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Credit and Your Consumer Rights | Choosing the Right Financial Service | Looking at Debt Consolidation? | Resolving Debt Problems Responsibly

Credit and Your Consumer Rights

A good credit rating is very important. Businesses inspect your credit history when they evaluate your applications for credit, insurance, employment, and even leases. Based on your credit payment history, businesses can choose to grant or deny you credit provided you receive fair and equal treatment. Sometimes, things happen that can cause credit problems: a temporary loss of income, an illness, even a computer error. Solving credit problems may take time and patience, but it doesn’t have to be an ordeal.

The Federal Trade Commission (FTC) enforces credit laws that protect your right to obtain, use, and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to receive credit and to resolve disputes over credit errors. This brochure explains your rights under these laws and offers practical tips to help you solve credit problems.

Your Credit Report

Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by "consumer reporting agencies" (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, arrested, or have filed for bankruptcy.

The Fair Credit Reporting Act (FCRA)

Designed to help ensure that CRAs furnish correct and complete information to businesses to use when evaluating your application.

Your rights under the Fair Credit Reporting Act:

You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request. You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes. Any company that denies your application must supply the name and address of the CRA they contacted, provided the denial was based on information given by the CRA. You have the right to a free copy of your credit report when your application is denied because of information supplied by the CRA. Your request must be made within 60 days of receiving your denial notice. If you contest the completeness or accuracy of information in your report, you should file a dispute with the CRA and with the company that furnished the information to the CRA. Both the CRA and the furnisher of information are legally obligated to reinvestigate your dispute. You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.

Your Credit Application

When creditors evaluate a credit application, they cannot lawfully engage in discriminatory practices.

The Equal Credit Opportunity Act (ECOA)

Prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but may not use it to discriminate when deciding whether to grant you credit.

The ECOA protects consumers who deal with companies that regularly extend credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in the decision to grant credit, including real estate brokers who arrange financing, must follow this law. Businesses applying for credit also are protected by this law.

Your rights under the Equal Credit Opportunity Act:

You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance. You have the right to have reliable public assistance considered in the same manner as other income. If you are denied credit, you have a legal right to know why.

Your Credit Billing and Electronic Fund Transfer Statements

It is important to check credit billing and electronic fund transfer account statements regularly. These documents may contain mistakes that could damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the company and contest the error immediately.

The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA)

Establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including:

Charges or electronic fund transfers that you — or anyone you have authorized to use your account — have not made; charges or electronic fund transfers that are incorrectly identified or show the wrong amount or date; computation or similar errors;

failure to reflect payments, credits, or electronic fund transfers properly;

not mailing or delivering credit billing statements to your current address, as long as that address was received by the creditor in writing at least 20 days before the billing period ended;

charges or electronic fund transfers for which you request an explanation or documentation, due to a possible error.

The FCBA generally applies only to "open end" credit accounts — credit cards, revolving charge accounts (such as department store accounts), and overdraft checking accounts. It does not apply to loans or credit sales that are paid according to a fixed schedule until the entire amount is paid back, such as an automobile loan. The EFTA applies to electronic fund transfers, such as those involving automatic teller machines (ATMs), point-of-sale debit transactions, and other electronic banking transactions.

Your Debts and Debt Collectors

You are responsible for your debts. If you fall behind in paying your creditors or an error is made on your account, you may be contacted by a "debt collector." A debt collector is any person, other than the creditor, who regularly collects debts owed to others. This includes lawyers who collect debts on a regular basis. You have the right to be treated fairly by debt collectors.

The Fair Debt Collection Practices Act (FDCPA)

Applies to personal, family, and household debts. This includes money owed for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts.

Your rights under the Fair Debt Collection Practices Act:

• Debt collectors may contact you only between 8 a.m. and 9 p.m.

• Debt collectors may not contact you at work if they know your employer disapproves.

• Debt collectors may not harass, oppress, or abuse you. Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.

• Debt collectors must identify themselves to you on the phone.

• Debt collectors must stop contacting you if you ask them to in writing.

Solving Your Credit Problems

Your credit report influences your purchasing power, as well as your chances to get a job, rent or buy an apartment or a house, and buy insurance. A history of timely credit payments helps you get additional credit. Accurate negative information can stay on your report for seven years. A bankruptcy can stay on your report for 10 years. If you are having problems paying your bills, contact your creditors at once. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don't wait until your account has been turned over to a debt collector.

Here are some additional tips for solving credit problems:

If you want to contest a credit report, bill or credit denial, contact the appropriate company in writing and send it "return receipt requested." When you contest a billing error, include your name, account number, the dollar amount in question, and the reason you believe the bill is wrong. If in doubt, request written verification of a debt. Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them if you dispute a credit bill or report. Send copies only. It may take more than one letter to correct problems. Be skeptical of businesses that offer instant solutions to credit problems. Be persistent. Resolving credit problems can take time and effort.

