Consumer Credit Protection Act

What It Means

The Consumer Credit Protection Act (CCPA) is one of the central consumer protection laws in the United States. Such laws are designed to safeguard American consumers against fraud, deception, and other unfair business practices. Whereas some consumer protection laws regulate the advertising, quality, and safety of the goods and services consumers buy, the Consumer Credit Protection Act is specifically aimed at regulating the consumer credit industry.

Credit is a kind of loan that makes it possible for consumers to buy things without paying for them outright, or all at once, at the time of the purchase. When a financial institution extends a line of credit or credit financing to a consumer, it means that the consumer is given permission to spend up to a predetermined amount of money and pay it back over time. Home mortgages, student financial aid, and credit cards are all examples of consumer credit. Financial institutions do not lend out this money for free; rather, they charge interest (a percentage of the money borrowed) and other fees for their services. Also, financial institutions do not lend money to every consumer who asks for it; there is always a risk that the borrower will not be able to repay it. Thus, credit lenders routinely conduct background checks on people who apply for credit, in order to verify that the applicant has a good history of paying his or her bills on time, can afford to repay the amount of money he or she has requested, and is generally a financially reliable person. A person’s credit report is a record of his or her financial history. If this report is deemed unfavorable by the lender, the applicant may be denied credit.

Consumer protection legislation is implemented both at the state and the federal level. The CCPA is a federal law that was passed by Congress in order to shield consumers from unfair lending practices. Contained within the CCPA are the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and other subchapters, each addressing specific credit-lending issues.

The CCPA is enforced by the Federal Trace Commission (FTC; a government agency whose mission it is to protect consumers from various kinds of abuses) and state consumer protection agencies.

When Did It Begin

Consumer credit was not widely available in the United States during the first half of the twentieth century. In the aftermath of World War II (1939–45), however, the nation experienced an unprecedented boom in population growth, home construction, and consumer spending. The 1950s also marked the birth of the consumer credit industry. The industry grew quickly, as more and more people began to rely on credit as a way to finance their lives. Without any existing regulations or government oversight, however, some lenders took advantage of borrowers by charging exorbitant interest rates or extending credit without fully disclosing the terms of the loan. It was not long before consumer advocates began to call for the government to establish guidelines to specify the difference between fair and unfair lending practices.

In 1968 Congress passed the Consumer Credit Protection Act, the umbrella term for what has become a series of laws governing consumer credit transactions.

More Detailed Information

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.

Recent Trends

The Consumer Credit Protection Act has been amended and updated several times since its inception. Among the most recent additions to the law is the Fair and Accurate Credit Transactions Act (FACTA), an amendment to the Fair Credit Reporting Act. Enacted by Congress in 2003, FACTA is aimed at protecting consumers against identity theft (the illegal act of stealing a person’s financial identity and using their credit to make purchases or otherwise profit). With the rapid growth of the Internet and electronic banking, identity theft has become an increasingly widespread criminal activity, which can cause serious damage to a person’s credit report. In order to help consumers monitor their own credit histories to make sure no one is impersonating them, FACTA stipulates that individuals must be able to obtain a free copy of their credit report from each of the major credit bureaus annually. The act also makes it possible for an individual to place a fraud alert on his or her credit history if he or she suspects that someone has stolen his or her identity.

Consumer Credit Protection Act (1969)

Richard Slottee

The Consumer Credit Protection Act (CCPA) (1969, P.L. 90-321) is the compendium of federal statutes found in Title 15 of the United States Code. Congress has amended the CCPA on several occasions by adding individual federal statutes, called subchapters, each focusing on a specific consumer issue.

SUBCHAPTERS OF CCPA

Subchapter I of CCPA is the Truth in Lending Act (TILA), becoming effective on July 1, 1969. Congress's primary purpose in adopting TILA was to ensure the meaningful disclosure of significant credit terms to consumers. The act requires those sellers, lenders, and lessors of personal property subject to the act to disclose certain credit terms with uniform terminology, location, and meaning in the contract, regardless of where the parties sign the agreement.

To effectuate TILA, The Federal Reserve Board adopted "Regulation Z." TILA, along with Regulation Z, contain provisions regarding the issuance of credit cards, liability for unauthorized use of credit cards, credit card billing error resolution procedures, notice and disclosure requirements for credit card solicitations, disclosure requirements for high-rate mortgages and reverse mortgages, and rescission provisions for various types of transactions in which a security interest is retained in a consumer's principal residence.

Subchapter II of the CCPA is the Restriction on Garnishment Act that became effective July 1, 1970. This law provides a maximum level of wage garnishment for any judgment debtor and prohibits an employer from terminating an employee based solely on the fact that the employee's wages have been garnished.

Subchapter II-A is the Credit Repair Organizations Act, enacted by Congress on September 30, 1996. This statute pertains to credit repair organizations that provide services to individuals with debts resulting from consumer credit transactions. The law prohibits certain types of deceptive practices, requires mandatory disclosures in any contract signed by a customer of a credit repair organization, and allows the customer three business days from the date the contract is signed to rescind the contract.

