given to consumers about
their financial dealings.
Elderly Applicant--As defined
in the Equal Credit Opportunity Act, a person 62 years or older.
Electronic Fund Transfer (EFT) Systems--A variety of systems
and technologies for transferring funds electronically rather
than by check.
Finance Charge--The total dollar amount
credit will cost.
Home Equity Line of Credit--A form of
open-end credit in which the home serves as collateral.
Joint Account--A credit account held by two or more people so
that all can use the account and all assume legal responsibility
to repay.
Late Payment--A payment made later than agreed
upon in a credit contract and on which additional charges may be
imposed.
Lessee--The party to whom the item is leased. In
a consumer lease, the lessee is you, the consumer. The lessee is
required to make payments and to meet other obligations
specified in the lease agreement.
Lessor--The person or
organization who regularly leases, offers to lease, or arranges
for the lease of the item.
Liability on an Account--Legal
responsibility to repay debt.
Open-End Credit--A line of
credit that may be used repeatedly, including credit cards,
overdraft credit
accounts, and home equity lines.
Open-End Lease--A lease agreement in which the amount you owe at
the end of the lease term is based on the difference between the
residual value of the leased property and its realized value.
Your lease agreement may provide for a refund of any excess if
the realized value is greater than the residual value. In an
open-end consumer lease, assuming you have met the use and wear
standards, the residual value is considered unreasonable if it
exceeds the realized value by more than three times the base
monthly payment (sometimes called the "three-payment rule").
Overdraft Checking--A line of credit that allows you to
write checks or draw funds with an EFT card for more than your
actual balance, with an interest charge on the overdraft.
Point-of-Sale (POS)--A method by which consumers can pay for
purchases by having their deposit accounts debited
electronically without the use of checks.
Points and
Origination Fees--Fees paid to the lender for the loan. One
point equals 1 percent of the loan amount. Points are usually
paid in cash at closing. In some cases, the money needed to pay
points can be borrowed, but doing so will increase the loan
amount and the total costs. An origination fee covers the
lender's work in preparing your mortgage loan.
Realized
Value--(1) The price the lessor or assignee receives for the
leased item at disposition, (2) the highest offer for the leased
item at disposition, or (3) the fair market value of the leased
item at termination. The realized value may be either the
wholesale or the retail value as specified in the lease
agreement.
Rescission--The cancellation of a contract.
Residual Value--The end-of-term value of the item
established at the beginning of the lease and used in
calculating your base monthly payment. The residual value is
deducted from the adjusted capitalized cost to determine the
depreciation and any amortized amounts. It is an estimate that
may be determined in part by using residual value guidebooks.
The residual value may be higher or lower than the realized
value at the scheduled end of the lease.
Security--Property pledged to the creditor in case of a default
on a loan; see collateral.
Security Interest--The
creditor's right to take property or a portion of property
offered as security.
Service Charge--A component of some
finance charges, such as the fee for triggering an overdraft
checking account into use.