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F ed er a l r e s e r v e Ba n k o f Dallas
DALLAS. TEXAS

7S222
C irc u la r No. 79-12
Jan u ary 18, 1979

NEW CONSUMER EDUCATION PAMPHLET
"Consum er Handbook to C re d it Protection Laws"

TO ALL BANKS, CR ED ITO RS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D IS T R IC T :
O ur latest in a series of pamphlets is now a v a ila b le for d is trib u tio n .
T h e booklet, en titled "Consum er Handbook to C re d it Protection L aw s," was p re ­
p ared by the D ivision of Consum er A ffa irs of the Board of G overnors of the Fed­
eral R eserve System and deals w ith the cost of c re d it, c re d it ap p licatio n s, c re d it
h isto ry and reco rd s , correcting c re d it m istakes, and how to file a consumer com­
p lain t about c re d it pro ced u res.
Once again we w ould encourage member banks to d is trib u te copies of
this booklet to consumers through lobby displays and other means. Copies of
the booklet may be o rd ered by b an ks, c re d ito rs , and members of the public free
of charge from the Federal R eserve Bank of D a llas. Requests should be made in
w ritin g to the S e c retary's O ffice, Federal R eserve Bank of D a llas, Station K,
D allas, Texas 75222.
A copy of this booklet is enclosed fo r your referen ce.
S in ce re ly y o u rs ,
Robert H . Boykin
F irs t V ic e P resident
Enclosure

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

CONSUMER
HANDBOOK TO
CREDIT
PROTECTION
LAWS

CONSUMER
HANDBOOK TO
CREDIT
PROTECTION
LAWS

SEtssarF,d*"'
1

Decemb«r 1978

CONTENTS
•

Page

INTRODUCTION...........................................

3

THE COST OF CR E D I T ......................................

5

Shopping isthe First Step..................................
What Laws Apply?.......................................
The Finance Charge and Annual Percentage Rate (APR)...........
A Comparison..........................................
Cost of Open-end Credit ..................................
Leasing Costs and Terms..................................
Open-end Leases and Balloon Payments.......................
Advertising ............................................
Costs of Settlement on a House..............................
APPLYING FOR CREDIT ....................................
The Old Story of Discrimination..............................
What Law Applies?......................................
What Creditors Look For .................................
Information the Creditor Can’tUse............................
Special Rules...........................................
Discrimination Against Women ..............................
. IfYou’re Turned Down ...................................

5
5
6
7
8
10
11
12
12
13
13
13
14
15
16
19
23

CREDIT HISTORIES A N D R E C O R D S ............................ 24
Building Up a Good Record................................
What Laws Apply?.......................................
Credit Histories for Women ................................
Keeping Up Credit Records................................

24
25
26
27

CORRECTING CREDIT MISTAKES..............................29
What Laws Apply?.......................................
Billing Errors ...........................................
Defective Goods or Services................................
Prompt Credit for Payments and Refunds for Overpayments ........
Cancelling a Second Mortgage..............................
Lost or Stolen Credit Cards ................................
Unsolicited Cards........................................
Discounts for Cash Payments...............................

29
29
33
33
34
35
36
36

COMPLAINING A B O U T C R E D I T ..............................

37

Complaining to Federal Enforcement Agencies ..................
Penalties Under the Laws..................................

37
38

G L O S S A R Y ...............................................

40

SUBJECT INDEX...........................................

43

The Consumer Credit Protection Act of 1968 — which launched Truth in
Lending — was a landmark piece of legislation. For the first time, creditors were
required to state the costs of borrowing in a common language so that you — the
customer — could figure out exactly what charges would be, compare costs, and
shop for credit.
Since 1968, credit protections have multiplied rapidly. The concepts of “fair”
and “equal” credit have been written into laws that outlaw discrimination in credit
transactions; require that consumers be told the reason when credit is denied; give
borrowers access to their credit records; and set up a method to settle billing
disputes.
Each of these laws was intended to remove some of the problems and con­
fusion from consumer credit which, as itbecame more widely used in our economy,
also grew more complex. Together, these laws set a standard for how individuals
are to be treated in their daily credit dealings.
The laws say, for instance:
— that you can no longer be refused a credit card just because you’re a
single woman;
— that you can limit your risk ifa credit card islost or stolen;
. — that you can straighten out errors in your monthly billwithout damage
to your credit rating;
— and that you won’tfind credit shut off just because you’ve reached the
.
age of 65.

INTRODUCTION

3

But, letthe buyer b e aw are! Itisimportant to know your rights and how to use
them. This handbook explains how the consumer credit laws can help you shop for
credit, apply for it, keep up your credit standing, and — if need be — complain
about an unfair deal. It explains what you should look for when using credit and
what creditors look for before extending it. It also points out the laws’solutions to
discriminatory practices that have made itdifficult for women and minorities to get
credit in the past.

Board of Governors of the
Federal Reserve System
December 1978

THE COST OF
CREDIT

You get credit by promising to pay in the future for something you receive in
the present.
Credit is a convenience. It lets you charge a meal on your credit card, pay for
an appliance on the instalment plan, take out a loan to buy a house, or pay for
schooling or vacations. With credit, you can enjoy your purchase while you’re
paying for it— or you can make a purchase when you’re lacking ready cash.
But there are strings attached to credit too. Itusually costs something. And of
course what isborrowed must be paid back.
If you are thinking of borrowing or opening a credit account, your first step
should be to figure out how much it will cost you and whether you can afford it.
Then you should shop around for the best terms.
These laws can help you compare costs:
TRUTH IN LENDING requires creditors to give you certain basic infor­
mation about the cost of buying on credit. These “disclosures” can help
you shop around for the best deal.

Shopping is the
First Step

W hat Laws Apply?

5

T R U T H IN LEASING disclosures can help you compare the cost and
terms of one lease with another and with the cost and terms of buying for
cash or on credit.
The Finance Charge
and Annual Percentage
Rate (A PR )

Credit costs vary. By remembering two terms, you can compare credit prices
from different sources. Under Truth in Lending, the creditor must tell you — in
writing and before you sign any agreement — the finance charge and the annual
percentage rate.
The finance charge is the total dollar amount you pay to use credit. It in- 1
eludes interest costs, and sometimes other costs, such as service charges, some ,
credit-related insurance premiums or appraisal fees.
For example, borrowing $100 for a year might cost you $7 in interest. If
there were also a service charge of $1, the finance charge would be $8.

