Month: April 2009
Several posts during the past couple of months have focused on consumer protection issues: Fair Debt Collection, Fair Credit Reporting, and Truth in Lending. Today I want to share some basic information about another important piece of consumer legislation — The Fair Credit Billing Act.
FAIR CREDIT BILLING ACT.
This act is designed to protect consumer rights regarding billing errors on “open ended” credit accounts (such as credit cards).
Summary of FCBA provisions:
* Consumer is given 60 days after statement delivery to report a billing
error in writing. Common types of billing errors include: Unauthorized charges; charges listing wrong date or amount; charges for goods/ services that weren’t received or were defective; merchants failing to properly credit returned merchandise; charges being posted multiple times for a single purchase; mathematical errors; failure to post payment; or failure to send bill to correct address.
* If your bill contains an error, the creditor must explain (in writing) the corrections that will be made to your account and must remove any late fees, finance charges, or other charges related to the error.
* Consumer may withhold payment on disputed amount during the investigation (it can [and likely will] count against your credit limit). [Be certain to pay the portion of balance (if any) that is not being disputed].
* Consumer must be provided a statement each billing period in which more than $1 is owed.
* Consumer must be provided written notice when a new account is open detailing the right to dispute billing errors.
* Creditor must resolve a dispute within two billing cycles (not more than 90 days) after receiving your letter.
* Creditor cannot threaten your credit rating or report you as delinquent during a dispute.
* Creditor must send bill at least 14 days before payment due date.
** Although the quality of goods is obviously not a “billing error,” if you use your credit or charge card to make the purchase, you can go through the same dispute process with the card as long as the purchase was at least $50, was in your home state, within 100 miles of your current billing address, and you had made a “good faith” effort to resolve the dispute with the seller first.
** Any violations of your FCBA rights can be filed online via the Federal Trade Commission Complaint Assistant Form.
Consumer credit is such a vital thing for most consumers – the ability to have protections in place to help consumers protect the credit they work so hard to build and develop is critical. They are only helpful, however, if you are aware of them!
Awareness is pivotal in the ability to make informed decisions as a consumer. This week I wanted to post information about one of the earliest consumer laws enacted — The Truth in Lending Act (TILA).
The TILA is a major cornerstone of consumer credit legislation. At its heart, it is designed to guarantee accurate and meaningful disclosure of the costs of consumer credit – enabling consumers to make informed choices in the “credit marketplace.” Prior to its enactment, consumers had no easy way to determine how much credit would really cost, or how to compare credit offers from various lenders. To their defense, creditors didn't have a uniform or standardized way of calculating interest or defining what additional charges would be added (which wouldn't show up in the interest rate).
Prior to TILA enactment, a survey asking families to estimate the average interest rate on their consumer debt resulted in an average response that underestimated their interest charges by 300%! An initial reaction would likely be “what a bunch of dummies.” In actuality, look at this example to see how confusing things really were at that time …
Three theoretical offers for a 3-year car loan:
1. Dealer financing with a 6% add-on rate
2. Dealer financing with a 6% discount rate
3. Credit union financing with a 10% actuarial rate
#2 was the option most consumers thought would be the best financial option. Seems logical, right? Remember that prior to the TILA, fees commonly weren't disclosed as part of the assessment of the “true cost” of a loan. In the example provided, the actual APRs ('true cost of the loan') were:
3. 10.00% APR
1. 11.08% APR
2. 13.38% APR
How easy would it have been to “dupe” (whether intentionally or not) consumers into an inferior loan because it was so simple to mask costs? It was for these types of reasons that the Truth in Lending Act was passed. Originally adopted in 1968, Truth in Lending recognizes “the right of the consumer to be informed – to be protected against fraudulent, deceitful, or grossly misleading information, advertising, labeling, or other practices, and to be given the facts he/she needs to make an informed choice.” The act specifically states that…
– Creditors must provide detailed information about accounts (i.e., balance, interest rate, and fees for current accounts) and must disclose conditions and terms up front (APR, dollar amount of fees, etc).
– Creditors can't send a credit card if the consumer did not apply for it.
