Credit and Your Consumer Rights
The lives of American consumers are increasingly like open books: vulnerable to sophisticated cyber-snoopers capable of discovering a great deal about how people save and spend. Yet even as the ability to gather financial data expands, federal laws limit what others are allowed to collect about a person’s financial history and what they can do with the information once they have it.
Starting with the Consumer Credit Protection Act of 1968, Congress moved to shield consumers and their financial records from abuse. In the years following, other laws refined consumer rights, spelling out how government can access bank customers’ information, how banks treat borrowers and the way banks handle customer deposits.
Right to Financial Privacy Act
The federal Right to Financial Privacy Act limits government access to personal financial records. Congress passed the law, which protects the confidentiality of personal financial records, in response to the 1976 Supreme Court’s United States v. Miller ruling which found that the consumer bank account records aren’t subject to constitutional privacy protection.
The 1978 law extended Fourth Amendment privacy protection to such information.
Under the Financial Privacy Act, government officials normally must get written consent, or obtain a subpoena or search warrant in order to peruse your financial records. Before authorized searches can take place, investigators must serve notice on the account holder and wait 10 days for a response, or 14 days from the date a notification was mailed.
Importantly, the law only applies to the federal government and its officers, agents, agencies and departments. It doesn’t govern local or state governments, nor does it regulate the activities of private businesses.
The act identifies the sort of financial institutions it covers. Not only does it cover accounts held at traditional banks, but it pertains to records held by merchant credit-issuing entities. So department store and gas station credit card accounts fall under the act’s regulations.
In 2002, the act was expanded to include an assortment of institutions, some of which might not commonly be considered financial. These include:
- Depository institutions like banks, thrifts and credit unions
- Money services businesses
- Money-order issuers
- Travelers’ check issuers
- The U.S. Postal Service
- Securities and futures brokerages
- Commodity trading advisors
- Casinos and card clubs
The law’s protections are limited to individuals and partnerships of five or fewer people. Companies and large groups like trade associations and labor unions aren’t covered.
There are some exceptions to this rule:
- Under specific circumstances, you may not be asked or told ahead of time that a government agency is viewing your files
- A bank or other financial institution has the right to notify police if it has information about illegal activity
- Your bank has the right to submit copies of your financial records to a court in order to prove a bankruptcy claim or attempt to collect a debt
- A financial institution also may release your records if it removes all personal identifying information
The law does not apply if a supervisory or consumer rights agency needs records to investigate consumer complaints. In these instances, the records are used to scrutinize the financial institution and not you.
Credit Practices Rule
The Federal Reserve Board adopted the Credit Practices Rule in 1985 to protect the rights of consumers in debt. It applies to consumer credit contracts made with creditors such as car dealers, department stores and financing companies. It doesn’t apply to real estate purchases, bank loans or contracts with loan associations, yet it covers mobile homes and houseboats.
The rule blocks banks and their subsidiaries from putting certain provisions in consumer credit contracts. These restricted provisions include:
- Any clause that either waives a borrower’s right to be notified of a court hearing or relinquishes his right to be heard in court – if a suit is brought alleging a debt default
- Contract provisions that force a consumer to relinquish legal protections of his home, possessions or wages against seizure to satisfy a judgment – such a waiver is permitted if the property is given as collateral in the credit obligation
- Any wording that gives banks the right to collect a consumer’s future wages or earnings to cover a loan default – some creditors may want you to agree to have money automatically deducted from your paychecks if you fall behind on loan or debt payments, but creditors are allowed to offer this option only under the condition that you can cancel automatic deductions at any time
- Clauses that allow the lender to take the borrower’s household goods to cover a debt – the restriction applies only to items not purchased using the bank’s credit line
- Ones that allow a practice known as pyramiding late fees – if you make your usual payment on time but fail to include the owed late fee, the creditor cannot charge you an additional late fee
The lender is also required notify any cosigners to a credit arrangement an explanation of what taking on the debt entails. The notification must be provided in a separate document or in a credit obligation prior to the issuance of the loan or credit line. Among other things, it might state that bank can attempt to collect a debt from the cosigner before it goes after the borrower, and it spells out all the cosigners obligations.
