BUSINESS LAW CHAPTER 40

What is the goal of the Fair Credit Reporting Act? What does it regulate?

he goal of the Fair Credit Reporting Act (FCRA) is to ensure that consumer credit reports are accurate. The FCRA regulates consumer reporting agencies. These are businesses that supply consumer reports to third parties. If an insurance agency or bank conducts its own investigation to determine whether a consumer is creditworthy, the FCRA does not apply. A consumer report is any communication about a consumer's creditworthiness, character, general reputation, or lifestyle that is considered as a factor in establishing credit, obtaining insurance, securing a job, acquiring a government license, or for any other legitimate business need.

What constitutes as a Deceptive Act practice? What makes and Advertisement deceptive?

Many deceptive acts or practices involve advertisements. Under the FTC Act, an advertisement is deceptive if it contains an important misrepresentation or omission that is likely to mislead a reasonable consumer.

What is a consent order?

A consent order is governed by federal and state laws, which vary by jurisdiction. It is generally a voluntary agreement worked out between two or more parties to a dispute. It generally has the same effect as a court order and can be enforced by the court if anyone does not comply with the orders. Consent orders may also be issued by administrative agencies. For example, a licensing commission may issue a consent order to a licensee in which the licensee agrees to the imposition of certain disciplinary sanctions, such as reprimand or the suspension or revocation of his or her license. The use of a consent order allows the licensing agency and the parties involved to resolve a disciplinary proceeding initiated by the agency without the time and expense required by a formal administrative hearing.

What are the required disclosure guidelines for Closed- End Credit?

Closed-End Credit. In a closed-end transaction, there is only one loan, and the borrower knows the amount and the payment schedule in advance. Boris enters into a closed-end transaction when he buys a $30,000 car and agrees to make specified monthly payments over five years. Before a consumer enters into a closed-end transaction, the lender must disclose the cash price; the total down payment; the amount financed; an itemized list of all other charges; the number, amount, and due dates of payments; the total amount of payments; late payment charges; penalties for prepaying the loan; and the lender's security interest in the item purchased

Why was the Federal Trade Commission created? What are it's options for enforcing the law?

Congress created the Federal Trade Commission (FTC) in 1915 to regulate business. Although its original focus was on antitrust law, it now regulates a wide range of business activities that affect consumers, everything from advertising to consumer loans to warranties to debt collection practices. The FTC has several options for enforcing the law: Voluntary Compliance Administrative Hearings and Appeals Penalties

Why was the Truth In Lending Act statute passed by congress? What kind of transactions does it apply to?

Congress passed the statute to ensure that consumers were adequately informed about credit terms before entering into a loan and could compare the cost of credit. It is a consumer loan. That means a loan to an individual for personal, family, or household purposes but not a loan to a business. For example, TILA does not apply to a loan on a truck used to sell produce. • The loan has a finance charge or will be repaid in more than four installments. Sometimes finance charges masquerade as installment plans. Boris can pay for his big-screen TV in six monthly installments of $200 each, or he can pay $900 cash up front. If he chooses the installment plan, he is effectively paying a finance charge of $300. That is why TILA applies to loans with more than four installments. • The loan is for less than $25,000 or secured by a mortgage on real estate. If Boris borrows money to buy a $1 million house, TILA applies, but not if he buys a $50,000 yacht. • The loan is made by someone in the business of offering credit. If Boris borrows $5,000 from his friend Ludmilla to buy a riding mower, TILA does not apply. If he borrows the money from Friendly Neighborhood Loan Depot, Inc., TILA does apply.

How does the FTC enforce the Law with Administrative Hearings and Appeals?

If the company refuses to stop voluntarily, the FTC takes the case to an administrative law judge (ALJ) within the agency. The violator may settle the case at this point by signing a consent order. If the case proceeds to a hearing, the ALJ has the right to issue a cease and desist order, commanding the violator to stop the offending activity. The FTC issued a cease and desist order against the Arthur Murray dance studio. A defendant can appeal such an order to the five Commissioners of the FTC, from there to a federal appeals court, and ultimately to the United States Supreme Court. Both the Commissioners and the Fifth Circuit Court of Appeals confirmed the cease and desist order against Arthur Murray. The case never reached the Supreme Court.

What happens if a Credit Card Company mails a card that you never requested, nor did you receive, who is liable for the transactions on that card?

If you did not request the card, and it is not a renewal or substitute for a card you already have, you are not liable, even for the $50.

What happens in the event that you lose your Debit Card, under what conditions are you liable, and for how much?

If you report the loss before anyone uses your card, you are not liable for any unauthorized withdrawals. If you report the theft within two days of discovering it, the bank will make good on all losses above $50. If you wait until after two days, your bank will only replace stolen funds above $500. After 60 days of receipt of your bank statement, all losses are yours: the bank will not repay any stolen funds. If an unauthorized transfer takes place using just your number, not your card, then you are not liable at all as long as you report the loss within 60 days of receiving the bank statement showing the loss

What is an additional reason why the Federal Trade Commissions Act might consider a practice to be unfair?

