A good credit rating is very important. Businesses inspect your credit history when they evaluate your applications for credit, insurance, employment, and even leases. They can use it when they choose to give or deny you credit or insurance, provided you receive fair and equal treatment. Sometimes, things happen that can cause credit problems: a temporary loss of income, an illness, even a computer error. Solving credit problems may take time and patience, but it doesn’t have to be an ordeal.

The Federal Trade Commission (FTC) enforces the credit laws that protect your right to get, use and maintain credit. These laws do not guarantee that everyone will receive credit. Instead, the credit laws protect your rights by requiring businesses to give all consumers a fair and equal opportunity to get credit and to resolve disputes over credit errors. This brochure explains your rights under these laws and offers practical tips to help you solve credit problems.

Your Credit Report

Your credit report contains information about where you live, how you pay your bills, and whether you’ve been sued, arrested, or filed for bankruptcy. Consumer reporting companies sell the information in your report to businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The federal Fair Credit Reporting Act (FCRA) promotes the accuracy and privacy of information in the files of the nation’s consumer reporting companies. Under the Fair Credit Reporting Act:

• You have the right to receive a copy of your credit report. The copy of your report must contain all the information in your file at the time of your request.
  
  • Each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – is required to provide you with a free copy of your credit report, at your request, once every 12 months. The companies are rolling this out across the country during a nine-month period. By September 2005, consumers from coast to coast will have access to a free annual credit report if they ask for it. For details, see Your Access to Free Credit Reports at ftc.gov/credit.
    
  • Under federal law, you’re also entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
    
  • Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
    
• You have the right to know who asked for your report within the past year – two years for employment related requests.
  
• If a company denies your application, you have the right to the name and address of the consumer reporting company they contacted, provided the denial was based on information given by the consumer reporting company.
  
• If you question the accuracy or completeness of information in your report, you have the right to file a dispute with the consumer reporting company and the information provider (that is, the person, company, or organization that provided information about you to the consumer reporting company). Both the consumer reporting company and the information provider are obligated to investigate your claim, and responsible for correcting inaccurate or incomplete information in your report. For details, see How to Dispute Credit Report Errors at ftc.gov/credit.
  
• You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

Your Credit Application

When creditors evaluate a credit application, they cannot engage in discriminatory practices.

The Equal Credit Opportunity Act (ECOA) prohibits credit discrimination on the basis of sex, race, marital status, religion, national origin, age, or receipt of public assistance. Creditors may ask for this information (except religion) in certain situations, but they may not use it to discriminate against you when deciding whether to grant you credit.

The ECOA protects consumers who deal with companies that regularly extend credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Everyone who participates in the decision to grant credit, including real estate brokers who arrange financing, must follow this law. Businesses applying for credit also are protected by this law. Under the Equal Credit Opportunity Act:

• You cannot be denied credit based on your race, sex, marital status, religion, age, national origin, or receipt of public assistance.
  
• You have the right to have reliable public assistance considered in the same manner as other income.
  
• If you are denied credit, you have a legal right to know why.

For details, see Equal Credit Opportunity at ftc.gov/credit.

Your Credit Billing and Electronic Fund Transfer Statements

It is important to check credit billing and electronic fund transfer account statements regularly because these documents may contain mistakes that could damage your credit status or reflect improper charges or transfers. If you find an error or discrepancy, notify the company and dispute the error immediately. The Fair Credit Billing Act (FCBA) and Electronic Fund Transfer Act (EFTA) establish procedures for resolving mistakes on credit billing and electronic fund transfer account statements, including:

• charges or electronic fund transfers that you – or anyone you have authorized to use your account – have not made;
  
• charges or electronic fund transfers that are incorrectly identified or show the wrong date or amount;
  
• math errors;
  
• failure to post payments, credits, or electronic fund transfers properly;
  
• failure to send bills to your current address – provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends;
  
• charges or electronic fund transfers for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.

The FCBA generally applies only to “open end” credit accounts – credit cards and revolving charge accounts, like department store accounts. It does not apply to loans or credit sales that are paid according to a fixed schedule until the entire amount is paid back, like an automobile loan. The EFTA applies to electronic fund transfers, like those involving automatic teller machines (ATMs), point-of-sale debit transactions, and other electronic banking transactions.

For details, see Fair Credit Billing and A Consumer’s Guide to E-Payments at ftc.gov/credit.