Expedited Funds Availability Act
The Expedited Funds Availability Act, passed in 1987 and amended in 2010, spells out how long you have to wait to withdraw money after depositing it in a bank account.
A 2010 amendment to the act detailed when certain amounts of a deposit are available to an account holder.
Deposits of cash, wire transfers and some government checks are available for withdrawal on next business day. So are checks drawn on the same institution where they are deposited and items like cashier’s checks, certified checks and teller’s checks.
So, if you make a deposit on Monday, the funds must be available on Tuesday. A deposit made during a weekend is treated as if it were made on Monday and are also available Tuesday.
In addition, up to $100 of the total of all checks deposited by one customer on a single business day will be available the next business day.
For personal checks or checks over $100, the wait time may increase. Here are some of the wait rules:
- Two business days after the deposit of all local checks
- Five business days following the deposit on non-local checks
- An additional one-day extension of time applies to checks deposited in accounts in Alaska, Hawaii, Puerto Rico or the Virgin Islands and drawn on a depository institution in another state, commonwealth or territory
- Special available rules apply to deposits made at ATMs not owned and operated by the bank in which the deposit is made
- Still longer waiting periods can apply to new accounts of more than $5,000, checks for amounts larger than $5,000, checks re-deposited after they are returned unpaid, any deposit account repeatedly overdrawn and any emergency condition that prevents losses due to fraud
If a bank fails to follow the rules, it can be sued. A one-year limitation period applies, and a bank cannot be held civilly liable for a true error. Liability can’t exceed the amount of the check that gave rise to a loss. In some cases, other damages might apply.
Other Consumer Protections
These are just a few of the provisions relating to consumer financial rights. The Consumer Credit Protection Act, for example, deals with credit reports and other aspects of debt and credit. To learn more about your credit and consumer rights, read about the Federal Trade Commission, or visit their website.
Credit Cards
Credit cards can offer numerous benefits to consumers, including a convenient way to pay for purchases, the ability to build a credit history, and the potential for rewards. But to make the most of your credit cards, it helps to be an informed consumer.
This guide will help you shop for and use credit cards.
- Comparing Credit Cards
- Understanding the Cardmember Agreement
- Consumer Protections on Credit Cards
- Credit Card Billing Errors and Your Liability
- Additional Resources
Comparing Credit Cards
Each credit card offers different terms and benefits, so it is important to shop around to find the best one for you. Federal law requires creditors to disclose important rate and fee information to you before you apply for a credit card, which makes it easier for you to compare cards. Consider these things when shopping:
- Annual Percentage Rate (APR): The APR represents the annual cost—both interest and fees–of the credit card. A credit card may charge different APRs for purchases, balance transfers from another card, and cash advances. The higher the APR, the more expensive the cost of using the card to finance purchases. In addition, some credit cards offer introductory rates, which are special low interest rates that will increase once the promotional period ends.
- Fees: These can include annual fees, balance transfer fees and cash advance fees (in addition to any interest you might pay), foreign transaction fees, and penalties for late payments or returned payments. When shopping for a card you should determine if these fees will change over time. For example, some cards will waive an annual fee for the first year but will charge it in later years.
- Rewards: These programs can be complicated, with specific eligibility rules. Know what you need to do to qualify for rewards, which might include meeting spending requirements, and how much you would have to spend to accumulate enough points or miles to get what you want. Also understand what you need to do to maintain your reward points, since they can sometimes expire if an account is closed or considered inactive.
Again, this information must be disclosed to you before you apply for a credit card.
Understanding the Cardmember Agreement
Opening a credit card means entering into a contract with the credit card company, so you want to make sure you understand the terms you are agreeing to and choose a card that has the best terms and rewards for you.
The terms and rewards also will be outlined in the Cardmember Agreement, which you will get when you get your card in the mail. (More information about credit card programs is included in this March 2019 FDIC Consumer News article). If you cannot find the agreement, contact your credit card company for a copy.
