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CREDIT
CARD NEWS YOU CAN USE™
Updated daily by Frankford Financial ©2007 All Rights Retained. Unauthorized
duplication strictly prohibited.
Credit and Your Consumer Rights
A good credit rating is very important. Businesses inspect your credit history
when they evaluate your applications for credit, insurance, employment, and even
leases. Based on your credit payment history, businesses can choose to grant
or deny you credit provided you receive fair and equal treatment. Sometimes,
things happen that can cause credit problems: a temporary loss of income, an
illness, even a computer error. Solving credit problems may take time and patience,
but it doesn't have to be an ordeal.
The Federal Trade Commission (FTC)
Enforces credit laws that protect your right
to obtain, use, and maintain credit. These laws do not guarantee that everyone
will receive credit. Instead, the credit laws protect your rights by requiring
businesses to give all consumers a fair and equal opportunity to receive credit
and to resolve disputes over credit errors. This brochure explains your rights
under these laws and offers practical tips to help you solve credit problems.
Your Credit Report
Your credit payment history is recorded in a file or report. These files or reports
are maintained and sold by "consumer reporting agencies" (CRAs). One type of
CRA is commonly known as a credit bureau. You have a credit record on file at
a credit bureau if you have ever applied for a credit or charge account, a personal
loan, insurance, or a job. Your credit record contains information about your
income, debts, and credit payment history. It also indicates whether you have
been sued, arrested, or have filed for bankruptcy.
The Fair Credit Reporting Act (FCRA) is designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application.
Your rights under the Fair Credit Reporting Act:
• You have the right to receive a copy of your credit report. The copy of
your report must contain all of the information in your file at the time of your
request.
• You have the right to know the name of anyone who received your credit
report in the last year for most purposes or in the last two years for employment
purposes.
• Any company that denies your application must supply the name and address
of the CRA they contacted, provided the denial was based on information given
by the CRA.
• You have the right to a free copy of your credit report when your application
is denied because of information supplied by the CRA. Your request must be made
within 60 days of receiving your denial notice.
• If you contest the completeness or accuracy of information in your report,
you should file a dispute with the CRA and with the company that furnished the
information to the CRA. Both the CRA and the furnisher of information are legally
obligated to reinvestigate your dispute.
• You have a right to add a summary explanation to your credit report if
your dispute is not resolved to your satisfaction.
Your Credit Application
When creditors evaluate a credit application, they cannot lawfully engage in discriminatory practices.
The Equal Credit Opportunity Act (ECOA) prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but may not use it to discriminate when deciding whether to grant you credit.
The ECOA protects consumers who deal with companies that regularly extend credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in the decision to grant credit, including real estate brokers who arrange financing, must follow this law. Businesses applying for credit also are protected by this law.
Your rights under the Equal Credit Opportunity Act:
• You cannot be denied credit based on your race, sex, marital status, religion,
age, national origin, or receipt of public assistance.
• You have the right to have reliable public assistance considered in the
same manner as other income.
• If you are denied credit, you have a legal right to know why.
Your Credit Billing and Electronic Fund Transfer Statements
It is important to check credit billing and electronic fund transfer account statements regularly. These documents may contain mistakes that could damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the company and contest the error immediately. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including:
• charges or electronic fund transfers that you-or anyone you have authorized
to use your account-have not made;
• charges or electronic fund transfers that are incorrectly identified or
show the wrong amount or date;
• computation or similar errors;
• failure to reflect payments, credits, or electronic fund transfers properly;
• not mailing or delivering credit billing statements to your current address,
as long as that address was received by the creditor in writing at least 20 days
before the billing period ended;
• charges or electronic fund transfers for which you request an explanation
or documentation, due to a possible error.
The FCBA generally applies only to "open end" credit accounts-credit cards, revolving
charge accounts (such as department store accounts), and overdraft checking accounts.
It does not apply to loans or credit sales that are paid according to a fixed
schedule until the entire amount is paid back, such as an automobile loan. The
EFTA applies to electronic fund transfers, such as those involving automatic
teller machines (ATMs), point-of-sale debit transactions, and other electronic
banking transactions.
Your Debts and Debt Collectors
You are responsible for your debts. If you fall behind in paying your creditors
or an error is made on your account, you may be contacted by a "debt collector." A
debt collector is any person, other than the creditor, who regularly collects
debts owed to others. This includes lawyers who collect debts on a regular basis.
You have the right to be treated fairly by debt collectors.
The Fair Debt Collection Practices Act (FDCPA) applies to personal, family, and household debts. This includes money owed for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts.
Your rights under the Fair Debt Collection Practices Act:
• Debt collectors may contact you only between 8 a.m. and 9 p.m.
• Debt collectors may not contact you at work if they know your employer
disapproves.
• Debt collectors may not harass, oppress, or abuse you.
• Debt collectors may not lie when collecting debts, such as falsely implying
that you have committed a crime.
• Debt collectors must identify themselves to you on the phone.
• Debt collectors must stop contacting you if you ask them to in writing.
Solving Your Credit Problems
Your credit report influences your purchasing power, as well as your chances to get a job, rent or buy an apartment or a house, and buy insurance. A history of timely credit payments helps you get additional credit. Accurate negative information can stay on your report for seven years. A bankruptcy can stay on your report for 10 years. If you are having problems paying your bills, contact your creditors at once. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don't wait until your account has been turned over to a debt collector.
Here are some additional tips for solving credit problems:
• If you want to contest a credit report, bill or credit denial, contact the appropriate company in writing and send it "return
receipt requested."
• When you contest a billing error, include your name, account number, the
dollar amount in question, and the reason you believe the bill is wrong.
• If in doubt, request written verification of a debt.
• Keep all your original documents, especially receipts, sales slips, and
billing statements. You will need them if you dispute a credit bill or report.
Send copies only. It may take more than one letter to correct problems.
• Be skeptical of businesses that offer instant solutions to credit problems.
• Be persistent. Resolving credit problems can take time and effort.
• There is nothing that a credit repair company can do for you-for a fee-that
you cannot do for yourself for little or no cost.
If you can't resolve your credit problems yourself or if you need help, you may want to contact a credit counseling service. Nonprofit organizations in every state counsel consumers in debt. Counselors try to arrange repayment plans that are acceptable to you and your creditors. They also can help you set up a realistic budget. These services usually are offered at little or no cost.
Universities, military bases, credit unions, and housing authorities also may offer low- or no-cost credit counseling programs. Check the white pages of your telephone directory for a service near you.
Credit Protection Laws
The Consumer Credit Protection Act of 1968-which launched Truth in Lending disclosures-was landmark legislation. For the first time, creditors had to state the cost of borrowing in a common language so that you-the consumer-could figure out what the charges are, compare costs, and shop for the best credit deal.
