Consumer Protection and Credit Legislation

Brendan Harkness

Brendan Harkness

Updated Sep 13, 2016

As a consumer navigating the credit world, it is important to know your rights. There are several federal laws giving you certain rights when it comes to your credit and financial activity. Individual states may also have consumer protection laws on the books.

The Equal Credit Opportunity Act (ECOA)

The ECOA prevents creditors from discriminating against you or refusing to grant you credit based on your sex, race, marital status, religion, national origin, age, or whether you receive public assistance. Creditors can ask for some of this information but they cannot base their decisions on it. For example, creditors must consider a reliable form of public assistance, such as disability payments, in the same way they would any other type of income.

Insider Tip: You have a legal right to know why if you are denied credit. If you are denied for credit, the card or loan originator will distribute a letter with information on how to obtain a free credit report as well.

The Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) protects your right to privacy when it comes to credit reports, and provides the means to correct any errors in these reports.

First and foremost, the FCRA gives you the right to review your credit report and to have any wrong information in those reports corrected.

The FCRA also polices who can obtain your credit report and why. In general, someone can obtain your credit report only if they have a legitimate business reason to do so or if you request a report on their behalf. Legitimate business reasons include creditors doing credit report inquiries on prospective borrowers, employers handling employee benefit matters and insurers doing a credit check before issuing a policy.

Insider Tip: Under the FCRA you can opt out of receiving unsolicited, pre-screened/pre-approved credit and insurance offers in the mail. Just make your request over the telephone (888-5OPT OUT) or via www.optoutprescreen.com. Opting out by telephone lasts for five years while written requests through the web site are permanent. If you change your mind after you have opted out, you can use this same process to opt in again.

You also have the right to have any errors in your credit report corrected. You can submit a dispute to the appropriate credit bureau fairly easily online. The agency is required to investigate the situation and make any necessary changes or corrections.

Credit reporting agencies are also required to disclose the sources of any incorrect information and provide you with a list of who has received a copy of the report that includes the incorrect information. Once these mistakes are corrected, the agency must re-issue your corrected credit report to any lenders who received your credit report within the last six months and to any employers who received your credit report within the last two years.

The Fair Debt Collection Practices Act (FDCPA)

You are responsible for paying your debts. If you don’t, your creditors can turn over unpaid debts to a debt collector. When this happens, you still have certain rights.

Here is a rundown of what debt collectors can and cannot do under the FDCPA:

  • Debt collectors are forbidden from using unfair, deceptive, or abusive practices while collecting these debts.
  • Debt collectors can contact you only between 8 a.m. and 9 p.m. and they must identify themselves when they reach you by phone.
  • Debt collectors cannot harass, oppress, or abuse you and they are not allowed to lie to you.
  • Debt collectors cannot contact you at work if they know that your employer forbids this contact.
  • Debt collectors must stop contacting you if you ask them to do so in writing.

The Fair Credit Billing Act (FCBA)

The FCBA requires card issuers to credit your payments promptly and to correct any mistakes on your credit card bill without damaging your credit score. The law also allows you to dispute any billing errors and to withhold payment for damaged goods purchased using a credit card.

Credit CARD Act (CARD Act)

The CARD Act, passed in 2009, has a number of consumer protection provisions. For example, the law prevents credit card issuers from increasing your interest rate charged on existing balances and requires these lenders to provide 45 days notice before changing the terms of a card, such as increasing the interest rate charged on new transactions. Card companies must also mail or deliver your bill at least 21 days before the payment is due and your due date for that payment must be the same date each month.

Q&A: What Is the CARD Act (2009)?

Insider Tip: The CARD Act prevents a card issuer from raising the interest rate on a new card for 12 months. It also limits the late fees credit card companies can charge.

The Fair Credit and Charge Card Disclosure Act

This law requires lenders to disclose the costs and features of the credit for which you are applying, including the annual percentage rate charged on account balances, the grace period for purchases, minimum finance charges, annual fees, transaction fees for cash advances and any penalties for late payments and for charging more than your stated credit limit.

The Truth in Lending Act

This law requires lenders to disclose the costs of borrowing money and prohibits lenders from issuing unsolicited credit cards. The law also limits your liability to $50 if your credit card lost, stolen, or used without your authorization.

