The Federal Consumer Credit Protection Act & How it Protects You

Consumer rights sound like it would be a given in America, but it wasn’t until the 1960’s that the government first acted to protect consumers.

It started with the Consumer Credit Protection Act of 1968, when Congress moved to shield consumers and their financial records from abuse. In the years following, other laws refined consumer rights, spelling out how the government can access bank customers’ information, how banks treat borrowers and the way banks handle customer deposits.

It all came to a head after the Great Recession in 2008, and out of that, the Consumer Financial Protection Bureau was formed, a new government agency dedicated to protecting consumers.

Today, there are countless laws, acts and regulations designed to protect consumers. The sheer number of laws can be overwhelming, but it is important that consumers understand their basic rights, so they can identify when those rights have been violated.

What Are Consumer Rights?

There are dozens of laws and acts that clearly define consumer rights, but they can be broadly explained by these four basic rights:

1. Right to Safety

Consumers have the right to be safe while using the product they purchased. This was put into law in 1972 and is enforced by the Consumer Protection Safety Commission, which regulates testing of products and created standards and warning labels.

2. Right to Information

An informed consumer will be able to make safer decisions. This right requires producers to provide accurate and truthful information in advertising, especially when it comes to health and medicine.

3. Right Choose

This is the right to choose between alternatives products. Anti-trust and unfair competition laws broadly fall into this category.

4. Right to be Heard

This is a promise by the government that they will listen to your complaint and act on it. You can submit a complaint to the Consumer Financial Protection Bureau or the U.S. Attorney General, Federal Trade Commission and Better Business Bureau. 

Right to Financial Privacy Act

The federal Right to Financial Privacy Act limits government access to personal financial records. Congress passed the law, which protects the confidentiality of personal financial records, in response to the 1976 Supreme Court’s United States v. Miller ruling which found that the consumer bank account records aren’t subject to constitutional privacy protection.

The 1978 law extended Fourth Amendment privacy protection to such information.

under the Financial Privacy Act, government officials normally must get written consent, or obtain a subpoena or search warrant in order to peruse your financial records. Before authorized searches can take place, investigators must serve notice on the account holder and wait 10 days for a response, or 14 days from the date a notification was mailed.

Importantly, the law only applies to the federal government and its officers, agents, agencies and departments. It doesn’t govern local or state governments, nor does it regulate the activities of private businesses.

The act identifies the sort of financial institutions it covers. Not only does it cover accounts held at traditional banks, but it pertains to records held by merchant credit-issuing entities. So, department store and gas station credit card accounts fall under the act’s regulations.

In 2002, the act was expanded to include an assortment of institutions, some of which might not commonly be considered financial. These include:
  • Depository institutions like banks, thrifts and credit unions
  • Money services businesses
  • Money-order issuers
  • Travelers’ check issuers
  • The U.S. Postal Service
  • Securities and futures brokerages
  • Commodity trading advisors
  • Casinos and card clubs

The law’s protections are limited to individuals and partnerships of five or fewer people. Companies and large groups like trade associations and labor unions aren’t covered. 

There are some exceptions to this rule:
  • Under specific circumstances, you may not be asked or told ahead of time that a government agency is viewing your files
  • A bank or other financial institution has the right to notify police if it has information about illegal activity
  • Your bank has the right to submit copies of your financial records to a court in order to prove a bankruptcy claim or attempt to collect a debt
  • A financial institution also may release your records if it removes all personal identifying information

The law does not apply if a supervisory or consumer rights agency needs records to investigate consumer complaints. In these instances, the records are used to scrutinize the financial institution and not you. 

Credit Practices Rule

The Federal Reserve Board adopted the Credit Practices Rule in 1985 to protect the rights of consumers in debt. It applies to consumer credit contracts made with creditors such as car dealers, department stores and financing companies. It doesn’t apply to real estate purchases, bank loans or contracts with loan associations, yet it covers mobile homes and houseboats. 

The rule blocks banks and their subsidiaries from putting certain provisions in consumer credit contracts. These restricted provisions include:
  • Any clause that either waives a borrower’s right to be notified of a court hearing or relinquishes his right to be heard in court – if a suit is brought alleging a debt default
  • Contract provisions that force a consumer to relinquish legal protections of his home, possessions or wages against seizure to satisfy a judgment – such a waiver is permitted if the property is given as collateral in the credit obligation
  • Any wording that gives banks the right to collect a consumer’s future wages or earnings to cover a loan default – some creditors may want you to agree to have money automatically deducted from your paychecks if you fall behind on loan or debt payments, but creditors are allowed to offer this option only under the condition that you can cancel automatic deductions at any time
  • Clauses that allow the lender to take the borrower’s household goods to cover a debt – the restriction applies only to items not purchased using the bank’s credit line
  • Ones that allow a practice known as pyramiding late fees – if you make your usual payment on time but fail to include the owed late fee, the creditor cannot charge you an additional late fee

The lender is also required notify any cosigners with an explanation of what taking on the debt entails. The notification must be provided in a separate document or in a credit obligation prior to the issuance of the loan or credit line.

