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Credit Card Guide to Your Consumer Rights
You take that credit card out of your wallet…and hesitate. Does using it put you at the mercy of unscrupulous lending practices or hidden fees? Will you become a victim of fraud, ruining your credit rating for years to come? Although credit cards come with concerns, the good news is that there are laws to protect you as a cardholder; these regulations guard against unfair lending practices, misleading offers and agreements, and fraud.
Credit card law, like most law, can be difficult to understand. Yet it is so important to our daily experiences as cardholders. We’ve written about the history of credit cards and credit history, but now we’re diving into your credit card rights. Most of our credit rights come from two laws: the Consumer Credit Protections Act and the Credit CARD Act. To help you understand these laws, we’ve read through the words of our founding (credit) fathers to pull together your rights, thematically, as a bill of credit rights. Read on for an overview of your rights under current credit card law.
Right to credit without discrimination
The first credit right one can have is the ability to access it in the first place. Discrimination, unfortunately, has a long history of blocking equal access to all kinds of goods and services. Credit is no exception. The Equal Credit Opportunity Act (enacted on Oct. 28, 1974) protects credit card applicants from discrimination based on race, color, religion, national origin, sex, marital status or age.
In addition to those protections, an applicant cannot be discriminated against for receiving public assistance or for exercising their rights under the Consumer Credit Protection Act. We will describe that law more later. For now, just know that you can’t be penalized for calling out illegal policies. That’s true even if your accusation was incorrect, provided the accusation was sincere.
After receiving a credit application, an issuer has 30 days to respond. If your application is declined, you have 60 days to request a reason (if you didn’t receive one in the first place). The issuer then has 30 days to explain the reason they declined the application, and by law is required to either send you what’s known as an “Adverse Action Notice” telling you why or inform you that you are allowed to make the request. You also have the right to dispute the application decision after you receive the reason.
It’s worth noting that issuers can still ask questions about your age, marital status and other information. In certain cases, it may be relevant. For example, creditors can ask the applicant’s age to determine if they are old enough to open a credit account. Creditors can also ask about public assistance if that’s part of how an applicant will repay their credit.
Right to accurate and complete information
Once you know that you can open a line of credit, the question becomes how to know which credit card to choose. That’s where the Truth in Lending Act (TILA) comes in. TILA is the first section of the Consumer Credit Protection Act (enacted in 1968) and was created to ensure that credit card issuers disclose all relevant information.
For example, TILA requires that several details about the credit arrangement be disclosed — such as loan amount, APR payment schedule and other fees — and ultimately requires that many of these details be presented in a standardized “Schumer box.” Schumer boxes make it easier to directly compare different credit cards’ terms. Many offers require extra clarification under TILA. For example, if a card has 0% APR for a period of time, it must be clearly described as an “intro” APR period and the issuer must explain when and how the intro period could expire. TILA also requires that credit card statements note how long it would take to pay off the balance if you were to only pay the minimum payment. This deters people from always paying the minimum and racking up debt.
Protection from billing errors
Once you’ve chosen your card using accurate information and you have it in hand, the next right you might need is assurance you won’t be penalized for billing mistakes. After all, you don’t want to have to pay for inaccurate or fraudulent charges.
The Fair Credit Billing Act (enacted as an amendment to the Truth in Lending Act in 1974) lays out some rules for how to handle disputes about mistaken or fraudulent billing. This act gives consumers 60 days to notify issuers of fraudulent or erroneous bills. The issuer then has 30 days to respond. During that time, they cannot require that the cardholder pay the disputed charge. The act also limits consumer liability to $50 for fraudulent payments — note that no fraud liability, something that’s offered by most issuers, reduces your liability to $0.
Protection from credit errors
Fixing billing errors has an immediate impact on one’s wallet, but similar mistakes can really damage your credit. The Fair Credit Reporting Act (1970) and its amendment, the Fair and Accurate Credit Transactions Act (2003), give consumers the right to accurate credit reports and provide a pathway to fixing one’s credit reports. Thanks to these laws, everyone has the right to one free credit report from each of the three main credit bureaus each year through AnnualCreditReport.com. With that access, consumers have the opportunity to look over their credit reports and confirm their accuracy.