Your Debts and Debt Collectors

You are responsible for your debts. If you fall behind in paying your creditors, or if an error is made on your account, you may be contacted by a “debt collector.” A debt collector is any person, other than the creditor, who regularly collects debts owed to others, including lawyers who collect debts on a regular basis. You have the right to be treated fairly by debt collectors.

The Fair Debt Collection Practices Act (FDCPA) applies to personal, family, and household debts. This includes money you owe for the purchase of a car, for medical care, or for charge accounts. The FDCPA prohibits debt collectors from engaging in unfair, deceptive, or abusive practices while collecting these debts. Under the Fair Debt Collection Practices Act:

• Debt collectors may contact you only between 8 a.m. and 9 p.m.
  
• Debt collectors may not contact you at work if they know your employer disapproves.
  
• Debt collectors may not harass, oppress, or abuse you.
  
• Debt collectors may not lie when collecting debts, such as falsely implying that you have committed a crime.
  
• Debt collectors must identify themselves to you on the phone.
  
• Debt collectors must stop contacting you if you ask them to do so in writing.

For details, see Fair Debt Collection at ftc.gov/credit.

Solving Your Credit Problems

Your credit report can influence your purchasing power, as well as your opportunity to get a job, rent or buy an apartment or a house, and buy insurance. When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

If you are having problems paying your bills, contact your creditors immediately. Try to work out a modified payment plan with them that reduces your payments to a more manageable level. Don’t wait until your account has been turned over to a debt collector.

Here are some additional tips for solving credit problems:

• If you want to dispute a credit report, bill or credit denial, write to the appropriate company and send your letter “return receipt requested.”
  
• When you dispute a billing error, include your name, account number, the dollar amount in question, and the reason you believe the bill is wrong.
  
• If in doubt, request written verification of a debt.
  
• Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them if you dispute a credit bill or report. Send copies only. It may take more than one letter to correct a problem.
  
• Be skeptical of businesses that offer instant solutions to credit problems: There aren’t any.
  
• Be persistent. Resolving credit problems can take time and patience.
  
• There is nothing that a credit repair company can charge you for that you cannot do for yourself for little or no cost.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit.

Have you ever been billed for merchandise you returned or never received? Has your credit card company ever charged you twice for the same item or failed to credit a payment to your account? While frustrating, these errors can be corrected. It takes a little patience and knowledge of the dispute settlement procedures provided by the Fair Credit Billing Act (FCBA).

The law applies to "open end" credit accounts, such as credit cards, and revolving charge accounts - such as department store accounts. It does not cover installment contracts - loans or extensions of credit you repay on a fixed schedule. Consumers often buy cars, furniture and major appliances on an installment basis, and repay personal loans in installments as well.

What types of disputes are covered?

The FCBA settlement procedures apply only to disputes about "billing errors." For example:

• unauthorized charges. Federal law limits your responsibility for unauthorized charges to $50;
• charges that list the wrong date or amount;
• charges for goods and services you didn't accept or weren't delivered as agreed;
• math errors;
• failure to post payments and other credits, such as returns;
• failure to send bills to your current address - provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends; and
• charges for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.

To take advantage of the law's consumer protections, you must:

• write to the creditor at the address given for "billing inquiries," not the address for sending your payments, and include your name, address, account number and a description of the billing error.
• send your letter so that it reaches the creditor within 60 days after the first bill containing the error was mailed to you.

Send your letter by certified mail, return receipt requested, so you have proof of what the creditor received. Include copies (not originals) of sales slips or other documents that support your position. Keep a copy of your dispute letter.

The creditor must acknowledge your complaint in writing within 30 days after receiving it, unless the problem has been resolved. The creditor must resolve the dispute within two billing cycles (but not more than 90 days) after receiving your letter.

What happens while my bill is in dispute?

You may withhold payment on the disputed amount (and related charges), during the investigation. You must pay any part of the bill not in question, including finance charges on the undisputed amount.

The creditor may not take any legal or other action to collect the disputed amount and related charges (including finance charges) during the investigation. While your account cannot be closed or restricted, the disputed amount may be applied against your credit limit.

Will my credit rating be affected?

The creditor may not threaten your credit rating or report you as delinquent while your bill is in dispute. However, the creditor may report that you are challenging your bill. In addition, the Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants who exercise their rights, in good faith, under the FCBA. Simply put, you cannot be denied credit simply because you've disputed a bill.

