Chapter 27: Credit and the Law

Credit Laws

State and Federal Regulation of Credit

• To protect consumers, both federal and state governments control and regulate the credit industry.
• A law restricting the amount of interest that can be charged for credit is called a usury law.
• The Federal Trade Commission (FTC) is the U.S. agency that enforces credit laws and helps consumers with credit problems and complaints.

Federal Credit Laws

• A number of federal laws help inform consumers about the costs of credit and set rules concerning the credit application process, credit history information, privacy, and debt collection.
• To make comparing credit costs easier, Congress passed the Consumer Credit Protection Act.
  • The Consumer Credit Protection Act (also called the Truth in Lending Act) is a federal law that requires creditors to inform consumers about the costs and terms of credit.
  • The law states that advertisements for credit must communicate a fair and reasonably comprehensive indication of the nature and true cost of the credit.
• The Equal Credit Opportunity Act is a federal law stating that credit applications can be judged only on the basis of financial responsibility.
  • No person can be denied credit on the basis of marital status, gender, age, ethnicity, religion, or receipt of public assistance.
  • A person who is denied credit must be given a written statement listing reasons for the denial.
• Each consumer with credit has a credit report.
  • A credit report, also considered a credit history, is a record of an individual’s past borrowing and repayments.
  • It includes information about late payments and bankruptcy.
• The Fair Credit Reporting Act is a federal law that allows individuals to examine and correct information used by credit reporting agencies.
• In the United States, most credit report information is collected and kept by three credit bureaus: Experian®, Equifax®, and TransUnion®
• The Fair Credit Billing Act is a federal law that requires creditors to correct billing mistakes that are brought to their attention.
  • The Fair Credit Billing Act also permits consumers to stop a credit payment for an item that is damaged or defective.
• The Fair Debt Collection Practices Act (FDCPA) is a federal law that serves to regulate collection agencies.
  • The purpose of the FDCPA is to prevent deception, harassment, and other unfair debt collection practices by collection agents.
• A collection agent is a person or business that collects payments for overdue bills.

Solving Credit Issues

Preventing Credit Fraud

• Credit card theft, the misuse of credit information, and identity theft are increasing problems.
• The first step a consumer should take when he or she gets a credit or ATM card is to write down the card issuer’s phone number and other contact information.
• A stolen credit card can lead to identity theft.
  • Identity theft occurs when someone steals another person’s financial information with the intention of committing fraud under that person’s identity.
• Consumers can protect their identities by being careful with the way they handle their credit and ATM cards, checks, and Social Security number.

Repairing Credit Problems

• Many consumers charge too many of their purchases and later realize that they cannot afford the monthly payments.
• To fix the problem, they have a few options to consider.
  • The first thing a consumer should do is contact the creditor.
  • Consumers can often work out a new payment plan to lower payments.
• Consumers who are unable to work out their credit problems should talk to a credit counselor.
  • A credit counselor helps people work out a plan for getting out of debt.
  • There are several different types of credit counseling services.
  • Many credit counseling services charge a fee to “clean up” a poor credit report.
• Another possible solution is a consolidation loan.
  • A consolidation loan combines a consumer’s debts into one loan with lower payments
• The last resort is to declare bankruptcy.
  • Bankruptcy is a legal process in which a borrower is relieved of debts after showing an inability to pay.
  • People should avoid bankruptcy because it gives a debtor a bad credit record that can last for 10 years.