2-Hour Personal Financial Management Instructional Course
Credit and Your Consumer Rights
A good credit rating is very important. Businesses inspect your credit history when they evaluate your applications for credit, insurance, employment, and even leases. They can use it when they choose to give or deny you credit or insurance, provided you receive fair and equal treatment. Sometimes, things happen that can cause credit problems: a temporary loss of income, an illness, even a computer error. Solving credit problems may take time and patience, but it doesn't have to be an ordeal.
The Federal Trade Commission (FTC) enforces the credit laws that protect your right to get, use and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to get credit and to resolve disputes over credit errors. This brochure explains your rights under these laws and offers practical tips to help you solve credit problems.
Your Credit Report
Your credit report contains information about where you live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. Consumer reporting companies sell the information in your report to businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.
The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation's consumer reporting companies. Under the Fair Credit Reporting Act:
You have the right to receive a copy of your credit report. The copy of your report must contain all the information in your file at the time of your request.
Each of the nationwide consumer reporting companies - Equifax, Experian, and TransUnion - is required to provide you with a free copy of your credit report, at your request, once every 12 months. The companies are rolling this out across the country during a nine-month period. By September 2005, consumers from coast to coast will have access to a free annual credit report if they ask for it.
Under federal law, you're also entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You're also entitled to one free report a year if you're unemployed and plan to look for a job within 60 days; if you're on welfare; or if your report is inaccurate because of fraud, including identity theft.
Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
You have the right to know who asked for your report within the past year - two years for employment related requests.
If a company denies your application, you have the right to the name and address of the consumer reporting company they contacted, provided the denial was based on information given by the consumer reporting company.
If you question the accuracy or completeness of information in your report, you have the right to file a dispute with the consumer reporting company and the information provider (that is, the person, company, or organization that provided information about you to the consumer reporting company). Both the consumer reporting company and the information provider are obligated to investigate your claim, and responsible for correcting inaccurate or incomplete information in your report.
You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.
Your Credit Application
When creditors evaluate a credit application, they cannot engage in discriminatory practices.
The Equal Credit Opportunity Act (ECOA)
prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but they may not use it to discriminate against you when deciding whether to grant you credit.
The ECOA protects consumers who deal with companies that regularly extend credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in the decision to grant credit, including real estate brokers who arrange financing, must follow this law. Businesses applying for credit also are protected by this law. Under the Equal Credit Opportunity Act:
You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance.
You have the right to have reliable public assistance considered in the same manner as other income.
If you are denied credit, you have a legal right to know why.
Your Credit Billing and Electronic Fund Transfer Statements.
It is important to check credit billing and electronic fund transfer account statements regularly because these documents may contain mistakes that could damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the company and dispute the error immediately. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including:
charges or electronic fund transfers that you - or anyone you have authorized to use your account - have not made;
charges or electronic fund transfers that are incorrectly identified or show the wrong date or amount;
math errors;
failure to post payments, credits, or electronic fund transfers properly;
failure to send bills to your current address - provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends;
charges or electronic fund transfers for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.
The FCBA generally applies only to "open end" credit accounts - credit cards and revolving charge accounts, like department store accounts. It does not apply to loans or credit sales that are paid according to a fixed schedule until the entire amount is paid back, like an automobile loan. The EFTA applies to electronic fund transfers, like those involving automatic teller machines (ATMs), point-of-sale debit transactions, and other electronic banking transactions.
Your Debts and Debt Collectors
You are responsible for your debts. If you fall behind in paying your creditors, or if an error is made on your account, you may be contacted by a "debt collector." A debt collector is any person, other than the creditor, who regularly collects debts owed to others, including lawyers who collect debts on a regular basis. You have the right to be treated fairly by debt collectors.
The Fair Debt Collection Practices Act (FDCPA) applies to personal, family, and household debts. This includes money you owe for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts. Under the Fair Debt Collection Practices Act:
Debt collectors may contact you only between 8 a.m. and 9 p.m.
Debt collectors may not contact you at work if they know your employer disapproves.
Debt collectors may not harass, oppress, or abuse you.
Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.
Debt collectors must identify themselves to you on the phone.
Debt collectors must stop contacting you if you ask them to do so in writing.
