Your Rights As A Consumer Of Financial Services
I. BORROWERS TOO HAVE RIGHTS.
Many people who borrow money believe that all of the rights and advantages of a loan contract go to the lender of funds. Certainly lenders have significant rights as they must have to be able to secure the return of their funds. If the lender is a bank or other financial institution, most of the funds being loaned belong to the public. Therefore, lenders must have such important rights as being able to seek relief in the courts or the right to seek repossession of goods to be able to return borrowed money back to its ultimate owners. However, thanks to extensive new laws passed over the past four decades, borrowers in the United States also have significant rights. Sadly, many borrowers are unaware of these rights or have little or no knowledge about how to take advantage of them. Below is an outline summary of some of the key consumer protection laws in the United States that support the rights of consumers of financial services today.
II. THE TRUTH IN LENDING ACT OF 1968
- Required full disclosure of loan terms to a borrower, which must be in easily understood language and must be in writing.
- A borrower has the right to cancel (rescind) a credit agreement within 3 business days if his or her home is used as collateral for a loan (provided the loan is not a first mortgage, payments are in more than 4 installments, and the loan is a personal loan and not for business purposes).
- The lender must state, in writing, the Annual Percentage Rate (APR) and all finance charges before the loan agreement is signed.
- Advertising must be truthful and if any favorable terms of credit are cited, all relevant terms of a loan must also be stated in advertising a loan.
III. THE FAIR CREDIT AND CHARGE CARD DISCLOSURE ACT OF 1988
- Two decades after passage of the Truth in Lending Act of 1968 that law was extended to credit cards so that a card customer would know what he or she must pay and what rules must be followed if he or she decides to accept a credit card.
- Credit card customers must be told:
- The APR or annual percentage rate that will apply to any borrowings against the card.
- How the APR is figured on a card that has a variable interest rate.
- How the credit balance on the account will be figured each month.
- Whether there are any annual fees.
- If there is a minimum finance charge.
- If there are any transfer fees for purchases, cash advances, late payments, or if there is a penalty fee if the customer exceeds his or her credit limit.
- As in the case of Truth in Lending, all credit-card terms must be in writing that the customer can understand. Any customer is entitled to a full explanation of what happens when their card is used in type that is large enough to be easily read by most people. Most card companies now provide a toll-free phone number to make it easier to get your questions answered.
IV. FAIR CREDIT BILLING ACT OF 1974
- When disputes arise over charges to a credit account, the borrower can contact the lender by letter within 60 days from when the disputed bill was mailed and expect a response within 30 days with resolution normally expected no later than 90 days.
- The borrower may withhold the disputed amount of charges and not be reported as delinquent on that amount. However, any non-disputed charges must be paid.
- If the lender fails to respond, he or she forfeits the amount in dispute up to $50.
V. FAIR CREDIT REPORTING ACT OF 1970
- Borrowers have the right to review their credit record as maintained by credit bureaus or credit rating agencies all over the U.S. and credit bureaus must assist you if you have difficulty reading your credit report. What do these reports usually contain?
- Your name.
- Current and previous addresses.
- Social Security number.
- Birth year.
- Current and possibly previous employers.
- Name of your spouse if you are married.
- Credit accounts you have opened to borrow money from banks, retail merchants, credit card companies, and other lenders will be shown (though some may be missing). Generally your credit accounts are listed by type of loan agreement, e.g., home mortgage, revolving charge account, student loan, etc., along with the date you opened the credit, your credit limit or loan amount, anyone who has co-signed a loan with you and your payment track record (usually at least over the preceding two years). The report may also show if you have had any judgments against you, requiring you to periodically pay money, such as bankruptcy agreements, tax liens you still owe, or other legal obligations you are responsible for. Finally, it may reveal if various businesses or other institutions have recently accessed your credit report (usually within the past six months or longer if it was an employer).
- If the borrower finds an error in his or her credit report, the credit bureau must respond and correct the error. If you are turned down for a loan, the lender must provide you the name and address of the credit bureau whose report was used to make the decision. You have the right to request a copy of the report free of charge if requested within 60 days of the denial and can request that the bureau correct any errors and reissue your report to any lenders receiving a flawed report during the past six months or any two employers receiving that erroneous report within the prior two years.
- If there is damaging (but true) information in a credit report, the borrower can ask to insert a statement of up to 100 words explaining the circumstances involved (e.g., “you were ill for a time and couldn’t earn any income”). The credit bureau must include the borrower’s statement or at least a summary of that statement in the credit report.
