APMacro: PF Consumer Credit Protection

Credit problems can be an important source of financial difficulty for young adults getting their first taste of financial independence after high school. Young adults today have easy access to credit. Three-fourths of undergraduate college students had credit cards. The average balance on these cards was $2,200. Nellie Mae, an organization that makes loans to college students, says that, in addition to credit card debt, many students will have $20,000 in student loans to pay off when they leave college. Young adults sometimes make bad choices about spending. They are sometimes inclined to live beyond their means and run up big debts. Excessive credit card debt is a common problem. So are high monthly payments on car loans, high monthly payments for rent, and an inability to save money. For young couples, financial problems are often a troublesome factor contributing to break-ups and divorce. Financial problems, however, are not reserved for the young. People of all ages can face financial problems. An unexpected illness, the loss of a job, a divorce, or the loss of child care, these and other difficulties can tip a household into financial trouble.

Employers, unions, credit unions and banks may employ staff members who can provide free budget and credit advice. Several non-profit credit-counseling agencies also provide assistance to people who are having difficulty managing their finances. These agencies may be available for face-to-face, telephone, and online counseling. Not all agencies are the same. If you have occasion to work with a credit-counseling agency, be sure to ask about the counselors’ qualifications. Are they accredited or certified by the National Foundation for Consumer Credit (NFCC), Accredited Financial Counselors (AFC), or Certified Financial Planners (CFP)? What services are offered and what are the fees? Make sure the agency will do a full budget review before enrolling you in a debt-management plan. Do you pay anything before you are helped? Are there ongoing monthly fees? Does the agency provide educational materials? Are these materials available on the Internet?

Credit-counseling agencies sometimes work with creditors to create repayment plans that are manageable for their clients. In these cases, all of the client’s debt is consolidated into a lump sum, and the client pays one monthly payment on that sum to the counseling agency. The agency ensures that payments will be made to the creditors in a timely manner. Sometimes an agency is able to negotiate reduced interest rates and the elimination of fees. These cost savings allow clients to repay their debt more quickly. Before you enter into a debt-repayment plan ask the following questions: How is your payment determined? How does your debt repayment work? How will you know your creditors are receiving payments? Can the agency get your creditors to reduce interest rates, eliminate interest and finance charges, or waive fees? Are there alternatives to the debt-repayment plan? What happens if you can’t keep up with the agreed-upon plan?

Remember: In a credit transaction, both sides expect to benefit. Borrowers expect to use credit to purchase something of value to them today and/or in the future. Lenders expect to be repaid, with interest. If parties to these transactions consistently cheated and lied, the cost of credit would be very high, and few could afford it. The vast majority of credit transactions are ones in which all parties obtain the benefits they sought.

But the world is not a perfect place. Sometimes borrowers make mistakes or are dishonest with lenders. Sometimes lenders make mistakes or are dishonest with borrowers. Several state and federal laws are designed to protect consumers of credit from dishonest business practices. State credit-protection laws vary, of course, from state to state. You might want to contact your state bureau that handles such matters to learn more. The federal government has several laws regulating consumer credit. These include the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Credit Billing Act, the Fair Debt Collection Practices Act, the Electronic Funds Transfer Act, and the Fair and Accurate Credit Transactions Act.

The Truth in Lending Act requires that lenders disclose the cost of credit in simple terms. The lender must state the percentage costs of borrowing in terms of the annual percentage rate (APR), which takes into account all the costs of financing. The lender must also disclose the total finance charges for the loan. The Truth in Lending Act also protects against unauthorized use of credit cards. If your credit card is lost or stolen, you are liable for no more than $50 in charges made by someone else. If you have promptly notified the card issuer of the loss or theft, you cannot be held responsible for any charges after your notification. The Truth in Lending Act also requires that if a business advertises one credit feature (such as how many months to pay, or the amount of the monthly payment), it must mention all other credit terms.

The Fair Credit Reporting Act governs the activities of credit bureaus and creditors. Among other things, the Fair Credit Reporting Act requires creditors to furnish accurate and complete information regarding your credit history. If you are refused credit, you have a right to see your credit report file from the bureau that submitted the negative information on which the refusal was based. The Fair and Accurate Credit Transactions Act, an amendment to the Fair Credit Reporting Act, requires that each of the three credit bureaus provide you with a free copy of your credit report each year, upon your request. The three credit reporting agencies, in partnership with the Federal Trade Commission, have established a website that consumers can use to obtain their free credit reports: www.annualcreditreport.com. The Fair Credit Reporting Act requires credit bureaus to investigate if you disagree with information on your credit report. If your claim is valid, your report must be corrected. Finally, the Fair Credit Reporting Act requires that only people with a legitimate business purpose can obtain a copy of your credit report.

The Fair and Accurate Credit Transactions Act also provides protection against identity theft—for example, by placing alerts on credit histories if identity theft is suspected or if a person is deployed overseas in the military. The Act also seeks to reduce identity theft by limiting account information that businesses can print on receipts at time of purchase.

The Equal Credit Opportunity Act requires that all consumers will be given an equal chance to receive credit. The Equal Credit Opportunity Act states that it is illegal to discriminate against applicants for credit on the basis of sex, marital status, race, national origin, religion, age, or because the applicant receives public assistance income.

The Fair Credit Billing Act requires creditors to mail your bill at least 14 days before payment is due. It also establishes procedures for correcting billing errors and fraudulent charges on your credit card accounts.

The Electronic Funds Transfer Act provides protection to people who use ATMs and debit cards. The Act limits your liability if your card is lost or stolen. How quickly you report the loss determines the amount for which you are held responsible. If you report your ATM card lost or stolen within two days of discovering the loss or theft, your losses are limited to $50. Note that “discovering the loss” can mean when you first notice the card is missing, or it can mean the time when you receive your monthly statement. If you wait up to 60 days, you are liable for up to $500. If you wait more than 60 days, you could lose all the money taken from your account.

The Fair Debt Collection Practices Act forbids collection agencies from using threats, harassment, or abuse to collect debts. This Act does not apply to creditors who are collecting their own debts.



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