If there are inaccuracies in the report, you can notify the creditor or credit agency and they must remove the error if, upon investigation, they cannot verify that the information is correct. Serious and extensive errors may mean that your identity has been stolen. Because of the prevalence of identity theft, protections have recently been extended further to allow consumers to freeze their credit for free. These laws also limit how long a credit mistake can stay on your credit reports. Most negative credit events, like late payments, are removed after 7 years. Bankruptcies can stay on your reports for up to 10 years.
Protection from unreasonable garnishment and seizure
Once you have debt, the next important question becomes how payment can be collected. Early on, Congress realized that allowing lenders to collect payment directly from consumers’ employers encouraged predatory lending. They also noted connections to organized crime. The Consumer Credit Protection Act provides protections against these issues in Title II — Extortionate Credit Collections and Title III — Restrictions on Garnishment.
Extortionate credit collection either uses violence or the threat of violence. As you can probably guess, this is absolutely illegal. If a debt collector starts sounding like a mobster, report them! Extortionate debt collectors can be fined and/or jailed for up to 20 years. Title III limits garnishment — that is, seizing wages and using them to directly pay for the consumer’s debt. First of all, wages cannot be garnished without a court order. If your wages are garnished, more than 25% of your disposable weekly income cannot be garnished. The act also protects consumers from being fired by their employer for having their wages garnished.
Protection from unreasonable collection practices
In addition to outlawing violence in debt collection and limiting wage garnishment, there are limits to how debt collectors can interact with consumers. The Fair Debt Collection Practices Act, first passed as an amendment to the Consumer Credit Protection Act in 1977, sets these boundaries. Among its rules: debt collectors can only contact you between 8 a.m. and 9 p.m. local time, they have to accurately represent who they are, they can’t discuss your debt with your family or employer and they can’t threaten — if they say they are going to file a lawsuit, they must do so.
It is worth noting that this law defines debt collectors as third parties attempting to collect on a debt. If a credit issuer has a department of their own seeking repayment, they are not “debt collectors” under this law. None of these rules would apply to them. Issuers don’t usually apply such unethical approaches toward their own customers — but it isn’t unprecedented.
Right to financial privacy
With a line of credit established, a concern you might have is who can view your spending habits. Should the government be able to view all of your spending information without your permission? What about employers or landlords? In the 1976 Supreme Court case United States v. Miller, the Supreme Court ruled that an individual’s bank records are not private. The judgement determined that the fourth amendment (protection against unreasonable searches and seizures) didn’t apply.
In a relatively quick legal turnaround, the Right to Financial Privacy Act (RFPA) was passed in 1978. This act set standards for if, when and how the government can access a consumer’s banking records. RFPA requires that the government either get your approval to view your banking records or use a subpoena or search warrant to get the information. If it subpoenas the information, it must notify you and give you time to respond. You’ll have 10 days to reply if you are served the subpoena in person, 14 if it was mailed. In that time, you can file a motion to deny the subpoena.
As is often the case, there are some limitations. For example, banks have the right to notify police if they suspect illegal activity and the USA PATRIOT Act allows the FBI to request financial records without individuals’ knowledge or consent using National Security Letters. Additionally, the act only regards privacy from the government. Limitations on if and when employers, landlords and others can access your financial information fall under the Fair Credit Reporting Act. Only those with a valid need can request your credit information, usually those who are reviewing an application, like landlords, credit issuers and employers — and they need your permission first.
Right to consistent and fair billing periods
To avoid late payments and raised APR, you’ll need to know when payment is due. That’s just one of the many places that the Credit CARD Act comes in. Coming on the heels of the Great Recession of 2008, the Credit CARD Act set a lot of standards — and we’ve covered it extensively before. One of the standards we sometimes take for granted is the regulation of billing periods. Thanks to the Credit CARD Act, due dates for payment must be the same day each month. If the due date falls on a weekend or holiday, the next business day becomes the new due date. Additionally, the earliest a bill can be due is 21 days after delivery. You’ll never unknowingly get a card with less than a 21 day grace period.
