Chapter 27Your Credit and the Law

pp. 434-447

Learning Targets

1. Explain how government protects credit rights.

2. Name federal laws that protect consumers.

3. Identify consumers’ credit rights.

4. Describe how to handle credit problems.

Why It’s Important

To maintain a good credit rating you have specific rights and protections under the law.

Protecting Your Credit Rights

To protect consumers, the 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.

Consumer Credit Protection Act

To make comparing credit costs easier, Congress passed the Consumer Credit Protection Act, also known as the Truth in Lending Law.

Truth-in-Lending Disclosure

All costs of borrowing must be made known to the consumer.

The two ways that the cost of credit must be expressed are: The dollar cost of credit, or the total finance

charge The annual percentage rate (APR)

The truth-in-lending disclosure also states the credit terms and conditions.

Truth in Lending

A credit advertisement must tell the number of payments, the amount, and the period of payments.

If your credit card is lost or stolen and used by someone else, your payment for any unauthorized purchases is limited to $50.

Equal Credit Opportunity Act

The Equal Credit Opportunity Act says that a credit application can be judged only on the basis of financial responsibility.

Cannot be based on: Marital Status Gender Race Religion

Equal Credit Opportunity Act

The ONLY three reasons for denying credit are: Low income Large current debts A poor record of making payments in the past

All credit applicants be informed of whether their application has been accepted or rejected within 30 days.

Fair Credit Reporting Act

When you apply for and use credit, the information goes into a file at one or more credit bureaus. Experian Equifax Trans Union

A credit file includes personal, employment, and financial information.

Right to Know

• The Fair Credit Reporting Act gives you the right to know what’s in your credit file.

If incorrect information is found, it must be removed from your file after the situation is examined. Must request the item be removed in writing.

Right to Privacy

According to the law, only authorized persons can see a copy of your credit report.

Corporations also get credit ratings. Standard & Poor’s assigns ratings to corporations based on several factors. A company’s market position and how it will grow in the near future are considerations.

continued

Financial Flexibility

The financial situation of a corporation is also important. Finally, Standard & Poor’s considers the risk associated with the company’s industry. Technology, for example, has a high degree of risk.

continued

Financial Flexibility

Why do you think technology companies are considered risky?

Analyze

Fair Credit Billing Act The Fair Credit Billing Act requires

creditors to correct billing mistakes brought to their attention.

The law also requires that consumers be informed of the steps they need to take to get an error corrected.

Notify the Creditor

The first step in correcting errors is to notify the creditor in writing.

If the creditor made the mistake, you don’t have to pay any finance charge on the amount in error.

The Fair Credit Billing Act permits consumers to stop a credit card payment for items that are damaged or defective.

Stop Payment

The Fair Credit Billing Act permits consumers to stop a credit card payment for items that are damaged or defective.

Fair Debt Collection Practices Act

A collection agent is a person or business that has the job of collecting overdue bills.

Before this act, collection agents could use any method they chose to collect.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) regulates the practices of collection agents. Must identify themselves to the people

whose bills they’re trying to collect. Can’t tell others about the debt. Can’t contact a person at work if the

employer doesn’t permit it or if the customer asks to be called at another number.

Fair Debt Collection Practices Act

If they use the phone, collection agents can’t keep calling all the time or pretend to be someone else.

Collection agents can’t state the amount of a debt on a postcard that a neighbor or someone else might see.

Graphic OrganizerConsumer Credit Rights

Graphic Organizer

Consumer Credit Protection Act

Equal Credit Opportunity Act

Fair Credit Reporting Act

Fair Credit Billing Act

Fair Debt Collection Practices Act

Right to know costsand terms of credit

Right to fair opportunityto obtain credit

Right to knowwhat’s in your credit file

Right to have billingmistakes resolved

Right to be protectedfrom collection agencies

Making an Ethical Decision

1. Does a credit card company have the right to call customers whose payment is overdue?

2. How does the Fair Debt Collection Practices Act protect consumers?

continued

Making an Ethical Decision

3. Is a credit card company that uses recorded messages rather than live callers to collect late payments following the spirit of the law? Why or why not?

Enforcing the Laws

The Federal Trade Commission (FTC) is responsible for enforcing the laws on credit.

The FTC also helps consumers with credit problems.

Enforcing the Laws

On the state level, you can contact your state banking department about credit problems.

Enforcing the Laws

A consumer protection division of your state attorney general’s office deals with complaints that other government agencies might not handle.

Fast Review

1. What does the usury law do?

2. In what two ways must the cost of credit be expressed in a truth-in-lending disclosure?

continued

Fast Review

3. What are the only three reasons a person can be denied credit according to the Equal Credit Opportunity Act?

continued

Fast Review

4. Name the three rights the Fair Credit Reporting Act guarantees.

5. What does the Fair Debt Collection Practices Act prevent collection agents from doing?

Credit Counseling

A credit counselor can help you revise your budget, contact creditors to arrange new payment plans, or help you find other sources of income.

Consolidating Debts

A consolidation loan combines all your debts into one loan with lower payments.

continued

Consolidating Debts

The two problems with a consolidation loan are: There is usually a high interest rate

because people who get such loans are considered poor credit risks.

Consolidating Debts

Because there is only one monthly payment, you might feel that the credit problem is under control and start charging new purchases

Bankruptcy

Bankruptcy is a legal process in which you are relieved of your debts, but your creditors can take some or all of your assets.

Bankruptcy

When bankruptcy is declared for reorganization purposes, the debtor, the creditor, and a court-appointed trustee come up with a plan to repay the debt on an installment basis.

Bankruptcy

You should avoid bankruptcy because it gives you a bad credit record.

Recent changes in the law have made it harder to declare bankruptcy.

Credit Services

Some companies will provide credit even if your credit rating is poor or if you have been denied credit in the past.

Credit Services

Some companies charge a fee to “clean up” your credit rating but they’re seldom able to restore a bad credit rating.

Credit Services

If you need a credit counselor, you can check with your Better Business Bureau or Chamber of Commerce to recommend one to you.

Fast Review

1. What are the two problems with a consolidation loan?

2. What effect does declaring bankruptcy have?

How might identity theft affect your credit history?

What should you do if your debit card is lost or stolen?

continued

If someone steals your credit card, by federal law, how much are you responsible to pay?

continued

How can you make sure all online transactions are secure?

Key Words

usury lawConsumer Credit Protection Acttruth-in-lending disclosureEqual Credit Opportunity ActFair Credit Reporting ActFair Credit Billing Act

continued

Key Words

collection agentFair Debt Collection Practices Actcredit counselorconsolidation loanbankruptcy

pp. 434-447

End ofChapter 27Your Credit and the Law