Dealing With Debt Collectors

What to Do When a Credit Card Issuer Sues You

The worst thing you can do about debt is ignore it. That said, some consumers do fall behind. Others are suddenly confronted with debts long forgotten. Still others are notified of debts that they thought were already paid or that belong to someone else. Whatever the situation, if you receive a notice about a debt, you need to take action right away.

Pursuing the Debt

Credit card issuers have a variety of collection methods. They pursue debtors through their own in-house collections department, third-party law firms and third-party collections agencies. No matter what method they choose to pursue your debt, you are legally obligated to pay it and the creditor can take legal action against you if you don’t.

When Will a Creditor Sue a Debtor?

In general, “if the debt is under $1,000, you probably won’t get sued,” says Shane McClelland, founding partner at McClelland Well, LLP in Columbus, OH. “The odds of getting sued are higher if your debt is large.”

If you ignore repeated collection attempts, you make yourself a prime candidate for legal action. Many consumers don’t respond to collection letters and phone calls. “They might be embarrassed or scared. Or they might not think it’s real,” explains McClelland. But if you fail to respond and the debt is large enough, expect to be sued.

Some states allow pocket service. That means that the creditor can obtain a default judgment against you if you fail to respond to correspondence about the debt, even if the creditor hasn’t yet filed a complaint against you in court.

The absence of official-looking documentation from a court of law fools some consumers into believing that the letter is an attempt at intimidation. Unfortunately, in pocket service states “the letter from the lawyer carries the same weight” as a complaint, says McClelland, “and a default judgment can be entered against the debtor who ignores it.”

What Can the Debtor Do?

A consumer being pursued for debt collection can take a variety of steps, depending on the details of his or her situation. Don’t make a payment. This is especially important if you’re sure the debt is not yours. If you make payments toward a debt, many courts will consider that as your acknowledgement that the debt is valid.

Ask the creditor to verify the debt. Once you request proof that the debt is valid and that it belongs to you, the creditor has 30 days to provide that proof. If the creditor can’t, they cannot pursue a judgment against you.

“Debt collectors are inaccurate much of the time,” says McClelland. “They often go after zombie debt – debt that you’ve paid, isn’t yours or is past the statute of limitations for collections. Just asking them to verify the debt can sometimes be all it takes to close the book on it.”

Consult a consumer attorney. Consult an attorney even if you don’t have the cash to hire one. Many will take your case on a contingency basis if there is a clear violation of the Fair Debt Collection Practices Act, because a win in court will include legal fees.

Furthermore, once you notify a creditor that you are represented by an attorney, the creditor may not contact you again. They must communicate through your lawyer. If the debts are yours, settling them with an attorney’s help could be far less costly than going to court and ultimately having a judgment against you.

Attorneys’ rates vary widely. For debt settlement services, rates are often tied to the amount of debt you need to settle. Attorneys are bound by the same rules as for-profit debt settlement companies and may not charge an upfront fee for debt settlement services.

Can Debt Collection Agencies Harass Me?

Feel like you’re being hunted by debt collectors? Though debt collectors are paid for their persistence in reclaiming funds (and you have presumably not held up your end of the bargain if you’re being contacted by one of them), there are rules of engagement that all debt collectors must follow, as mandated by the Fair Debt Collection Practices Act (FDCPA). Here are the legal regulations behind what debt collectors can and cannot do.

Insider Tip: Want to hear an insider’s take on debt collection? If you’ve ever suspected that debt collectors occasionally use some shady tactics, you won’t be very surprised by what you hear. Listen to the story of Jimmy, an experienced debt collector, along with stories about semi-legal debt collection in this NPR interview.

They Must Maintain Your Privacy

Under the FDCPA, debt collectors can verify your correct contact information with a third-party, but they cannot make reference to the fact that you owe money. That said, the debt collector is legally required to state the name of the employer for which they work if expressly asked, but again, they cannot reference the fact that they are calling to collect a debt. To that end, any mailed correspondence cannot “announce” that you owe a debt, either in the letter itself, or on the envelope. Debt collectors are not allowed to send postcards of any kind.

They Must State Their Business

Unless you’ve already paid the debt in question, the FDCPA requires that debt collectors must send you a written a notice within five days that details the amount owed, and the name of the creditor owed, once they have made direct contact with you.