The annual percentage rate (APR) is the percentage cost (or relative cost)
of credit on a yearly basis. This is your key to comparing costs, regardless of the I
amount of credit or how long you have to repay it:
Again, suppose you borrow $100 for one year and pay a finance charge
of $8.
If you can keep the entire $100 for the whole year and then pay it all
back at once, you are paying an APR of 8 per cent.
But, ifyou repay the $100 and finance charge (a total of $108) in twelve
equal monthly instalments of $9 each, you don’treally get to use $100
for the whole year. In fact, you get to use less and less of that $100 each

.

month. In this case the $8 charge for credit amounts to an APR of 14.5
‘ per cent.
All creditors — banks, stores, car dealers, credit-card companies, finance
companies — must state the cost of their credit in terms of the finance charge and
the APR. The law says these two pieces of information must be shown to you be­
fore you sign a credit contract. Federal law does not set interest rates or other credit
charges. But itdoes require their disclosure so that you can compare credit costs.

Even when you understand the terms a creditor is offering, it’s easy to under­
estimate the difference in dollars that different terms can make. Suppose you’re
buying a $5,000 car. You put $1,000 down, and need to borrow $4,000. Compare
these three credit arrangements:

APR

CREDITOR A
CREDITOR B
CREDITOR C

11%
11%
12%

Length
o f Loan

Monthly
paym ent

Total Finance
C h arg e

Total
Cost

3 years
4 years
4 years

$131

$ 716
$ 962
$1,056

$4,716

$103

$105

$4,962
$5,056

How do these choices stack up? The answer depends partly on what you
need.
7

A Comparison

The low est cost loan isavailable from Creditor A.
But ifyou were looking for lo w e r monthly paym ents, you could get them
by paying the loan off over a longer period of time. However, you would have to
pay more in total costs. A loan from Creditor B — also at an 11 per cent APR, but
for four years — will add almost $250 to your finance charge.
Ifthat four-year loan were available only from Creditor C, the A P R o f 12 per
cent would add another $94 to your finance charges as compared with Creditor B.
Other terms — such as the size of the down payment — will also make a dif­
ference. Be sure to look at allthe terms before you make your choice.
C ost o f O pen-end
C redit

8

Open-end credit includes credit cards, department store “charge plates,” and
check-overdraft accounts that allow you to write checks for more than your actual
balance with the bank. Open-end credit can be used again and again, generally until
you reach a certain pre-arranged borrowing limit. Truth in Lending requires that (
open-end creditors letyou know these two terms that will affect your costs:
First, creditors must tell you the method of calculating the
finance charge. Creditors use a number of different systems to calculate the
balance on which they assess finance charges. Some creditors add finance charges
after subtracting payments made during the billing period. This is called the a d ­
ju sted b alan ce m ethod. Other creditors give you no credit for payments made
during the billing period. This is called the previous b alan ce m ethod. Under a
third method — the a v erage daily balan ce m ethod — creditors add ypur

balances for each day in the billing period and then divide by the number of days
in the billing period.
Here’s a sample of three billing systems:
ADJUSTED
BALANCE

Monthly Interest Rate
Previous Balance
Payments

Interest Charge

P R E V IO U S
BALANCE

A V E R A G E D A IL Y
BALANCE

1V2%
$400
$300

1V2%

V/2%

$400
$300

$400
$300 (payment on
15th day)

1.50

$ 6.00

$
($100 x 1.5%)

($400 x 1.5%)

$

3.75

(average balance of
$250 x 1.5%)

As the example shows, the finance charge varies considerably for the same
pattern of purchases and payments.
Second, creditors must tell you w hen finance charges begin on your
credit account, so you know how much time you have to pay your bills before a

finance charge isadded. Some creditors, for example, give you a 30 day “free ride”
to pay your balance in fullbefore imposing a finance charge.
Truth in Lending does not set the rates or tellthe creditor how to make interest
calculations — itonly requires that the creditor tellyou the method that willbe used.
You have the right to ask for an explanation of any terms you don’tunderstand.
L easin g C osts and
Term s

10

Leasing gives you temporary use of property in return for periodic payments. It
has become a popular alternative to buying — under certain circumstances. For in­
stance, you might consider leasing furniture for an apartment you’lluse only for a
year. The Truth in Leasing law requires leasing companies to give you the facts
about the costs and terms of their contracts, to help you decide whether leasing isa
good idea.
The law applies to p erson al property leased to you for more than four
months for personal, family, or household use. It covers, for example, long
term rentals of cars, furniture, and appliances, but not daily car rentals or leases for
apartments.
Before you agree to a lease, the leasing company must give you a written
statement of costs, including the amount of any security deposit, the amount of
your monthly payments, and the amount you must pay for license, registration,
taxes, and maintenance.
The company must also give you a written statement about term s, including
any insurance you need, any guarantees, information about who isresponsible fqr

servicing the property, standards for itswear and tear, and whether or not you have
an option to buy the property.
Your costs will depend on whether you choose an “open end” lease or a
“closed end” lease. Open end leases usually offer lower monthly payments than
closed end leases, but you may owe a large extra payment — called a “balloon
payment” — based on the value of the property when you return it.
Suppose you lease a car under a 3-year open end lease. The leasing
company estimates the car will be worth $2,000 after 3 years of normal
use. If you bring back the car in a condition that makes it worth only
$1500, you may owe a balloon payment of $500.
The leasing company must tell you whether you may owe a balloon payment
and how itwillbe calculated. You should also know that:
— you have the right to an independent appraisal of the property’s worth
at the end of the lease. Y o u must pay the appraiser’sfee, however.
— the law usually limits a balloon payment to no m ore than three
tim es the average m onthly paym ent. Ifyour monthly payment
is $100, your balloon payment can’tbe more than $300 — unless, for
example, the property has received more than average wear and tear
(forinstance, ifyou drove a car more than average mileage).