Since 1968, credit protections have multiplied rapidly. The concepts of "fair" and "equal" credit
have been written into laws that bar unfair discrimination in credit transactions,
require that consumers be told the reason when credit is denied, let borrowers
find out about their credit records, and set up a way for consumers to settle
billing disputes.
Each law was meant to reduce the problems and confusion about consumer credit, which as it became more widely used in our economy, also grew more complex. Together, these laws set a standard for how individuals are to be treated in their financial dealings.
The laws say, for instance, that you cannot be denied a credit card just because you're a single woman , that you can limit your risk if a credit card is lost or stolen, that you can resolve errors in your monthly bill without damage to your credit rating and, that you cannot have credit shut off just because you've reached age 62.
But let the buyer be aware-It is important to know your rights and how to use them. This handbook explains how the consumer credit laws can help you shop for credit, apply for it, maintain your credit standing, and, if need be, complain about an unfair deal. This handbook also explains what you should look for when using credit, details what creditors look for before extending credit, and reviews the laws' solutions to discriminatory practices that have made it difficult for women and minorities to get credit.
Shopping Is the First Step
Credit is a convenience. It lets you charge a meal on your credit card, pay for an appliance on the installment plan, get a loan to buy a house, or pay for schooling and vacations. With credit, you can enjoy your purchase while you're paying for it, or you can make a purchase when you're lacking ready cash.
But there are strings attached to credit as well. It usually costs something. And, of course, what is borrowed must be paid back. If you are thinking of borrowing or opening a credit account, your first step should be to figure out how much it will cost you and whether you can afford it. Then you should shop for the best terms.
What Laws Apply? Two laws can help you compare costs:
Truth in Lending requires creditors to give you certain basic information about
the cost of buying on credit or taking out a loan. These "disclosures" can help
you shop for the best deal.
Consumer Leasing disclosures can help you compare the cost and terms of one lease with another and with the cost and terms of buying for cash or on credit.
The Finance Charge and Annual Percentage Rate
Credit costs vary. By remembering two terms-the finance charge and the annual percentage rate (APR)- you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you-in writing and before you sign any agreement-what these terms will be.
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums.
Example:
Suppose you borrow $100 for one year, and the interest is $10. If there is a
service charge of $1, the finance charge will be $11. The annual percentage
rate is the percentage cost (or relative cost) of credit on a yearly basis,
which is your key to comparing costs, regardless of the amount of credit or
how long you have to repay it.
Example:
Again, suppose you borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then repay $110 at year's end, you are paying an APR of 10 percent. But if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don't really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 finance charge amounts to an APR of 18 percent.
All creditors-banks, stores, car dealers, credit card companies, finance companies-must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure so that you can compare credit costs. The law says these two pieces of information must be shown to you before you use a credit card.
Other factors, such as the size of the down payment, will also make a difference. Be sure to look at all the loan terms before you choose.
Cost of Open-end Credit
Open-end credit includes bank and department store credit cards, gasoline company cards, home equity lines of credit, and check-overdraft accounts that let you write checks for more than your actual balance with the bank. Open-end credit can be used again and again, generally until you reach a certain prearranged borrowing limit. Truth in Lending requires that open-end creditors tell you the terms of the credit plan so that you can shop and compare costs.
When you're shopping for an open-end plan, the APR is only the periodic rate that you will be charged, figured on a yearly basis. (For instance, a creditor that charges 12 percent interest each month would quote you an APR of 18 percent.) Annual membership fees, transaction charges, and points, for example, are listed separately; they are not included in the APR. Keep these fees in mind and compare all the costs involved in the plans, not just the APR.
Creditors must tell you when finance charges begin on your account, so you know how much time you have to pay your bill before a finance charge is added. Creditors may give you a 25-day grace period, for example, to pay your purchase balance in full before you must pay a finance charge.
Creditors also must tell you the method they use to figure the balance on which you pay a finance charge; the interest rate they charge is applied to this balance to compute the finance charge. Creditors use a number of different methods to arrive at the balance. Study them carefully; they can significantly affect your finance charge.
Some creditors, for instance, take the amount you owed at the start of the billing cycle and subtract any payments made during that cycle. New purchases are not counted. This is called the adjusted balance method.
With the previous balance method, creditors simply use the amount owed at the start of the billing cycle to compute the finance charge.
Under one of the most common methods, the average daily balance method, creditors add your balances for each day in the billing cycle and then divide that total by the number of days in the cycle. Payments made during the cycle are subtracted to get the daily amounts, and depending on the plan, new purchases may or may not be included. Under another method, the two-cycle average daily balance method, creditors use the average daily balances for two billing cycles to compute your finance charge. Again, payments will be subtracted to get the balances, but new purchases may or may not be included.
Be aware that the amount of the finance charge will vary considerably depending on the method used, even for the same pattern of purchases and payments.
If you receive a credit card offer or an application, the creditor must give you information about the APR and other important terms of the plan (for example, annual fees and late payment fees) at that time. Likewise, with a home equity line of credit, this information must be given to you with an application.
Truth in Lending does not set the rates or tell the creditor how to calculate finance charges, it requires only that the creditor tell you the method that it uses. You should ask for an explanation of any terms you don't understand.
Leasing Costs and Terms
A lease is a contract between a lessor (the property owner) and a lessee (the property user) for the use of a vehicle or property subject to stated terms and limitations for a specified period and at a specified payment. Leasing has become a popular alternative to buying-under certain circumstances. For instance, you might consider leasing furniture for an apartment you'll use only for a year. The Consumer Leasing Act requires lessors to give you the facts about the costs and terms in their contracts, to help you decide whether leasing is a good idea.
A consumer lease is a contract between a lessor and lessee for the use of personal property primarily for personal, family, or household purposes for a period of more than four months and with a total contractual obligation of no more than $25,000. A lease meeting all of these criteria is covered by the Consumer Leasing Act. It covers, for example, long-term leases of cars, furniture, and appliances, but it does not cover daily car rentals or apartment leases.
Certain information on cost and terms must be grouped together and separated or segregated from other information in the lease documents and presented in a prescribed format. First, these disclosures provide a snapshot of what you will pay
• at the beginning of the lease-which means the amount you will pay at
lease signing or delivery
• during the lease-that is, the monthly or periodic payments
• other charges that you will face
• and the total amount you will pay over the lease term.
For vehicle leases, the disclosures require an itemization of the amount due at lease signing and how that amount will be paid. The disclosures also provide a mathematical progression showing the way the monthly payment was determined. Starting with the agreed-upon value of the vehicle and the gross capitalized cost, this calculation shows the additions, subtractions, and divisions that lead to the monthly payment.
The final section of the segregated disclosures includes information on early termination, excess wear and use, mileage limits and excess mileage charges, and any purchase option at the end of the lease and directs you to other disclosures and lease terms.
