Consumer Credit Protection Act – CCPA – enacted in 1968, created the standard by which all credit transactions in the United States are to be governed. Included in this act and its amendments are financial protections for consumers. Each of the amendments to this act govern a specific portion of financial protections for consumers. Title III of this act governs wage garnishment. Fair Credit Reporting Act – FCRA – is an amendment to this act which governs how personal information contained in credit reports may be used. Truth in Lending Act – TILA – governs advertising and billing practices of banks and credit cards. Equal Credit Opportunity Act – ECOA – governs creditors determining credit based on protected statuses. Fair Debt Collection Practices Act – FDCPA – governs how debt collectors are allowed to contact and treat debtors. Electronic Funds Transfer Act – EFTA – governs the disclosures that must be provided as well as the protections for funds transferred electronically.
Title III governs wage garnishments. As a rule, a consumer’s wages cannot be garnished without the legal process of the creditor taking a debtor to court and obtaining a judgment. As with most legal processes the steps from default to garnishment takes a long time with many chances to avoid the garnishment in the first place. A Writ of Garnishment – often referred to simply as a garnishment – is a legal document in which requires some or all of a garnishees wages are taken to satisfy a judgment. Under Title III, there are limits to the amount of money that can be garnished. In addition to the amount, it protects an employee from losing their job because of a single garnishment. Unfortunately, an employee who has multiple garnishments does not enjoy the same protection. There are also specific rules regarding domestic support obligations, Federal tax debts, other federal debts, garnishment of checking/savings accounts, and Bankruptcy court orders. Four states – Pennsylvania, Texas, and both of the Carolinas – do not allow creditors to garnish wages.
Fair Debt Collection Practices Act – FDCPA – makes it illegal for third party debt collectors to use deceptive and unfair practices to pursue and collect debt. A debt collector may not call during certain hours of the day. Additionally, they may not call a consumer’s place of employment if the employer does not permit such calls or they have been notified in writing that such contact is unacceptable. Any abuse, including profanities, threats, or other forms of harassment, is not permitted under the FDCPA. Debt collectors may not use false statements or misrepresent themselves. They are not allowed to threaten legal remedies not available to them. Debt collectors can’t garnish wages without a post-judgment court order. Likewise bank accounts cannot be garnished without a court order. Misleading correspondence is not permitted either.
The FDCPA has specific requirements that are required of the third-party debt collectors. Debt collectors are required to give a validation notice within five days of the first contact with the debtor. They are required to give 30 days to dispute the validity of the debt. A disputed debt must be verified as valid and proof returned to the consumer before further collection actions may be taken.
Fair Credit Reporting Act – FCRA – regulates consumer reporting agencies. It requires them to adhere to specific standards. It permits you to obtain your credit report when denied credit or other applications where your consumer report is pulled. The FCRA also requires consumer reporting bureaus to correct inaccuracies in a consumer’s report to be corrected within a specific amount of time. According to the FCRA, only those who have a valid need may access to a consumer’s credit report. Businesses who have a reason to extend credit – banks and other financial institutions, insurance companies, potential employers, and even landlords.
Under the FCRA, there are multiple amendments and acts. One of the amendments to the Fair Credit Reporting Act is Fair and Accurate Credit Transactions Act – FACTA or FACT Act – an act that gives consumers a free credit report, each year, from the three major consumer reporting bureaus. The Credit Card Accountability, Responsibility and Disclosure Act – Credit CARD Act – requires credit card companies to notify you of interest rate increases. Payments and payment deadlines, under this act, must be kept consistent. Additionally, credit card companies may not increase the interest rates on balances already on the card. Probably the most recognized of the amendments to the FCRA is Dodd-Frank Wall Street Reform and Consumer Protection Act – Dodd-Frank Act or DFA – which was supposed to make financial institutions more forthright in their dealings with consumers. Transparency and accountability were two very important hallmarks of the Dodd-Frank legislation. The Dodd-Frank legislation also created the CFPB – Consumer Financial Protection Bureau – a governmental entity that investigates consumer complaints against the financial industry. The Volcker Rule was supposed to keep financial institutions from hedging bets that jeopardized their consumer’s financial security. Additional offices were created by Dodd-Frank to protect consumers and prevent a repeat of the financial crisis that started in 2007.
