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Financial Education: Safe Credit

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 your money.

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.

Lending Laws

Lending Laws

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.

Prohibited bases:

  • Race
  • Color
  • Religion
  • National Origin
  • Sex
  • Marital Status
  • Age
  • 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 property states.

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 for consumers.

Two of the most important terms to compare on disclosures are the interest charge and the annual percentage rate, or APR.

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 should contain:

  • 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 your application.
  • 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.

(The 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?

  1. Complain to the creditor in writing and keep a copy. The lender may find an error and reverse the decision.
  2. 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 collectors cannot:

  • 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 errors.

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 added)

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:

  1. State the problem briefly in a letter. Tell them what occurred and how you would like to see the matter resolved.
  2. Include your full name, address and daytime and evening telephone numbers with area codes.
  3. Provide the complete name and address of the financial institution along with the names of employees who have assisted you with your problem.
  4. 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).
  5. Include important dates such as the date a transaction took place or the date you contacted the financial institution about your problem.
  6. Send copies of documents that may help explain your problem. Keep original documents.
  7. Sign and date your letter.

Loan Scams

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 are predatory.

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: www.abanet.org/legalservices/probono/directory.html

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 the loan.
  • 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 fees.
  • 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:

  1. 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.
  2. Cancel your credit cards immediately. Get new cards with different numbers.
  3. Report missing cards to the major credit reporting agencies:


  4. Equifax: 1-800-685-1111
    TransUnion: 1-800-888-4213
    Experian: 1-800-311-4769

  5. Report the loss to your bank. You might want to open new checking and savings accounts and stop payment on any lost checks.
  6. 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 are:


  7. Telecheck: 1-800-710-9898
    International Check Services: 1-800-631-9656
    Equifax: 1-800-437-5120

  8. 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:

www.consumer.gov (you can also call 1-877-IDTHEFT (438-4338)

www.fraud.org (you can also call 1-800-876-7060)

Resources

Financial Resources

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

1-877-ASK-FDIC (1-877-275-3342)
1-800-925-4618 (TDD) For local calls: 202-736-0000
Email: consumer@fdic.gov

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
1-800-613-6743
Email: Customer.Assistance@occ.treas.gov

If your complaint or question concerns a federally-chartered credit union, contact:

National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
703-518-6300

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
1-800-669-9777

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
202-452-3000

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
1-800-842-6929
Email: consumer.complaint@ots.treas.gov

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
1-877-FTC-HELP (1-877-382-4357)
Email: consumerline@ftc.gov

Complaints against all kinds of creditors can be referred to:

Department of Justice
Civil Rights Division
950 Pennsylvania Avenue, NW
Washington, DC 20530
202-514-2151

http://www.usa.gov/
http://www.consumer.gov