Additionally, the correspondence must include a few statements that essentially outline your rights, including…The fact the creditor assumes the debt to be valid unless you dispute it within 30 days of receiving the letter (although your non-response if not an admission of liability).

The letter should also state that the debt collector will provide the name and address of the original creditor (if different from the current creditor) if you notify them to do so in writing within 30 days of letter receipt; they cannot contact you further until they’ve provided that information at your request.

They Cannot Harass You

Under the FDCPA, debt collectors cannot call you repeatedly, use threatening language or profanity, “coerce” payment of the debt, or contact you at an “unusual time or place” known to be “inconvenient.” Though those regulations are rather loose, it essentially means they cannot show up your place of employment, your child’s school, etc.

Likewise, they cannot contact you by phone before 8 a.m., or after 9 p.m.; if your employer does not allow personal calls (and they have reason to know that) they are not allowed to contact you at work, regardless of the time of day.

If you are working with an attorney to manage your financial situation and the debt collector knows that, he or she is required to contact the attorney directly. Unless the attorney doesn’t respond on your behalf within a “reasonable time,” the debt collector cannot make contact with you.

Though sending the debt collector away won’t make the debt you owe disappear the FDCPA states that the debtor and that persons’ spouse, children, parents (if the debtor is a minor) or executor (if the debtor is deceased) can notify a debt collector in writing to cease communication.

Once the letter is received by the collector, he or she cannot make further contact, other than to notify that further collection efforts are terminated, and/or that the collection agency “intends to invoke a specified remedy” (which may include a lawsuit).

Having said all of the above I want to make something crystal clear…I don’t believe debt collectors are bad companies. They perform an invaluable service recovering unpaid and, most of the time, legitimately owed debts. A few bad apples spoil the lot, but that’s true of all industries. The reason debt collectors get a bad rap is because the overwhelming majority of the time they’re attempting to collect debts legitimately owed.

Having trouble managing your debt? Learn the steps you can take here »

What Collection Agencies Can Do

Though collections agencies can help small business owners and lenders recover funds they’re rightfully owed, they are paid only when they are able to collect. As a result, they can be aggressive and bend the rules. Here are the myths and realities behind your rights, and those of debt collectors.

They Can Reach out to You – within Reason

The Fair Debt Collection Practices Act (FDCPA) was enacted to regulate the debt collections process. Some of its rules include when they can call (only between the local hours of 8:00 a.m. and 9:00 p.m.), and where.

If your employer doesn’t allow personal calls, for example, collectors cannot contact you at work. If you have secured legal representation to handle your debt (and the debt collector knows that), they must contact your attorney directly.

Ignoring collectors won’t make your debt (or them) disappear, but the FDCPA does state that consumers have the legal right not to take or respond to debt collectors’ phone calls and letters. They must be transparent with information.

Debt collectors are legally required to identify themselves as collectors and explain the reason for contact. Once they’ve spoken to you, they have five days to provide written details around the collection, including the amount owed and the creditor.

They Can Be Persistent – Not Harassing

Debt collectors are essentially compensated for their persistence, if it leads to you paying what is owed. Expect to hear from a debt collector more than once, but know that you do have rights. Under the FDCPA, collectors cannot use threatening language, profanity, or otherwise harassing behavior—including calling you repeatedly.

If you feel they have crossed the line, it is your legal right to send a cease and desist letter to the collections agency stating that you no longer wish to be contacted about the debt.  When they receive that communication (which you should send by certified mail), the debt collector must stop contacting you about the debt owed. If they don’t comply, you can file a complaint with The Consumer Financial Protection Bureau (CFPB).

They Cannot Force You to Do Anything

A debt collector’s role is to collect what you owe (and ideally, collect in full). However, unless a creditor has sued you and won a Writ of Garnishment (in which case your wages can indeed be garnished and used to repay debts, depending on the debt type and state in which you work), a debt collector cannot force you to pay your debts, or impose a deadline on whether or not you do so. In terms of your credit score and credit report, the deadline that mattered (your due date) is irrelevant by the time a collector is involved.

They Can Report the Collection to the Credit Reporting Agencies

Not only can debt collectors report your collection account to the credit bureaus but they can also pull your credit reports. The Fair Credit Reporting Act gives collectors access to your credit reports as a tool to assist them in collecting debts. That means they will know where you live, and if you have ability to pay them with an unused credit card.

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