As a consumer, you're aware of your responsibilities and the potential consequences of not following certain rules. For example, missing credit card payments can lower your credit score, and lenders have the right to deny you credit in the future based on your payment history. However, it goes both ways, and there are consumer credit laws to protect borrowers.
For instance, The Equal Credit Opportunity Act prevents lenders from denying credit to consumers based on discriminatory reasons. There are also laws that allow you to dispute any incorrect information on your credit report with credit bureaus and prevent borrowers from being taken advantage of financially.
Being aware that these laws exist is key to ensuring your rights are being respected—and in case they aren't, do something about it. In this article we share seven consumer credit laws every borrower should be aware of.
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7 consumer credit laws you should know about
We gathered seven important consumer credit laws in the U.S. based on their role and impact in borrower protection. To make this list, we consulted attorneys, the Fair Trade Commision (FTC), the Consumer Financial Protection Bureau (CFPB), and the Office of Justice Programs (OJP) sites.
Note that these laws are under the Consumer Credit Protection Act approved in 1968, so it won't be addressed individually. If you're a real nerd and feel like reading the original document, there's a PDF available for download on the OJP site.
Here's what you need to know about each law:
1. The Credit CARD Act
The Credit Card Accountability Responsibility and Disclosure Act (or simply Credit CARD Act) was passed in 2009 and established a number of protections for credit card holders. The list includes:
- Interest rates increase protection: Creditors should provide written notice of annual increase of percentage rates. The notification should be sent 45 days prior to the interest rate hike. (See section 171)
- Billing protections and grace period: Creditors cannot consider your payment late unless your credit card statement was mailed or delivered to you at least 21 days prior to the payment due date. This 21-day grace period between you receiving the statement and the payment due date cannot be arbitrarily cut off or reduced.
2. The Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) exists to ensure your credit information is collected and used lawfully by governing nationwide credit bureaus, such as Equifax, Experian, and TransUnion. It determines that, as a consumer, you have the right to review and get a free copy of your credit report once every 12 months, upon request.
Under the FCRA, credit bureaus must allow consumers to dispute errors or fix any inaccuracy in the report. Often those errors are out-of-date information, but they could also be a sign of identity theft and that a stranger is using your name to open credit accounts—which might jeopardize your financial and even professional life. Annual credit report checks should help consumers spot any problem soon enough to fix it promptly.
3. The Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA) doesn't refer to consumers directly but to this-party debt collectors. Simply put, this law determines what debt collectors can and cannot do when collecting debt from consumers.
As stated on the Federal Trade Commission site, the FDCPA prohibits third-party collectors “deceptive or abusive conduct” in the collection of debt incurred by the consumer for family, household, or personal reasons—business debt is not included in the act.
Examples of what is considered deceptive and abusive conduct include contacting the consumer at odd hours, harassment, repetitive phone calls, and revealing said debts to other people or publicly posting about it in social media.
(It's important to highlight that this law refers only to third-party debt collectors, not the actual company you owe, and some U.S. states have their own laws about debt collection practices.)
4. The Equal Credit Opportunity Act
Equal Credit Opportunity Act (ECOA) is a consumer credit law that prohibits creditors (including banks, credit unions, and small loan and finance companies) from using discriminatory practices. Under this act, applicants for credit, whether people or businesses, cannot be discriminated for non-financial factors, including:
- Race
- Color
- National origin
- Sex and gender identity
- Sexual orientation
- Marital status
- Age (unless they’re a minor)
- Religion
Applicants also can't be discriminated against for receiving income from a public assistance program or for exercising, in good faith, any right under the Consumer Credit Protection Act. In some instances, creditors are allowed to ask for some of this information. For example, you can be asked about your marital status if you're filing for a joint account, but the creditor cannot deny credit or offer different terms and conditions based on any of these factors.
You should know that creditors have 30 days after the full application is filled to inform applicants whether it was accepted or denied. In case it's denied, you're also entitled to know the reasons why, if you request within 60 days.
5. The Truth in Lending Act
Passed in 1968, The Truth in Lending Act (TILA) prohibits lenders from using deceiving techniques and language to hide interest rates and finance charges of credit products (e.g. credit cards and loans).