What if...

...the bill is incorrect?

If your bill contains an error, the creditor must explain to you - in writing - the corrections that will be made to your account. In addition to crediting your account, the creditor must remove all finance charges, late fees or other charges related to the error.

If the creditor determines that you owe a portion of the disputed amount, you must get a written explanation. You may request copies of documents proving you owe the money.

...the bill is correct?

If the creditor's investigation determines the bill is correct, you must be told promptly and in writing how much you owe and why. You may ask for copies of relevant documents. At this point, you'll owe the disputed amount, plus any finance charges that accumulated while the amount was in dispute. You also may have to pay the minimum amount you missed paying because of the dispute.

If you disagree with the results of the investigation, you may write to the creditor, but you must act within 10 days after receiving the explanation, and you may indicate that you refuse to pay the disputed amount. At this point, the creditor may begin collection procedures. However, if the creditor reports you to a credit bureau as delinquent, the report also must state that

you don't think you owe the money. The creditor must tell you who gets these reports.

...the creditor fails to follow the procedure?

Any creditor who fails to follow the settlement procedure may not collect the amount in dispute, or any related finance charges, up to $50, even if the bill turns out to be correct. For example, if a creditor acknowledges your complaint in 45 days - 15 days too late - or takes more than two billing cycles to resolve a dispute, the penalty applies. The penalty also applies if a creditor threatens to report - or improperly reports - your failure to pay to anyone during the dispute period.

An important caveat

Disputes about the quality of goods and services are not "billing errors," so the dispute procedure does not apply. However, if you buy unsatisfactory goods or services with a credit or charge card, you can take the same legal actions against the card issuer as you can take under state law against the seller.

To take advantage of this protection regarding the quality of goods or services, you must:

• have made the purchase (it must be for more than $50) in your home state or within 100 miles of your current billing address;

• make a good faith effort to resolve the dispute with the seller first.

The dollar and distance limitations don't apply if the seller also is the card issuer - or if a special business relationship exists between the seller and the card issuer.

Other billing rights

Businesses that offer "open end" credit also must:

• give you a written notice when you open a new account - and at certain other times - that describes your right to dispute billing errors;
• provide a statement for each billing period in which you owe - or they owe you - more than one dollar;
• send your bill at least 14 days before the payment is due - if you have a period within which to pay the bill without incurring additional charges;
• credit all payments to your account on the date they're received, unless no extra charges would result if they failed to do so. Creditors are permitted to set some reasonable rules for making payments, say setting a reasonable deadline for payment to be received to be credited on the same date; and
• promptly credit or refund overpayments and other amounts owed to your account. This applies to instances where your account is owed more than one dollar. Your account must be credited promptly with the amount owed. If you prefer a refund, it must be sent within seven business days after the creditor receives your written request. The creditor must also make a good faith effort to refund a credit balance that has remained on your account for more than six months.

Suing the creditor

You can sue a creditor who violates the FCBA. If you win, you may be awarded damages, plus twice the amount of any finance charge - as long as it's between $100 and $1,000. The court also may order the creditor to pay your attorney's fees and costs.

If possible, hire a lawyer who is willing to accept the amount awarded to you by the court as the entire fee for representing you. Some lawyers may not take your case unless you agree to pay their fee - win or lose - or add to the court-awarded amount if they think it's too low.

Reporting FCBA violations

The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

• “Credit problems? No problem!”
  
• “We can erase your bad credit — 100% guaranteed.”
  
• “Create a new credit identity — legally.”
  
• “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”
  

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.

The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:

• companies that want you to pay for credit repair services before they provide any services.
  
• companies that do not tell you your legal rights and what you can do for yourself for free.
  
• companies that recommend that you not contact a credit reporting company directly.
  
• companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
  
• companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.
  

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

• You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
  
• Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
  The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/credit. Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/credit.
  Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
  
• You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.
  

STEP ONE

Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one on page 6. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reportincompany also must send you written notice that includes the name, address, and phone number of the information provider. If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

STEP TWO

Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct – that is, if the information is found to be inaccurate – the information provider may not report it again.

For more information, see How to Dispute Credit Report Errors at ftc.gov/credit.

Reporting Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

For more information, see Building a Better Credit Report at ftc.gov/credit.