The Equal Credit Opportunity Act – ECOA – is enforced by the Federal Trade Commission (FTC) and is meant to prevent unfairness towards consumers. Decisions on creditworthiness may not be determined by race, sex, religion, age, national origin, color, marital status, or whether the consumer is receiving public assistance. Immigration status may be considered when extending credit. Additionally, the consumer has a right to having an answer to their credit application within 30 days. If the application is denied, they have a right to a written notification which includes reasons the application was denied. Under the ECOA, if the consumer decides not to accept the unfavorable terms of a loan, they have the right to know why the specific terms were offered. Married women are allowed to have credit in both their married and maiden names if they took their spouse’s name.
Consumer Credit Protection Act – CCPA – is a series of laws that is designed to protect a consumer and their personal information. From limits on garnishments, under Title III, to the procedures that third-party debt collectors must follow, under Fair Debt Collection Practices Act, and many more in between, the Consumer Credit Protection Act and its amendments grant consumers rights where their financial life is concerned. In addition to the federal protections, many states have protections that mirror many of these and/or enhance these acts.
Consumer Credit Protection Act
Title III – Restriction on Garnishment
Consumer Credit Protection Act – CCPA – Title III – Restriction on Garnishment (Title III) offers protections to consumers against losing their jobs over wage garnishment. It defines what wages are able to be garnished. Title III also limits the amount of earnings may be garnished. Limits on the amount to be garnished each pay period vary by type of garnishment, with domestic support obligations and taxes having a different amount. Additionally, Title III protects employees from being fired for a single garnishment.
Wage garnishment is defined by the U.S. Wage and Hour Division (WHD) of the U.S. Department of Labor as:
“any legal or equitable procedure through which some portion of a person’s earnings is required to be withheld for payment of a debt”
While most garnishments are court orders – usually following at judgment, others may be from governmental levies for taxes or other monies owed to state or federal government.
Title III limits the amount of money that can be garnished from wages, salaries, commissions, bonuses, or other compensation – which is how CCPA defines compensation for personal services in accordance with the pamphlet WHD put out on the subject.
Garnishment may not exceed 25% of the garnishee’s disposable income – defined as the amount of the income that remains after all legally required deductions are made – or 30 times the federal minimum wage, whichever is the smaller amount. So, if 25% of the income is smaller, then that is what may be garnished – this amount does not apply to domestic support obligations (ie child support, alimony, rehabilitative alimony, or other spousal support), bankruptcy, or any state or federal taxes. If there are multiple garnishments, they may not exceed this threshold.
- Domestic support obligations (DSO) may garnish up to 60% of an employee’s income if not supporting additional spouse or child.
- 10% of disposable income may be garnished for defaulted student loans under the Higher Education Act.
- Other debts to federal agencies (not taxes) may be garnished at a rate of 15% under the Debt Collection Improvement Act.
Bankruptcy courts and debts for state or federal taxes do not have the limitations of these other categories. However, if a state has a wage garnishment law and it is more lenient to the garnishee (for example only 20% may be garnished for DSO) then the state law is the one that must be followed.
Title III of the CCPA also prohibits termination of an employee because the employee is subject to garnishment for one debt. It does not matter how many proceeding have been brought to collect on that one debt. Be warned however that this protection does not extend to an employee who is being garnished separately for more than one debt.
Consumer Credit Protection Act’s Title III – Restrictions on Garnishment has several layers of protection for garnishees. It protects them from having all of their wages garnished to repay a debt (some state laws protect even more of the garnishee’s disposable income). It keeps them from being retaliated against by their employer if they are being garnished for only one debt. It also defines what is considered income and therefore subject to garnishment.