Opening a credit card and making on-time monthly payments is a good way to build positive credit history. (Learn more about credit reports and credit scores in the June 2019 FDIC Consumer News article.) In addition, if you do not pay your account on time or you go over your designated credit limit, the lender may charge you a fee.
The credit card company may take action on your account based on the overall credit history on which the credit score is based. This may include lowering your credit limit, closing your account or suspending your charging privileges based on your credit score even if you have paid your account with them as agreed. If you have questions regarding what is happening with your account, contact your financial institution.
Consumer Protections on Credit Cards
Federal laws provide important protections for credit card users. These include:
- If your card is lost or stolen, your losses may be limited to $50 as long as you notify your issuer promptly. You may not be responsible for any charges if you report your loss before your credit card is used.
- Your issuer generally must provide a 45-day advance notice of any interest rate increase, fee increase, or any other significant changes in account terms.
- Your issuer cannot permit you to go over your credit limit and then charge you a penalty fee for having done so unless you explicitly agree to it (or “opt-in”).
- To opt-in, you must tell your credit card issuer that you want it to allow transactions that will take you over your credit limit. If you do not opt-in, your credit card company may refuse to process any transaction that puts you over your credit limit.
Credit Card Billing Errors and Your Liability
If you use a credit card, you may have experienced some type of billing error, such as an unauthorized charge, a charge listed on your monthly account statement with the wrong date or amount, charges for goods that weren’t delivered as agreed, or failure to post payments or other credits. Federal law provides a means for correcting these types of account errors as long as the financial institution involved is notified in a timely manner.
The Truth in Lending Act (TILA) provides a process for disputing billing errors for open-end credit, such as credit cards. In order to take advantage of these protections, you must notify the lender of any billing errors by:
- Providing the notice in writing,
- Enabling the lender to identify your name and account number,
- Stating why you believe there is a billing error,
- Stating the type, date, and amount of the error, and
- Sending the notice in a timely manner so that the lender receives it, at the address specified for billing inquiries, no later than 60 days after the lender sent the first billing statement reflecting the error.
Once you properly notify the lender about an error on your statement, it must acknowledge that it received this notification within 30 days, unless the problem has been resolved. The lender must investigate and resolve the issue within two complete billing cycles (but in no event later than 90 days) after receiving the billing error notice.
While the lender conducts its investigation into the billing error:
- You may withhold payment of the disputed amount and related charges. However, any part of the bill not in question, including finance charges on undisputed amounts, must be paid in accordance with account terms.
- The lender may not take legal or collection action on the disputed amount.
- The lender may not report your account as delinquent, accelerate your debt, restrict your account, or close your account.
If the lender confirms there is a billing error on your account, it must send you a written explanation of the corrections made to your account. In addition to crediting your account for the disputed amount, the lender must also remove all finance charges, late fees, or other charges related to the error.
If the investigation reveals no error occurred, the lender must send you a written explanation of the amount you owe, and you are responsible for paying the disputed amount, plus any finance charges that accumulated during the investigation.
You may request copies of relevant documents used in the lender’s investigation. If you disagree with the results of the investigation, you may write to the lender within 10 days after receiving the explanation, and you may indicate that you refuse to pay the disputed amount. The lender may begin collection procedures and may report your account as delinquent to credit reporting agencies, but it must also note that you disagree with the amount owed.
In addition to the consumer protections associated with billing errors, TILA also contains special credit card provisions that limit your liability for unauthorized use of a credit card. If you realize that an unauthorized user has made purchases with your card, notify the card issuer right away – in person, by telephone, in writing, or through a mobile app if available. Doing so limits your liability to $50. If you wait, you could be held responsible for much more.
Additional Resources
- FDIC Explains Interest Rates (youtube.com)
- Money Smart Podcast
- Rewards Cards – Minimize the Pitfalls, Maximize the Benefits
- What You Need to Know About Credit and Debit Card Billing Issues
- When and Why Your Credit Card Interest Rate Can Go Up
https://www.debt.org/credit/your-consumer-rights/https://www.fdic.gov/consumer-resource-center/credit-cards
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