There is nothing that a credit repair company can do for you — for a fee — that you cannot do for yourself for little or no cost. If you can't resolve your credit problems yourself or if you need help, you may want to contact a credit counseling service. Nonprofit organizations in every state counsel consumers in debt. Counselors try to arrange repayment plans that are acceptable to you and your creditors. They also can help you set up a realistic budget. These services usually are offered at little or no cost.

Universities, military bases, credit unions, and housing authorities also may offer low- or no-cost credit counseling programs. Check the white pages of your telephone directory for a service near you.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit The Federal Trade Commission website(www.ftc.org)or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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Choosing the Right Financial Service

When your financial situation becomes unmanageable, turning to a business that offers help in solving debt or credit problems may seem like a reasonable solution. But you need to proceed with caution!

Many debt and credit agencies offering too-good-to-be-true solutions to your financial problems, are just that - too good to be true. Some businesses that offer debt resolution or credit repair plans may charge high fees and fail to follow through on the services they sell. Others may misrepresent the terms of their service, failing either to explain certain costs or to disclose the complete terms of the agreement.

The following questions will help you to carefully review a company, the services they offer, and the terms of the agreement you're entering in to. Be sure to consider several companies before choosing to do business with any organization.

Things to Consider with Any Financial Service

Check out any company with your state Attorney General, local consumer protection office and the Better Business Bureau in the company's location. They may be able to tell you whether other consumers have registered complaints about the business.

Any reputable company should send you free information about itself and the services it provides without requiring you to provide any details about your situation. If not, consider that a red flag and go elsewhere for help.

Don't rely on oral promises. Always get everything in writing.

Educate yourself fully and use good sense when entering any financial arrangement.

Questions to Ask:

What services does the company offer, and how will they help your situation?

What are the costs and fees of the company's service? What is the basis for their fees? Will you be charged anything before the company can/will help me?

Will there be a formal written agreement or contract?

Will you be working with agent or several? Are the company's agents accredited or certified? If not, how are they trained?

Who regulates, oversees and/or licenses this company? Is their company audited?

Where does the company receive their funding? Are they a non-profit, or for-profit organization?

Does the company offer educational materials? If so, will they send them to you, or can you access them on the Internet? Is there a cost for these materials?

After helping you solve your immediate problem, will the company help you develop a plan for avoiding problems in the future?

What is the company's privacy policy? Can/will they assure you that information about you (including your address and phone number) will be kept confidential?

Questions to Ask When Choosing a Debt Management or Debt Counseling Agency

• How much debt must you have to qualify for their services?

• How is your monthly payment determined? What if this is more than you can afford?

• How does the company's debt repayment plan work?

• Will the company be able to negotiate with your creditors to eliminate/lower interest and finance charges or waive late fees

• Which of your debts will qualify for inclusion in the debt repayment plan? Will the company help you plan for payment of debts not included in the plan?

• What happens if you can't maintain the payments and other conditions of the debt repayment plan?

• How will you know your creditors have received payments? Is client money put in a separate account from operating funds?

• Are you able to access status reports on my account? Are they available online or by phone? How often can you access them?

• Who will help you if you have problems with your accounts or creditors?

• How secure is the information you provide to the company?

Question to Ask When Choosing a Debt Consolidation Agency

• Did the seller, ad or telemarketer guarantee your ability to receive a loan or line of credit? Do they require advanced payment? Be suspicious. Legitimate lenders will not "guarantee" that you will get a loan or a credit card before you apply, especially if you have bad credit, or a bankruptcy.

• Did a telemarketer selling this service request a credit card account number, bank account information, or your Social Security number from you over the telephone? This is a red flag! Never give out this information unless you are familiar with the company and know why the information is necessary.

• Did you find advertisements for this service or company in the classified ad section of a newspaper or magazine, or in mailings, radio spots, or on local cable stations? Beware of these companies - they often represent scams, or require you to call expensive "900" numbers to learn about their service.

• Does the company use delivery systems other than the U.S. Postal Services, such as overnight or courier services? This may be an attempt to avoid detection and prosecution by postal authorities.

• Is there an advanced-fee or application fee required, but no supposed "guarantee" of receiving a loan or line of credit? It is an accepted and common practice for reputable lenders to require payment for a credit report or appraisal. You also may have to pay a processing or application fee.

• Does the offer of credit require your verbal or written acceptance of the loan or credit offer? Is the application subject to a check of your credit report to make sure you meet their credit standards? Is the application fee minimal? These are generally good signs of a legitimate loan or extension of credit.

