Written by: Josh Smith
Edited by: Lillian Guevara-Castro
As a consumer, you may think the most important things you need to know center around using your credit cards responsibly and maintaining a high credit score. While these things are certainly important, there are also some laws you should be aware of that describe many of your consumer credit rights, including how credit is extended to you as well as how it is reported to the credit bureaus. That’s why, in the article below, we’ll take a look at five credit laws you need to know to get the most out of your credit journey.
Even if you do a great job of keeping tabs on your credit report and maintaining a good credit score, being aware of your rights, as well as the obligations and responsibilities of creditors and lenders, is important. Understanding some important credit laws will come in handy in guiding you to respond properly should any issues arise with your credit in the future. Here are five credit laws about which every responsible consumer needs to know.
1. The Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA) is a law that was enacted in 1974 in an effort to prevent lenders from discriminating against people or businesses applying for credit based on non-financial factors. In particular, the law prevents lenders from discriminating against businesses and consumers on the basis of:
- Race
- Religion
- National origin
- Sex
- Marital status
- Whether the applicant receives public assistance
While this information may be requested, it cannot be used as a determining factor in whether or not to extend credit or to dictate loan terms once an applicant has been approved.
Additionally, lenders are prohibited from asking about marital status if a candidate is applying for individual, unsecured credit (unless in a community property state). Similarly, lenders may not ask a candidate if they plan to have children (or additional children), though they may inquire about the number, ages, and related financial obligations of your children.
The ECOA also mandates that lenders send an explanation within 60 days to applicants whose request for credit is denied, detailing the reason or reasons for the denial decision. This also applies if a creditor closes an account or denies a credit line increase.
2. The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) was established to ensure that information contained in a credit report is accurate and that it is kept confidential. This is the law that entitles you to a free copy of your credit report annually, thanks to an additional provision established in 2003 called The Fair and Accurate Credit Transactions Act.
Additionally, the FCRA gives consumers the right to dispute inaccurate or erroneous information within their credit report. Credit disputes that are proven to be accurate require the credit reporting agency or agencies involved to correct or delete inaccurate information. Disputes can be filed yourself, or you can use the help of an experienced credit repair company, like the picks below.
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Similar to the ECOA, the FCRA also stipulates that any time information in a credit file is used against you — for instance, when you are denied a loan — you must be notified of the reason. The FCRA also limits third-party access to your credit report, and it requires any employers (or potential employers) from pulling your credit report without your express written permission.
3. The Truth in Lending Act
If you’ve ever applied for a mortgage loan or refinanced an existing home loan, then you have received a Truth-in-Lending statement. The Truth in Lending Act (TILA) dictates what information must be disclosed to consumers when loan or personal credit card offers are being extended. The objective is to ensure that lenders disclose exactly how much credit will cost the consumer.
TILA disclosures include the annual percentage rate (APR) of the loan, finance charges — including all application fees, late fees, and penalties that will be assessed for paying off the loan early — the total amount being financed, the complete payment schedule, and the total repayment amount over the lifetime of the loan. These details must be disclosed before the consumer accepts the credit line or loan, and they also must be displayed on billing statements associated with the accounts.
4. The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (DCPA) was designed to establish rules and guidelines pertaining to the collection of debt. For example, the FDCPA prohibits third-party collectors from:
- Using abusive language to coerce a consumer into making payments
- Calling at unreasonable hours (before 8 a.m. and after 9 p.m.)
- Making excessive collection calls
- Threatening to notify an employer or friends, or to otherwise make public the fact that the consumer has not paid his or her bills
- Attempting to collect more than what is owed
- Sending the consumer misleading correspondence that appears to be issued by a government agency or a court of law
The law applies only to personal debts and most states have their own debt collection laws. The FDPCA also gives consumers the right to sue any debt collector that violates these rights for up to $1,000 in addition to actual damages and attorney fees.
5. The Credit Repair Organizations Act
Once credit has been damaged, consumers often rely on credit repair companies to help them get back on track. With the growing popularity of these services, the Credit Repair Organizations Act (CROA) was established in 1996 as an added layer of consumer protection. CROA applies to any person or business that accepts a fee in exchange for credit repair assistance. The law mandates that the company be completely honest about the services provided and that it cannot request payment for services before they’ve been rendered.
CROA also stipulates that credit repair companies cannot lie to creditors about a consumer’s credit history, nor can they encourage the consumer they’re representing to lie to current or future creditors. This law also prohibits credit repair companies from altering consumer identity in an attempt to establish a new credit history.
Credit repair companies must also provide clients with a disclosure detailing the consumer’s right to obtain a credit report and dispute inaccurate information on his or her own behalf.
If a Creditor Breaks the Law
Despite all of these laws and provisions designed to protect the credit consumer, businesses still break these laws. If you feel your legal rights have been violated related to credit, you can reach out to the Consumer Financial Protection Bureau to report that business. You can also contact the Federal Trade Commission or your state Attorney General to alert them about companies that break the law.
Understanding the ins and outs of the credit world can be tricky but it’s important to have a basic understanding of your rights when it comes to financing. Hopefully, this guide will serve as a good foundation.
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