Safe Credit Building
Safe Credit Building
The information contained in this Financial Education web site is designed to help
you take the first step in building a better financial future for yourself and your
family. Knowing your rights and the laws that protect those rights can help safeguard
This course will help you become familiar with your rights as a banking consumer.
You will know:
Click on the links above to learn more!
Consumer Protection Laws
Consumer Protection Laws
Federal bank regulatory agencies ensure that financial institutions follow consumer
protection, fair lending and civil rights laws. There are many consumer protection
laws that have been passed to protect your rights as consumers. In fact, there re
so many, that we cannot possibly cover all of them in this course. However, the
following will highlight some of the laws that protect your banking rights:
Truth in Savings Act (TISA)
The Truth in Savings Act enables consumers to make informed decisions about bank
accounts before opening a deposit account. Because of this law, banks must provide
account disclosures to consumers upon request. Disclosures need to be clear and
in writing, so the consumers can keep the information provided. This allows consumers
to shop for the best account for them.
Some of the required disclosure information banks must provide include the annual
percentage yield (APY), balance requirements and fee information. In addition, the
law requires banks to send consumers periodic statements about accounts.
Electronic Fund Transfer Act (EFTA)
The EFTA law establishes rights, liabilities and responsibilities of customers who
use electronic fund transfer services and the banks that offer those services. EFTA
is designed to protect consumers using electronic fund transfers such as ATM, debit
card, telephone or computer transactions.
Expedited Funds Availability Act
The Expedited Funds Availability Act limits the amount of time a bank can hold a
check deposited into your checking account. To find out when your money will be
available, ask your bank.
FDIC Deposit Insurance Regulations
FDIC insurance protects each depositor's money in the event that the bank fails.
The FDIC does not insure nondeposit investment products such as stocks, bonds, mutual
funds and annuities.
Truth in Lending Act (TILA)
This law requires lenders to disclose the total cost of your loan and the APR and
allows consumers to compare costs. In addition, it gives consumers the right to
cancel certain types of home loans within 3 days.
Equal Credit Opportunity Act (ECOA)
This law prohibits lending discrimination based on certain characteristics. It also
requires home loan lenders to collect information on the race, sex, marital status
and age of applicant. This information is used to monitor for discrimination.
In addition, for home loans, a lender must provide you with a copy of the appraisal
(upon written request), which is an estimate of what your home is worth.
Real Estate Settlement Procedures Act (RESPA)
This law requires that lenders provide you with accurate and timely disclosures
of the costs of settlement such as loan origination fees (points), broker's commissions
and title charges. RESPA was designed to prevent abusive practices such as kickbacks
for loan referrals.
Fair Housing Act (FHA)
The Fair Housing Act prohibits discrimination based on race, color, religion, sex,
national origin, familial status or handicap in housing-related transactions.
Consumer Leasing Act (CLA)
The Consumer Leasing Act requires clear disclosure of leasing terms so consumers
can compare leases. Disclosures must be made before a lease is signed and must be
available for the consumer to keep.
Equal Credit Opportunity Act: There is a law that protects consumer rights through
the loan process. This is the Equal Credit Opportunity Act, or ECOA. Because of
this law, lenders cannot discourage you from applying for a loan.
ECOA promotes the availability of credit to all creditworthy applicants without
regard to certain factors. These factors are called prohibited bases.
- National Origin
- Marital Status
- Receipt of public assistance income (the fact that all or part of the applicant's
income is derived from a public assistance program)
- Exercise of rights under the Consumer Credit Protection Act (Example: you cannot
be denied a loan because you have filed a complaint against the bank)
Discrimination means to treat someone differently than another. Not all discrimination
is illegal. Lenders do not have to make loans to everyone. For example, a lender
can deny your request for a loan if you do not have enough income to pay back the
loan, if you live in a foreign country, or if you are not old enough to legally
sign a contract.
Another law that protects consumers during the application process is the ECOA,
which restricts lenders from requesting certain information. For example, a lender
may not ask you about a spouse or former spouse unless that spouse is applying with
you for credit. And, if you are applying for unsecured credit, a lender cannot ask
you about your marital status.
If you do not qualify on your own, lenders may require a cosigner or guarantor,
but cannot require that it be your spouse. If you are applying jointly or if the
loan is secured, the lender may ask about your marital status, but can only use
the terms married, unmarried or separated.