Open-end and Closed-end Leases
There are open-end and closed-end leases and your rights and obligations at
lease-end are different in each of these. Both types of leases estimate the
lease-end value of the item and use this to project depreciation, which is
the basis for calculating your base monthly payment. In an open-end lease,
at lease-end, you are responsible for the difference between the estimated
lease-end value (the residual value) determined at the beginning of the lease
and the actual lease-end value (the realized value). In a closed-end lease,
you are not responsible for the item's value at lease-end, but you are responsible
for the condition of the item you lease (that is, an excess wear and use charge
may be imposed). In an open-end lease, you may receive a refund of any gain
and are responsible for any deficiency. In a closed-end lease the lessor usually
keeps any gain and assumes any loss due to overestimating the residual value.
The Consumer Leasing Act provides consumers with some protections against unreasonable
end-of-term charges in open-end leases. Assuming that you have met the wear-and-use
standards, the residual value is considered unreasonable if it exceeds the
realized value by more than three times the base monthly payment (the "Three Payment Rule").
If you believe the amount owed at the end of the lease term is unreasonable
and refuse to pay, the lessor may attempt to prove that the residual value
was reasonable when it was set at the beginning of the lease. However, if you
cannot reach a settlement with the lessor, you cannot be forced to pay the
excess amount unless the lessor brings a successful court action and pays your
reasonable attorney's fees. For example, assume that the residual value in
an open-end vehicle lease is $12,000, the realized value is $11,000, and the
base monthly payment is $250. The end-of-term deficiency is $1,000. However,
under the Three Payment Rule, the maximum charge should not exceed $750 (assuming
that there is no excess wear-and-use charge) rather than the full $1,000 deficiency
unless the lessor can prove the residual value was reasonable when set.
You have the right to an independent appraisal of the property's worth at the end of the lease term; however, you must pay the appraiser's fee.
Costs of Settlement on a House
A house is probably the single largest credit purchase for most consumers,
and one of the most complicated. The Real Estate Settlement Procedures Act,
like Truth in Lending, is a disclosure law. The act, administered by the Department
of Housing and Urban Development, requires the lender to give you, in advance,
certain information about the costs you will pay when you close the loan. The
act also requires that lenders give you the booklet "Buying Your Home: Settlement Costs and Information" to
help you understand the closing process and shop for lower settlement costs.
To get the booklet, write to:
Deputy Assistant Secretary for Housing
Attention: RESPA Enforcement
U.S. Department of Housing and Urban Development
451 Seventh Street, S.W.
Room 9416
Washington, DC 20410
(202) 708-4560
Discrimination
When you're ready to apply for credit, you should know what factors creditors
think are important in deciding whether you're creditworthy. You should also
know what factors they cannot legally consider in their decisions.
What Law Applies?
The Equal Credit Opportunity Act requires that all credit applicants be considered on the basis of their actual qualifications for credit and not be rejected because of certain personal characteristics.
What Creditors Look For
The Three Cs. Creditors look for an ability to repay debt and a willingness to do so-and sometimes for a little extra security to protect their loans. They speak of the three Cs of credit: capacity, character, and collateral.
Capacity. Can you repay the debt? Creditors ask for employment information: your occupation, how long you've worked, and how much you earn. They also want to know your expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations.
Character. Will you repay the debt? Creditors will look at your credit history (see section on Credit Histories and Records): how much you owe, how often you borrow, whether you pay bills on time, and whether you live within your means. They also look for signs of stability: how long you've lived at your present address, whether you own or rent your home, and the length of your present employment.
Collateral. Is the creditor fully protected if you fail to repay? Creditors want to know what you may have that could be used to back up or secure your loan and other resources you have for repaying debt other than income, such as savings, investments, or property.
Creditors use different combinations of these facts to reach their decisions.
Some set unusually high standards; others simply do not make certain kinds
of loans. Creditors also use different rating systems. Some rely strictly on
their own instinct and experience. Others use a "credit-scoring" or statistical
system to predict whether you're a good credit risk. They assign a certain
number of points to each of the various characteristics that have proved to
be reliable signs that a borrower will repay. Then they rate you on this scale.
Different creditors may reach different conclusions based on the same set of facts. One may find you an acceptable risk, whereas another may deny you a loan.
Information the Creditor Can't Use
The Equal Credit Opportunity Act does not guarantee that you will get credit. You must still pass the creditor's tests of creditworthiness. But the creditor must apply these tests fairly and impartially. The act bars discrimination based on age, gender, marital status, race, color, religion, and national origin. The act also bars discrimination because you receive public income, such as veterans benefits, welfare or social security, or because you exercise your rights under federal credit laws, such as filing a billing error notice with a creditor. This protection means that a creditor may not use any of these grounds as a reason to
• discourage you from applying for a loan
• refuse you a loan if you qualify
• lend you money on terms different from those granted another person
with similar income, expenses, credit history, and collateral
• close an existing account because of age, gender, marital status, race,
color, religion, national origin, receipt of public income or because you exercise
your rights under federal credit laws.
Although creditors may not discriminate on the basis of national origin, they may consider your immigration status when making a loan decision.
Special Rules
Age. In the past, many older persons have complained about being denied credit because they were over a certain age. Or when they retired, they often found their credit suddenly cut off or reduced. So the law is very specific about how a person's age may be used in credit decisions.
A creditor may ask your age, but if you're old enough to sign a binding contract (usually 18 or 21 years old depending on state law), a creditor may not:
• turn you down, offer you less credit, or offer you less favorable credit
terms because of your age
• ignore your retirement income in evaluating your application
• close your credit account or require you to reapply for it because you
reach a certain age or retire
• deny you credit or close your account because credit life insurance
or other credit-related insurance is not available to a person your age.
Creditors may "score" your age in a credit-scoring system, but if you are 62
or older you must be given at least as many points for age as any person under
62.
Because individuals' financial situations can change at different ages, the law lets creditors consider certain information related to age, such as how long until you retire or how long your income will continue. An older applicant might not qualify for a large loan with a very low down payment and a long term, but might qualify for a smaller loan, with a larger down payment, and a shorter term. Remember that although declining income may be a handicap if you are older, you can usually offer a solid credit history to your advantage. The creditor has to consider all the facts and apply the usual standards of creditworthiness to your particular situation.
Public Assistance. You may not be denied credit just because you receive social security or public assistance, such as Temporary Assistance to Needy Families (TANF). But as is the case with age, certain information on this source of income could clearly affect creditworthiness. A creditor may consider such things as how old your dependents are (because you may lose benefits when they reach a certain age) or whether you will continue to meet the eligibility requirements for receiving benefits.
This information helps the creditor determine the likelihood that your public-assistance income will continue.
Housing Loans. The Equal Credit Opportunity Act covers your application for a mortgage or home-improvement loan. The act bars discrimination because of characteristics such as your race, color, gender or because of the race or national origin of the people in the neighborhood where you live or want to buy your home. Creditors may not use any appraisal of the value of the property that considers the race of the people in the neighborhood.