O p en -en d L e a se s and
B allo o n Paym ents

Closed end leases usually have a higher monthly payment than open end
leases, but there isno balloon payment at the end of the lease.
A dvertising

Both Truth in Lending and Truth in Leasing require accurate advertising of
terms. These laws say that ifa business mentions one important feature of a credit
sale or lease — such as the downpayment — itmust also state the APR and other
important terms — such as the number, amount, and schedule of repayments. An
ad reading “Only $2 down,” for example, must also state that you will have to pay
$10 a week for the next two years. An ad must also specify ifa leasing arrangement
isinvolved.

C osts o f Settlem ent
on a H o u se

A house is probably the single largest credit purchase for most consumers —
and one of the most complicated. The Real Estate Settlement Procedures Act, like
Truth in Lending, is a disclosure law. The Act, administered by the Department of
Housing and Urban Development, requires the lender to give you, in advance,
certain information about the costs you will pay when you actually get the deed to
the property. This event is called settlement, and the law helps you shop for lower
settlement costs. To find out more about it,you may write to: Assistant Secretary for
Consumer Affairs and Regulatory Functions, Attention: RESPA Office, US/HUD,
451-7th Street, S.W„ Room 4100, Washington, D.C. 20410.
.

APPLYING FOR
CREDIT

Here’s the old story: Mary and John Jones, whose joint income is more than
i enough to make payments on their dream house, are turned down for a mortgage
I loan. The lender says Mary might become pregnant and leave her job.
That’s illegal now. It’s illegal even to discourage the Joneses from applying for
a loan just because Mary is of child-bearing age. And Mary’s income must be
counted fully by a lender.
When you’re ready to apply for credit, you should know what creditors think is
important in deciding whether you’re creditworthy. You should also know what
they cannot legally consider in their decisions.
The law makes sure the creditor willbe fair:
.

THE E Q U A L CREDIT OPPORTUNITY A C T starts all credit applicants
off on the same footing. Itsays that race, color, age, sex, marital status —
and certain other factors — may not be used to discriminate against you
in any part of a credit dealing.

The O ld Story of
Discrim ination

W h at Law Applies?

13

W h a t C red itors
Look For

14

The Three C ’s. Creditors look for an ability to repay debt and a willingness
to do so — and sometimes for a little extra security to protect their loans. They
speak of the three C ’s of credit — capacity, character, and collateral.

Capacity

Can you repay the debt? Creditors ask for employ­
ment information: your occupation, how long you’ve
worked, how much you earn. They also want to
know your expenses: how many dependents you
have, or whether you pay alimony or child support.

Character

Will you repay the debt? Creditors will look at your
credit history (see chapter on Credit Histories and
Records): how much you owe, how often you bor­
row, whether you pay bills on time, and whether you
live within your means. They also look for signs of
stability: how long you’ve lived at your present ad­
dress, whether you own or rent, and whether you are
insured.

Collateral

Is the creditor fully protected if you fail to repay?
Creditors want to know what you may have that

could be used to secure your loan, and what sources
you have for repaying debt other than income, such
as savings, investments, or property.
Creditors use different combinations of these facts in reaching their decisions.
Some set unusually high standards and others simply do not make certain kinds of
loans. Creditors also use different kinds of rating systems. Some rely strictlyon their
own instinct and experience. Others use a “credit scoring” or statistical system to
predict whether you’re a good credit risk. They assign a certain number of points to
each of various characteristics that have proved to be reliable signs that a borrower
will repay. Then, they rate you on thisscale.
And so, different creditors may reach different conclusions based on the same
set of facts. One may find you an acceptable risk, while another may deny you a
loan.
The Equal Credit Opportunity Act does not guarantee that you will get credit.
You must still pass the creditor’s tests of creditworthiness. But the creditor must
apply these tests fairly, impartially, and without discrimination against you on any of
the following grounds: age, sex, marital status, race, color, religion, national origin,
because you are on welfare or Social Security, or because you exercise your rights
under Federal credit laws. This means that a creditor may not use any of those
grounds as an excuse to:

Information the
Creditor Can’t Use

15

— discourage you from applying for a loan;
— refuse you a loan ifyou qualify;
— lend you money on terms different from those granted another person
with similar income, expenses, credit history, and collateral.

Special R ules

A g e . Many older persons have complained about being denied credit just
because they were over a certain age. Or when they retired, they may have found
that their credit was suddenly cut off or reduced. So the law is very specific about
how a person’s age may be used in credit decisions.
A creditor may ask your age, but ifyou’re old enough to sign a binding contract
(usually 18 or 21 years old depending on State law), a creditor m ay not:

— turn you down or decrease your credit just because of your age;
— ignore your retirement income in rating your application;
— close your credit account or require you to reapply for itjust because
you reach a certain age or retire;
— deny you credit or close your account because credit life insurance or
other credit-related insurance isnot available to persons your age.
16

Creditors may “score” your age in a credit-scoring system, but:

— ifyou are 62 or older you must be given at least as many points for age
as any person under 62.
Because age does have economic consequences, the law permits a creditor to
consider certain information related to age — such as how long until you retire or
how long your income will continue. An older applicant might not qualify for a large
loan with a 5 per cent down payment on a risky venture, but might qualify for a
smaller loan — with a bigger down payment — secured by good collateral. Re­
member that while a declining income may be a handicap ifyou are older, you can
usually offer a solid credit history to your advantage. The creditor has to look at all
the facts and apply the usual standards of creditworthiness to your particular
situation.
P u blic A ssistan ce. You may not be denied credit just because you receive
Social Security or public assistance (such as Aid to Families with Dependent
Children). But — as isthe case with age — certain information related to this source
of income could have a clear bearing on creditworthiness. So, a creditor may con­
sider such things as:

— how old your dependents are (because you may lose benefits when
they reach a certain age);
— whether you will continue to meet the residency requirements for re­
ceiving benefits.

