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Consumer Credit Protection Act Explained in Detail


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The foundational provisions of the Consumer Credit Protection Act are contained within the Truth in Lending Act (TILA), which requires the lending institution to state fully the terms of the loan it is offering. The lender must provide a written disclosure in plain, easy-to-understand language, specifying the following details:

* The amount of the loan or line of credit

* The interest rate, or APR (annual percentage rate), as an expression of the full cost of borrowing the money (meaning that there must not be hidden costs compensating for an artificially low interest rate)

* The method used to compute the monthly finance charge (the interest payment)

* The total cost of all payments (this applies to loans of a specific amount, not to credit)

* Any other conditions or terms of the loan, including the payment due date, any late fees, and early repayment penalties

In addition to requiring transparency from lenders about the terms of their loans, the CCPA also places important restrictions on wage garnishment. Wage garnishment is a legal procedure whereby a portion of a person's earnings is withheld from his or her paycheck in order to pay off a debt. Wage garnishment can be ordered by a court when a person has defaulted on (failed to repay) a loan. The CCPA stipulates that an employer cannot fire an employee because his or her wages are being garnished for a single debt (the employer can fire the employee if his or her wages are garnished for more than one debt). It also sets a legal limit on how much (what portion) of a person's wages can be withheld from any one paycheck. Usually, no more than 25 percent of a person's wages can be garnished.

The Fair Credit Reporting Act (FCRA) was added to the CCPA in 1971. It was the first federal regulation to address the credit-reporting industry. (Credit-reporting agencies, also called consumer-reporting agencies or credit bureaus, are companies that collect and compile consumers’ credit-history information. The three major nationwide credit bureaus are Equifax, Experian, and TransUnion). The FCRA is intended to insure the accuracy, privacy, and fairness of consumer credit files. Protections contained in the FCRA also apply to consumer-reporting agencies that sell information about people's medical histories (often used by insurance companies to decide whether or not to extend medical insurance coverage to individuals) and rental histories (used by prospective landlords). According to its provisions:

* The consumer has a right to see the information contained in his or her credit report. Traditionally there was a charge for accessing the report, but recent changes allow people to request a free credit report once a year from each of the major nationwide credit bureaus.

* The consumer must be notified if information in his or her credit report has been used to deny him or her credit.

* The consumer has a right to dispute any inaccurate information contained in his or her report, and the reporting agency is required to investigate any such claims unless they are deemed frivolous or baseless.

* Credit-reporting agencies are required to correct or delete any information about a consumer that is inaccurate, incomplete, or unverifiable.

* Credit-reporting agencies are not allowed to report negative information that is outdated (more than seven years old).

* Credit-reporting agencies may only give out an individual's credit report to people with a valid need for seeing it, such as a prospective lender, landlord, insurer, or employer. Additionally, an individual must give the reporting agency written consent to disclose his or her credit report to an employer or prospective employer.

Another amendment to the CCPA, the Equal Credit Opportunity Act, which was added in 1976, prohibits credit lenders from discriminating against applicants on the basis of sex, race, age, marital status, religion, or national origin. Implemented in 1978, the Fair Debt Collection Practices Act (FDCPA) prohibits abusive, deceptive, and unfair debt-collection tactics, such as threats, persistent and intrusive phone calls, and other kinds of harassment.

The CCPA is designed to protect individual consumers. Its larger purpose, however, is to maintain consumer confidence in the financial system and thereby promote a robust economy. If consumers fear that they will be cheated by credit lenders, or that they have no access to, or control over, the information that is contained in their credit histories, their loss of confidence could cause them to avoid lending institutions altogether. A widespread loss of consumer confidence could lead to a major upset in the economy, something that the government, financial institutions, businesses, and consumers all have an interest in avoiding.

For more information on personal credit, visit my 'What is Bad Credit' here.


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