In addition, the FTC may decide that a practice is unfair simply because it violates public policy even if it does not meet these three tests

What happens if a dispute between a consumer and merchant cannot be resolved, or the two are located in separate states?

In practice, they now require all merchants to sign a contract specifying that, in the event of a dispute between the merchant and a customer, the credit card company has the right to charge back the merchant's account. If a customer seems to have a reasonable claim against a merchant, the credit card company will typically transfer the credit it has 961 962 given the merchant back to the customer's account. Of course, the merchant can try to sue the customer for any money owed.

What are the required disclosure guidelines for Home Equity Loans?

In response to such scams, TILA was amended to provide additional consumer safeguards for home equity installment loans. If a home equity installment loan: • Has an APR (interest rate) that is more than 10 percentage points higher than Treasury securities, or • The consumer must pay fees and points at closing that are higher than 8 percent of the total loan amount, then, • At least three business days before the loan closing the lender must notify the consumer that (1) he does not have to go through with the loan (even if he has signed the loan agreement) and (2) he could lose his house if he fails to make payments, and • Loans that are for less than five years may not contain balloon payments (that is, a payment at the end that is more than twice the regular monthly payment).

What happens in the event of a dispute between Consumer and Merchant of an item or items legally purchased with a Credit Card?

In the event of a dispute between a customer and a merchant, the credit card company cannot bill the customer if (1) she makes a good faith effort to resolve the dispute, (2) the dispute is for more than $50, and (3) the merchant is in the same state where she lives or is within 100 miles of her house.

Most states limit the maximum interest rate a lender may charge. What is the Penalty for violating the usury statutes?

Most states limit the maximum interest rate a lender may charge. The penalty for violating usury statutes varies among the states. Depending upon the jurisdiction, the borrower may be allowed to keep (1) the interest above the usury limit, (2) all of the interest, or (3) all of the loan and the interest.

TILA requires additional disclosure for two types of loans: open-end credit and closed-end credit. What are the requirements as they pertain to Open-End Credit

Open-End Credit. This is a credit transaction in which the lender makes a series of loans that the consumer can repay at once or in installments. The typical VISA or MasterCard account is open-end credit—the cardholder has a choice of paying his balance in full each month or making only the required minimum payment.11 In any advertisement or solicitation, the lender must disclose credit terms. If the lender is offering a teaser rate it must clearly disclose that the rate is introductory, when it expires, and the permanent rate that will replace it. In addition, before beginning an open-end credit account, the lender must disclose to the consumer when a finance charge will be imposed and how the finance charge will be calculated (for example, whether it will be based on the account balance at the beginning of the billing cycle, the end, or somewhere in between). In each statement, the lender must disclose the following: the amount owed at the beginning of the billing cycle (the previous balance); amounts and dates of all purchases, credits and payments; finance charges and late fees; the date by which a bill must be paid to avoid these charges; and either the consequences of making the monthly minimum payment or a toll free number at which to obtain such information.

What does section 5 of the Federal Trade Commissions Act prohibit?

Section 5 of the Federal Trade Commission Act (FTC Act) prohibits "unfair and deceptive acts or practices."

How does the the Truth In Lending Act regulate Advertising of financing?

TILA is meant to enable consumers to shop around and compare available financing alternatives. With this goal in mind, the statute requires lenders to advertise their rates accurately. A lender cannot bait and switch; that is, it cannot advertise rates unless they are generally available to anyone who applies. Moreover, if the lender advertises any credit terms, it must tell the whole story. For example, if it advertises "Nothing down, 12 months to pay," it must also disclose the APR and other terms of repayment.

The Federal Trade Commission Act also prohibits unfair acts or practices. When does the Commission consider an Act or Practice to be unfair?

The Commission considers a practice to be unfair if it meets all of the following three tests: It causes a substantial consumer injury. This can mean physical or financial injury The harm of the injury outweighs any countervailing benefit. If benefits of a product outweigh the risks for the consumer, at times, The FTC will determine even the rules pertaining to the risk are a violation, the benefit to the consumer far outweigh the risks The consumer could not reasonably avoid the injury. The FTC is particularly vigilant in protecting susceptible consumers—such as the elderly or the ill—who are less able to avoid injury.

Under what circumstance will the FTC file a suit in federal court for a consumer?

The FTC can file suit in federal court asking for damages on behalf of an injured consumer if (1) the defendant has violated FTC rules and (2) a reasonable person would have known under the circumstances that the conduct was dishonest or fraudulent.

How does the FTC enforce the Law with Penalties?

The FTC can impose a fine for each violation of: • a voluntary compliance affidavit • a consent order • a cease and desist order • an FTC rule or • a cease and desist order issued against someone else.

What guidelines has the Federal Trades Commission established for Mail or Telephone Order Merchandise?

The FTC has established the following guidelines on mail or telephone order merchandise: • Mail-order companies must ship an item within the time stated or, if no time is given, within 30 days after receipt of the order. • If a company cannot ship the product when promised, it must send the customer a notice with the new shipping date and an opportunity to cancel. If the new shipping date is within 30 days of the original one, and the customer does not cancel, the order is still on. •If the company cannot ship within 30 days of the original date, it must send the customer another notice. This time, however, the company must cancel the order unless the customer returns the notice, indicating that he still wants the item.