These factors help the creditor determine the likelihood that your public assistance
income willcontinue.
H ousin g Loans. The Equal Credit Opportunity Act covers your application
for a mortgage or home improvement loan. Itbans discrimination because of such
characteristics as your race, color, sex, or because of the race or national origin of
the people in the neighborhood where you live or want to buy your home. Nor may
creditors use any appraisal of the value of your property that considers the race of
the people in your neighborhood.
Another Federal law, the H om e M ortgage D isclosure A ct, requires that
most lending institutions in metropolitan areas tell the public annually where they
have made their mortgage and home improvement loans. This information does
not tell you where loans were denied or why — itcan’tbe used to prove discrimi­
nation — but itcan help customers, community groups, and local officials working
with lenders to meet neighborhood needs for housing credit. You can ask to see the
information at any time at your bank, savings and loan, or credit union. Those in­
terested in local cooperative efforts to increase mortgage lending and improve
housing in urban areas, may write to the Urban Reinvestment Task Force, 1120
19th Street, N.W., Washington, D.C. 20036.
.

Both men and women are protected from discrimination based on sex or
marital status. But many of the law’s provisions were designed to stop particular
abuses that generally made it difficult for women to get credit. For example, the
notion that single women ignore their debts when they marry, or that a woman’s
income “doesn’tcount” because she’llleave work to have children, now is unlawful
in credit transactions.
The general rule is that you m ay not be denied credit just becau se
you are a w o m an , or just beca u se you are m arried, single, w id o w ed ,
divorced, or sep arated . Here are some important protections:
Sex and
Generally, creditors may not ask your sex on an
Marital Status application form (one exception is on a loan to buy
or build a home).
You do not have to use Miss, Mrs., or Ms. with your
name on a credit application. But, in some cases, a
creditor may ask whether you are married, unmar­
ried, or separated (unmarried includes single, di­
vorced, and widowed).

Discrim ination
A gain st W om en

Child-bearing Creditors may not ask about your birth control
Plans
practices or whether you plan to have children, and
they may not assume anything about those plans.
Income and The creditor must count all of your income, even
Alimony
income from part-time employment.
Child support and alimony payments are a primary
source of income for many women. You don’thave
to disclose these kinds of income, but if you do
creditors must count them.
Telephones Creditors may not consider whether you have a
telephone listing in your name because this would
discriminate against most married women. (You
may be asked ifthere’s a telephone in your home.)
A creditor may consider whether income is steady and reliable, so be pre­
pared to show that you can count on uninterrupted alimony payments or part-time
wages. Ifyou’re pregnant when you apply for a loan, bring some proof that you’llbe
paid during maternity leave or that your job will be open for you when you return.
(Before you go to apply, ask the creditor what proof isacceptable.)

Y o u r ow n accounts. Many married women used to be turned down when
they asked for credit in their own name. Or, a husband had to co-sign an account —
agree to pay if the wife didn’t — even when a woman’s own income could easily
repay the loan. Single women were refused loans because they were judged some­
how less “reliable” than other applicants. You now have a right to your own credit,
based on your own credit records and earnings. Your own credit means a separate
account or loan in your own name — not a joint account with your husband or a
duplicate card on his account. Here are the rules:

— Creditors may not refuse to open an account just because of your sex
or marital status.
— You can choose to use your first name and maiden name (Mary
Smith); your first name and husband’s last name (Mary Jones); or a
combined last name (Mary Smith-Jones).
— Ifyou’re creditworthy, a creditor may not require your husband to co­
sign your account, with exceptions in “community property States,”
where husbands and wives are equally responsible for each other’s
debts.
— Creditors may not ask for information about your husband or ex­
husband when you apply for your own credit based on your own
income — unless that income is alimony, child support, or separate
maintenance payments from your spouse.

This last rule, or course, does not apply ifyour husband isgoing to use your account
or is responsible for paying your debts, or you live in a community property State.
(Community property States are: Arizona, California, Idaho, Louisiana, Nevada,
New Mexico, Texas, and Washington.)
C h an ge in M arital Status. Married women have sometimes faced severe
hardships when cut off from credit after their husbands died. Single women have
had accounts closed when they married, and married women have had accounts
closed after a divorce. The law says that creditors may not require you to reapply
for credit just because you marry or become widowed or divorced. Nor may they
close your account or change the terms of your account on these grounds. There
must be some sign that your creditworthiness has changed. For example, creditors
m ay ask you to reapply ifyou relied on your ex-husband’s income to get credit in
the firstplace.
Setting up your own account protects you by giving you your own history of
debt management to rely on ifcircumstances do change because of widowhood or
divorce. Ifyou’re getting married and plan to take your husband’s surname, write to
your creditors and tellthem ifyou want to keep a separate account.

Remember, your sex or race may not be used to discourage you from applying
for a loan. And creditors may not delay your application on those grounds. Under
the Equal Credit Opportunity Act, you must be notified within 30 days after your
application has been completed whether your loan has been approved or not. If
credit is denied, this notice must be in writing and it must explain the specific
reasons for denying credit or tell you of your right to request an explanation. You
have the same rights ifan account you have had isclosed.

If Y o u ’re T urned
D ow n

Ifyou are denied credit, be sure to find out why. Remember, you may have to
ask the creditor for this explanation. Itmay be that the creditor thinks you have re­
quested more money than you can repay on your income. Itmay be that you have
not been employed or lived in the community long enough. You can discuss terms
with the creditor and ways to improve your creditworthiness. The next chapter ex­
plains how to improve your abilityto get credit.
Ifyou think you have been discriminated against, cite the law to the lender. If
the lender still says no without a satisfactory explanation, you may contact a
Federal enforcement agency for assistance or bring legal action as described in the
last chapter of this handbook.

23

CREDIT
HISTORIES
AND RECORDS

Building Up a
Good Record

On your firstattempt to get credit, you may face a common frustration: some­
times itseems you have to have credit to get credit. Some creditors willrely entirely
on your salary and job and the other financial information you supply on your ap­
plication. But most also want to know about your experience in handling credit —
how reliably you’ve repaid past debts. They turn to the records kept by credit
bureaus or credit reporting agencies whose business isto collect and store informa­
tion about borrowers that isroutinely supplied by many lenders. These records in­
clude the amount of credit you have received and how faithfully you’ve paid it
back.
Here are several ways you can begin to build up a good credit history:
— Open a checking account or a savings account, or both. These do not
begin your credit file, but may be checked as evidence that you have
money and know how to manage it.Cancelled checks can be used to
show you pay utilitiesor rent billsregularly, a sign of reliability.
— Apply for a department store credit card. Repaying credit card billson
time isa plus in credit histories.