- Credit bureau reports are privileged information and only those authorized by the borrower or having a sufficient legal reason are entitled to have access to this information. Normally information is retained in these reports for 7 years, though bankruptcy information may be kept longer (usually deleted after 10 years). The people most commonly accessing your credit report are lenders and employers. Insurance companies can also access these reports if you have asked for a new policy or are renewing an existing policy as can a prospective landlord considering leasing you property to use. Other institutions or individuals who also may have access to your credit report include government agencies extending you benefits or certain licenses, courts issuing orders or subpoenas, and anyone you give permission to in writing. You may bring legal action for damages sustained through improper access to or use of your personal credit report. It is an excellent idea to check the accuracy of your credit bureau report several months before you plan to seek out a substantial loan of money or before you go job hunting. Among the leading national credit bureaus you may wish to contact are Equifax (800-685-1111 or www.equifax.com), Experian (888-397-3742 or www.experian.com), or Transunion (800-888-4312 or www.transunion.com).
- In 2003, an amendment provided you the ability to request a credit report free of charge from each of the 3 major credit bureaus (Equifax, Experian and TransUnion) once every 12 months. To do this, go to www.annualcreditreport.com. You will also be asked if you want your credit score. Your credit score is not free. There is a small fee usually $10 to $15.
VI. CONSUMER LEASING ACT OF 1976 (as recently amended)
- Consumers of leasing services must be quoted the full terms of a lease that involves personal property and this information must be put in writing. However, this applies to the leasing of personal property where there are more than four lease payments involved and the property is for personal, not business, use.
- Disclosure of lease terms must include all leasing charges, any insurance requirements, the terms under which a lease can be canceled, any late penalty fees, payment schedules and any warranties associated with the leased property
- Such terms as “normal wear and tear” must be defined and the customer must be told if there is a balloon payment at the end of the lease and whether or not the property being leased can be purchased by the customer.
VII. THE EXPEDITED FUNDS AVAILABILITY ACT OF 1987
- Checking account customers must be told the terms under which deposits are accepted and credited to the customer’s account.
- Specifically, the depositor must be told how long he or she must wait after making a deposit in a checking account to be able to access any funds deposited there. The offering institution’s checking account policies, particularly those affecting customer access to his or her funds, must be displayed in the bank’s lobby.
- Normally funds deposited in a checking account must be available for use by the customer within 1 to 5 business days depending upon whether cash, certified or government checks, electronic funds, local or non-local checks were deposited. A depository institution can delay longer than this in giving the customer access to his or her funds if it has reason to believe there could be a delay in collecting on the check (perhaps because the customer has made frequent overdrafts in the past or because an unusually large check has been deposited). However, the customer requesting so must be told when his or her funds, even in these unusual cases, normally should be available for use.
VIII. THE TRUTH IN SAVINGS ACT OF 1991
- Full disclosure of the terms of deposit accounts sold to households (individuals and families) is required, including such information as how balances are calculated for purposes of determining any interest earned, how interest earnings are figured, any special fees that could lower the borrower’s expected rate of return from the deposit, and any adverse changes in deposit terms. Depositors must be informed of any minimum balances required to avoid fees and any penalties for early withdrawal or unusually low balances. The options open to the depositor when the deposit reaches maturity (if it is a fixed-period account) must be spelled out and notice sent when the deposit is approaching final maturity.
- Inaccurate or misleading advertising of deposit terms is not allowed. Any favorable terms that are advertised must be balanced by the revelation of all the relevant terms attached to the deposit.
- Any significant changes in deposit terms must be brought to the attention of both new and established deposit customers and those changes must be in writing and normally must be conveyed at least 30 days in advance.
- Individuals are entitled to a statement of the Annual Percentage Yield (APY) on their account which must be based on the average balance held over the period that interest is calculated, not just on the minimum (lowest) balance in the deposit account.
IX. EQUAL CREDIT OPPORTUNITY ACT OF 1974
- Lenders of funds covered by the law cannot discriminate against a borrower on the basis of his or her age, sex, color, ethnic origin, marital status, religion, receipt of public assistance, or good faith exercise of the consumer’s rights under the consumer credit protection laws. Credit applications cannot contain questions about your sex, race, color, religious affiliation, or national origin unless you are seeking a residential real estate loan (in which case some of this information may be requested to help regulators check if discrimination in residential lending is occurring). Your marital status cannot be asked unless your spouse is also involved in and responsible for the loan and questions about childbearing plans are also off limits.
- If a consumer of financial services feels discriminated against, he or she should first contact the service provider and try to get the problem resolved. If that does not work, then you may wish to contact the lender’s principal supervisory agency and file a complaint (e.g., for national banks, the Comptroller of Currency; for state banks that are FDIC insured, the Federal Deposit Insurance Corporation or the Federal Reserve Board for member banks; for credit unions, the National Credit Union Administration; for savings banks and savings & loans, the Office of Thrift Supervision in the U.S. Treasury Department). If the violations are considered serious, the responsible regulatory agency will investigate and, if appropriate, refer the case to the United States Department of Justice for possible prosecution.