Question to Ask When Choosing a Credit Repair Agency

• What services does this company offer? Is it worthwhile to you to pay someone else to do something you can do for yourself for free? Credit repair companies cannot legally do anything to improve your credit that you cannot do for yourself.

• Does the company promise to remove bad credit information from your report? Remember that no one can legally remove legitimate bad credit information from your credit history. The only information that can be changed, amended, or corrected is incorrect or outdated information.

• Does the company freely disclose their fee-schedule and cost of service, including monthly fees, per-service fees, and other costs? Is an advance-fee required before they will take your case?

• Does the company offer an unrealistically quick solution to your credit problem? Only time and a conscientious effort to repay your debts will improve your credit report.

• Does the company clearly explain your legal rights and what you can do for yourself for free?

• Does the company prevent you from, or recommend that you not contact a credit bureau on your own?

• Does the company suggest that you try to invent a "new" credit report by applying for an Employer Identification Number to use instead of your Social Security number? This is not a legal solution - it is a federal crime to obtain an Employer Identification Number from the IRS under false pretenses.

• Does the company advise you to dispute all information in your credit report or take any action that seems illegal, such as creating a new credit identity? Be very cautious! If you follow illegal advice and commit fraud, you may be subject to prosecution.

• Does the contract include specific information about: 1) the payment for services, including their total cost; 2) a detailed description of the services to be performed; 3) how long it will take to achieve the results; 4) any guarantees they offer; and 5) the company's name and business address? The Credit Repair Organizations Act requires that this specific information is included in your contract. Read carefully to be sure you understand the terms of your agreement and ensure the contract includes clear explanations of all required information.

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Looking at Debt Consolidation?

Everyone has experienced the welcome relief of being able to turn to credit resources for unforeseen emergencies such as medical expenses or car repairs. But without careful financial management these resources can sometimes get you into financial trouble. Fortunately there are a number of ways to survive such a financial crisis and get back on top.

Debt Consolidation

Debt consolidation can help you lower your cost of credit through a second mortgage or home equity line of credit. These loans may add up cost-wise, but may alternatively provide certain tax advantages not available with other kinds of credit.

Credit Counseling

Credit counseling and debt management services can help you establish a debt repayment plan and may help you reduce repayments with creditors.

Be Cautious

Be cautious before turning to any third-party or business for help with your credit and debt problems. Before you commit to anything, be sure to find out exactly what services the business provides and what it will cost.

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Resolving Debt Problems Responsibly

Are you having trouble paying your bills? Are you getting dunning notices from creditors? Are your accounts being turned over to debt collectors? Are you worried about losing your home or your car?

You're not alone. Many people face financial crises at some time in their lives. Whether the crisis is caused by personal or family illness, the loss of a job, or simple overspending, it can seem overwhelming, but often can be overcome. The fact of the matter is that your financial situation doesn't have to go from bad to worse. If you or someone you know is in financial hot water, consider these options: realistic budgeting, credit counseling from a reputable organization, debt consolidation, or bankruptcy. How do you know which will work best for you? It depends on your level of debt, your level of discipline, and your prospects for the future.

Self-Help

Developing a Budget

The first step toward taking control of your financial situation is to do a realistic assessment of how much money comes in and how much money you spend. Start by listing your income from all sources. Then, list your "fixed" expenses-those that are the same each month-such as your mortgage payments or your rent, car payments, or insurance premiums. Next, list the expenses that vary, such as entertainment, recreation, or clothing. Writing down all your expenses-even those that seem insignificant-is a helpful way to track your spending patterns, identify the expenses that are necessary, and prioritize the rest. The goal is to make sure you can make ends meet on the basics: housing, food, health care, insurance, and education.

Your public library has information about budgeting and money management techniques. Low cost budget counseling services that can help you analyze your income and expenses and develop a budget and spending plan also are available in most communities. Check your Yellow Pages or contact your local bank or consumer protection office for information about them. In addition, many universities, military bases, credit unions, and housing authorities operate nonprofit financial counseling programs.

Contacting Your Creditors

Contact your creditors immediately if you are having trouble making ends meet. Tell them why it's difficult for you, and try to work out a modified payment plan that reduces your payments to a more manageable level. Don't wait until your accounts have been turned over to a debt collector. At that point, the creditors have given up on you.

Dealing with Debt Collectors

The Fair Debt Collection Practices Act is the federal law that dictates how and when a debt collector may contact you. A debt collector may not call you before 8 a.m., after 9 p.m., or at work if the collector knows that your employer doesn't approve of the calls. Collectors may not harass you, make false statements, or use unfair practices when they try to collect a debt. Debt collectors must honor a written request from you to stop further contact.