— Ifyou’re new in town, write for a summary of any credit record kept by
a credit bureau in your former town. (Ask the bank or department
store in your old home town for the name of the agency itreports to.)
— Ask a friend or relative with a good credit standing to co-sign an appli­
cation with you for your firstaccount.
— Ifyou’re turned down, find out why and try to clear up any misunder­
standings.

The following laws can help you start your credit history and keep your record
accurate:

W hat Laws Apply?

- THE E Q U A L CREDIT OPPORTUNITY A C T gives women a way to
establish their own credit history and identity.
— THE FAIR CREDIT REPORTING A C T sets up a procedure for cor­
recting mistakes on your credit record.

25

C redit H istories
fo r W om en

Women who are divorced or widowed might not have separate credit histories
because all past credit accounts were listed in their husbands’names. But they can
benefit from this record. Under the Equal Credit Opportunity Act, creditors must
consider the credit history of any account women have held jointly with their hus­
bands. Creditors must also look at the record of any account held only in the
husband’s name ifa woman can show it also reflects her own creditworthiness. If
the record is unfavorable — ifan ex-husband was a bad credit risk — she can try to
show that the record does not reflect her own reputation.

Here’s an example:
Mary Jones, when married to John Jones, always paid their credit-card
billson time and from her own checking account. But the card was issued
in John’s name, and the credit bureau kept all records in John’s name.
Now Mary is a widow and wants to take out a new card, but she’s told
she has no credit history. To benefit from the good credit record already
on the books in John’s name, Mary should point out that she handled all
accounts properly when she was married and that bills were paid by
checks from her own account.

26

Married women probably won’thave Mary’s problem in the future. Under the
Equal Credit Opportunity Act, reports to credit bureaus must now be made in the

names of both husband and wife ifboth use an account or are responsible for re­
paying the debt. Remember that a wife may also open her own account to be sure
of starting her own credit history.
Mistakes on your credit record — sometimes mistaken identities — can cloud
your credit future. Your credit rating isimportant, so be sure credit bureau records
are complete and accurate.
The Fair Credit Reporting Act says that you may examine information in your
credit file and have any errors corrected.
N egative Inform ation. If a lender refuses you credit because of unfavor­
able information in your credit report, ask for the name and address of the agency
that keeps your report. Then, you may either request information from the credit
bureau by mail or in person. You will not get an exact copy of the file,but you will at
least get a summary of it.The law also says that the credit bureau must help you
interpret the data — because it’s raw data that takes experience to analyze. Ifyou’re
challenging a credit refusal made within the past 30 days, the bureau may not
charge a fee for giving you information.
Any error of importance that you find must be investigated by the credit
bureau with the creditor who supplied the data. The bureau will remove from your
credit file any errors the creditor admits are there. Ifyou disagree with the findings,
you can file a short statement in your record giving your side of the story. Future re­
ports to creditors must include this statement or a summary of it.

O ld Inform ation. Sometimes credit information is too old to give a good
picture of your financial reputation. There is now a limit on how long certain kinds
of information may be kept in your file:

— Bankruptcies must usually be removed from your credit history after
14 years.
— Suits and judgments, tax liens, arrest records, and most other kinds of
unfavorable information must usually be removed after 7 years.
Another important provision of the law is that you may withhold your credit
record from anyone who does not have a legitimate business need for it.Stores to
which you are applying for credit or prospective employers may examine your
record; curious neighbors may not.
B illing M istakes. In the next chapter, you willfind the steps to take ifthere’s
an error on your bill.By following these steps, you can protect your credit rating.

CORRECTING
CREDIT
MISTAKES

The best way to keep up your credit standing isto repay all debts on time. But
there may be complications. To protect your credit — to save your time, your
money, and your future credit rating — you should learn how to correct the mis­
takes and misunderstandings that can tangle up your credit accounts.
When there’s a snag, first try to deal directly with the creditor. The credit laws
can help you settle your complaints without a hassle.
— THE FAIR CREDIT BILLING A C T sets up a procedure for promptly
correcting billing mistakes; for refusing to make credit card payments
on defective goods; and for promptly crediting your payments.
— TRUTH IN LENDING gives you 3 days to change your mind about a
second mortgage contract; italso limits your risk on lost or stolen credit
cards.
Month after month John Jones was billed for a lawn mower he never ordered
and never got. Finally, he tore up his billand mailed back the pieces — just to try to
explain things to a person instead of a computer.
. There’s a more effective, easier way to straighten out these errors. The Fair

W hat Laws Apply?

B illing E rrors

Credit Billing Act requires creditors to correct errors promptly and without damage
to your credit rating.
A Case of Error? The law defines a billing error as any charge:

— for something you didn’tbuy or for a purchase made by someone not
authorized to use your account;
— that is not properly identified on your billor isfor an amount different
from the actual purchase price or was entered on a date different from
the purchase date;
— for something that you did not accept on delivery or that was not de­
livered according to agreement.
Billing errors also include:
— errors in arithmetic;
— failure to reflect a payment or other credit to your account;
— failure to mail the statement to your current address, provided you
notified the creditor of an address change at least 10 days before the
end of the billingperiod;
— a questionable item, or an item for which you need additional infor­
mation.

In C a s e o f E rror. Ifyou think your bill is wrong, or want more information
about it,follow these steps:
1. Notify the creditor in writing within 60 days after the bill was mailed. Be
sure to write to the address the creditor lists for billing inquiries and to tell the
creditor:

— your name and account number;
— that you believe the bill contains an error and w hy you believe it is
wrong;
— the suspected amount of the error or the item you want explained.
2. Pay all parts of the bill that are not in dispute. But, while waiting for an
answer, you do not have to pay the amount in question (the “disputed amount”)or
any minimum payments or finance charges that apply to it.
The creditor must acknowledge your letter within 30 days, unless your billcan
be corrected sooner. Within two billing periods — but in no case longer than 90
days — either your account must be corrected or you must be told why the creditor
believes the billiscorrect.
Ifthe creditor made a mistake, you do not pay any finance charges on the dis­
puted amount. Your account must be corrected, and you must be sent an explana­
tion of any amount you still owe. You then have the time usually given on your
type of account to pay any balance.