- Women can get access to credit under their own signature instead of necessarily requiring their husband’s signature as well. Any partner in a marriage can ask to have their credit history listed separately and married women have the option of using their married name or birth name. If all of a family’s credit history is in one name, the other partner in the family can use that credit history as the basis for requesting a loan as well.
- A lender may consider age if you are too young to enter into a valid loan contract or your age may affect how long you will work and generate employment income sufficient to repay a loan. However, those individuals 62 years or older cannot normally be denied credit solely on the basis of their age.
- Lenders must notify credit applicants within 30 days after they complete a loan application of the lender’s decision. Reasons for loan denial, if that is the decision, must be given in writing.
X. FAIR HOUSING ACT OF 1968
- Forbids discrimination in lending involving the purchase of a new residence.
- Forbids discrimination in lending to renovate or remodel an existing residence.
XI. HOME MORTGAGE DISCLOSURE ACT OF 1975
- Lenders must disclose the geographic location of their home mortgage and home improvement loans to help regulatory authorities determine if there is a pattern of geographic discrimination against prospective borrowers in certain areas or neighborhoods.
- Home mortgage lenders covered by this law cannot deny loans based solely on the neighborhood or geographic area where the property underlying the loan is situated.
XII. COMMUNITY REINVESTMENT ACT OF 1977
- Lenders covered by this law must designate the trade territory they propose to serve and make an “affirmative effort” to serve all areas in their designated trade territory.
- No areas or neighborhoods can be deliberately excluded to avoid advertising or selling services in those areas – a practice known as “redlining”.
- An affirmative effort must be made to meet the credit needs of all customers in a lender’s designated trade territory.
- A lender covered by this law must maintain a public file available for inspection by members of the public and by examiners, showing any customer comments submitted.
- Examining agencies must periodically review the record of covered lending institutions in making an affirmative effort to serve their trade territories and assign a rating of “O” for outstanding; “S” for satisfactory performance; “N” for needs improvement; and “SN” for substantial noncompliance and these ratings must be available for public inspection.
XIII. FURTHER SOURCES OF INFORMATION
Several wonderful published sources of information provide summaries of these consumer rights laws and help you keep track of the frequent changes in these laws or in their supporting regulations, so you can update your knowledge of consumers’ rights in the field of financial services. One of the best is the Board of Governors of the Federal Reserve System, Mail Stop 127, Washington, DC 20551 (202-452-3433 or fax 202-728-5886 or www.federalreserve.gov). The Federal Reserve publishes such pamphlets usually free of charge:
* The Consumer Handbook to Credit Protection Laws
* Home Mortgages: Understanding the Process
* Your Right to Fair Lending
* How to File a Consumer Complaint
* Keys to Vehicle Leasing
* When Your Home is on the Line
* What You Should Know About Home Equity Lines of Credit
Another excellent source of information on consumer rights when assessing financial services is the Federal Deposit Insurance Corporation (FDIC) whose publications, such as Consumer News are available through the FDIC Public Information Center, 801 17th Street, NW, Room 100, Washington, DC 20429 (800-276-6003 or www.fdic.gov).
It is important to remember that most major pieces of consumer rights legislation in the United States are supplemented by detailed regulations implementing the terms of each law and translating the legal language into daily operating rules. Those regulations are subject to continuing revision and refinement. Therefore it is recommended that you periodically check on the content of these consumer regulations by contacting the federal regulatory agencies responsible for drafting and interpreting these consumer laws and their accompanying rules.
For example, if your question concerns a national bank and consumer rights, contact the Office of the Comptroller of the Currency, Customer Assistance Unit, 1301 McKinney Street, Suite 3710, Houston, TX 77010 (800-613-6743 or www.occ.treas.gov) or if an FDIC insured bank is involved try the FDIC Division of Compliance and Consumer Affairs at 550 17th Street, NW, Washington, DC 20429 (800-934-3342 or www.fdic.gov/consumers/consumer/rights/index.html). If a savings association or savings bank is involved contact the Office of Thrift Supervision, Consumers Affairs Office, 1700 G. Street, NW, Washington, DC 20552 (800-842-6929 or www.ots.treas.gov). Where a credit union is involved in a consumer rights issue consider contacting the National Credit Union Administration’s Office of Public and Congressional Affairs, 1775 Duke Street, Alexandria, VA 22314 (703-518-6330) Finally, if an issue about your rights as a consumer involves a member bank of the Federal Reserve System you can derive information that may be highly useful to you from the Fed’s Division of Consumer and Community Affairs, 20th Street & Constitution Avenue, NW, Washington, DC 20551 (202-452-3693 or www.federalreserve.gov).