Credit Laws

Credit allows consumers to finance transactions without having to pay the full cost of the
merchandise at the time of the transaction. A common form of consumer credit is a
credit card account issued by a financial institution. Merchants may also provide
direct financing for products which they sell. Banks may directly finance purchases
through loans and mortgages.
The law of consumer credit is primarily embodied in federal and state statutes. These
laws protect consumers and provide guidelines for the credit industry.

The Equal Credit Opportunity Act

The ECOA prevents lenders from discriminating against people or businesses based on
non-financial factors. The ECOA is one of the few important consumer laws that applies
to consumers and businesses - most others apply to consumers only. The ECOA says
that a lender cannot discourage you from applying or discriminate against you based on
factors that include:
 race
 color
 religion
 marital status
 age (unless you're too young to sign a contract)
 whether the applicant receives public assistance

Lenders may ask for this information in certain situations, but the information cannot be
used to decide whether to give credit and it cannot be used to set the terms for
applicants who are approved. For example, the lenders cannot assign interest rates
based on an applicant's age.
The ECOA limits the information lenders can ask about an applicant's spouse only in
certain situations, like a joint application, when you're relying on your spouse's income
to pay the account, or applicants made in community property states. The lender isn't
allowed to ask whether an applicant is widowed or divorced. Only the terms married,
unmarried, and separated can be used.
The ECOA applies to all businesses who regularly extend credit and businesses like
mortgage brokers, who simply financing.
The Fair Credit Reporting Act
The FCRA defines how consumer credit information can be collected and used. It
governs credit bureaus like Equifax, Experian, and TransUnion, and other consumer
reporting agencies.

Under the FCRA, you have a right to review your credit report upon request. You can
receive one free copy of your credit report each from each consumer reporting agency.

You have the right to an accurate credit report and can dispute errors with the credit
bureaus who are required to investigate the information you dispute. After receiving your
dispute and investigating, the credit bureau must correct or delete inaccurate
information.

Depending on the type of information, outdated negative information must be removed

from your credit report after seven to ten years.

The FCRA also gives instructions for companies who report information to the credit
bureaus and consumer reporting agencies. These companies aren't allowed to report
inaccurate information, must let you know if negative information has been reported to
the credit bureaus, must update inaccurate information that was previously given to the
credit bureaus and cannot report any accounts that you've notified them are the result of
identity theft.

You have the right to know who has accessed your credit report. This information won't
be sent to you automatically but will be included in a separate (inquiries) section of your
credit report.

You have the right to know if information in your credit has been used against you. If you
make a credit-based application and you're turned down because of information in your
credit report, the business is required to notify you, give you the reasons you were
denied, and inform you of your right to view a free copy of the credit report that was
used in the decision.

You can sue businesses that violate your rights under the FCRA. You can file a lawsuit
in Federal court for up to $1,000 or your actual damages.
The Fair Debt Collection Practices Act
The FDCPA doesn't pertain to your credit directly, but it governs what third-party debt
collectors (who do have some impact on your credit) can do when they're collecting a
debt from you. The law applies to personal debts, not business debts. The FDCPA is a
Federal law that applies to all third-party debt collectors, even collection attorneys,
regardless of the state where the debt collector practices. Most states have separate
debt collection laws.

First, it's important to know that the FDCPA applies to third-party debt collectors, not the
company you originally created the debt with.

If a debt collector contacts someone you know - a friend or family member - to get
information about you so they can contact you, the collector isn't allowed to reveal that
they're collecting a debt.

The FDPCA defines when debt collectors can contact you - between the hours of 8 a.m.
and 9 p.m. unless you've given them permission to call you at another time.

You can stop debt collectors from calling you by sending them a written cease and
desist letter letting them know that you want their calls to stop.

When they're collecting a debt from you, collectors cannot make false statements,
threaten you, harass you, call you repeatedly to annoy you or threaten to take any legal
action that they're not allowed to make or that they do not intend to make. For example,
a debt collector can't threaten to sue you if they're not allowed to sue you or if they do
not plan to sue you.