Ifno error is found, the creditor must promptly send you a statement of what
you owe, and may include any finance charges that have accumulated and any
minimum payments you missed while you were questioning the bill.
3.
If you still are not satisfied, you should notify the creditor within the time
allowed to pay your bill.
M aintaining Y o u r C redit Rating. A creditor may not threaten your credit
rating while you’re resolving a billing dispute.
Once you have written about a possible error, a creditor is prohibited from
giving out information to other creditors or credit bureaus that would damage your
credit reputation. And, until your complaint is answered, the creditor also may not
take any action to collect the disputed amount.
After the creditor has explained the bill,you may be reported as delinquent on
the amount in dispute, and the creditor may take action to collect ifyou do not pay
in the time allowed. Even so, you can stilldisagree in writing. Then the creditor must
report that you have challenged your bill and give you the name and address of
each person who has received information about your account. When the matter is
settled, the creditor must report the outcome to each person who has received in­
formation. Remember that you may also place your own side of the story in your
credit record.

Your new sofa arrives with only three legs. You try to return it;no luck. You
ask the merchant to repair or replace it;stillno luck. The Fair Credit Billing Act pro­
vides that you may withhold payment on any damaged or shoddy goods or poor
quality services purchased with a credit card, as long as you have made a real at­
tempt to solve the problem with the merchant.
This right is limited ifthe card was a bank or travel and entertainment card or
any card not issued by the store where you made your purchase. In such cases, the
sale:

D efective G o o d s
or Services

— must have been for more than $50; and
— must have taken place in your home State or within 100 miles of your
home address.
If you can avoid finance charges on your account by paying within a certain
amount of time, it is obviously important that you get your bills, and get credit for
paying them, promptly. Check your statements to make sure your creditor follows
these rules:

Prom pt C redit for
Paym ents and
R efunds for
O verpaym ents

Prom pt Billing. Look at the date on the postmark. Ifyour account is

one on which no finance charge is added before a certain due date,

33

then creditors must mail their statements at least 14 days before pay­
ment isdue.
P ro m p t Crediting. Look at the payment date entered on the state­
ment. Creditors must credit payments on the day they arrive.
Stores often give you a credit on your bill instead of cash when you return a
purchase. Ifthis results in an overpayment on your account, a store must make a
refund in cash, at your request.

C an cellin g a
S econd M ortgage

34

Truth in Lending gives you a chance to change your mind on one important
kind of transaction — when you use your home as security for a credit transaction.
For example, when you are financing a major repair or remodeling, you have three
business days to think about the transaction and to cancel it if you wish. The
creditor must give you written notice of your right to cancel, and, ifyou decide to
cancel, you must notify the creditor in writing within the 30 day period. No con­
tractor may start work on your home, and no lender may pay you or the contractor
until the three days are up. If you want work started immediately for health or
safety reasons, you may give up your right to cancel by providing a written explana­
tion of the circumstances.
This right to cancel (or right of “rescission”) was provided to protect you
against hasty decisions — or decisions made under pressure — that might endanger
your continued homeownership. The law does not apply to a first mortgage to

finance the purchase of your home; for that, you commit yourself as soon as you
sign the mortgage contract.
“Who steals my purse. . just might be after the credit card in it. But, your
greatest cost may be inconvenience, because your liability on lost or stolen credit
cards islimited under Truth in Lending.
You do not have to pay for any unauthorized charges made after you notify
the card company of loss or theft of your card. So keep a list of your credit card
numbers and notify card issuers immediately ifyour card islost of stolen. The most
you will have to pay for unauthorized charges is $50 on each card — even ifsome­
one runs up several hundred dollars worth of charges before you report a card
missing.
To protect you further, card companies may not collect from you for any loss
unless they can prove four things:
1. that they issued you the card at your request or that you used itat least
once before itwas lost or stolen;
2. that they provided some means, such as a line for your signature or a
photo, for stores that accept the card to identify you as the person
authorized to use it;
3. that they notified you of your potential $50 liability;
4. that they provided you with a self-addressed stamped form to notify
them of loss or theft.

Lost or Stolen
C redit C ard s

35

U nsolicited C ard s

Itisillegalfor card issuers to send you a credit card unless you request it.H o w ­
ever, a card issuer may send you, without your request, a new card to replace an
expired one.

Discounts for Cash
Payments

Itis illegal for credit-card companies to prohibit stores from offering discounts
to people who pay by cash or check. Stores that do offer cash discounts must make
this fact clear to all buyers. They may not add an extra charge (above the regular
price) for those customers choosing to use credit cards.
For example, suppose you want to buy an item regularly priced at $50. The
store offers a cash discount of 5 per cent. Ifyou pay in cash, your price should be:
$50.00
-2.50 (5% of $50)
$47.50

36

Ifyou use a credit card, the price is$50.

COMPLAINING
ABOUT CREDIT
COMPLAINT DESK
J*

Always try to solve your problem directly with a creditor. Only then should you
bring more formal complaint procedures. Here’s the way to filea complaint with the
Federal agencies responsible for administering consumer credit protection laws.
C om plaints about B anks. If you have a complaint about a bank in con­
nection with any of the Federal credit laws — or ifyou think any part of your busi­
ness with a bank has been handled in an unfair or deceptive way — you may get
advice and help from the Federal Reserve.
You should submit your complaint — in writing whenever possible — to the
Director of the Division of Consumer Affairs, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551, or to the Reserve Bank for your district,
as listed on page 45 of this handbook. Be sure to describe the bank practice to
which you object and give the name and address of the bank involved.
The Federal Reserve will acknowledge your letter and try to respond in full
within 15 days. Ifthat isnot possible, our reply will set a reasonable date for furnish­
ing you with complete information.
The Board has supervisory responsibility only for State-chartered banks that
are members of the Federal Reserve System. It will refer complaints about other

C om plaining to
F ed eral Enforcem ent
A gen cies

institutions to the appropriate Federal bank regulatory agency and let you know to
whom your complaint has been referred. Or you may use the listing on page 44 of
this booklet to write directly to the appropriate agency.
The practice you wish to complain about does not have to be subject to
Federal regulation. Furthermore, you don’thave to be a customer of the bank to file
a complaint.
Complaints about Other Businesses. On page 44 of this booklet, you
will also find the names of the regulatory agencies for businesses other than banks.
Many of these agencies do not handle individual complaints; however, they will use
information about your credit experiences to help enforce the credit laws.