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

• make false claims about their services
  
• charge you until they have completed the promised services
  
• perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees
  

• the payment terms for services, including their total cost
  
• a detailed description of the services to be performed
  
• how long it will take to achieve the results
  
• any guarantees they offer
  
• the company’s name and business address
  

Have You Been Victimized?

Many states have laws regulating credit repair companies. State law enforcement officials may be helpful if you’ve lost money to credit repair scams.

If you’ve had a problem with a credit repair company, don’t be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.

Need Help? Don’t Despair

Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.
For more information, see Knee Deep in Debt and Fiscal Fitness: Choosing a Credit Counselor at ftc.gov/credit.

Do-It-Yourself Check-Up

Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically

• because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.
  
• to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
  
• to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing)

"Children, Dogs, Cats, and Moose are Getting Credit Cards." Federal Reserve Chairman Alan Greenspan, February 23, 2000 Testimony before the U.S. Senate Banking Committee"

Credit card issuers mailed a record 3.54 billion solicitations in 2000. The response rate was a low 0.6%.(2) Credit card issuers seeking to increase the response rate for their solicitations among this glut of credit card offers must be careful to avoid solicitations which could be attacked as deceptive or misleading. Recent challenges by regulators and consumers have determined that technical disclosures in fine print are not enough. If the overall impression created by solicitation is arguably deceptive, the result is likely to be litigation or unwanted attention from regulatory authorities. This article discusses a sampling of recent actions, settlements and rulings regarding credit card litigation.

OCC ENFORCEMENT ACTIONS

In the last year, the Office of the Comptroller of the Currency (OCC) conducted enforcement actions resulting in consent orders with Providian National Bank and Direct Merchants Credit Card Bank, N.A. The Providian Consent Decree resulted in restitution payments of over $330 million, along with substantial limitations on future practices.(3) The Direct Merchants action resulted in restitution approximating $3 million, as well as significant limitations on future practices.(4) The OCC action against Providian addressed several aspects of Providian's practices. These included its practice of offering a so-called "guaranteed savings rate" on balance transfers, selling certain add-on products without full and fair disclosure including credit protection, and other fee-based products referred to as Credit Connections Plus, Drive Pro, Drivers Protection Plan, Price Pro and Providian Health Advantage. The OCC action against Providian also addressed late fee issues, performance based pricing, a product called "real check" and case advance checks, among other things.

The OCC recovery from Direct Merchants is not as large as from Providian, but the consent decree is still significant in the manner in which it addressed the marketing practices of Direct Merchants bank. The consent order requires the bank to cease certain practices in the marketing of the bank's credit cards and to pay approximately $3.2 million in restitution to 62,000 consumers. These practices involved the bank's conduct of "downselling" consumers by prominently marketing to consumers one package of credit card terms, but then approving those consumers only for accounts with less favorable terms, and touting the approved account in a fashion designed to mislead the customer about the fact he or she had been "downsold." The OCC concluded that the bank's conduct constituted unfair and deceptive practices in violation of the Federal Trade Commission Act, and was unsafe and unsound within the meaning of the Federal Deposit Insurance Act. The OCC also concluded that the Bank violated the Truth in Lending Act (TILA) and Regulation A by failing to disclose certain application or processing fees as "finance charges," and by failing to disclose in a table the rate, fee, and cost information for any account for which the consumer may be approved.

"OPTIONAL" CREDIT INSURANCE DISCLOSURE DEEMED INADEQUATE

According to a ruling in federal court in Florida, Chase Manhattan Bank violated the Truth in Lending Act by failing to properly disclose bundled credit insurance products.(5) Chase Manhattan marketed a credit card with Wal-Mart stores. The application included a package of credit insurance called "LifePlus." The package consisted of life, disability, involuntary unemployment and leave of absence insurance coverages. The application included a place for the applicant's initials and disclosed that "LifePlus is optional."The Court analyzed the plaintiff's claims under Sections 1601(a) and 1605(b) of the Truth in Lending Act ("TILA"). Section 1605(b) provides: "Charges or premiums for credit life, accident, or health insurance written in connection with any consumer credit transaction shall be included in the finance charge unless (1) the coverage of the debtor by the insurance is not a factor and the approval of the credit of the extension of credit, in this fact is clearly disclosed in writing to the person for applying or obtaining the extension of credit; and (2) in order to obtain the insurance in connection with the extension of credit, the person to whom the credit is extended must give specific affirmative written indication of his desire to do so afer written disclosure to him of the cost thereof."