Subchapter III of CCPA is the Fair Credit Reporting Reform Act of 1996 (FCRA) also enacted on September 30, 1996. This law applies to consumer reporting agencies, users of consumer reports, and persons or businesses that report negative information to consumer reporting agencies. The purpose of the FCRA is to protect individual consumers from false, misleading, or obsolete credit information by requiring consumer-reporting agencies to adopt reasonable procedures with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information. The FCRA also requires consumer reporting agencies and users of consumer credit information to make certain disclosures to consumers affected by use of that information. Administrative enforcement of the FCRA rests primarily with the Federal Trade Commission that has promulgated Statements of General Policy regarding the various provisions of the FCRA.

Subchapter IV of CCPA is the Equal Credit Opportunity Act (ECOA) and became effective on March 23, 1977. The purpose of the ECOA is to prohibit discrimination in credit transactions on one or more of nine bases: race, color, religion, national origin, sex, marital status, age, the fact that all or part of income derives from a public assistance program, or the fact that an applicant has in good faith exercised any right under the compendium of statutes in the Consumer Credit Protection Act.

The ECOA applies to every aspect of credit transactions, from advertising of credit availability to the termination of existing credit. The act applies whether the credit is business or consumer credit, whether the obligation involves a finance charge or installment payments, or whether the person aggrieved by the discrimination is an individual or a business organization. The ECOA applies to the extension of credit where the right to defer payment of an obligation is granted. To enforce, interpret, and expand the ECOA, the Federal Reserve Board promulgated "Regulation B."

Subchapter V of CCPA is the Fair Debt Collection Practices Act (FDCPA) that became effective March 20, 1978. The purpose of the FDCPA is to eliminate unethical and abusive practices by debt collectors while engaged in the collection of consumer debts. The FDCPA attempts to accomplish this goal through a series of open-ended lists of prohibited activities. The Act applies to debt collectors who collect debts on behalf of third parties, but it does not apply to the collection efforts of original creditors. Under appropriate circumstances, an attorney is considered a debt collector subject to the provisions of the act. For example, an attorney who, in the regular course of business, represents creditors attempting to collect consumer debts would be considered a debt collector. The Federal Trade Commission issues official staff commentary that serves as official interpretations of the FDCPA.

Finally, Subchapter VI of CCPA is the Electronic Fund Transfers Act (EFTA), enacted on August 9, 1989. The purpose of the EFTA is to establish the basic rights, responsibilities, and obligations of consumers and financial institutions involved in transactions using electronic money transfer. The act provides limitations on the liability of consumers for the unauthorized use of access devices such as the codes, cards, or devices used to reach funds through an automated teller machine (ATM). It requires federal institutions to provide certain disclosures to consumers prior to issuing an access device, and sets out procedures for the investigation of the unauthorized use of an access device. To effectuate, interpret, and expand EFTA, the Federal Reserve Board adopted "Regulation E."

All of the laws in the Consumer Protection Act provide for the recovery of damages by the aggrieved consumer, and have jurisdiction in either state or federal court.

See also: Truth in Lending Act.

BIBLIOGRAPHY

Fonseca, John R. Consumer Credit Compliance Manual. 2nd ed. Rochester, N.Y.: Lawyers Co-operative Publishing, 1984.

INTERNET RESOURCE

The Federal Reserve Board Consumer Handbook to Credit Protection Laws. <http://www.federalreserve.gov/pubs/consumerhdbk/>

CONSUMER CREDIT PROTECTION ACT

The Consumer Credit Protection Act (15 U.S.C.A. § 1601 et seq. [1972]) is federal statute designed to protect borrowers of money by mandating complete disclosure of the terms and conditions of finance charges in transactions; by limiting the garnishment of wages; and by regulating the use of charge accounts.

The Consumer Credit Protection Act was the first general federal consumer protection legislation. Title I of this law, known as the truth-in-lending act (15 U.S.C.A. § 1601 et seq. [1968]), requires that the terms in consumer credit transactions be fully explained to the prospective debtors. Title VI of the Consumer Credit Protection Act, known as the fair credit reporting act (15 U.S.C.A. § 1601 et seq. [1978]), applies to businesses that regularly obtain consumer credit information for other businesses. Its purpose is to ensure that consumer reporting activities are conducted in a manner that is fair and equitable to the affected consumer.

Whereas the Consumer Credit Protection Act is federal law, states have also passed many statutes regulating consumer credit. For example, the uniform consumer credit code (UCCC) is an initiative that was drafted by the National Conference of Commissioners on Uniform State Laws in 1968 to help provide consistency among the variety of consumer credit laws that exist throughout state jurisdictions. The purpose of the UCCC is threefold: to protect consumers obtaining credit to finance transactions; to ensure that adequate credit is provided; and to generally govern the credit industry. As of 2003, the UCCC had been adopted in only seven states and Guam. Many states, however, continue to enact legislation that would provide consumer debtors similar protections contained in the provisions of the UCCC.