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Different Credit Laws That Governs A Loan

When you are in need of money and wish to apply for a loan to any bank or a financial institution it is not that you fill up the form online and offline and expect the money to be in your bank account the next morning. The lenders have to abide by the different credit laws that are designed and implemented by both state and federal governments. These laws actually oversee the entire lending process as well as govern other important areas of lending that involves:

  • Rate of interest
  • Finance charges
  • Processing fees
  • Cash advances
  • Late fees
  • Charges for extension of credit over and above the pre-established limits
  • Delinquency charges
  • Premiums on credit life, accident and health insurance
  • Annual fees and several other charges and fees.

It is mandatory for a business, a bank or any private money lending source such as and even an individual to some extent to grant loans to customers by complying with the state and federal laws of lending or face serious consequences and legal obligations for non-compliance.

Ideally the federal credit laws include different segments of the law such as:

  • The Truth in Lending Act or TILA
  • The Fair Credit Billing Act or FCBA
  • The Equal Credit Opportunity Act or ECOA
  • The Fair Credit Reporting Act or FCRA and
  • The Fair Debt Collection Practices Act or FDCPA.

The federal laws usually affect the credit sales to the consumers and on the other hand the state laws are applicable in whichever jurisdiction the lender is operating.

The Truth in Lending Act

Just as the name signifies this act allows the customers to know what they are entering into while signing a loan agreement. According to this Act the business is required to disclose all their credit terms and conditions exactly as it is and should be. This Act also regulates how the creditors can advertise and need to disclose:

  • Monthly finance charges
  • Payment due dates
  • Annual interest rates
  • Total sale prices and
  • The late charges assessment process.

The Fair Credit Billing Act

This is another federal law that governs any billing errors that may be on any credit account. The law requires:

  • The customer to notify about such errors to the credit provider within 60 days
  • The credit provider must respond within 30 days
  • The creditor must also conduct a proper investigation within 90 days of getting the notice from the customer
  • The creditor must explain the reason for such error and
  • Rectify it at the earliest.

Failure to comply by the creditor will result in a fine of $50 toward the disputed amount. This will be applied even if the bill is correct but the creditor failed to report about the disputed amount to the credit agencies till the disagreement is fixed.

The Equal Credit Opportunity Act

According to this special law the credit company is prohibited from discriminating any of their customers and denying granting of loans on the basis of one or more of the following:

  • Race
  • Color
  • Religion
  • Age
  • Sex
  • National origin or
  • Marital status.

However, the credit company can only deny granting a loan to any customer when the financial status such as earnings and savings of the applicant does not allow it or the customer has a very poor credit score and credit history. Apart from that a creditor can deny a loan to anyone who is underage though there is prohibition about such discrimination.

The Fair Credit Reporting Act

This federal law is primarily related to the credit reporting agencies. This law protects the consumers from having their credit harmed due to erroneous, incomplete or misleading information. According to the law the consumers have the legal right to obtain a copy of the credit report and dispute any inaccurate information entered in it.

The reporting agency must change or delete this inaccurate information after being informed the consumer can complain with a 100-word statement explaining the story.

The Fair Debt Collection Practices Act

Any abusive methods followed by any third party collection agency or even by the actual creditor is governed and prohibited by this special federal law. According to the law it can create liability for:

  • Any harassment or abusive practices
  • Threatening with life or legal consequences
  • Causing physical or even mental harm to the debtors or their family members
  • Contacting friends, relatives, neighbors or employers of the debtors and mentioning it is for collection purposes
  • Speaking to any other people on the road or within the vicinity of the debtors regarding the obligation
  • Calling the debtors repeatedly
  • Calling before or after the scheduled time as per the law if there is no permission from your end
  • Trying to collect any amount that is not due
  • Misrepresentation of facts and debt details intentionally
  • Calling at any number or visiting any place that you have specifically mentioned not to
  • Reporting inaccurate amounts to the credit reporting agencies
  • Calling you even after you have asked them not to as the matter is with the lawyer and you are thing of debt settlement
  • Posing as a law enforcement
  • Using any name of a lawyer and pretending to be there to collect the judgment and so forth.

The debtor can make formal complaints in writing of the collection agency fails to comply with the FDCPA requirements and provisions.

Summing it up

All of the above laws are very important to protect the rights and privacy of the consumers. These laws are to be followed by banks as well as private lenders and you as a borrower always have the right to complain against one who does not.

Failure to comply with these rules will result in penalties and these punishments are very swift and painful as well, especially when a creditor fails to comply with the ECOA. Punishments may come in different forms such as actual damages, equitable relief, attorney’s fees, and even punitive damages as high as $10,000.00.

Ideally, for a creditor defenses are limited if they are sued. It is therefore better to know your right so that creditors and collectors cannot take you for granted.

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