Chapter 27 Your Credit and the Law

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Chapter 27 Your Credit and the Law

• pp. 434-447

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Learning Objectives

• 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.

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Why Its Important

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

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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.

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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.

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Truth-in-Lending Disclosure

• All costs of borrowing must be made known to the
  consumer.
• These costs are provided in the truth-in-lending
  disclosure that a creditor gives to a borrower.

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Truth-in-Lending Disclosure

• 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)

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Truth-in-Lending Disclosure

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

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Advertising Credit

• According to the Truth in Lending Law, a credit
  advertisement must tell the number of payments,
  the amount, and the period of payments.

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Protecting Card Owners

• The Truth in Lending Law states that If your
  credit card is lost or stolen and used by someone
  else, your payment for any unauthorized purchases
  is limited to 50.

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Protecting Card Owners

• The Truth in Lending Law also states that credit
  card companies are not allowed to send cards to
  consumers who didnt request a credit card.

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Equal Credit Opportunity Act

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

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Equal Credit Opportunity Act

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

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Equal Credit Opportunity Act

• The Equal Credit Opportunity Act requires that
  all credit applicants be informed of whether
  their application has been accepted or rejected
  within 30 days.

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Figure 27.1
FEDERAL AGENCIES THAT ENFORCE THE LAW
The law gives you certain rights as a credit
consumer. What types of complaints about a
creditor might you report to these government
agencies?
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Fair Credit Reporting Act

• When you apply for and use credit, the
  information goes into a file at one or more
  credit bureaus.
• A credit file includes personal, employment, and
  financial information.

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Fair Credit Reporting Act

• The Fair Credit Reporting Act was passed because
  of concerns about the accuracy of credit file
  information.

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Right to Know

• The Fair Credit Reporting Act gives you the right
  to know whats in your credit file.
• If incorrect information is found, it must be
  removed from your file after the situation is
  examined.

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Right to Be Notified

• The Fair Credit Reporting Act states that you
  must be notified when an investigation is being
  conducted on your credit record.

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Right to Privacy

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

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Financial Flexibility
Corporations also get credit ratings. Standard
Poors assigns ratings to corporations based on
several factors. A companys market position and
how it will grow in the near future are
considerations.
continued
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Financial Flexibility
The financial situation of a corporation is also
important. Finally, Standard Poors considers
the risk associated with the companys industry.
Technology, for example, has a high degree of
risk.
continued
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Analyze
Why do you think technology companies are
considered risky?
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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.

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Notify the Creditor

• The first step in correcting errors is to notify
  the creditor in writing.
• If the creditor made the mistake, you dont have
  to pay any finance charge on the amount in error.

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Stop Payment

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

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Figure 27.2
WHAT IF YOURE DENIED CREDIT?
Sometimes you can be denied credit because of
information from a credit report. The law
requires credit card companies to correct
inaccurate or incomplete information in your
credit report. Is it best to request changes of
incorrect information by letter rather than by
phone?
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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.

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Fair Debt Collection Practices Act

• The Fair Debt Collection Practices Act (FDCPA)
  regulates the practices of collection agents.

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Fair Debt Collection Practices Act

• Collection agents must identify themselves to the
  people whose bills theyre trying to collect.

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Fair Debt Collection Practices Act

• Collection agents cant tell others about the
  debt.
• Collection agents cant contact a person at work
  if the employer doesnt permit it.

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Fair Debt Collection Practices Act

• If they use the phone, collection agents cant
  keep calling all the time or pretend to be
  someone else.

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Fair Debt Collection Practices Act

• Collection agents cant state the amount of a
  debt on a postcard that a neighbor or someone
  else might see.

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Graphic Organizer
Graphic Organizer
Consumer Credit Rights
Consumer Credit Protection Act
Right to know costs and terms of credit
Equal Credit Opportunity Act
Right to fair opportunity to obtain credit
Fair Credit Reporting Act
Right to know whats in your credit file
Fair Credit Billing Act
Right to have billing mistakes resolved
Fair Debt Collection Practices Act
Right to be protected from collection agencies
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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
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Making an Ethical Decision

1. 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?

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Enforcing the Laws

• The Federal Trade Commission (FTC) is responsible
  for enforcing the laws on credit.
• The FTC also helps consumers with credit
  problems.

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Enforcing the Laws

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

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Enforcing the Laws

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

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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
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Fast Review

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

continued
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Fast Review

1. Name the three rights the Fair Credit Reporting
   Act guarantees.
2. What does the Fair Debt Collection Practices Act
   prevent collection agents from doing?

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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.

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Consolidating Debts

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

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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.

continued
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Consolidating Debts

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

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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.

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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.

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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.

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Credit Services

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

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Credit Services

• Some companies charge a fee to clean up your
  credit rating but theyre seldom able to restore
  a bad credit rating.

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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.

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Fast Review

1. What are the two problems with a consolidation
   loan?
2. What effect does declaring bankruptcy have?

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How might identity theft affect your credit
history?
What should you do if your debit card is lost or
stolen?
continued
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If someone steals your credit card, by federal
law, how much are you responsible to pay?
continued
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How can you make sure all online transactions are
secure?
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Key Words
usury law Consumer Credit Protection
Act truth-in-lending disclosure Equal Credit
Opportunity Act Fair Credit Reporting Act Fair
Credit Billing Act
continued
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Key Words
collection agent Fair Debt Collection Practices
Act credit counselor consolidation loan bankruptcy
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End of Chapter 27 Your Credit and the Law
pp. 434-447