Credit enables consumers to pay for goods and services without having to pay the full price of the merchandise at the time of purchase. A credit card issued by a financial institution is one such form of consumer credit. Consumer credit laws protect an individuals right to a fair and open marketplace and provide guidelines for the credit industry. Therefore, before businesses extend credit or customers deal with businesses offering credit, they should familiarize themselves with consumer credit laws.
Consumer credit laws exist at the state and federal levels. While there are significant nuances between the different state consumer credit laws, most are based on federal laws and various versions of state laws. What follows is an overview of important consumer credit laws:
1. Uniform Consumer Credit Code (UCCC): This statute, adopted in seven states and Guam, protects consumers who purchase goods and services on credit by, for instance, ensuring that they receive adequate credit and by setting a ceiling on rates they can be charged for credit. It clarifies, simplifies and updates laws regulating consumer credit and usury. 2. Consumer Credit Protection Act: This law requires creditors to disclose to consumers credit terms and conditions, such as interest rates, payment due dates, collection costs, and late penalties. It restricts the garnishment of wages, protects consumers from loan sharks, and prohibits discrimination based on sex or marital status in the extension of credit. This statute regulates credit card companies, credit reporting agencies, and certain credit card debt collectors.
The Fair Debt Collection Practices Act (or FDCPA), which is part of the Consumer Credit Protection Act, aims at eliminating illegal and unethical credit card debt (and other types as well) collection tactics. For example, it offers consumers the opportunity to dispute and obtain confirmation of credit card debt information. It also sets forth remedies and penalties for violations of the Act. On a pertinent note, each state has a credit card debt statute of limitations, defined as the period after which creditors cannot sue a consumer to collect the debt. The credit card debt statute of limitations begins on the customer’s last payment date or last activity date. The Truth in Lending Act (TILA), also part of the Consumer Credit Protection Act, was passed to combat abuses in consumer credit cost disclosures (i.e. in credit card plans offered by telephone, by mail or by applications distributed to the public) and to streamline disclosures throughout the credit industry by requiring that credit terms be spelled out.
3. Fair Credit Reporting Act: This statute provides procedures for correcting errors on a consumer’s credit record and mandates that such a record only be furnished if there is a legitimate business need. Individuals who have been denied credit may request a free credit report within 30 days of denial. 4. Bankruptcy Reform Act of 1978: Once a consumer files a bankruptcy petition, creditors must cease all debt collection efforts.5. Fair Credit Billing Act: This law, which applies only to open-end credit accounts, provides a step-by-step procedure for resolving billing errors and protects a customer’s credit rating while the consumer is settling a dispute. 6. Fair Credit and Charge Card Disclosure Act: Card issuers must disclose information such as annual fees, grace periods, and APRs on credit cards, as well as any rate increase associated with credit insurance. 7. Fair Debt Collection Practices Act: This law prohibits credit card debt collectors, among others, from engaging in such acts as:
Employing profane or obscene language Threatening or utilizing violence Publishing a list of consumers who allegedly refuse to pay their debts.
8. Equal Credit Opportunity Act: This statute prohibit creditors from discriminating against an applicant for credit on the basis of sex, age, color, religion, marital status, receipt of welfare, or national origin. The Equal Credit Opportunity Act also prevents creditors from discriminating against consumers who, in good faith, exercise any rights under the consumer credit laws. 9. Credit Practices Rule: This law makes it unlawful for a creditor to charge a consumer late fees simply because the he/she did not yet pay a late fee he or she owes. 10. Right to Financial Privacy Act: Under this Act, the government is prohibited from accessing financial record information about an institution’s customers, unless certain conditions are met.
In summary, consumer credit laws provide, for the most part, rights to consumers and responsibilities to institutions extending consumer credit. They protect, for instance, struggling consumers confronted by credit card debt, by ensuring that they are treated fairly and honestly.