Note: If the applicant lives in a community property state,
a lender may request information concerning the applicants' spouse. Arizona, California,
Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community
ECOA also restricts the lender from asking about income derived from alimony or
child support unless you want it considered as part of your income. The lender cannot
discount or refuse to consider consistent part-time income, annuities, pensions,
alimony or child support payments.
A lender cannot ask about birth control practices or intentions of having children.
However, a lender may ask about the number and ages of your dependants.
A lender cannot ask whether you are male or female. Courtesy titles such as Mr.,
Mrs., Miss, or Ms. can be requested, but do not have to be provided.
Finally, a lender cannot ask for your race, color, religion, or national origin.
However, there are a few exceptions. For home loans, the government requires lenders
to collect information on race, sex, marital status, and age. Although they will
collect this information, they cannot use the information as a factor in deciding
whether to grant the loan.
Truth In Lending Act (TILA)
Another important law that should be considered when applying for a loan is the
Truth in Lending Act. With this law, lenders must tell consumers how much it will
cost to borrow funds. This allows consumers to compare costs. Consumers should be
able to shop around for the best loan and this act makes credit shopping easier
Two of the most important terms to compare on disclosures are the
interest charge and the annual percentage rate,
The interest charge is the total dollar amount you pay to use credit. The finance
charge includes costs, such as interest and service charges.
The APR is the percentage cost of credit on a yearly
basis. The APR reflects the costs of interest and loan fees. When shopping for credit,
you should compare the APRs.
Now, find out what happens if you are
turned down for a loan.
When You Are Turned Down
When you are turned down for a loan
If you apply for a loan and are turned down, the lender must notify you, in writing,
within 30 days of the completed application. This notification is required by ECOA.
The notice will contain:
- The name and address of the creditor
- The name and address of the federal agency you can write to if you feel you have
been discriminated against, and
- Either a statement of specific reasons for denial or a notice that you may request
the specific reasons for your denial.
If you are denied credit because of information in your credit report, the lender
is required to notify you. This notification is required by the Fair Credit Reporting
Act or FCRA. The notice is usually combined with your denial notice. The FCRA notice
- The name, address and telephone number of the consumer reporting agency that provided
the report to the lender.
- a statement that the consumer reporting agency did not make the decision to deny
- A notice of your right to obtain a free copy of your credit report within 60 days
of receiving the notice.
- A notice of your right to dispute the information in your credit report.
To Your Credit
course covers credit reports and how to correct inaccurate information) What action
can you take if you feel you have been denied a loan based on a prohibited basis?
- Complain to the creditor in writing and keep a copy. The lender may find an error
and reverse the decision.
- Report possible violations to the appropriate government agency. The agency's name
and address will be listed on your denial notice.
There are also laws that protect your rights
after you get a loan.
When You Are Approved
When you are approved for a loan
If you are approved for and get a loan from a bank, the Fair Debt Collection Practices
Act (FDCPA) helps eliminate abusive debt collection practices. Under this law debt
- Contact you at any unusual time or place.
- Contact you at work if you have informed them not to call you there.
- Use threat or violence or other criminal means to harm you or your property.
- Call you with the intent to annoy, abuse or harass.
- Call you without identifying themselves.
- Use deceptive or misleading methods to collect debt.
If you feel the Fair Debt Collection Practices Act has been violated, contact the
appropriate federal regulatory agency.
The next law, the Fair Credit Billing Act, requires creditors to promptly credit
payments and correct billing mistakes for open-ended accounts such as credit cards.
It also allows you to withhold payments on defective goods. The Electronic Fund
Transfer Act and the Truth in Lending Act also have methods for correcting billing
Examples of billing errors include:
- A charge for something you did not buy
- A charge that is different from the actual purchase price
- An error in math (The total does not add up or there is an error in the interest
If you think there is an error on your bill, you should:
- Within 60 days of receipt of your incorrect bill, notify your creditor in writing
and keep a copy. You should always include your name, account number and what you
believe is the error.
- The lender is required to acknowledge your written letter within 30 days. Within
90 days, the lender must either correct the problem or explain why they believe
the bill is correct.
If you have written a letter to the bank that does not produce desired results,
you can write to the bank's regulator for assistance. Sometimes that means writing
to the FDIC. When you write to the regulators or any other organization, be sure
to include the following information to help regulators investigate your complaint:
- State the problem briefly in a letter. Tell them what occurred and how you would
like to see the matter resolved.
- Include your full name, address and daytime and evening telephone numbers with area
- Provide the complete name and address of the financial institution along with the
names of employees who have assisted you with your problem.