– Regulates how credit terms can be advertised.
– Sets card liability to no more than the first $50 of fraudulent charges.
The apparent benefits of this legislation shine through for consumers during the home buying process. How much easier is it to compare apples with apples on various offers from different lenders given the fact that they are required to disclose the APR (the true cost of the loan), not just the interest rate? It allows people to much more easily shop and compare loan costs/terms and ultimately make the best, most informed consumer decision. It’s scary to think where we’d be without this consumer protection law!
Since the original legislation became effective July 1, 1969, several amendments have been made to account for new and increasingly complex loan products (i.e., home equity loans, adjustable rate mortgages, etc.). If interested, you can view the complete TILA here.
Hopefully by now, the idea of getting a copy of your credit report annually for free isn’t a foreign one – hint, ALWAYS use the government sanctioned website (ANNUALCREDITREPORT.COM).
Did you also know that FACTA (the same legislation that allowed you to get the free credit reports) also enables you to obtain free “specialty reports.” These are reports that relate to such issues as medical records or payments, check writing history, residential or tenant history, and insurance claims (to name a few). Specialty reports have been available to all consumers since December 1st, 2004. FTC regulations require companies that prepare reports on consumers for employment, insurance claims, rental, check writing, and medical records history, as a minimum establish a toll free telephone number for ordering the free file disclosures. Many companies also provide information for ordering the file online. As is the case with credit reports, you are eligible for one free report per year (i.e., one insurance report, one tenancy report, etc.).
Not everyone has a need to obtain each specialty report. It makes sense to order a specialty report before shopping for new insurance, opening a new checking account, and prior to renting (or after being turned down when applying for any of the following). Consumers who find errors in a specialty report have the same rights to dispute as with errors found in a credit report.
Keep in mind these are “for profit” businesses – they provide the free specialty report to be in compliance with government regulations, but other items/products on their website are “for sale.” You are under no obligation to order anything to get your free specialty reports (it is the exact same thing that occurs if you have used the government site to order your free credit report(s) where they attempt to sell you a credit score and other financial products) …
Examples of available specialty reports and how to order them:
– Insurance Underwriting History – Life, Health, Disability
– Property & Auto Claims History – (C.L.U.E. Report)
– Tenancy Consumer File
o To request a copy of your Check Writing History, (800-428-9623)
o To request a copy of your Employment History, (866-312-8075)
o To request a copy of your Tenant History, (877-448-5732)
It’s always interesting to see what drives people to take action… Often, catastrophic or tragic events are 'triggers' that motivate introspection (this also regularly includes a monitoring of ones personal finances). The recent flooding in Fargo got me thinking about the significance of having a home inventory …
WHY CREATE A HOME INVENTORY?
Obviously the threat of property loss from fire, theft, etc. is very real. FBI statistics report that burglaries occur nearly every 15 seconds; in addition, in a “normal” year, there are typically 400,000+ home fires, 1,000 reported tornadoes, and $2 billion in flood damages.
Another reason to develop a home inventory is “stuff” … Even if you aren't a pack rat, if you were to inventory your possessions, you'd quickly realize that you have a lot of stuff! This exercise may lead you to realize that your insurance (renters or homeowners) coverage is inadequate or may lead you to investigate other areas of your financial life that need to be explored.
HOW TO CREATE A HOME INVENTORY?
You'll be relieved that there are numerous tools available to assist you in the process of creating a home inventory. In addition to a general inventory, many resources do much more – i.e., provide a record keeping system to help you document what you have and a way to manage receipts and other cost information. What would you do if you were to wake up in the morning to an empty house or apartment? Would you be able to document your possessions? Just as critical, could you substantiate the costs for those items??
In addition to inventory resources that can be purchased, several free resources are available (with impressive capabilities!) – here are a few:
My suggestion – simply do something. Go ahead and start small; maybe start in one room or with your higher cost items. What I've learned over time is that 90% of personal finance is inertia… once momentum starts, it tends to continue rolling. Besides, Murphys Law suggests that if you take the time to create the documentation, you won't need it!