Under the FDPCA, you have the right to sue a debt collector who violates your rights.
You could receive up to $1,000 in addition to actual damages and attorney fees.
The Truth in Lending Act
The TILA defines what information must be disclosed to consumers who are being
offered credit products, including personal credit cards and loans. The law doesn't allow
to business or commercial credit cards and loans. Under the TILA, the lender must
disclose:

 annual percentage rate

 finance charges, including application fees, late fees, and prepayment penalties
 amount financed
 payment schedule
 total repayment amount over the lifetime of the loan

These details not only have to be presented to the consumer before he signs for the
credit but must also plainly appear on billing statements.

The TILA does not restrict the amount of interest that can be charged and it does not
specify whether credit must be granted. It simply requires lenders to be upfront about
how much credit will cost the consumer.

Over the years, amendments have been made to the TILA so that it continues to protect
consumers. In 2009, the Credit CARD Act made significant changes to the law requiring
credit card issuers to disclose pricing information for credit products when issuing new
credit cards. Other requirements under the Credit CARD Act include:

Credit card companies must consider a consumer's ability to repay before issuing a new
credit card or raising the credit limit on an existing one.
Give consumers a 45-day advance notice before increasing the 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 minimum only 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, like t-shirts or gifts, in exchange for consumers who sign
up for a credit card
The Credit Repair Organizations Act
Consumers who are considering using the services of a credit repair company should
know how the law protects them. The CROA applies to any person or business that
takes money in exchange for improving your credit.

Under the CROA, credit repair companies cannot lie to your creditors about your credit
history. They also cannot encourage you to lie to current or future creditors.

Credit repair companies are prohibited from altering your identity in an attempt to get a
new credit history.

The company must be completely honest about the services provided to you. They
cannot misrepresent that they are providing you.

You should not be asked to pay for services before they have been provided.

All credit repair companies have to provide you with a disclosure that details your right
to obtain a credit report and dispute inaccurate information yourself.

The credit repair company, before performing any services for you, should give you a
contract and allow you a 3-day "cooling off" period after you've signed the contract.
You're allowed to cancel the contract within three days with no cancellation fee.

Any company who asks you to waive your rights under the CROA is violating the law.
Any waiver you sign is void and will not be enforced.
What is Microfinance
Microfinance, also called microcredit, is a type of banking service that is provided to
unemployed or low-income individuals or groups who otherwise would have no other
access to financial services. While institutions participating in the area of microfinance
most often provide lending (microloans can range from as small as $100 to as large as
$25,000), many banks offer additional services, such as checking and savings
accounts, and micro-insurance products; and some even provide financial and business
education. Ultimately, the goal of microfinance is to give impoverished people an
opportunity to become self-sufficient.

Breaking Down Microfinance

Microfinance services are provided to unemployed or low-income individuals because
most of those trapped in poverty, or who have limited financial resources, do not have
enough income to do business with traditional financial institutions. Despite being
excluded from banking services, however, those who live off of as little as $2 a day do
attempt to save, borrow, acquire credit or insurance, and do make payments on their
debt. Thus, many poor people look instead to family, friends, and even loan sharks—
who often charge exorbitant interest rates—for help.

Microfinance allows people to take on reasonable small business loans safely, and in a
manner that is consistent with ethical lending practices. Although they exist all around
the world, the majority of microfinancing operations occur in developing nations, such as
Uganda, Indonesia, Serbia, and Honduras. Many microfinance institutions focus on
helping women in particular.
How Microfinance Works
Microfinancing organizations support a large number of activities that range from
providing the basics—like bank checking and savings accounts—to startup capital for
small business entrepreneurs, and educational programs that teach the principles of
investing. These programs can focus on such skills as bookkeeping, cash-flow
management, and technical or professional skills, like accounting. Unlike typical
financing situations, in which the lender is primarily concerned with the borrower having
enough collateral to cover the loan, many microfinance organizations focus on helping
entrepreneurs to succeed.
In many instances, people seeking help from microfinance organizations are first
required to take a basic money-management class. Lessons cover understanding
interest rates, the concept of cash flow, how financing agreements and savings
accounts work, how to budget, and how to manage debt.