Pen alties U n d er
the L aw s

You may also take legal action against a creditor. Ifyou decide to bring a law­
suit,here are the penalties a creditor must pay ifyou win.

38

Truth in Lending and C on sum er L easin g A ct. If any creditor fails to
disclose information required under Truth in Lending or Truth in Leasing, or gives
inaccurate information, or does not comply with the rules about credit cards or the
right to cancel, you as an individual may sue for actual damages — any money loss
you suffer. In addition, you can sue for twice the finance charge in the case of a
credit transaction, or, ifa lease isconcerned, 25 per cent of total monthly payments.
In either case, the least the court may award you is$100, and the most is $1,000. In
any successful lawsuit, you are entitled to court costs and attorney’sfees.
Class action suits are also permitted. A class action suit isone filed on behalf of
a group of people with similar claims.

Equal Credit Opportunity Act. If you think you can prove that a creditor
fias discriminated against you for any reason prohibited by the Act, you as an in­
dividual may sue for actual damages plus punitive damages — that is,damages for
the fact that the law has been violated — of up to $10,000 ifthe violation isproved
to have been intentional. In a successful lawsuit, the court will award you court costs
and a reasonable amount for attorney’sfees. Class action suits are also permitted.

Fair C redit Billing. A creditor who fails to comply with rules applying to
the correction of billing errors automatically forfeits the amount owed on the item in
question and any finance charges on it,up to a combined total of $50 — even ifthe
billwas correct. You as an individual may also sue for actual damages plus twice the
amount of any finance charges, but in any case not less than $100 nor more than
$1,000. You are also ehtitled to court costs and attorney’s fees in a successful law­
suit. Class action suits are also permitted.

Fair C redit R eporting. You may sue any credit reporting agency or
creditor for violating the rules about who may have access to your credit records
and correcting errors in your file. Again, you are entitled to actual damages, plus
punitive damages as the court may allow ifthe violation isproved to have been in­
tentional. In any successful lawsuit, you will also be awarded court costs and at­
torney’s fees. An unauthorized person who secures a credit report — or any e m ­
ployee of a credit reporting agency who supplies a credit report to unauthorized
persons — may be fined up to $5,000 or imprisoned for one year, or both.

GLOSSARY*

Annual Percentage Rate

Appraisal Fee
Asset
Balloon Payment
Billing Error
Collateral
Co-signer
Credit

Credit Bureau
Credit Card

40

Credit History

The cost of a loan over a full year expressed as a per­
centage.
_
The charge for estimating the value of property offered
as security.
,
Property that can be used to repay debt, such as stocks
and bonds or a car.
A large extra payment that may be charged at the end of
a loan or lease.
Any mistake in your monthly statement as defined by the
Fair Credit Billing Act.
Property offered to support a loan and subject to seizure
ifyou default.
Another person who signs your loan and assumes equal
liabilityfor it.
The promise to pay in the future in order to buy or bor­
row in the present; a sum of money due a person or a
business.
An agency that keeps your credit record.
Any card, plate, or coupon book used from time to time
or over and over again up to a certain limit to borrow
money or buy services on credit.
The record of how you’ve borrowed and repaid debts. .

Creditor

A person or business from whom you borrow or to whom
you owe money.

Credit-related Insurance Health, life, or accident insurance designed to pay the
outstanding balance of debt.
Credit Scoring System

A statistical system used to rate credit applicants ac­
cording to various characteristics relevant to credit­
worthiness.

Creditworthiness

Past and future abilityto repay debts.

Default

Failure to meet the terms of your credit agreement.

Disclosure

Information that must be given to consumers before they
sign a credit contract.

Elderly Applicant

As defined in the Equal Credit Opportunity Act, a person
62 or older.

Finance Charge

The total dollar amount paid to get a loan.

Joint Account

A credit account signed by two or more people so that all
can use the account and allassume liabilityto repay.

Judgmental System

A nonstatistical system for evaluating creditworthiness.

Late Payment

A payment made later than agreed upon in a credit con­
tract and on which additional interest may be charged.

Lessee

A person who signs a lease to get temporary use of
property.

Lessor

A company that provides temporary use of property
usually in return for periodic payment.

Liability on an Account

Legal responsibility to repay debt.

Open End Credit

A line of credit that may be used over and over again tp
to a certain borrowing limit, also called a charge account
or revolving credit.

Open End Lease

A lease which may involve a balloon payment based on
the value of the property when itisreturned.

Overdraft Checking
Account

A line of credit that allows you to write checks for more
than your actual balance, with an interest charge on the
overdraft.

Points

Some extra per cent of the amount borrowed, included
as part of your loan fee. Finance charges paid at the be­
ginning of a firstmortgage in addition to monthly interest;
each point equals one per cent of the amount financed.

Punitive Damages

Damages awarded by a court above actual damages as
punishment for a violation of law.

Rescission

The cancellation of a contract.

Security

Property pledged to the creditor in case of a default on a
loan; see collateral.

Security Interest

The creditor’s right to take property or a portion of prop­
erty offered as security.

Service Charge

A component of some finance charges, such as the fee
for triggering an overdraft checking account into use.

‘The regulations contain legal definitions of many of these terms.

