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Consumer Credit Laws to Know

Creditors, lenders, and other businesses in the credit industry have a responsibility to treat you fairly, avoid bias, communicate clearly, and protect your personal information. Being familiar with the laws that hold companies accountable will help you manage your credit report and not be taken advantage of.

Equal Credit Opportunity Act (ECOA)

The ECOA forbids creditors from discriminating against applicants based on non-financial factors, including race, color, religion, national origin, sex, marital status, age, or acceptance of government assistance. Lenders may still ask for this information, but it can’t be used to decide whether to give credit and it can’t be used to set the credit terms, like interest rate. The ECOA also limits the information lenders can ask about an applicant’s spouse for joint applications and for applicants in community property states.

If you are offered less favorable terms on a loan or other form of credit, you have the right to know why once you reject the terms. The lender must send you an explanation within 60 days of their decision naming the specific reasons for their decision.

Fair Credit Reporting Act (FCRA), Consumer Credit Reporting Reform Act, and Fair and Accurate Credit Transaction Act of 2003

These acts work to protect you from incorrect credit report information that can harm your financial standing and from the invasion of privacy in the collection and dissemination of information. You have the right to know who is gathering information about you and what type of information is gathered. You are also allowed an opportunity to challenge and correct that information.

The FCRA governs the credit bureaus—Equifax, Experian, and TransUnion—and other consumer reporting agencies who collect consumer credit information. It gives you the right to request and review your credit report. For this reason, by law you can receive one free copy of your credit report every year from each consumer reporting agency.

You also have the right to dispute errors on your report with the credit bureaus, who are then required to investigate the information you dispute. Any inaccurate information must be corrected or deleted. Outdated negative information must be removed after seven to ten years, depending on the type of negative mark.

If you are denied a loan or credit application, you have the right to know if information in your credit has been used against you for this decision. The lender must give you the reasons you were denied and inform you of your right to see a free copy of the credit report used in the decision.

Fair Credit and Charge Card Disclosure Act and Truth in Lending Act (TILA)

According to both of these acts, creditors must provide full disclosure about the terms of any credit card offer, including:

  • Annual percentage rate (APR)
  • Finance charges: application fees, late fees, and prepayment penalties
  • Amount financed
  • Payment schedule
  • Total repayment amount over the lifetime of the loan with minimum payments

This information must be presented to you before you sign for the credit card or loan and must also appear on billing statements.

Credit Card Accountability, Responsibility, and Disclosure Act (Credit CARD Act)

This act prevents credit card issuers from abusing their power and giving credit cards to those who cannot afford to use them or by withholding information that would help in repayment. Requirements under the Credit CARD Act include:

  • Company must consider your ability to repay before issuing a new credit card or raising the credit limit on an existing one
  • Give you a 45-day advance notice before increasing the card’s interest rate
  • Send billing statements 21 days before the due date
  • Disclose the cost of making minimum payments and the time it will take to pay off the balance with only minimum payments
  • Only charge an over-the-limit fee when the cardholder has opted-in to having over-the-limit transactions processed
  • Not offer tangible incentives in exchange for signing up for a credit card

Hopefully knowing about these laws will empower you to push back if you feel like you’ve been treated unfairly or have been the victim of unscrupulous lending practices.

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