Chapter 27
Your Credit and the Law
pp. 434-447
Learning Objectives
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.
These costs are provided in the truth-inlending disclosure that a creditor gives
to a borrower.
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)
Truth-in-Lending Disclosure

The truth-in-lending disclosure also states
the credit terms and conditions.
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.
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.
Protecting Card Owners
The Truth in Lending Law also states that
credit card companies are not allowed to
send cards to consumers who didn’t
request a credit card.
Equal Credit Opportunity Act

The Equal Credit Opportunity Act says
that a credit application can be judged
only on the basis of financial responsibility.
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
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.
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?
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.
Fair Credit Reporting Act
The Fair Credit Reporting Act was
passed because of concerns about the
accuracy of credit file 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.
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.
Right to Privacy

According to the law, only authorized
persons can see a copy of your credit
report.
Financial Flexibility
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
Analyze
Why do you think technology companies are
considered risky?
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.
Stop Payment
The Fair Credit Billing Act permits
consumers to stop a credit card payment
for items that are damaged or defective.
Figure
27.2
WHAT IF YOU’RE 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?
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.
Fair Debt Collection
Practices Act
Collection agents must identify themselves
to the people whose bills they’re trying to
collect.
Fair Debt Collection
Practices Act


Collection agents can’t tell others about
the debt.
Collection agents can’t contact a person
at work if the employer doesn’t permit it.
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.
Fair Debt Collection
Practices Act

Collection agents can’t state the amount
of a debt on a postcard that a neighbor or
someone else might see.
Graphic Organizer
GraphicCredit
Organizer
Consumer
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
what’s 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
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-inlending 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.
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
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 law
Consumer Credit Protection Act
truth-in-lending disclosure
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Credit Billing Act
continued
Key Words
collection agent
Fair Debt Collection Practices Act
credit counselor
consolidation loan
bankruptcy
End of
Chapter 27
Your Credit and the Law
pp. 434-447