Solving Your Credit Problems
Your credit report can influence your purchasing power, as well as your opportunity to get a job, rent or buy an apartment or a house, and buy insurance. When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you've applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place. If you are having problems paying your bills, contact your creditors immediately. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don't wait until your account has been turned over to a debt collector.
Here are some additional tips for solving credit problems:
If you want to dispute a credit report, bill or credit denial, write to the appropriate company and send your letter "return receipt requested."
When you dispute a billing error, include your name, account number, the dollar amount in question, and the reason you believe the bill is wrong.
If in doubt, request written verification of a debt. Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them if you dispute a credit bill or report. Send copies only. It may take more than one letter to correct a problem.
Be skeptical of businesses that offer instant solutions to credit problems: There aren't any.
Be persistent. Resolving credit problems can take time and patience.
There is nothing that a credit repair company can charge you for that you cannot do for yourself for little or no cost.
If you're not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it's "nonprofit," there's no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make "voluntary" contributions that only cause more debt.
Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.
Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
Equal Credit Opportunity
Credit is used by millions of consumers to finance an education or a house, remodel a home, or get a small business loan.
The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. This doesn't mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit also are protected by the law.
When You Apply For Credit, A Creditor May Not...
Discourage you from applying because of your sex, marital status, age, race, national origin, or because you receive public assistance income.
Ask you to reveal your sex, race, national origin, or religion. A creditor may ask you to voluntarily disclose this information (except for religion) if you're applying for a real estate loan. This information helps federal agencies enforce anti-discrimination laws. You may be asked about your residence or immigration status.
Ask if you're widowed or divorced. When permitted to ask marital status, a creditor may only use the terms: married, unmarried, or separated. Ask about your marital status if you're applying for a separate, unsecured account. A creditor may ask you to provide this information if you live in "community property" states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. A creditor in any state may ask for this information if you apply for a joint account or one secured by property.
Request information about your spouse, except when your spouse is applying with you; your spouse will be allowed to use the account; you are relying on your spouse's income or on alimony or child support income from a former spouse; or if you reside in a community property state. Inquire about your plans for having or raising children.
Ask if you receive alimony, child support, or separate maintenance payments, unless you're first told that you don't have to provide this information if you won't rely on these payments to get credit. A creditor may ask if you have to pay alimony, child support, or separate maintenance payments.
When Deciding To Give You Credit, A Creditor May Not...
Consider your sex, marital status, race, national origin, or religion.
Consider whether you have a telephone listing in your name. A creditor may consider whether you have a phone.
Consider the race of people in the neighborhood where you want to buy, refinance or improve a house with borrowed money.
Consider your age, unless:
you're too young to sign contracts, generally younger than 18 years of age;
you're 62 or older, and the creditor will favor you because of your age;
it's used to determine the meaning of other factors important to creditworthiness. For example, a creditor could use your age to determine if your income might drop because you're about to retire;
it's used in a valid scoring system that favors applicants age 62 and older. A credit-scoring system assigns points to answers you provide to credit application questions. For example, your length of employment might be scored differently depending on your age.
When Evaluating Your Income, A Creditor May Not...
Refuse to consider public assistance income the same way as other income.
Discount income because of your sex or marital status. For example, a creditor cannot count a man's salary at 100 percent and a woman's at 75 percent. A creditor may not assume a woman of childbearing age will stop working to raise children.
Discount or refuse to consider income because it comes from part-time employment or pension, annuity, or retirement benefits programs.
Refuse to consider regular alimony, child support, or separate maintenance payments. A creditor may ask you to prove you have received this income consistently.
You Also Have The Right To...
Have credit in your birth name (Mary Smith), your first and your spouse's last name (Mary Jones), or your first name and a combined last name (Mary Smith-Jones).
Get credit without a cosigner, if you meet the creditor's standards.
Have a cosigner other than your husband or wife, if one is necessary.
Keep your own accounts after you change your name, marital status, reach a certain age, or retire, unless the creditor has evidence that you're not willing or able to pay.
Know whether your application was accepted or rejected within 30 days of filing a complete application.
Know why your application was rejected. The creditor must give you a notice that tells you either the specific reasons for your rejection or your right to learn the reasons if you ask within 60 days.