Protection against unfair fees
While you should always read your credit card’s terms and conditions, we all like to assume that our credit cards don’t have hidden and unfair fees. Limiting unfair fees was the primary goal of the Credit CARD Act. As of 2017, the Credit CARD Act had saved consumers about $12 billion in fees and charged almost $600 million in civil penalties to issuers for breaking fair credit laws.
How has the Credit CARD Act saved consumers so much money? It imposed a variety of limitations and outlawed certain fees outright. All of the following are credit card practices that are no longer allowed.
- Retroactive rate increase: Issuers increased the interest rates on past purchases.
- Universal default: Issuers used to raise the interest rate on a credit card when a cardholder was late on a payment for a different credit card.
- Double-cycle billing: Credit card issuers applied interest rates to two billing cycles instead of one. Even if you paid off your balance one month, you could still have interest applied to the purchases of that month if you didn’t pay off your balance the following month.
- There were fees on on-time payments.
- Issuers charged cardholders extra for choosing specific payment methods. (Additional charges are now only allowed for expedited mail.)
One of the most extensive fee changes is the penalty fee limit. There used to be no limit to how much an issuer could charge in late fees. Currently, an issuer can charge a maximum of $27 for a one-time late payment. If you’ve already been late on your payments in the past 6 months, they can charge $38. The late payment fees are periodically adjusted by Consumer Financial Protection Bureau and will go up by a dollar on Jan. 1, 2019.
Right to fair warning
Once you’ve gotten used to your credit card agreement, a final important right is the right to know when the agreement will change. The CARD act set rules for that as well. Cardholders can’t have their interest rate raised in the first year. When issuers do raise APR, they must give written notice at least 45 days before the increase. There are a few exceptions and we have described some of them below.
If the card has a promotional APR period set to expire after a clear timeline, issuers don’t need to provide additional notice. For example, imagine you have a card with a 0% intro APR for 12 months. After the 12 months are over, you will need to pay the standard APR rate (which you will be advised of in your cardholder agreement after approval). The issuer would not need to notify you that they will raise your APR to their standard rate.
A variable APR can change based on an index that is out of the control of the issuer. This essentially refers to the Fed’s federal fund rate. When the Fed raises their rate, most APRs go up accordingly.
An issuer can set up special terms and a lower APR as a temporary arrangement for a customer who is going through financial hardship. If the consumer doesn’t follow the agreed upon terms, the issuer can raise the APR.
If you don’t want to continue with the card in light of the new rates or policies, you have the right to cancel your card before the new terms come into effect. That said, you would still need to remove any balance from the card before canceling it, either by paying it off or by doing a balance transfer.
Next steps and future amendments
If you feel that any of these laws have been broken, or otherwise feel wronged as a consumer, there are several government agencies you can go to for help.
We hope this outline of your main credit rights helps. However, just like many amendments followed the bill of rights, there are already many changes in credit card policy. As new issues arise, new rights will likely be created. Stay up to date and learn more about personal finance and credit cards by following our personal finance blog.
In order to receive the protection you deserve, get to know the legislation that affects you. This guide to the major laws regarding credit cards can help you stay informed, prevent abuse by card issuers, and take action if you suspect abuse has occurred. Know the laws in place to protect you.
Truth in Lending Act
The Truth in Lending Act (TILA), which went into effect in 1968, starts protecting you before you even apply for a credit card.
Here are the key provisions:
- Credit card companies must provide easy-to-understand information about terms, fees, interest rates, finance charge calculations, and other lending practices.
- Offers advertising low rates or special terms must be real offers available to qualified applicants.
- Consumers have three days to back out of a loan agreement without losing money (this applies to other types of loans as well, besides credit cards).
- Credit card companies and other lenders are prohibited from using high-pressure, misleading sales tactics.
- Credit card issuers are required to provide standardized information in plain language so you can easily compare offers.