Also, you are entitled to receive a copy of an appraisal report that you paid for in connection with an application for credit, provided you make a written request for the report.
Equal Credit Opportunity
Credit is used by millions of consumers to finance an education or a house,
remodel a home, or get a small business loan.
The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. This doesn't mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit also are protected by the law.
When You Apply For Credit, A Creditor May Not...
• Discourage you from applying because of your sex, marital status, age,
race, national origin, or because you receive public assistance income.
• Ask you to reveal your sex, race, national origin, or religion. A creditor
may ask you to voluntarily disclose this information (except for religion)
if you're applying for a real estate loan. This information helps federal agencies
enforce anti-discrimination laws. You may be asked about your residence or
immigration status.
• Ask if you're widowed or divorced. When permitted to ask marital status,
a creditor may only use the terms: married, unmarried, or separated.
• Ask about your marital status if you're applying for a separate, unsecured account. A creditor may ask you to provide this information if you live in "community property" states:
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington.
A creditor in any state may ask for this information if you apply for a joint
account or one secured by property.
• Request information about your spouse, except when your spouse is applying
with you; your spouse will be allowed to use the account; you are relying on
your spouse's income or on alimony or child support income from a former spouse;
or if you reside in a community property state.
• Inquire about your plans for having or raising children.
• Ask if you receive alimony, child support, or separate maintenance payments,
unless you're first told that you don't have to provide this information if
you won't rely on these payments to get credit. A creditor may ask if you have
to pay alimony, child support, or separate maintenance payments.
When Deciding To Give You Credit, A Creditor May Not...
• Consider your sex, marital status, race, national origin, or religion.
• Consider whether you have a telephone listing in your name. A creditor
may consider whether you have a phone.
• Consider the race of people in the neighborhood where you want to buy,
refinance or improve a house with borrowed money.
• Consider your age, unless:
• you're too young to sign contracts, generally younger than 18 years
of age;
• you're 62 or older, and the creditor will favor you because of your age;
• it's used to determine the meaning of other factors important to creditworthiness.
For example, a creditor could use your age to determine if your income might
drop because you're about to retire;
• it's used in a valid scoring system that favors applicants age 62 and
older. A credit-scoring system assigns points to answers you provide to credit
application questions. For example, your length of employment might be scored
differently depending on your age.
When Evaluating Your Income, A Creditor May Not...
• Refuse to consider public assistance income the same way as other income.
• Discount income because of your sex or marital status. For example,
a creditor cannot count a man's salary at 100 percent and a woman's at 75 percent.
A creditor may not assume a woman of childbearing age will stop working to
raise children.
• Discount or refuse to consider income because it comes from part-time
employment or pension, annuity, or retirement benefits programs.
• Refuse to consider regular alimony, child support, or separate maintenance
payments. A creditor may ask you to prove you have received this income consistently.
You Also Have The Right To...
• Have credit in your birth name (Mary Smith), your first and your spouse's
last name (Mary Jones), or your first name and a combined last name (Mary Smith-Jones).
• Get credit without a cosigner, if you meet the creditor's standards.
• Have a cosigner other than your husband or wife, if one is necessary.
• Keep your own accounts after you change your name, marital status, reach
a certain age, or retire, unless the creditor has evidence that you're not
willing or able to pay.
• Know whether your application was accepted or rejected within 30 days
of filing a complete application.
• Know why your application was rejected. The creditor must give you a
notice that tells you either the specific reasons for your rejection or your
right to learn the reasons if you ask within 60 days.
• Acceptable reasons include: "Your income was low," or "You haven't been employed long enough." Unacceptable reasons are: "You didn't meet our minimum standards," or "You didn't receive enough points on our credit-scoring system." Indefinite
and vague reasons are illegal, so ask the creditor to be specific.
• Find out why you were offered less favorable terms than you applied
for-unless you accept the terms. Ask for details. Examples of less favorable
terms include higher finance charges or less money than you requested.
• Find out why your account was closed or why the terms of the account
were made less favorable unless the account was inactive or delinquent.
A Special Note To Women
A good credit history-a record of how you paid past bills-often is necessary
to get credit. Unfortunately, this hurts many married, separated, divorced,
and widowed women. There are two common reasons women don't have credit histories
in their own names: they lost their credit histories when they married and
changed their names; or creditors reported accounts shared by married couples
in the husband's name only. If you're married, divorced, separated, or widowed,
contact your local credit bureau(s) to make sure all relevant information
is in a file under your own name.
If You Suspect Discrimination...
• Complain to the creditor. Make it known you're aware of the law. The
creditor may find an error or reverse the decision.
• Check with your state Attorney General to see if the creditor violated
state equal credit opportunity laws. Your state may decide to prosecute the
creditor.
• Bring a case in federal district court. If you win, you can recover
damages, including punative damages. You also can obtain compensation for
attorney's fees and court costs. An attorney can advise you on how to proceed.
• Join with others and file a class action suit. You may recover punitive
damages for the group of up to $500,000 or one percent of the creditor's net
worth, whichever is less.
• Report violations to the appropriate government agency. If you're denied
credit, the creditor must give you the name and address of the agency to contact.
While some of these agencies don't resolve individual complaints, the information
you provide helps them decide which companies to investigate. A list of agencies
follows.
If a retail store, department store, small loan and finance company, mortgage company, oil company, public utility, state credit union, government lending program, or travel and expense credit card company is involved, contact:
Consumer Response Center
Federal Trade Commission
Washington, DC 20580.
The FTC cannot intervene in individual disputes, but the information you provide may indicate a pattern of possible law violations that require action by the Commission.
If your complaint concerns a nationally-chartered bank (National or N.A. will be part of the name), write to:
Comptroller of the Currency
Compliance Management
Mail Stop 7-5
Washington, DC 20219
If your complaint concerns a state-chartered bank that is insured by the Federal Deposit Insurance Corporation but is not a member of the Federal Reserve System, write to:
Federal Deposit Insurance Corporation
Consumer Affairs Division
Washington, DC 20429
If your complaint concerns a federally-chartered or federally-insured savings and loan association, write to:
Office of Thrift Supervision
Consumer Affairs Program
Washington, DC 20552
If your complaint concerns a federally-chartered credit union, write to:
National Credit Union Administration
Consumer Affairs Division
Washington, DC 20456
Complaints against all kinds of creditors can be referred to:
Department of Justice
Civil Rights Division
Washington, DC 20530
Fair Credit Billing
Have you ever been billed for merchandise you returned or never received?
Has your credit card company ever charged you twice for the same item
or failed to credit a payment to your account? While frustrating, these
errors can be corrected. It takes a little patience and knowledge of the
dispute settlement procedures provided by the Fair Credit Billing Act
(FCBA). The law applies to "open end" credit
accounts, such as credit cards, and revolving charge accounts-such as department
store accounts. It does not cover installment contracts-loans or extensions of
credit you repay on a fixed schedule. Consumers often buy cars, furniture and
major appliances on an installment basis, and repay personal loans in installments
as well.