- Include pertinent account information such as account number and the type of product
you have (checking account, savings account, home equity loan or home loan).
- Include important dates such as the date a transaction took place or the date you
contacted the financial institution about your problem.
- Send copies of documents that may help explain your problem. Keep original documents.
- Sign and date your letter.
How to avoid loan scams
You may have heard about predatory lending on the news. The following are tactics
that can be considered predatory:
- High-pressure and misleading sales pitches
- Excessive fees and interest rates beyond what is necessary to cover the risk and
make a profit
- "Packing on" or requiring unnecessary products that are included in the loan balance.
- Large prepayment penalties that are intended to trap the borrower in an unfavorable
or unaffordable loan
- Payments that increase over time and have unrealistic repayment terms
- Loan flipping or frequent refinancing with fees folded into the loan balance that
results in rising loan balances and decreases the equity in your loan
- Aggressive and abusive collection practices
Predatory lending takes many forms. Abusive practices can occur in the mortgage,
home equity, credit card, auto lending and payday lending markets.
Most of the known abusive practices occur in home equity and refinance loans. Predatory
lending tends to occur in low-income neighborhoods, particularly those with a large
number of elderly or minority homeowners. Most of the problems occur with financial
institutions that are not federally-regulated, such as finance companies.
Predatory lending, especially refinance and home equity, often affects the subprime
market since these borrowers may have fewer options for getting credit and are often
less financially sophisticated.
Subprime lenders provide loans to borrowers with credit history problems. However,
subprime lenders charge higher interest rates and loan fees to offset the higher
costs related to lending to borrowers with credit history problems.
Subprime lending can be beneficial, if performed in a fair, reasonable and legal
manner. It can help serve a traditionally underserved population. If the borrower
needs money, has had credit difficulty in the past or is currently too deep in debt,
a subprime loan may be the only alternative available.
Most predatory loans are made to subprime borrowers, but not all subprime loans
How to avoid predatory loans:
- Pay your bills on time to ensure you have a good credit history. Make sure your
credit history is accurate by reviewing your credit report every year.
- Be an informed consumer. Make sure to shop around for the best deal. If a lender
is unwilling to give you the information you need to comparison shop, you probably
don't want to do business with him or her.
- Be careful of lenders who tell you they don't care about your credit history or
how much you earn. Many of these places charge higher interest and higher fees.
- Don't respond to advertisements that make lending sound cheap and easy.
- Be careful of home improvement contractors that promise to get you a loan.
- Most credit insurance is optional. Lenders cannot require you to purchase credit
insurance from their company.
- There may be better alternatives to credit life insurance, such as a life insurance
policy purchased separately.
- Ask friends, family and credit counselors for advice before applying for a loan.
Take someone along with you when you talk to your lender.
- Take your time before deciding on the best loan or lender. Don't let lenders pressure
you into a decision before you are ready.
- Keep copies of what lenders give you.
If you think you are a victim of a predatory loan, contact an attorney. Most communities
have legal offices that provide free legal services to individuals with limited
income. Look in the community services pages of your phone book or look in the white
pages under "Legal Services of..." for the phone number of the local program.
The American Bar Association has a directory of pro-bono programs, or volunteer
lawyer programs. The programs use local lawyers who have agreed to provide free
legal services. The following link can help you find a program in your area:
Finally, be aware of the following loan offers:
- We will loan you up to 125% of the value of your home: It can be
dangerous to borrow more than your home is worth. If you stop making payments, you
can lose your house and still owe money.
- Incredibly low monthly payment: There is no disclosure as to how
the lender intends to calculate monthly payments. There is a possibility the lender
might have you pay only interest and not the principal, so you'll never pay off
- No upfront fees: Be careful of loans that promise no upfront fees.
This does not mean there are no fees. Many times, there are expensive fees added
on to the cost of the loan and you will pay interest on these loan fees. This can
be very costly. For example, if a $5,000 loan fee is added into the amount you borrow,
you are paying $5,000 plus interest on the $5,000 over the life of the loan.
- Even if you have a bad credit history: Beware of lenders who promise
you loans even if you have a bad credit history. If you have a bad credit history,
you will most likely pay higher interest rates and more expensive loan origination
fees. All lenders take your credit history into account. Some predatory lenders
have been known to target high-cost home improvement loans to low-income homeowners.