The Court rejected the plaintiff's argument that the statute required the solicitation to include the same words used in the statute by stating that the applicant's decision on whether or not to opt for the package of credit insurance "is not a factor" in the bank's decision on whether to issue the card. In rejecting plaintiff's argument, the Court stated that, the plaintiff "has not articulated any reason why Section 1605(b)(1), unlike all the other disclosure provisions of TILA, was intended as other than a guideline, the practical implication of which Congress deliberately elected to leave to the Federal Reserve Board."(6)

However, the Court found that the term "optional" when used to describe the insurance packages, without more, was susceptible to two equally reasonable interpretations. "This lack of clarity . . . is inconsistent with the meaningful disclosure requirement of TILA Section 1601(a) and 1605(b) because a consumer who believes that Chase's decision to issue him a Mastercard may be influenced by the fact that he agreed to enroll in LifePlus has not made a truly voluntary decision to participate in the LifePlus program."(7)

The District Court concluded that Chase's disclosure was not meaningful because it failed to convey Chase would not consider the consumer's decision whether to enroll in its credit approval process in issuing a card. The Court held Chase violated TILA by failing to include and disclose the cost of the credit insurance as part of the finance charge. The Court granted plaintiff summary judgment on his TILA claim.

CHALLENGES TO OTHER FEE-BASED PRODUCTS

In the Providian Bank Credit Card cases, the OCC and the class action plaintiffs challenged Providian's "Credit Protection" product, which is sold not as insurance but as a deferred payment program. The OCC and class plaintiffs also challenged Providian's sale of other fee-based products. The allegations in the class actions asserted that Providian sold its fee-based products without providing full disclosure of the terms, conditions and limitations. The class plaintiffs also asserted that the products were initially sham or worthless products. No decision on the merits of the class plaintiff's claims was rendered by court. The San Francisco Superior Court held two preliminary hearings on class certification and scheduled a final hearing for the Spring of 2001. In December 2000, the parties reached a settlement which provided for Providian to pay $105 million in cash refunds, credits and additional benefits to the effected cardholders (in addition to the restitution discussed above in connection with the OCC settlement), in exchange of release of class action claims. The Superior Court granted preliminary approval of the settlement and scheduled a final hearing for the Fall of 2001.

In February and March, multiple class action complaints were filed against Capital One Bank and Capital One and its parent, Capital One Financial Corporation in Federal Court in California.(8) The claims against Capital One assert improper disclosure of the fees and finance charges related to its fee-based products. Capital One's fee-based products include the following:

• Payment protection and "account balance coverage" are programs which are advertised as protecting cardholders from interest charges on their credit cards in the event they become disabled, unemployed or die, among other things;
• "Autovantage Gold," which promises members coupons and discounts for automotive products and maintenance;
• "Hotline," a credit card registration service which purportedly protects cardholders from fraudulent charges if their credit cards are lost or stolen, and provides emergency cash and airline tickets, change of address notification and lost or stolen card notification, valuable property and document registration, a messaging service, and car rental discounts;
• "Privacy Guard," which promises members protection against credit card fraud and identify theft and provides access to credit reports from credit agencies; and
• "Accident Protection Plan," which promises coverage in the event of accidental death or dismemberment.

The plaintiffs in the Capital One litigation assert, among other things, that Capital One's payment protection and account balance coverage are actually guarantees or insurance that protect Capital One and therefore must be included in the calculation of the finance charge and as part of the historical annual percentage rate. Additionally, the plaintiffs assert that the products sold by Capital One are essentially worthless or, in any event, the material limitations on the products are not fully disclosed to cardholders at the time of the initial sale.

Similar allegations are pending against Direct Merchants Credit Card Bank in actions filed in state court in Minnesota and federal Court in Arizona in connection with Direct Merchant's fee-based products.

RECENT DECISIONS AND ACTIONS REGARDING PROMOTIONAL RATES

Broder v. MBNA, New York Law Journals (N.Y. Co. March 2, 2000). Plaintiff alleged that he received a solicitation from MBNA offering a 6.9% APR on cash advances for a six month period. Plaintiff alleged that MBNA breached the agreement to provide a special low APR on cash advances for the stated period by using a payment allocation method that failed to provide the low APR that had been promised.

Plaintiffs' cash advances subject to the promotional 6.9% APR were reduced by the amount of his monthly payments while his purchase balances remained wholly unpaid and continued to accrue finance charges at a much higher APR of 17.9%.