What types of disputes are covered?
The FCBA settlement procedures apply only to disputes about "billing errors." For
example:
• unauthorized charges. Federal law limits your responsibility for unauthorized
charges to $50;
• charges that list the wrong date or amount;
• charges for goods and services you didn't accept or weren't delivered
as agreed;
• math errors;
• failure to post payments and other credits, such as returns;
• failure to send bills to your current address-provided the creditor receives
your change of address, in writing, at least 20 days before the billing period
ends; and
• charges for which you ask for an explanation or written proof of purchase
along with a claimed error or request for clarification. To take advantage of
the law's consumer protections, you must:
• write to the creditor at the address given for "billing inquiries," not
the address for sending your payments, and include your name, address, account
number and a description of the billing error.
• send your letter so that it reaches the creditor within 60 days after
the first bill containing the error was mailed to you.
Send your letter by certified mail, return receipt requested, so you have proof
of what the creditor received. Include copies (not originals) of sales slips
or other documents that support your position. Keep a copy of your dispute letter.
The creditor must acknowledge your complaint in writing within 30 days after
receiving it, unless the problem has been resolved. The creditor must resolve
the dispute within two billing cycles (but not more than 90 days) after receiving
your letter. Example:
Date
Your Name
Your Address
Your City, State, Zip Code
Your Account Number
Name of Creditor
Billing Inquiries
Address
City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute a billing error in the amount of $______on my account. The amount is inaccurate because (describe the problem). I am requesting that the error be corrected, that any finance and other charges related to the disputed amount be credited as well, and that I receive an accurate statement.
Enclosed are copies of (use this sentence to describe any enclosed information, such as sales slips, payment records) supporting my position. Please investigate this matter and correct the billing error as soon as possible.
Sincerely,
Your name
Enclosures: (List what you are enclosing, make copies for your records)
What happens while my bill is in dispute?
You may withhold payment on the disputed amount (and related charges), during
the investigation. You must pay any part of the bill not in question, including
finance charges on the undisputed amount.
The creditor may not take any legal or other action to collect the disputed amount and related charges (including finance charges) during the investigation. While your account cannot be closed or restricted, the disputed amount may be applied against your credit limit.
Will my credit rating be affected?
The creditor may not threaten your credit rating or report you as delinquent while your bill is in dispute. However, the creditor may report that you are challenging your bill. In addition, the Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants who exercise their rights, in good faith, under the FCBA. Simply put, you cannot be denied credit simply because you've disputed a bill.
What if...the bill is incorrect?
If your bill contains an error, the creditor must explain to you-in writing-the
corrections that will be made to your account. In addition to crediting your
account, the creditor must remove all finance charges, late fees or other charges
related to the error. If the creditor determines that you owe a portion of the
disputed amount, you must get a written explanation. You may request copies of
documents proving you owe the money.
What if...the bill is correct?
If the creditor's investigation determines the bill is correct, you must be told promptly and in writing how much you owe and why. You may ask for copies of relevant documents. At this point, you'll owe the disputed amount, plus any finance charges that accumulated while the amount was in dispute. You also may have to pay the minimum amount you missed paying because of the dispute.
If you disagree with the results of the investigation, you may write to the creditor,
but you must act within 10 days after receiving the explanation, and you may
indicate that you refuse to pay the disputed amount. At this point, the creditor
may begin collection procedures. However, if the creditor reports you to a credit
bureau as delinquent, the report also must state that you don't think you owe
the money. The creditor must tell you who gets these reports.
What if...the creditor fails to follow the procedure?
Any creditor who fails to follow the settlement procedure may not collect the amount in dispute, or any related finance charges, up to $50, even if the bill turns out to be correct. For example, if a creditor acknowledges your complaint in 45 days-15 days too late-or takes more than two billing cycles to resolve a dispute, the penalty applies. The penalty also applies if a creditor threatens to report-or improperly reports-your failure to pay to anyone during the dispute period.
An important caveat
Disputes about the quality of goods and services are not "billing errors," so
the dispute procedure does not apply. However, if you buy unsatisfactory goods
or services with a credit or charge card, you can take the same legal actions
against the card issuer as you can take under state law against the seller.
To take advantage of this protection regarding the quality of goods or services, you must:
• have
made the purchase (it must be for more than $50) in your home state or within
100 miles of your current billing address;
• make a good faith effort
to resolve the dispute with the seller first.
The dollar and distance limitations don't apply if the seller also is the card issuer-or if a special business relationship exists between the seller and the card issuer.
Other billing rights
Businesses that offer "open end" credit also must:
• give
you a written notice when you open a new account-and at certain other times-that
describes your right to dispute billing errors;
• provide a statement
for each billing period in which you owe-or they owe you-more than one dollar;
• send
your bill at least 14 days before the payment is due-if you have a period within
which to pay the bill without incurring additional charges;
• credit
all payments to your account on the date they're received, unless no extra charges
would result if they failed to do so. Creditors are permitted to set some reasonable
rules for making payments, say setting a reasonable deadline for payment to be
received to be credited on the same date; and
• promptly credit or refund
overpayments and other amounts owed to your account. This applies to instances
where your account is owed more than one dollar. Your account must be credited
promptly with the amount owed. If you prefer a refund, it must be sent within
seven business days after the creditor receives your written request. The creditor
must also make a good faith effort to refund a credit balance that has remained
on your account for more than six months.
Suing the creditor
You can sue a creditor who violates the FCBA. If you win, you may be awarded damages, plus twice the amount of any finance charge-as long as it's between $100 and $1,000. The court also may order the creditor to pay your attorney's fees and costs.
If possible, hire a lawyer who is willing to accept the amount awarded to you by the court as the entire fee for representing you. Some lawyers may not take your case unless you agree to pay their fee-win or lose-or add to the court-awarded amount if they think it's too low.
Reporting FCBA violations
The Federal Trade Commission (FTC) enforces the FCBA for most creditors except banks. The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at www.ftc.gov
Fair Debt Collection
If you use credit cards, owe money on a personal loan, or are paying on a home
mortgage, you are a "debtor." If you fall behind in repaying your creditors,
or an error is made on your accounts, you may be contacted by a "debt collector." You
should know that in either situation, the Fair Debt Collection Practices Act
requires that debt collectors treat you fairly and prohibits certain methods
of debt collection. Of course, the law does not erase any legitimate debt you
owe.
Commonly asked questions about your rights under the Fair Debt
Collection Practices Act.
What debts are covered?
Personal, family, and household debts are covered under the Act. This includes money owed for the purchase of an automobile, for medical care, or for charge accounts.
Who is a debt collector?
A debt collector is any person who regularly collects debts owed to others. This includes attorneys who collect debts on a regular basis.
How may a debt collector contact you?