Acceptable reasons include: "Your income was low," or "You haven't been employed long enough." Unacceptable reasons are: "You didn't meet our minimum standards," or "You didn't receive enough points on our credit-scoring system." Indefinite and vague reasons are illegal, so ask the creditor to be specific.
Find out why you were offered less favorable terms than you applied for—unless you accept the terms. Ask for details. Examples of less favorable terms include higher finance charges or less money than you requested.
Find out why your account was closed or why the terms of the account were made less favorable unless the account was inactive or delinquent.
A Special Note To Women
A good credit history—a record of how you paid past bills—often is necessary to get credit. Unfortunately, this hurts many married, separated, divorced, and widowed women. There are two common reasons women don't have credit histories in their own names: they lost their credit histories when they married and changed their names; or creditors reported accounts shared by married couples in the husband's name only.
If you're married, divorced, separated, or widowed, contact your local credit bureau(s) to make sure all relevant information is in a file under your own name.
If You Suspect Discrimination...
Complain to the creditor. Make it known you're aware of the law. The creditor may find an error or reverse the decision.
Check with your state Attorney General to see if the creditor violated state equal credit opportunity laws. Your state may decide to prosecute the creditor.
Bring a case in federal district court. If you win, you can recover damages, including punative damages. You also can obtain compensation for attorney's fees and court costs. An attorney can advise you on how to proceed.
Join with others and file a class action suit. You may recover punitive damages for the group of up to $500,000 or one percent of the creditor's net worth, whichever is less.
Report violations to the appropriate government agency. If you're denied credit, the creditor must give you the name and address of the agency to contact. While some of these agencies don't resolve individual complaints, the information you provide helps them decide which companies to investigate. A list of agencies follows.
If a retail store, department store, small loan and finance company, mortgage company, oil company, public utility, state credit union, government lending program, or travel and expense credit card company is involved, contact:
Consumer Response Center,
Federal Trade Commission,
Washington, DC 20580.
The FTC cannot intervene in individual disputes, but the information you provide may indicate a pattern of possible law violations that require action by the Commission.
If your complaint concerns a nationally-chartered bank (National or N.A. will be part of the name), write to:
Comptroller of the Currency,
Compliance Management,
Mail Stop 7-5,
Washington, DC. 20219
If your complaint concerns a state-chartered bank that is insured by the Federal Deposit Insurance Corporation but is not a member of the Federal Reserve System, write to:
Federal Deposit Insurance Corporation,
Consumer Affairs Division,
Washington, DC. 20429
If your complaint concerns a federally-chartered or federally-insured savings and loan association, write to:
Office of Thrift Supervision
Consumer Affairs Program,
Washington, DC. 20552.
If your complaint concerns a federally-chartered credit union, write to:
National Credit Union Administration,
Consumer Affairs Division
Washington, DC. 20456
Complaints against all kinds of creditors can be referred to:
Department of Justice,
Civil Rights Division
Washington, DC. 20530.
Fair Credit Billing
Have you ever been billed for merchandise you returned or never received? Has your credit card company ever charged you twice for the same item or failed to credit a payment to your account? While frustrating, these errors can be corrected. It takes a little patience and knowledge of the dispute settlement procedures provided by the Fair Credit Billing Act (FCBA).
The law applies to "open end" credit accounts, such as credit cards, and revolving charge accounts - such as department store accounts. It does not cover installment contracts - loans or extensions of credit you repay on a fixed schedule. Consumers often buy cars, furniture and major appliances on an installment basis, and repay personal loans in installments as well.
What types of disputes are covered?
The FCBA settlement procedures apply only to disputes about "billing errors." For example:
unauthorized charges. Federal law limits your responsibility for unauthorized charges to $50;
charges that list the wrong date or amount;
charges for goods and services you didn't accept or weren't delivered as agreed;
math errors;
failure to post payments and other credits, such as returns;
failure to send bills to your current address - provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends; and
charges for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.
To take advantage of the law's consumer protections, you must:
write to the creditor at the address given for "billing inquiries," not the address for sending your payments, and include your name, address, account number and a description of the billing error.
send your letter so that it reaches the creditor within 60 days after the first bill containing the error was mailed to you.