MBNA relied on the provision in the Cardholder Agreement stating that the payments "will be allocated in a manner we determine" and the statements in the solicitation materials that MBNA may allocate payments first to the cash advance balance and then to the purchase balance.

Even though the court found that "MBNA did not breach the literal terms of the agreement" with the plaintiff, nevertheless the use of ambiguous language and small print led the court to deny MBNA's motion for summary judgment on the claim of a breach of the implied covenant of good faith.(9) For the same reasons, the court denied summary judgment on the claims arising under Sections 349 and 350 of the N.Y. General Business Law, relating to deceptive acts and practices and false advertising. The court found that "the complaint adequately alleges conduct that is consumer-oriented and which has a broad impact on consumers at large."(10) In addition, the court granted class certification.

DeMando v. Morris, 206 F.3d 1300 (9th Cir. 2000). Plaintiff received a solicitation letter from Capital One Bank in June 1995 that stated: "Receive a 10.9% Lifetime APR!" and "Simply Transfer $250 or more to your Capital One card and receive a low fixed APR of 10.9% for life!" In August 1997, Capital One mailed to plaintiff a Notice of Change in terms informing her that her APR would be increased to 14.99% effective October, 1997. Plaintiff filed a complaint alleging violations of TILA, the California Consumer Legal Remedies Act, breach of contract, unfair competition, fraud and negligent misrepresentation. On the very next day, Capital One sent a letter to plaintiff to inform her that it was voluntarily rescinding the proposed increase in her APR.

The Ninth Circuit held that the trial court erred in granting summary judgment for Capital One on plaintiffs' claims that the August 1997 Notice of Change of Terms violated TILA. The court found that "because the Notice contained terms that were in violation of the credit agreement, the Notice violated Regulation Z."(11) In particular, the Court of Appeals found that the Notice violated the provision in Regulation Z requiring that all disclosures issued in connection with open-ended credit arrangements, shall reflect the terms of the legal obligation of the parties.(12) Even though the proposed Change in Terms had not been implemented, and therefore plaintiff had not suffered any actual damages, nevertheless plaintiff "has suffered the loss of a statutory right to disclosure" and therefore could pursue a claim for statutory damages under TILA.(13) However, the court affirmed the entry of summary judgment for Capital One on all the other claims in the Complaint.

Chavers v. Fleet Bank. Plaintiffs have brought class actions against Fleet in state court in Rhode Island and federal court in Philadelphia. The gravamen of these complaints is that Fleet induced consumers to become cardmembers by mailing them solicitations which promised either no annual fee or low APR's, but then imposed an annual fee or raised the APR after the accounts were opened. The actions claim violations of TILA, state consumer protection statutes, breach of contract, and unjust enrichment. The federal actions were dismissed on the ground that TILA was not violated because the statements in the solicitation were literally true. The state court actions are proceeding before the newly created Business Court in Providence, Rhode Island.

OTHER SIGNIFICANT SETTLEMENTS

Providian Financial Corp. Class actions filed in California state court and federal court in Pennsylvania had alleged numerous instances of improper marketing practices and imposition of unwarranted fees on consumers' credit card accounts. The alleged practices included the imposition of charges for "add on" products that consumers had not requested or had been misled into purchasing; failure to make timely posting of customer payments, resulting in the imposition of late fees and increases in APR's; failure to provide credit line increases in accordance with the terms of the cardholder agreement.

In June 2000, Providian agreed to pay $305 million pursuant to a settlement reached with the Office of the Comptroller of the Currency, the California Attorney General and the San Francisco District Attorney's Office.

The settlement was significant not only because of the size of he monetary penalty, but also because it represented "the first time a bank regulatory agency used the Federal Trade Commission Act to bring an action for unfair and deceptive business practices."(14)

The settlement with the government regulators did not release the claims of the members of the California and federal class actions. In December 2000, Providian entered into a settlement of the class actions for $105 in cash and credits.

First USA. In a class action filed in federal court in East St. Louis, Ill., plaintiffs alleged that First USA improperly assessed late fees to customers who had paid on time, in violation of TILA, the cardholder agreement and state laws. In November 2000, a settlement was entered into for approximately $40 million.

Citibank. Plaintiffs brought a class action alleging credit card customers had been forced to pay late fees and extra interest even in instances where monthly payments had arrived on time. In August 2000, Citibank agreed to pay $45 million to settle the case.