A collector may contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree. A debt collector also may not contact you at work if the collector knows that your employer disapproves of such contacts.
Can you stop a debt collector from contacting you?
You can stop a debt collector from contacting you by writing a letter to the collector telling them to stop. Once the collector receives your letter, they may not contact you again except to say there will be no further contact or to notify you that the debt collector or the creditor intends to take some specific action. Please note, however, that sending such a letter to a collector does not make the debt go away if you actually owe it. You could still be sued by the debt collector or your original creditor.
May a debt collector contact anyone else about your debt?
If you have an attorney, the debt collector must contact the attorney, rather than you. If you do not have an attorney, a collector may contact other people, but only to find out where you live, what your phone number is, and where you work. Collectors usually are prohibited from contacting such third parties more than once. In most cases, the collector may not tell anyone other than you and your attorney that you owe money.
What must the debt collector tell you about the debt?
Within five days after you are first contacted, the collector must send you a written notice telling you the amount of money you owe; the name of the creditor to whom you owe the money; and what action to take if you believe you do not owe the money.
May a debt collector continue to contact you if you believe you do not owe money?
A collector may not contact you if, within 30 days after you receive the written notice, you send the collection agency a letter stating you do not owe money. However, a collector can renew collection activities if you are sent proof of the debt, such as a copy of a bill for the amount owed.
What types of debt collection practices are prohibited?
Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact.
For example, debt collectors may not:
• use threats of violence or harm;
• publish a list of consumers who refuse to pay their debts (except to
a credit bureau);
• use obscene or profane language; or
• repeatedly use the telephone to annoy someone.
False statements. Debt collectors may not use any false or misleading statements when collecting a debt. For example, debt collectors may not:
• falsely imply that they are attorneys or government representatives;
• falsely imply that you have committed a crime;
• falsely represent that they operate or work for a credit bureau;
• misrepresent the amount of your debt;
• indicate that papers being sent to you are legal forms when they are
not; or
• indicate that papers being sent to you are not legal forms when they
are.
Debt collectors also may not state that:
• you will be arrested if you do not pay your debt;
• they will seize, garnish, attach, or sell your property or wages, unless
the collection agency or creditor intends to do so, and it is legal to do so;
or
• actions, such as a lawsuit, will be taken against you, when such action
legally may not be taken, or when they do not intend to take such action.
Debt collectors may not:
• give false credit information about you to anyone, including a credit
bureau;
• send you anything that looks like an official document from a court or
government agency when it is not; or
• use a false name.
Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, collectors may not:
• collect any amount greater than your debt, unless your state law permits
such a charge;
• deposit a post-dated check prematurely;
• use deception to make you accept collect calls or pay for telegrams;
• take or threaten to take your property unless this can be done legally;
or
• contact you by postcard.
What control do you have over payment of debts?
If you owe more than one debt, any payment you make must be applied to the debt you indicate. A debt collector may not apply a payment to any debt you believe you do not owe.
What can you do if you believe a debt collector violated the law?
You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, you may recover money for the damages you suffered plus an additional amount up to $1,000. Court costs and attorney's fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or one percent of the collector's net worth, whichever is less.
Where can you report a debt collector for an alleged violation?
Report any problems you have with a debt collector to your state Attorney General's office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General's office can help you determine your rights.
Billed for Merchandise You Never Received?
Here's What To Do.
You found the perfect set of linens in a mail order catalog. You call to place your order and charge it to your credit card. You're told that your linens should arrive in two weeks. Two weeks go by, then three and four, and still no linens. What you do get is your credit card bill with a charge from the catalog company.
So, just what do you do when you get a credit card bill but no merchandise? Get frustrated, to be sure.
But the error can be corrected. The Fair Credit Billing Act (FCBA) and the Mail or Telephone Order Merchandise Rule offer protections and procedures for consumers so they don't have to pay for merchandise they ordered but never received.
In addition, many credit card issuers have policies against merchants charging a credit card account before shipment. If you think a merchant charged your account prematurely, report it to the credit card issuer. Otherwise, the credit card issuer has no way to know that the merchant is not complying with its policies.
The Fair Credit Billing Act
To dispute a billing error on your credit card, you must:
• Write to the credit card issuer at the address for "billing inquiries," not
the address for sending your payments (the address for billing inquiries is
often found on the back of your most recent monthly statement); include your
name, address, account number and a description of the billing error. A sample
letter is included on page 3.
• Send your letter so that it reaches the credit card issuer within 60
days after the first bill containing the error was mailed to you.
• Send your letter by certified mail, return receipt requested, so you
have proof of what the credit card issuer received. Include copies (not originals)
of sales slips or other documents that support your position. Keep a copy of
your dispute letter.
• It is important to send the letter to the correct company. In the case
of Visa and MasterCard, you should send it to the bank that issued the card.
The credit card issuer must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has already been resolved. And the credit card issuer must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.
What happens while your bill is in dispute?
You may withhold payment on the disputed amount (and related charges), during the investigation, but you must pay any part of the bill not in question, including any finance charges on the undisputed amount.
The credit card issuer may not take any legal or other action to collect the disputed amount and the related charges (including finance charges) during the investigation. While your account cannot be closed or restricted, the disputed amount may be applied against your credit limit.
You placed an order with a catalog company and they charged your credit card immediately. The catalog company contacts you two weeks later and says the shipment will be delayed 60 days. You agree to the delay. The 60 days have passed and you don't have the merchandise. Can you still dispute the charge?
Maybe. In delayed shipment situations, credit card issuers often are more generous when they calculate the time for allowing disputes. To take advantage of this flexibility, include the following information in your dispute letter.
• Tell the credit card issuer if the premature charge was unexpected. Some
credit card issuers make an exception to the general industry rule against merchants
charging before shipping if the merchant tells you about its practice at the
time of sale. If you're certain the merchant said nothing or wasn't clear about
its charge practice, the credit card issuer is more likely to allow the dispute.
• Tell the credit card issuer when delivery was expected. In no delivery
situations, some credit card issuers will use the expected date of delivery
rather than the charge date as the start time for you to dispute charges. If
you dispute the charge within a reasonable time after the expected delivery
date passes, chances are good that the credit card issuer will honor the dispute.
When you order or when a merchant notifies you of delayed shipment, it's important
to keep a record of the promised shipment or delivery date. Include a copy of
any documentation of the shipment or delivery date when disputing the charge
with your credit card issuer.
What if you used a debit card to pay for the merchandise? The consumer protections for a debit card fall under the Electronic Fund Transfer Act and may differ from protections for a credit card under the FCBA. So you may not be able to dispute a debit and get a refund for nondelivery or late delivery. Still, some debit card issuers voluntarily offer protections and solutions to problems like the failure to receive merchandise bought with a debit card. Contact your debit card issuer for more information about particular policies and protections.
