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5 key federal laws help protect credit cardholders

These acts regulate credit issuers, debt collection, billing disputes

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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'Opening Credits' stories

Question for the CreditCards.com expert

Dear Opening Credits,
What laws protect me as a credit card consumer? Thank you! -- Rosemary

Answer for the CreditCards.com expert

Dear Rosemary,
There are actually quite a few federal laws in your corner, Rosemary. In fact, it's so important that prospective and current cardholders are knowledgeable about their legal rights that I'm happy you asked. Here are the top five laws covering consumer credit you need to know:

1. Truth in Lending Act
Before you even get a credit card or loan, you are shielded from unfair lending practices. For example, the issuer must disclose in writing and in plain language, the terms, interest rate and other costs of that loan or line of credit. Mailed a promotional card offer with a spectacular APR and other great terms? That offer must really be available to the public -- maybe not to you specifically, but to qualifying applicants (which the company will specify in the application).

2. Fair Credit Billing Act
Once you do have a credit card, this law steps in to protect you against inaccurate billing charges. If you meet certain guidelines, the Fair Credit Billing Act limits your financial responsibility for unauthorized charges to just $50 and says you don't have to pay for:

  • Merchandise that you ordered but never received.
  • Goods and services that you didn't accept or were not as promised.
  • Double charges and other incorrect charges.

In fact, the power of this law is so great that it's sensible to pay for expensive items with a credit card because of all the consumer protection the law offers.

3. Fair Credit Reporting Act
Banks and lenders typically report your credit activity to the credit bureaus, and the Fair Credit Reporting Act -- amended in 2003 by the Fair and Accurate Credit Transactions Act of 2003 -- makes sure that financial data listed in your report is correct. For instance, it provides:
  • The right to dispute inaccuracies. You may with the bureau, which then has 30 days to investigate. During that time, a notice of dispute will appear on your report. False or unverifiable information will be removed from your report.
  • The right to access your credit file. If you are denied credit, you have the right to know which credit report the lender used and receive a free copy of it to make sure that the information is correct. Consumers are also guaranteed the right to one free report from each of the credit reporting bureaus annually -- or anytime if you suspect fraud
  • A time limit for negative information. In most cases, harmful information must eventually be removed from your credit report. Defaults and late payments typically drop off the reports after seven years while Chapter 7 bankruptcies remain for 10.

Also, don't think that just anyone can gaze at your credit file. This law stipulates that only those with a need -- such as a creditor, insurer, landlord, or a prospective employer -- can access your reports.

4. Fair Debt Collection Practices Act
This is one of my favorite credit laws, as it relieves a huge amount of anxiety from distressed borrowers. The Fair Debt Collection Practices Act defends you against third-party collection abuses. Specifically, collectors are prohibited from:

  • Calling multiple times a day, before 8 a.m. or after 9 p.m. or at work if you tell them the calls are jeopardizing your job.
  • Discussing your debt with someone other than your spouse without your permission.
  • Using profanity and making false threats. If they say they are going to sue you, then they have to take that action.
  • Misrepresenting him/herself or the purpose of the call.

5. The Credit CARD Act
The latest consumer credit law to be passed -- its full name is the Credit Card Accountability, Responsibility, and Disclosure Act -- is long, powerful and detailed. Just a few highlights:

  • As long as you pay on time and as originally agreed, the interest rate paid on existing balances can't be raised.
  • You have the right to opt out of credit card rate increases and to pay off your debts under the original terms.
  • You must be given 45 days' notice of rate, fee and finance charge increases.
  • Double-cycle billing is banned, which eliminates interest charges on debt you pay on time.

So these are the big federal acts, Rosemary, but also be aware that your own state may strengthen these laws further. Contact your attorney general's office to learn how!

See related: Know your rights: Fair Debt Collection Practices Act, Debt collectors' ethics code, A comprehensive guide to the Credit CARD Act, 10 things you must know about credit reports and scores, 8 legitimate ways to improve your credit score now, How to read, understand your credit report, How to dispute errors on your credit report 

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: November 25, 2009



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