Credit Counseling

If you aren't disciplined enough to create a workable budget and stick to it, can't work out a repayment plan with your creditors, or can't keep track of mounting bills, consider contacting a credit counseling service. Your creditors may be willing to accept reduced payments if you enter into a debt repayment plan with a reputable organization. In these plans, you deposit money each month with the credit counseling service. Your deposits are used to pay your creditors according to a payment schedule developed by the counselor. As part of the repayment plan, you may have to agree not to apply for-or use-any additional credit while you're participating in the program.

A successful repayment plan requires you to make regular, timely payments, and could take 48 months or longer to complete. Ask the credit counseling service for an estimate of the time it will take you to complete the plan. Some credit counseling services charge little or nothing for managing the plan; others charge a monthly fee that could add up to a significant charge over time. Some credit counseling services are funded, in part, by contributions from creditors.

While a debt repayment plan can eliminate much of the stress that comes from dealing with creditors and overdue bills, it does not mean you can forget about your debts. You still are responsible for paying any creditors whose debts are not included in the plan. You are responsible for reviewing monthly statements from your creditors to make sure your payments have been received. If your repayment plan depends on your creditors agreeing to lower or eliminate interest and finance charges, or waive late fees, you are responsible for making sure these concessions are reflected on your statements.

A debt repayment plan does not erase your negative credit history. Accurate information about your accounts can stay on your credit report for up to seven years. In addition, your creditors will continue to report information about accounts that are handled through a debt repayment plan. For example, creditors may report that an account is in financial counseling, that payments have been late or missed altogether, or that there are write-offs or other concessions. A demonstrated pattern of timely payments, however, will help you get credit in the future.

Auto and Home Loans

Debt repayment plans usually cover unsecured debt. Your auto and home loan, which are considered secured debt, may not be included. You must continue to make payments to these creditors directly.

Most automobile financing agreements allow a creditor to repossess your car any time you're in default. No notice is required. If your car is repossessed, you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. If you can't do this, the creditor may sell the car. If you see default approaching, you may be better off selling the car yourself and paying off the debt: You would avoid the added costs of repossession and a negative entry on your credit report.

If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you're acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. When you resume regular payments, though, you may have to pay an additional amount toward the past due total. Other lenders may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt. Ask whether additional fees would be assessed for these changes, and calculate how much they total in the long run.

If you and your lender cannot work out a plan, contact a housing counseling agency. Some agencies limit their counseling service to homeowners with FHA mortgages, but many offer free help to any homeowner who's having trouble making mortgage payments. Call the local office of the Department of Housing and Urban Development (HUD) or the housing authority in your state, city, or county for help in finding a housing counseling agency near you.

Debt Consolidation

You may be able to lower your cost of credit by consolidating your debt through a second mortgage or a home equity line of credit. Think carefully before taking this on. These loans require your home as collateral. If you can't make the payments-or if the payments are late-you could lose your home.

The costs of these consolidation loans can add up. In addition to interest on the loan, you pay "points." Typically, one point is equal to one percent of the amount you borrow. Still, these loans may provide certain tax advantages that are not available with other kinds of credit.

Bankruptcy

Personal bankruptcy generally is considered the debt management tool of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years, making it difficult to acquire credit, buy a home, get life insurance, or sometimes get a job. However, it is a legal procedure that offers a fresh start for people who can't satisfy their debts. Individuals who follow the bankruptcy rules receive a discharge-a court order that says they do not have to repay certain debts.

There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in federal bankruptcy court. The current fees for seeking bankruptcy relief are $160: a filing fee of $130 and an administrative fee of $30. Attorney fees are additional and can vary widely. The consequences of bankruptcy are significant and require careful consideration.

Chapter 13 allows you, if you have a regular income and limited debt, to keep property, such as a mortgaged house or car, that you otherwise might lose. In Chapter 13, the court approves a repayment plan that allows you to pay off a default during a period of three to five years, rather than surrender any property.

Chapter 7, known as straight bankruptcy, involves liquidating all assets that are not exempt. Exempt property may include cars, work-related tools and basic household furnishings. Some property may be sold by a court-appointed official-a trustee-or turned over to creditors. You can receive a discharge of your debts under Chapter 7 only once every six years.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments, utility shut-offs, and debt collection activities. Both also provide exemptions that allow you to keep certain assets, although exemption amounts vary. Personal bankruptcy usually does not erase child support, alimony, fines, taxes, and some student loan obligations. Also, unless you have an acceptable plan to catch up on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an unpaid mortgage or lien on it.

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

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