Subject Index

P a ge

A dvertising .................................................................... . . . . 12
A g e ......................................................... ____ 16
A P R ....................................................... . . . .
6
Balloon Paym ent.................................... . . . . 11
Billing Errors ................................................................. . . . . 33
Cancellation (Rescission).................................... ______ 34
Cash Discounts...................................... . . . . 36
Com plaints............................................ . . . . 37
Credit A pplications................................ . . . . 13
Credit B u reau s...................................... . . 24, 27
Credit C a rd s .......................................... . . . . 35
Crediting of Paym ents .......................................... . . . . 33
Credit Laws
Consumer Leasing ............................................. ........
5
Equal Credit Opportunity................... ........ 13
Fair Credit Billing................................ . . . . 29
Fair Credit Reporting......................... ........ 25
Home Mortgage Disclosure....................... 18
12
Real Estate Settlement Procedures . . . . .
Truth in L e n d in g ............................... . . . .
5
Credit Records
Confidentiality.................................. ............. 28

CorrectingErrors.......................................... 27
Time Limits on Inform ation....................... 28
W o m e n ....................................................... 26
Credit Scoring...................................... ........ 15
Creditworthiness.................................. ........ 14
Defective Merchandise.......................... ........ 33
Denials of C re d it .................................................... ........ 23
Discrimination ...................................................... . . . 13,19
Division of Consumer A ffairs............... ........ 37
Enforcement Agencies......................... ........ 44
6
Finance C harge.................................... ........
Housing L o a n s .................................... ........ 18
Leasing................................................. ........ 10
Open End C redit.................................. ............. 8
Penalties............................................... ............. 38
Public Assistance .................................................... ............. 17
Reserve Banks.......................................................... ............. 45
Settlement C osts.................................. ........ 12
Women
Alimony and Support Payments. . . . ........ 20
. . . .
22
Change in Marital S ta tu s ................
........ 21
Credit Histories fo r ........................... . . . . 26
Information About Spouse............... . . . . 21
Separate Accounts ....................................... ........ 21

Federal Enforcement Agencies
National Banks
Comptroller of the Currency
Consumer Affairs Division
Washington, D.C. 20219
State M em ber Banks
Federal Reserve Bank serving the district in
which the State member bank is located.
N onm em ber Insured Banks
Federal Deposit Insurance Corporation Re
gional Director for the region in which the
nonmember insured bank is located.
Savings Institutions Insured by the FSLIC
and M em bers of the FH LB System (ex­
cept for Savings Banks insured by
F D IC )
The Federal Home Loan Bank Board Super­
visory Agent in the district in which the insti­
tution is located.
Federal Credit U nions
Regional Office of the National Credit Union
Administration serving the area in which the
Federal Credit Union is located.

44

Creditors Subject to Civil Aeronautics
Board
Director, Bureau of Enforcement
Civil Aeronautics Board
1825 Connecticut Avenue, N.W.
Washington, D.C. 20428

Creditors Subject to Interstate
m erce C om m ission
Office of Proceedings
Interstate Commerce Commission
Washington, D.C. 20523

Com ­
•

Creditors Subject to Pack ers and Stock­
yards Act
Nearest Packers and Stockyards Administra­
tion area supervisor.
Sm all Business Investment Com panies
U.S. Small Business Administration
1441 L Street, N.W.
Washington, D.C. 20416
Brokers and Dealers
Securities and Exchange Commission
Washington, D.C. 20549
Federal Land Banks, Federal Land Bank
A s s o c ia t io n s , F e d e ra l In te rm e d ia te
Credit Banks and Production Credit
A ssociation
Farm Credit Administration
490 L'Enfant Plaza, S.W.
Washington, D.C. 20578
Mortgage Bankers, C onsum er Finance
Com panies, and A ll Other Creditors
FTC Regional Office for region in which the
creditor operates or
Federal Trade Commission
Equal Credit Opportunity
Washington, D.C. 20580
.
Any complaints may be referred to the Civil
Rights Division of the Department of Justice,
Washington, D.C. 20530.

Federal Reserve Banks

BOARD OF G OVERNORS OF THE
FEDERAL RESERVE SYSTEM
20th and Constitution Avenue, N.W.
Washington, D.C. 20551
(202) 452-3000

D A LLAS, Texas
400 South Akard Street
Station K
ZIP 75222
(214) 651-6111

RICHMOND, Virginia
701 East Byrd Street
P.O. Box 27622
ZIP 23261
(804) 643-1250

A T L A N T A , Georgia
104 Marietta Street, N.W.
ZIP 30303
(404) 586-8500

K A N S A S CITY, Missouri
925 Grand Avenue
Federal Reserve Station
ZIP 64198
(816) 881-2000

SA N FRANCISCO, California
400 Sansome Street
P.O. Box 7702
ZIP 94120
(415) 544-2000

M INNEAPOLIS, Minnesota
250 Marquette Avenue
ZIP 55480
(612) 340-2345

ST. LOUIS, Missouri
411 Locust Street
P.O. Box 442
ZIP 63166
(314) 444-8444

BOSTON, Massachusetts
600 Atlantic Avenue
ZIP 02106
(617)973-3000
CH ICAG O , Illinois
230 South LaSalle Street
P.O. Box 834
ZIP 60690
(312) 322 5322

NEW YORK, New York
33 Liberty Street
Federal Reserve P.O. Station
ZIP 10045
(212) 791-5000

CLEVELAND, Ohio
1455 East Sixth Street
P.O. Box 6387
ZIP 44101
(2J 6) 241-2800

PH ILAD ELPH IA, Pennsylvania
100 North Sixth Street
P.O. Box 66
ZIP 19105
(215) 574-6000

45

Other Consumer Pamphlets Available

What Truth In Lending Means to You
IfYou Borrow To Buy Stock
How To File a Consumer Credit Complaint
The Equal Credit Opportunity Actand ... Age
The Equal Credit Opportunity Actand ... Women
The Equal Credit Opportunity Actand ...Doctors,Lawyers, Small Retailers
The Equal Credit Opportunity Actand ... Credit Rightsin
Housing
Fair Credit Billing
Truth in Leasing
A Guide to Federal Reserve Regulations
Annual Percentage Rate Tables
Government in the Sunshine/A Guide to Meetings of the Board of Governors of
the Federal Reserve System
IfYou Use a Credit Card

46

Copies of this handbook and other consumer pamphlets are available upon request
from Publications Services, Division of Administrative Services, Board of Gover­
nors of the Federal Reserve System, Washington, D.C. 20551.
.