Consumer Credit Protection

Federal legislation offers many forms of protection.

A number of federal laws have been enacted in order to protect the rights of consumers in credit transactions. Probably the most important of these laws is the federal Truth in Lending Act. This law requires lenders to carefully state all of the terms of a loan agreement. Terms of the agreement which must be disclosed include the finance charge, the annual percentage rate, penalties for late payment, and other pertinent facts.

If a lender advertises any one of these elements, it must also disclose all of the other elements as well. For example, if the lender advertises a 6.9 percent interest rate for car loans, it must also tell you the length of the loan, the amount of down payment required, and provide information about the monthly payment on a typical loan. This requirement explains the small print you see at the bottom of your television screen when auto dealers or manufacturers advertise a special loan rate. Unfortunately, while the Act requires that the disclosures be made, it doesn't require the lender to make them very clearly.

A lender who fails to make the disclosures required under the Truth in Lending Act can be sued by the borrower. Your bank, savings and loan, or credit union can provide you with additional information about the Truth in Lending Act.

The federal Equal Credit Opportunity Act (ECOA) prohibits lenders from asking borrowers for information about their race, religion or nationality. This law also requires lenders to consider sources of income such as Social Security, annuities, pension payments, and alimony or maintenance payments made to a divorced spouse. It also prohibits lenders from refusing to grant credit to a woman on the basis of her sex or her marital status. As a result, many women who were previously unable to obtain credit now are eligible to receive loans and credit cards.

The Fair Credit Reporting Act gives consumers the right to review information kept by the various credit reporting agencies. The law requires lenders to tell a rejected credit applicant why he or she was turned down. If the was due to a negative credit bureau report, a consumer has rejection the right to receive a copy of that information free of charge. The Act also gives consumers the right to know the names and addresses of anyone who has requested a credit report in the past six months, as well as the right to challenge information in the credit report that is inaccurate or incomplete.

You should check your credit record from time to time, especially before you decide to apply for a large amount of credit, such as a home mortgage. According to some studies, more than half of all the credit records on file with the largest credit bureaus contain one or more errors. Some of these errors are minor, but others may seriously affect your ability to obtain credit.

In 1992, Experian, one of the nation's largest credit reporting agencies, entered into an agreement with the Federal Trade Commission, under which it promised to provide any consumer who requests it one copy of his or her credit report each year at no charge. For exact information on how to get your free report, call Experian at the number listed under "Credit Reporting Agencies" in your local Yellow Pages.

Violations of the federal Truth in Lending Act and the Fair Credit Reporting Act are investigated by the Federal Trade Commission. You can contact this agency by writing to:

or by calling (202) 326-2222.