Once educated, customers then may apply for loans. Just as one would find at a
traditional bank, a loan officer helps borrowers with applications, oversees the lending
process, and approves loans. The typical loan, sometimes as little as $100, may not
seem like much to some people in the developed world. But to many impoverished
people, this figure often is enough to start a business or engage in other profitable
activities.
Credit Finance Practices
For Banks
a. There should be legal rules on the issuance of credit cards and related
customer disclosure requirements.
b. Banks, as credit card issuers, should ensure that personalized
disclosure requirements are made in all credit card offers, including the
fees and charges (including finance charges), credit limit, penalty
interest rates and method of calculating the minimum monthly payment.
c. Banks should not be permitted to impose charges or fees on preapproved
credit cards that have not been accepted by the customer.
d. Consumers should be given personalized minimum payment warnings
on each monthly statement and the total interest costs that will accrue if
the cardholder makes only the requested minimum payment.
e. Among other things, the legal rules should also:
(i) restrict or impose conditions on the issuance and marketing of
credit cards to young adults who have no independent means of
income;
(ii) require reasonable notice of changes in fees and interest rates
increase;
(iii) prevent the application of new higher penalty interest rates to the
entire existing balance, including past purchases made at a lower
interest rate;
(iv) limit fees that can be imposed, such as those charged when
consumers exceed their credit limits;
(v) prohibit a practice called ―double-cycle billing‖ by which card
issuers charge interest over two billing cycles rather than one;
(vi) prevent credit card issuers from allocating monthly payments in
ways that maximize interest charges to consumers; and
(vii) limit up-front fees charged on sub-prime credit cards issued to
individuals with bad credit.
f. There should be clear rules on error resolution, reporting of
unauthorized transactions and of stolen cards, with the ensuing liability
of the customer being made clear to the customer prior to his or her
acceptance of the credit card.
g. Banks and issuers should conduct consumer awareness programs on
the misuse of credit cards, credit card over- indebtedness and
prevention of fraud.

For Consumer/Customer’s
Consumer credit is frequently measured by economists and other financial analysts as it
serves as an indicator of economic growth. For example, if consumers can easily
borrow money and repay those debts on time, then the economy is stimulated resulting
in economic growth.

Consumer credit is the portion of credit consumers use to buy non-investment services
consumed or goods that depreciate quickly. This includes automobiles, education costs,
recreational vehicles (RVs), boat and trailer loans, but it does not include debts obtained
to purchase margin on investment accounts or real estate. For example, a mortgage
loan is not consumer credit. However, the 65-inch high-definition television charged on a
credit card is consumer credit.

Consumer credit allows consumers to get an advance or loan to spend money on

products or services for family, household or personal uses repaid at a specified future
date. Retailers, department stores, banks and other financial institutions offer consumer
credit.

Advantages of Consumer Credit

The main advantage of consumer credit is that consumers can purchase goods and
services and pay for them later. Consumers can purchase items they need when their
funds are low. Consumer credit offers a backup form of payment and one monthly
payment.

Disadvantages of Consumer Credit

The main disadvantage of using consumer credit is the cost. If a consumer fails to repay
a loan or a credit card balance, this impacts his credit scores, affects terms and
conditions, and results in late fees and penalties.

Types of Consumer Credit

Installment credit is used for a specific purpose, for a defined amount and for a specific
period. Payments are usually the same amount each month. Examples of purchases
made on installment credit include large appliances, automobiles and furniture. These
kinds of loans usually offer lower interest rates than revolving credit. For example, a car
company holds a lien on the car until the car loan is repaid. The total amount of the
principal and interest is repaid within a predefined period. If the customer defaults on
the loan payments, the company can repossess the car and charge penalties.

Revolving credit can be utilized for any purpose. Loans are made on a continuous basis
for purchases until the consumer reaches his credit limit. Customers receive bills
periodically to make at least a minimum monthly payment. For example, Visa can
approve a consumer for a $5,000 credit card limit with a 13% interest rate. If the
consumer defaults on payments, the credit card company can charge late fees or other
penalties.