Predatory lenders knowingly make loans to homeowners that cannot make the monthly
payments. They would rather foreclose on the house and take the equity.
- It's free and you have nothing to lose: If it sounds too good to
be true, it probably is. Even though the initial loan evaluation is free, there
are other ways predatory lenders will take money from you. There might be hidden
- Act now, this is a limited time offer:Beware of "limited time offers."
Many predatory lenders try to pressure you into acting fast, even though you are
not comfortable with the loan conditions.
Protect Your Identity
Protect Your Identity
If your wallet is lost or stolen, the Federal Trade Commission (FTC) suggests you:
- File a report with the police as soon as possible. Keep a copy of the report in
case your bank or insurance company needs proof of the crime.
- Cancel your credit cards immediately. Get new cards with different numbers.
- Report missing cards to the major credit reporting agencies:
- Report the loss to your bank. You might want to open new checking and savings accounts
and stop payment on any lost checks.
- Contact the major check verification companies to request that they notify stores
that use their databases not to accept these checks. You can also ask your bank
to notify the check verification service with which it does business. Three of the
check verification companies that accept reports of check fraud directly from consumers
International Check Services:
- Get a new ATM card with a new number and password.
Even worse than getting your wallet stolen, however, is identity theft, or ID theft.
There have been many cases of ID theft.
With ID theft, thieves take personal information about you, such as your Social
Security number, credit card numbers or other information. They might take it from
your wallet, purse, mailbox, trash or any other means.
The thieves might call your credit card companies and pretend to be you. They might
ask to change the mailing address on your credit card account. Then they use your
credit card number to charge goods and services.
They might even open a new credit card account using your name, birth date and Social
Security number. If they use your name and Social Security number, the charges can
show up as a delinquent account on your credit report since they will not pay the
bill. The thieves could even open a bank account in your name and write bad checks.
How to reduce the risk of ID Theft:
The following points are recommendations from the Federal Trade Commission to minimize
the risk of identity theft:
What to do if you are a victim of ID Theft:
The Federal Trade Commission (FTC) recommends the following actions if you believe
you are a victim of identity theft. You can also call the FTC's Identity Theft Hotline
at 1-877-IDTHEFT (438-4338).
Take action immediately! Keep records of your conversations and all correspondence.
- Contact the fraud department of the three major credit reporting agencies. Tell
them you are an identity theft victim. Ask them to place a "fraud alert" in your
file. Ask for a copy of the credit report. They must give you a free copy of your
report if it is inaccurate because of fraud.
- Contact your creditors about any accounts that have been changed or opened fraudulently.
Ask to speak with someone in the security or fraud department.
- File a report with your local police. Get a copy of the police report so you have
proof of the crime.
For more information regarding identity theft, visit the following Web sites:
(you can also call 1-877-IDTHEFT (438-4338)
(you can also call 1-800-876-7060)
If your complaint or question concerns a state-chartered bank that
is not a member of the Federal Reserve System, contact:
Federal Deposit Insurance Corporation
Division of Compliance and Consumer Affairs
550 17th Street, NW
Washington, DC 20429
1-800-925-4618 (TDD) For local calls: 202-736-0000
If your questions or complaints concern a nationally-chartered bank
(National or N.A. will be part of the name), contact:
Office of the Comptroller of the Currency
1301 McKinney Street Suite 3710
Houston, TX 77010
If your complaint or question concerns a federally-chartered credit union,
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
For Fair Housing complaints, contact:
Department of Housing and Urban Development (HUD)
Office of Fair Housing and Equal Opportunity
451 Seventh Street, SW, Room 5100
Washington, DC 20410
If your complaint or question concerns state banks that are members of the Federal
Reserve System, contact:
Federal Reserve Board
Division of Consumer and Community Affairs-MS 803
20th and C Streets, NW
Washington, DC 20551
If your complaint or question concerns a federal savings and loan (S&L) or federally-chartered
savings bank (FSBs), contact:
Office of Thrift Supervision
Office of Consumer Programs
1700 G Street, NW
Washington, DC 20552
For other questions and complaints, contact the Federal Trade Commission (FTC).
The FTC cannot intervene in individual disputes, but the information you provide
may indicate a pattern of possible law violations that require action.
Federal Trade Commission
Consumer Response Center
6th and Pennsylvania Avenue, NW
Washington, DC 20580
Complaints against all kinds of creditors can be referred to:
Department of Justice
Civil Rights Division
950 Pennsylvania Avenue, NW
Washington, DC 20530