CONSUMER CREDIT LAWS

A series of statutes and regulations to govern credit transactions have been enacted because of the widespread use of credit by consumers. These credit laws are designed to increase consumers' knowledge before they enter into credit transactions and to give consumers certain rights. The laws are also intended to assure that consumers are treated fairly and without discrimination throughout the course of a credit transaction.

If your business extends credit to its customers, you'll need to comply with federal consumer credit laws.

Here's an introduction to the relevant federal laws:

1. The Truth in Lending Act

This statute attempts to ensure that customers know what they're getting into. It requires you to disclose your exact credit terms to credit applicants and regulates how you advertise consumer credit. Among the items you must disclose to a consumer who buys on credit are the following:

The monthly finance charge

The annual interest rate

When payments are due

The total sale price -- cash price of the item or service plus all other charges

The amount of any late payment charges and when they'll be imposed.

2. The Fair Credit Billing Act

This law dictates what you must do if a customer claims you made a mistake in your billing. The customer must notify you within 60 days after you mailed the first bill containing the claimed error. You must respond within 30 days unless the dispute has already been resolved. You must also conduct a reasonable investigation and, within 90 days of getting the customer's letter, explain why your bill is correct or correct the error. If you don't follow this procedure, you must give the customer a $50 credit toward the disputed amount -- even if your bill was correct. Until the dispute is resolved, you can't report to a credit bureau that the customer is delinquent.

In addition to telling you how to handle billing disputes, the Fair Credit Billing Act requires you, in periodic mailings, to tell consumers what their rights are.

3. The Equal Credit Opportunity Act

You may not discriminate against a credit applicant on the basis of race, color, religion, national origin, age, sex or marital status. The Act does leave you free to consider legitimate factors in granting credit, such as the applicant's financial status (earnings and savings) and credit record. Despite the prohibition on age discrimination, you can reject a consumer who hasn't reached the legal age in your state for entering into contracts.

4. The Fair Debt Collection Practices Act

This statute addresses abusive methods used by third-party collectors -- bill collectors you hire to collect overdue bills. Small businesses are more directly affected by state laws that apply directly to collection methods used by a creditor.