How does the Fair Credit Billing Act help consumers?

The Fair Credit Billing Act (FCBA) provides additional protection for credit card holders. Under the FCBA: • If, within 60 days of receipt of a bill, a consumer writes to a credit card company to complain about the bill, the company must acknowledge receipt of the complaint within 30 days. • Within two billing cycles (but no more than 90 days) the credit card company must investigate the complaint and respond: • In the case of an error, by correcting the mistake and notifying the consumer • If there is no error, by writing to the consumer with an explanation. • Whether or not there was a mistake, if the consumer requests it, the credit card company must supply documentary evidence to support its position—for example, copies of the bill signed by the consumer or evidence that the package actually arrived. • The credit card company cannot try to collect the disputed debt or close or suspend the account until it has responded to the consumer complaint. • The credit card company cannot report to credit agencies that the consumer has an unpaid bill until 10 days after the response. If the consumer still disputes the charge, the credit card company may report the amount to a credit agency but must disclose that it is disputed.

What is the Required Disclosure in all loans Regulated by Truth In Lending Act?

The disclosure must be clear and in meaningful sequence. The lender must disclose the finance charge. The finance charge is the amount, in dollars, the consumer will pay in interest and fees over the life of the loan. The creditor must also disclose the annual percentage rate (APR). This number is the actual rate of interest the consumer pays on an annual basis

What is Bait and Switch Advertising performed by merchants?

This is bait and switch advertising and it violates FTC rules. The bait is an alluring offer that sounds almost too good to be true. Of course, it is. The advertiser does not wish to sell the advertised merchandise; it wants to switch consumers to another, higher priced product. The real purpose of the advertisement is simply to find customers who are interested in buying.

How does Rescission Under the Truth In Lending Act?

Under TILA, consumers have the right to rescind a mortgage for up to three business days after the signing (including Saturdays). If the lender does not comply with the disclosure provisions of TILA, the consumer can rescind for up to three years from the date of the mortgage. This right of rescission does not apply to a first mortgage used to finance a house purchase or to any refinancing with the consumer's existing lender.

What are some of the Do's and Don'ts under the FCRA;

Under the FCRA: • A consumer report can be used only for a legitimate business need, and a consumer reporting agency must be careful not to supply reports that will be used for any other purpose. A nosy neighbor does not have the right to order a report. • A consumer reporting agency cannot report obsolete information. Ordinary credit information is obsolete after seven years, bankruptcies after 10 years. (But if a consumer is applying for more than $150,000 of credit or life insurance, or for a job that pays more than $75,000 a year, then there is no time limit.) Investigative reports that discuss character, reputation, or lifestyle become obsolete in three months. Some commentators argue that the type of information contained in investigative reports is not relevant and should not be used at all. Although the FCRA does not limit the kinds of information that can be collected and reported, it does specify that an investigative report cannot be ordered without first informing the consumer. • A consumer reporting agency cannot report medical information without the consumer's permission. • An employer cannot request a consumer report on any current or potential employee without the employee's permission. An employer cannot take action because of information in the consumer report without first giving the current or potential employee a copy of the report and a description of the employee's rights under this statute. • Anyone who makes an adverse decision against a consumer because of a credit report must reveal the name and address of the reporting agency that supplied the information. An "adverse decision" includes denying credit or charging higher rates. • Upon request from a consumer, a reporting agency must disclose all information in his file, the source of the information (except for investigative reports), the name of anyone to whom a report has been sent in the prior year (two years for employment purposes), and the name of anyone who has requested a report in the prior year. • If a consumer tells an agency that some of the information in his file is incorrect, the agency must both investigate and forward the data to the information provider. The information provider must investigate and report the results to the agency. If the data are inaccurate, the information provider must so notify all national credit agencies. The consumer also has the right to give the agency a short report telling his side of the story. The agency must then include the consumer's statement with any credit reports it supplies and also, at the consumer's request, send the statement to anyone who has received a report within six months (or two years for employment purposes). The following article illustrates the usefulness of the FCRA.

What must a door-to-door salespersons disclose under the door-to-door rules?

Under the FTC door-to- door rules, a salesperson is required to notify the buyer that she has the right to cancel the transaction prior to midnight of the third business day thereafter. This notice must be given both orally and in writing; the actual cancellation must be in writing. The seller must return the buyer's money within 10 days.

How does the Federal Trade Commission Act view Unordered Merchandise?

Under §5 of the FTC Act, anyone who receives unordered merchandise in the mail can treat it as a gift

How does the FTC enforce the Law with Voluntary Compliance?

When the FTC determines that a business has violated the law, it first asks the offender to sign a voluntary compliance affidavit promising to stop the prohibited activity.

Under the Truth In Lending Act, what chargers will a credit card be liable for if a thief steals the card?

under TILA, you are liable only for the first $50 in charges the thief makes before you notify the credit card company. If you call the company before any charges are made, you have no liability at all. But if, by the time you contact the company, the speedy robber has completely furnished her apartment on your card, you are still liable only for $50.