What if you financed your purchase through the merchant? If you financed your purchase through the merchant, you also may have protections under state and federal law. Check your credit contract for the following language: Notice: Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained with the proceeds hereof. It means that you may be able to claim that the seller failed to deliver the goods as stated in your credit contract.
Sample Dispute Letter
Date
Your Name
Your Address, City, State, Zip Code
Your Account Number
Name of Credit Card Issuer
Billing Inquiries
Address, City, State, Zip Code
Dear Sir or Madam:
I am writing to dispute a billing error in the amount of $______on my account. The amount is inaccurate because the merchandise I ordered was not delivered. I ordered the merchandise on (date) . The merchant promised to deliver the merchandise to me on (date) , and the merchandise was not delivered. (In addition, when I ordered the merchandise, the merchant did not tell me that it would charge before shipping.)
I am requesting that the error be corrected, that any finance and other charges related to the disputed amount be credited to my account, and that I receive an accurate statement.
Enclosed are copies of (use this sentence to describe any enclosed information, such as sales slips, payment records, documentation of shipment or delivery dates) supporting my position and experience. Please correct the billing error promptly.
Sincerely,
Your name
Enclosures: (List what you are enclosing, make copies for your records)
The Mail or Telephone Order Merchandise Rule
This rule covers merchandise you order by mail, telephone, computer and fax. It requires merchants to have a reasonable basis for claiming they can ship an order within a certain time.
Ship Dates
• By law, a merchant should ship your order within the time stated in its
ads or over the phone. If the merchant doesn't promise a time, you can expect
it to ship your order within 30 days.
• The shipment "clock" begins when the merchant receives a "properly completed order." That
includes your name, address and payment (check, money order or authorization
to charge an existing credit account-whether the account is debited at that
time or not).
• If the merchant doesn't promise a shipping time and you are applying
for credit to pay for your purchase, the merchant has an additional 20 days
(50 days total) to establish the account and ship the merchandise.
Delays
If the merchant is unable to ship within the promised time, it must notify you by mail, telephone, or email, give a revised shipping date and give you the chance to cancel for a full refund or accept the new shipping date. The merchant also must give you some way to exercise the cancellation option for free, for example, by supplying a prepaid reply card or staffing a toll-free telephone number.
• If you ignore the option notice, and the delay is 30 days or less, it's
assumed that you accept the delay and are willing to wait for the merchandise.
• If you do not respond-and the delay is more than 30 days-the order must
be canceled by the 30th day of the delay period and a full refund issued promptly.
If the merchant can't meet the revised shipping date, it must notify you again by mail, email or telephone and give you a new shipping date or cancel your order and give you a refund.
• The order will be canceled and a refund issued promptly unless you indicate
by the revised shipping date that you are willing to wait.
• If you do not respond at all to the second notice, it's assumed that
you are not willing to wait, and a full refund must be issued promptly.
Refunds
If you authorized a charge to your credit card account, the merchant must credit the account within one billing cycle-not give credit toward another purchase. If you pay by cash, check or money order, the merchant must mail you a refund within seven working days.
Tips for Shopping by Phone, Mail or Online
• Consider your experience with the company or its general reputation before
you order. If you've never heard of the seller, check on its physical location
and reputation with the local Better Business Bureau or the state Attorney General's
office.
• Ask about the company's refund and return policies, the product's availability
and the total cost of your order before you place your order.
• Get a shipment date.
• Keep records of your order, such as the ad or catalog from which you
ordered; the company's name, address and phone number; any shipment representation
the company made to you and when it made it; the date of your order; a copy
of the order form you sent to the company or, if you're ordering by phone, a
list of the items and their stock codes and the order confirmation code; your
canceled check or the charge or debit statement showing the charge for your
order; and any communications to or from the company.
• Track your purchases. When you order online, keep printouts of the web
pages with the details of the transaction, including the merchant's return policies,
in case you're not satisfied.
Contacts for Resolving Problems
If you have other problems with your purchase, try to resolve your dispute with
the company. If that doesn't work, the following resources may be helpful:
• State and local consumer protection offices. Contact the offices in your
home state and where the company is located.
• The Direct Marketing Association:
DMA Mail Order Action Line
1111 19th Street, N.W., Suite 1100
Washington, D.C. 20036-3603
• Postal Inspectors. Call your local post office and ask for the Inspector-in-Charge.
The Credit Practices Rule
If you are one of the millions of Americans who borrows money, buys items on
installment credit, or cosigns for another person's debt, you may want to know
about the Federal Trade Commission's Credit Practices Rule. The Rule, which
became effective March l, l985, prohibits many creditors from including certain
provisions in consumer credit contracts. It also requires creditors to provide
a written notice to consumers before they cosign obligations for others about
their potential liability if the other person fails to pay. Finally, it prohibits
one method of assessing late charges.
What contracts are covered?
The Rule applies to consumer credit contracts offered by finance companies, retailers (such as auto dealers and furniture and department stores), and credit unions for any personal purpose except to buy real estate. It does not apply to banks or bank credit cards; to savings and loan associations; or to some non-profit organizations. (However, similar rules for banks-under the Federal Reserve Board-and for savings and loans-under the Office of Thrift Supervision-went into effect January 1, 1986.) The Rule does not apply to business credit.
What contract provisions are prohibited?
The Rule prohibits creditors from including certain provisions in their consumer credit contracts. Specifically, credit contracts no longer can include provisions that:
• Require you to agree in advance, should the creditor sue you for non-payment of a debt, to give up your right to be notified of a court hearing to present your side of the case or to hire an attorney to represent you. (These clauses were often called "confessions of judgment" or "cognovits.")
• Require you to give up your state-law protections that allow you to keep certain personal belongings even if you do not pay your debt as agreed. (These clauses were called "waivers of exemption.")
State law generally allows you to keep your home, clothing, dishes, and other
belongings of a fixed minimum value. However, when the debt incurred is to purchase
an item and that item is used as security for the debt, it is permissible under
the Rule for a creditor to repossess that item.
• Permit you to agree in advance to wage deductions that would pay the creditor directly if you default on the debt, unless you can cancel that permission at any time. (These clauses were called "wage assignments.")
However, a wage or payroll deduction plan, through which you arrange to repay
a loan, is a common payment method and is permissible under the Rule.
• Require you to use as collateral certain household and uniquely personal items that are of significant value to you but are of little economic value to a creditor. Such items include appliances, linens, china, crockery, kitchenware, wedding rings, family photographs, personal papers, the family Bible, and household pets. (These were called "household goods security" clauses.)
However, if you borrowed money to buy any of these household or personal items,
and use the items as collateral, the creditor can repossess the purchased item
if you do not repay the loan.
What notices must be given to cosigners?
When you agree to be a cosigner for someone else's debt, you are guaranteeing to pay if that person fails to pay the debt. The Rule requires that you be given a notice that explains the responsibility you are undertaking. Under the Rule, the cosigner notice must say:
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower.* The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
This notice is not the contract that makes you liable for the debt.