Chase Manhattan Corp. Plaintiffs brought a class action alleging late posting of customer payments, resulting in unjustified late fees and increased finance charges. In September 2000, Chase agreed to a settlement of approximately $22.2 million.

1. Robert S. Green is a principal in the San Francisco, California firm of Green Welling LLP.
2. Wallstreet Journal, March 19, 2001
3. OCC Consent Order, In re Matter of Providian Bank, Tilton, New Hampshire, June 28, 2000; Providian Credit Card Cases, Judicial Council Coordinated Proceeding No. 4085 Super. Ct. of San Francisco, CA
4. OCC Consent Order, In the Matter of Direct Merchants Credit Card Bank, N.A., Scottsdale, Arizona, May 3, 2001
5. London, et al. v. Chase Manhattan Bank, et al., No. 99-1298-Civ., S.D. Fla. March 20, 2001
6. Id.
7. Id.
8. Martin et al. v. Capital One Bank, Case No. C01-0079-PJH; Gendel v. Capital One Bank, et al., Case No. C01-0079-PJW, N.D. CA
9. Broder v. MBNA, New York Law Journals (N.Y. Co. March 2, 2000)
10. Id.
11. 206 F.3d at 1301
12. 12 C.F.R. §226.5(c)
13. Id. at 1303
14. American Banker, June 29, 1000, "Providian's $300M Pact with Regulators is One for the Books."

Chairman Frank Letter to Financial Regulators on Compliance to the Social Security Act

“WE’RE GOING TO TAKE YOUR MOMMY AWAY FOREVER”:
CONSUMER GROUPS DECRY DEBT COLLECTION HORROR STORIES

Lawyers at two consumer groups -- the National Consumer Law Center and the National Association of Consumer Advocates -- lambasted the debt collection industry for engaging in abusive tactics and for pursuing consumers even when shown that they have the wrong person or the debt has been paid, in Comments and Recommendations filed yesterday with the Federal Trade Commission. “Debt collectors believe they can make more money when they intimidate, threaten criminal prosecution, harass, and collect fees and charges far in excess of the real debt. Even more startling, debt buyers have learned to work the system to win judgments and coerce payments even when they have the wrong person or lack any evidence that the consumer owes the debt,” NCLC and NACA wrote.

“I thought I had heard it all,” said John Fugate, a Texas consumer attorney whose story was described in the comments. The debt collector “told the nine year old child of my college friend, who is the victim of identity theft, that they were going to take her mommy away forever.” Over 30 other horror stories from 17 states, along with the Comments, are available on NCLC’s website. Several consumers have also provided their own stories, which are available on the FTC’s website.

The Fair Debt Collection Practices Act was passed in 1977 to prohibit such abusive debt collection tactics. The FTC has solicited comments on the state of debt collection for a workshop October 10-11, which will take a 30-year look back at how well the Act has worked. Though the Act has had some success, “the Senate report describing the problems that prompted Congress to pass the law in 1977 could have been written today,” said Ira Rheingold, Executive Director of NACA.

“The phenomenal growth of the debt buyer industry – which did not exist 30 years ago – has also increased the abuses tremendously,” said Lauren Saunders, Managing Attorney of NCLC’s DC office. “Debts that may be a decade or more old are now sold in bundles to debt buyers for pennies on the dollar. Debt buyers then file cases by the thousands in overworked courts. The courts typically enter default judgments even if the collector has no proof that the consumer owed the debt, that the amount owed is legal and correct, or even that the debtor being sued is the right person,” she added. Debts are often sold from one collector to the next, and the collector rarely keeps critical information such as proof of the original debt, a record of payments made, or efforts the consumer made with the previous collector to resolve a dispute.

“It is an Alice in Wonderland nightmare for consumers to find their old records, convince the debt collector that they have made a mistake, take time off work to go to court, and then have to begin the process all over again after the debt is sold to the next collector,” said Dick Rubin, a consumer attorney in New Mexico.

The comments also point out that, in a marked change from 1977, credit is often pushed on people who are already in strained financial circumstances. “Frequently, creditors make their profits not from the regular repayment of the debt, but from the piling on of abusive fees and penalties. From the lack of underwriting to creditor practices that encourage default, debt collection becomes inevitable,” the comments said. The comments describe abuses with credit cards, mortgage servicing, and payday loans.