Send your letter by certified mail, return receipt requested, so you have proof of what the creditor received. Include copies (not originals) of sales slips or other documents that support your position. Keep a copy of your dispute letter.
The creditor must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has been resolved. The creditor must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.
What happens while my bill is in dispute?
You may withhold payment on the disputed amount (and related charges), during the investigation. You must pay any part of the bill not in question, including finance charges on the undisputed amount.
The creditor may not take any legal or other action to collect the disputed amount and related charges (including finance charges) during the investigation. While your account cannot be closed or restricted, the disputed amount may be applied against your credit limit.
Will my credit rating be affected?
The creditor may not threaten your credit rating or report you as delinquent while your bill is in dispute. However, the creditor may report that you are challenging your bill. In addition, the Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants who exercise their rights, in good faith, under the FCBA. Simply put, you cannot be denied credit simply because you've disputed a bill.
What if the bill is incorrect?
If your bill contains an error, the creditor must explain to you - in writing - the corrections that will be made to your account. In addition to crediting your account, the creditor must remove all finance charges, late fees or other charges related to the error. If the creditor determines that you owe a portion of the disputed amount, you must get a written explanation. You may request copies of documents proving you owe the money.
If the bill is correct?
If the creditor's investigation determines the bill is correct, you must be told promptly and in writing how much you owe and why. You may ask for copies of relevant documents. At this point, you'll owe the disputed amount, plus any finance charges that accumulated while the amount was in dispute. You also may have to pay the minimum amount you missed paying because of the dispute.
If you disagree with the results of the investigation, you may write to the creditor, but you must act within 10 days after receiving the explanation, and you may indicate that you refuse to pay the disputed amount. At this point, the creditor may begin collection procedures. However, if the creditor reports you to a credit bureau as delinquent, the report also must state that you don't think you owe the money. The creditor must tell you who gets these reports.
...the creditor fails to follow the procedure?
Any creditor who fails to follow the settlement procedure may not collect the amount in dispute, or any related finance charges, up to $50, even if the bill turns out to be correct. For example, if a creditor acknowledges your complaint in 45 days - 15 days too late - or takes more than two billing cycles to resolve a dispute, the penalty applies. The penalty also applies if a creditor threatens to report - or improperly reports - your failure to pay to anyone during the dispute period.
An important caveat
Disputes about the quality of goods and services are not "billing errors," so the dispute procedure does not apply. However, if you buy unsatisfactory goods or services with a credit or charge card, you can take the same legal actions against the card issuer as you can take under state law against the seller.
To take advantage of this protection regarding the quality of goods or services, you must:
have made the purchase (it must be for more than $50) in your home state or within 100 miles of your current billing address;
make a good faith effort to resolve the dispute with the seller first.
The dollar and distance limitations don't apply if the seller also is the card issuer - or if a special business relationship exists between the seller and the card issuer.
Other billing rights
Businesses that offer "open end" credit also must:
give you a written notice when you open a new account - and at certain other times - that describes your right to dispute billing errors;
provide a statement for each billing period in which you owe - or they owe you - more than one dollar;
send your bill at least 14 days before the payment is due - if you have a period within which to pay the bill without incurring additional charges;
credit all payments to your account on the date they're received, unless no extra charges would result if they failed to do so. Creditors are permitted to set some reasonable rules for making payments, say setting a reasonable deadline for payment to be received to be credited on the same date; and
promptly credit or refund overpayments and other amounts owed to your account. This applies to instances where your account is owed more than one dollar. Your account must be credited promptly with the amount owed. If you prefer a refund, it must be sent within seven business days after the creditor receives your written request. The creditor must also make a good faith effort to refund a credit balance that has remained on your account for more than six months.
Suing the creditor
You can sue a creditor who violates the FCBA. If you win, you may be awarded damages, plus twice the amount of any finance charge - as long as it's between $100 and $1,000. The court also may order the creditor to pay your attorney's fees and costs.
If possible, hire a lawyer who is willing to accept the amount awarded to you by the court as the entire fee for representing you. Some lawyers may not take your case unless you agree to pay their fee - win or lose - or add to the court-awarded amount if they think it's too low.
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