Under TILA, creditors are required by the Fair Trade Commission to disclose certain information to consumers, regarding credit transactions and charges, such as annual percentage rates, prepayment penalties, late fees, and total loan amount financed. This applies to in-person offers and advertisements.
Note that there's no restriction on the interest amount. Simply put, creditors can charge as much as they reasonably can, the law only requires that they're truthful and upfront about the costs. The 2009 Credit CARD Act, previously mentioned, is one of the many amendments made to TILA to further protect consumers as the world progresses.
6. The Fair Credit Billing Act
The Fair Credit Billing Act (FCBA) is an amendment to the Truth in Lending Act that was passed in 1974 to protect consumers from dishonest or unfair billing practices. Under this act, consumers are allowed to dispute billing errors on their credit cards and other types of revolving credit statements—the law doesn't cover personal loans, car loans, and such.
Errors contemplated by the FCBA:
- Unauthorized charges (limited to $50)
- Charges that you recognize but have the wrong date, amount, or a math mistake; are from an item that you didn't accept or received; you'd like an explanation or written recipe
The law mandates that the dispute should be resolved in writing within 60 days after you receive the first bill with the error. The creditor has 30 days to address the dispute, also in writing, and 90 days to resolve the dispute.
7. The Credit Repair Organizations Act
If you're searching for consumer laws for credit repair, The Credit Repair Organizations Act (CROA) is the law you need to know. It exists to protect consumers who use the services of a credit repair company.
Under CROA credit repair companies (and their agents) are prohibited from resorting to untruthful and misleading representations. This means that they cannot lie, nor encourage you to lie, about your credit history to creditors. They must also be honest with you about the services being provided and cannot demand advanced payments.
Contracts must be provided in writing and, as a consumer, you have a 3-day period to cancel the contract without being required to pay a cancellation fee. The company must also give you a written cancellation form. The FTC alerts that credit repair companies that don't follow those rules are likely to be scams.
My consumer rights were violated, what should I do?
If you believe your consumer rights are being violated, you can contact the creditor directly and, in case it doesn't work, complain to the Consumer Financial Protection Bureau (CFPB). But first, you need to gather proof to support your claim.
“The first step is to document everything,” says C.L. Mike Schmidt, an attorney from Schmidt & Clark LLP. “Keep records of all communications, including emails, letters, and phone calls. This documentation will be crucial if you need to escalate the issue.” Then, contact the company and try to resolve the issue directly with them.
If the company doesn't resolve the issue, open a complaint on the CFPB site. The whole complaint process is done online and may take up to ten minutes. The CFPB highlights the importance of adding all the information necessary because, generally, a consumer cannot submit multiple complaints about the same issue.
“These bodies have the authority to investigate and potentially resolve your issue,” Schmidt says. “You should also consider reaching out to your state’s attorney general’s office, as they have consumer protection divisions that can assist.”
When is legal action necessary?
“In many cases, regulatory complaints and disputes can resolve issues without going to court,” says B. Patrick Agnew, Esq, a lawyer based in Virginia. However, if you take the steps suggested above and the issue isn't resolved, you may consider pursuing legal action. Going to court is also recommended in cases of serious violations of consumer rights.
“Legal action should be considered if the violation has caused huge financial harm or if the company is unresponsive to your complaints,” Schmidt says. “Cases involving identity theft, unauthorized charges, or persistent billing errors are examples where legal action might be necessary.”
However, you should be aware that the process isn't simple and can be demanding, both mentally and financially. “Litigation can be time-consuming and expensive, so consumers should weigh the potential benefits,” Agnew says.
On the bright side, depending on your case, you may be able to recover the money spent with attorney's fees. “It’s worth noting that many consumer protection laws also allow for the recovery of attorney’s fees, which can make pursuing legal action more feasible for consumers,” Schmidt says.
Useful links
- Report fraud (FTC)
- Report identity theft (FTC)
- Get your free credit report (FTC)
- Get answers to your financial questions (CFPB)
- Consumer Complaint Database (CFPB)
- Consumer resources (NAAG)