Fair Credit Billing Act
The Fair Credit Billing Act (FCBA) was passed in 1975, and protects you from paying erroneous charges on your credit card bill. Under FCBA, your liability is limited to $50 for items you ordered but did not receive, merchandise or services that you didn’t accept, or duplicated or wrong charges. Other key points about FCBA include:
- You have 60 days from the statement date to report an error you find on your bill. In turn, the creditor must notify you if you received an inquiry within 60 days.
- You must notify the card issuer of an error in writing, and include your name and account number, as well as specific information about the error.
- The creditor is required to either remove the erroneous charge from your account or conduct an investigation into the charge.
- The credit card company can’t try to collect the amount you are disputing while the matter is being investigated.
- The creditor must inform you, in writing, of the outcome of its investigation and explain what further actions will be taken.
- If the error is valid, the card issuer must correct it and credit you the disputed amount, as well as any financial charges related to it.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) ensures the information kept on file by consumer reporting agencies is correct, fair, and kept private. Credit card companies access your credit report when you apply for a card, in addition to reporting your card activity to the credit bureaus. The FCRA was first enacted in 1970, and was amended as part of the Fair and Accurate Credit Transactions Act of 2003. FCRA provides the following protections:
- You have the right to dispute inaccurate or incomplete information you find on your credit report. You can contact the credit reporting bureau directly, which then must investigate your claim within 30 days.
- Disputed information will be marked as such on your credit report.
- Wrong information will be taken off your report or corrected. The credit reporting agency must do so within 30 days.
- If you are denied a credit card, then you can ask which credit report the card issuer referred to and obtain a free copy to double-check the information on it.
- Information that harms your credit, in most cases, will be removed from your credit report after a specified amount of time has passed. Credit reporting agencies are not allowed to report outdated information.
- Only specific entities can access your credit rating and history, such as creditors, insurers, and employers.
Remember, you can get one free copy of your credit report per year from each of the three credit bureaus: Experian, TransUnion, and Equifax. To obtain your free reports, visit AnnualCreditReport.com; this is the only site that provides official credit reports. You can also ask for a credit report anytime you are denied credit or suspect fraud or identity theft.
Fair Debt Protection Practices Act
This credit law prohibits third-party bill collection agencies from certain practices. The following stipulations are covered by the FDPPA:
- Bill collectors cannot call you multiple times a day. They also are not allowed to call before 8 a.m. or after 9 p.m.
- Collection agencies are not allowed to call you at work if you tell them your workplace does not allow personal incoming calls.
- Bill collectors must respect your privacy. They may not discuss the reason for their call with anyone other than your spouse without your permission. If they communicate by mail, the reason for the mailing must not be marked on the outside of the envelope.
- Bill collectors may not threaten, intimidate, or harass you, and the same goes for your family or household members.
- Collection agencies can’t give an assumed name or a false purpose for calling, such as saying they are a member of law enforcement agency or an attorney.
- Your name, address, and other personal information can’t be published on a “bad debt” list or made public in any way by the collection agency.
Credit CARD Act
President Obama signed the Credit Card Accountability, Responsibility, and Disclosure Act into effect in 2009, enacting sweeping changes to the credit card industry:
- The credit card company must notify you 45 days in advance of changing the terms of your agreement, such as interest rates and fees. You must have the chance to cancel the card before changes go into effect.
- Your credit card bill is due on the same date every month, and payments must be accepted until 5 p.m. on that date.
- Your statement must include clear information about how long it will take you to pay off your balance if you only make minimum payments, and what monthly payments are required to pay off the balance within three years.
- The card issuer can’t increase your interest rate during the first year of card activity, nor can they increase the rate of payments that are fewer than 60 days late. Raising these rates after you’ve made late payments to other creditors is also prohibited.
- Promotional APRs must last at least six months.
- Excess payments must be applied to the highest interest balance first.
- Credit card issuers can no longer use last month’s balance to calculate this month’s interest, a process known as “double-cycle billing.”
- The card’s grace period, the amount of time you have to pay off new purchases before incurring interest, must be at least 21 days.
- The company can raise your APR for new purchases only.
- Credit card companies can no longer charge overlimit fees.
- Students under 21 years of age need a cosigner to apply for a credit card, or are required to provide evidence that they have an income and can afford monthly payments.
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