The notice to cosigners must contain the following information:
  • Cosigners are required to pay the debt if the borrow can’t afford to. They need to be sure they have the ability to fulfill that responsibility.
  • Cosigners are responsible for the full amount including penalties such as late fees and collection costs.
  • The creditor may have a right to collect from cosigners before attempting to collect from the original borrower, depending on the state.
  • If the debt goes into default it can appear on the cosigners’ credit reports as well, and the creditor can try to sue and garnish their wages. 

Expedited Funds Availability Act

The Expedited Funds Availability Act, passed in 1987 and amended in 2010, spells out how long you must wait to withdraw money after depositing it in a bank account.

A 2010 amendment to the act detailed when certain amounts of a deposit are available to an account holder.

Deposits of cash, wire transfers and some government checks are available for withdrawal on next business day. So are checks drawn on the same institution where they are deposited and items like cashier’s checks, certified checks and teller’s checks.

So, if you make a deposit on Monday, the funds must be available on Tuesday. A deposit made during a weekend is treated as if it were made on Monday and is also available Tuesday.

In addition, up to $100 of the total of all checks deposited by one customer on a single business day will be available the next business day. 

For personal checks or checks over $100, the wait time may increase. Here are some of the wait rules:
  • Two business days after the deposit of all local checks
  • Five business days following the deposit on non-local checks
  • An additional one-day extension of time applies to checks deposited in accounts in Alaska, Hawaii, Puerto Rico or the Virgin Islands and drawn on a depository institution in another state, commonwealth or territory
  • Special available rules apply to deposits made at ATMs not owned and operated by the bank in which the deposit is made
  • Still longer waiting periods can apply to new accounts of more than $5,000, checks for amounts larger than $5,000, checks re-deposited after they are returned unpaid, any deposit account repeatedly overdrawn and any emergency condition that prevents losses due to fraud

EFAA also outlines four situations in which banks are allowed to place a hold on a deposit:

1. Statutory

Banks are required to make the first $200 of a deposit available on the next business day, the next $600 available on the second business day and the rest needs to be available on the third business day following the deposit.

2. Large Deposit

This gives banks more time for deposits over $5,000. The rules are the same as the statutory for the first two days, but on the third business day $4,800 needs to be available and the rest of the deposit becomes available seven days after the deposit.

3. New Account

Accounts that are less than 30 days old can have a nine-day hold on deposits.

4. Exception

This is used for overdrawn accounts, if the bank suspects the check might be fraudulent or if the computer system goes down. Exception holds are lifted seven days after the deposit.

If a bank fails to follow the rules, it can be sued. A one-year limitation period applies, and a bank cannot be held civilly liable for a true error. Liability can’t exceed the amount of the check that gave rise to a loss. In some cases, other damages might apply.

Other Consumer Credit Laws

As mentioned, many laws have been passed to look out for the rights of consumers. Here is a Top 10 list of those that might apply to you.

Fair Debt Collection Practices Act

Debt collection agencies are banned from threatening, harassing and inappropriately contacting someone that owes money.

Consumer Credit Protection Act

Lenders are regulated to ensure they adhere to standardized practices that are fair and honest. For example, the act deals with credit reports and other aspects of debt and credit.

Equal Credit Opportunity Act

Banks and credit card companies are required to make credit equally available to all credit-worthy applicants regardless of race, color, religion, national origin, sex, marital status, age or because that person receives public assistance.

Truth in Lending Act

Lenders are required to give information on the true cost of credit and explain the terms in a way that is easy to understand.

The Fair Credit Billing Act

Provides guidelines to resolve disputes over billing statements, unauthorized purchases, errors with the date or amount charged, goods or services that were not fulfilled and other issues.

Fair and Accurate Credit Transactions Act

Gives consumers the right to one free credit report from each of the three main credit reporting agencies each year.

The Electronic Funds Transfer Act

This applied the same protections given to traditional means of purchasing to the new forms of transactions that used new technologies.

Fair Credit Reporting Act

Ensures that the information gathered and distributed by credit reporting agencies is fair and accurate.

The Credit Repair Organizations Act

Companies that claim they can repair your credit report have to do so in an honest way. They have to be truthful in the services they say they can provide consumers as well as the information they give to credit bureaus.

The Credit CARD Act

Also referred to as the Credit Card Bill of Rights, this law makes sure credit card companies provide fair interest rates and penalties and transparent notifications.

These are just a few of the provisions relating to consumer financial rights. To learn more about your credit and consumer rights, read about the Federal Trade Commission, or visit their website.

Bill Fay

Bill Fay is a journalism veteran with a nearly four-decade career in reporting and writing for daily newspapers, magazines and public officials. His focus at Debt.org is on frugal living, veterans' finances, retirement and tax advice. Bill can be reached at bfay@debt.org.

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