*Depending on your state, this may not apply. If state law forbids a creditor from collecting from a cosigner without first trying to collect from the primary debtor, this sentence may be crossed out or omitted on your cosigner notice.
This notice is not required when you receive benefits from the contract, such as when you buy goods, take out a loan, or open a joint credit-card account with another person. In these cases, you would be a co-buyer, co-borrower, or co-applicant (co-cardholder) rather than a cosigner. Therefore, the creditor would not be required to provide the notice.
How can late charges be assessed?
A creditor can charge a late fee if you do not make your loan payment on time.
However, it is illegal under the Rule for a creditor to charge you late fees
or payments simply because you have not yet paid a late fee you owe. This practice
is called "pyramiding late fees." Under the Rule, this means that if you do
not include the late fee you owe with your next regular payment, it is illegal
for a creditor to subtract the late fee from your payment and then charge you
a second late fee because the current payment is insufficient. For example,
your loan contract may state that your monthly payments are $100 and that you
will be assessed a $10 late fee if you pay after the grace period. If you make
your $100 loan payment after that time and you do not include the $10 late fee
with your next $100 payment, a creditor cannot first deduct the missing $10
late fee from the $100 payment, claim you have now paid $90, and then charge
you an additional late fee. But, if you skip one month's payment entirely, the
creditor can charge late fees on all subsequent payments until you bring your
account up to date.
Credit and Debit Card Blocking
Blocking often occurs when you use a credit or debit card to check into a hotel
or rent a car. The clerk usually contacts the company that issued your card
to give an estimated total. If the transaction is approved, your available credit
(credit card) or the balance in your bank account (debit card) is reduced by
this amount. Learn why blocking may be a problem, and how to avoid it.
Have you ever been told you were over your credit card limit, or had your debit
card declined, even though you knew you had available credit, or money in your
bank account? If this happened shortly after you stayed in a hotel or rented
a car, the problem could have been card "blocking."
What's Blocking?
When you use a credit or debit card to check into a hotel or rent a car, the
clerk usually contacts the company that issued your card to give an estimated
total. If the transaction is approved, your available credit (credit card) or
the balance in your bank account (debit card) is reduced by this amount. That's
a "block." Some companies also call this placing a "hold" on those amounts.
Here's how it works: Suppose you use a credit or debit card when you check into
a $100-a-night hotel for five nights. At least $500 would likely be blocked.
In addition, hotels and rental car companies often add anticipated charges for "incidentals" like
food, beverages, or gasoline to the blocked amount. These incidental amounts
can vary widely among merchants.
If you pay your bill with the same card you used when you checked in, the final charge on your credit card, or final amount on your debit card, probably will replace the block in a day or two. However, if you pay your bill with a different card, or with cash or a check, the company that issued the card you used at check-in might hold the block for up to 15 days after you've checked out. That's because they weren't notified of the final payment and didn't know you paid another way.
Why Blocking Can Be a Problem
Blocking is used to make sure you don't exceed your credit line (credit card) or overdraw your bank account (debit card) before checking out of a hotel or returning a rental car, leaving the merchant unpaid. Blocking is sometimes also used by restaurants for anticipated sizeable bills (like large groups at dinner or a party), by companies cleaning your home, and other businesses to ensure credit or account money will be available to complete payment.
If you're nowhere near your credit limit or don't have a low balance in your bank account, blocking probably won't be a problem. But if you're reaching that point, be careful. Not only can it be embarrassing to have your card declined, it also can be inconvenient, especially if you have an emergency purchase and insufficient credit or money in your bank account. On debit cards, depending on the balance in your bank account, blocking could lead to charges for insufficient funds while the block remains in place.
How to Avoid Blocking
To avoid the aggravation that blocking can cause, follow these tips:
• When you check into a hotel or rent a car-or if a restaurant or other business asks for your card in advance of service-ask if the company is "blocking," how
much will be blocked, how the amount is determined, and how long the block remains
in place.
• Consider paying hotel, motel, rental car, or other "blocked" bills with
the same credit or debit card you used at the beginning of the transaction.
Ask the clerk when the prior block will be removed.
• If you pay with a different card, by cash, or by check, remind the clerk
you're using a different form of payment and ask them to remove the prior block
promptly.
• Ask your current debit card issuer if they permit blocks, for how long,
and from what types of merchants. If they do, you may want to consider getting
an overdraft line of credit from your bank. Ask about a plan that always automatically
covers the overdraft and does not involve a separate bank decision on whether
or not to pay it each time. Although you might incur some interest on this plan
if you don't pay off the amount fairly quickly, you would not have an overdraft
that is not paid. Ask your bank if they offer an overdraft line of credit, how
it would work, and how much it costs.
If you are considering a credit or debit card, shop around. When comparing credit
and debit card offers, ask issuers if they permit blocks, for how long, and
from what types of merchants. You may want to consider an issuer that uses shorter
blocks.
Complaints involving credit cards
If you have a problem involving your credit card, first try to resolve it directly
with the store or the credit card company. If that doesn't work, you may want
to file a complaint with your state's attorney general or banking agency. You
may also file a complaint with the federal agency responsible for enforcing
consumer credit laws for your credit card company.
Credit cards issued by state banks that are members of the Federal Reserve System:
Federal Reserve Board
Division of Consumer and Community Affairs
Mail Stop 801
Washington, DC 20551
(202) 452-3693
Credit cards issued by banks with "national" in the name or "N.A." after the
name:
Comptroller of the Currency
Office of the Ombudsman
Customer Assistance Unit
1301 McKinney Street, Suite 3450
Houston, TX 77010
1 (800) 613-6743 (toll-free)
www.occ.treas.gov
Credit cards issued by state banks that are not members of the Federal Reserve
System:
Federal Deposit Insurance Corporation
Consumer Response Center
2345 Grand Boulevard, Suite 100
Kansas City, MO 64108
1 (877) 275-3342 (toll-free)
www.fdic.gov
Credit cards issued by federal savings and loan associations and federal
savings banks:
Office of Thrift Supervision
Consumer Programs
1700 G Street, NW
Washington, DC 20552
1 (800) 842-6929 (toll-free)
www.ots.treas.gov
Credit cards associated with federal credit unions:
National Credit Union Administration
Office of External Affairs
1775 Duke Street
Alexandria, VA 22314-3428
(703) 518-6330
www.ncua.gov
Credit cards issued by finance companies or stores, and matters related
to auto dealers, mortgage companies, and credit bureaus:
Federal Trade Commission
Consumer Response Center
6th and Pennsylvania, NW
Washington, DC 20580
1 (877)-FTC-HELP (1-877-382-4357) (toll-free)
www.ftc.gov
We recommend reading the related topics in this section to increase your
knowledge of low interest credit cards, secured credit cards, student
credit cards and personal finance matters.
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