Credit Repair Organizations Act
Credit Repair Organizations Act (CROA) is the federal legislation that governs the actions of organizations and individuals who “repair credit.” In the act it specifies disclosures that each client must be provided. It also bars credit repair organizations from engaging in specific actions. Credit Repair Organizations Act is Title IV of the Consumer Credit Protection Act. The CROA was designed to reign in credit repair organizations who were engaging in unfair business practices.
Credit Repair Organizations Act defined a credit repair organization. This definition included anyone who sells or otherwise offers a service that is designed to improve a consumer’s credit file. A consumer can do this on their own, but if they receive assistance in this from anyone be it an individual or an organization, said individual or organization is governed under CROA. The exceptions are credit card issuers, nonprofit organizations, other lenders, or financial institutions such as a bank or credit union.
The Credit Repair Organizations Act ensures that consumers are given the information needed to make an informed decision when it comes to credit repair and whether or not to engage the services of a credit repair organization. If a consumer engages the services of credit repair organization, then CROA governs additional actions which the credit repair organization may or may not take on behalf of their client.
Under CROA, a credit repair organization:
- may not charge excessive up-front fees for setting up a consumers account to be repaired. The consumer has a right to know what the fees are upfront as well as how long the repair is expected to take.
- may not make false, untrue, or misleading statements to the consumer reporting agencies, creditors, or debt collectors – nor may they instruct their client to do so.
- may not obtain on behalf of the client an EIN to replace their credit file with a new one – nor may they instruct their client to do so.
- may not commit fraud on behalf of the client or ask their client to do so.
- must provide each and every client with a disclosure that must be signed and retained for two years from date of signature
- may be sued by a client for failure to fulfill any of the requirements placed on them by CROA
- must provide you with a contract that details fees, their name and address, services that will be provided, and statement regarding notice of cancellation.
- may not entice or otherwise make you waive your rights under CROA
The Credit Repair Organization Act (CROA), while not an act in the literal sense of the word, gives consumers some control in the credit repair process when engaging a credit repair organization. Credit repair organizations may not charge a consumer if no work has been done on their file. Additionally, a credit repair organization may not encourage you to make false statements to get an item removed. In addition to CROA, credit repair organizations are governed by the limitations set forth in other parts of the Consumer Credit Protection Act (CCPA) when it comes to “repairing credit”. If an item that is on your credit is legitimate, accurate, and still within the time it should be reported, it must remain until it ages off your report.
Fair Credit Reporting Act (FCRA)
Fair Credit Reporting Act or FCRA is legislation that was enacted to promote the accuracy and fairness of the information in the credit file held by the credit bureaus. The FCRA gives consumers a process by which to request your credit file and verify the accuracy of the information in it. Any information that is not accurate, out of date, or otherwise false, according to the FCRA should be removed from the consumer’s credit file.
According to the FCRA, inaccurate information should be removed. Inaccurate information could be something as simple as the balance of an account being to high or low. Information that is not accurate can have a negative effect on a consumer’s credit history.
Unfounded information can also cause damage to a consumer’s creditworthiness. When information is unfounded, it should also be removed according to the FCRA. If a creditor reports something to a consumer’s credit report but does not have records to back such a thing up, it could be viewed as unfounded. Such an item would then be able to be removed from the consumer’s credit report as unfounded.
Under the FCRA, certain information may remain on the consumer credit report for a limited amount of time. A bankruptcy may remain in a credit report for seven years for a Chapter 13 and ten years for a Chapter 7. Negative credit items remain in a consumer’s credit file for seven years from date of first delinquency. Hard inquiries remain in a consumer’s credit file for two years. If an item is being reported after this time, it can be removed from the credit file.
False information, such as an account opened fraudulently, can be removed from a consumer’s credit file when it has been identified as erroneous. If an account was opened and it is believed by the consumer to have been a result of identity theft, a fraud alert can be placed on each credit bureau.
Additionally, if a consumer believes that a given account in their credit file is the result of identity theft, they can request that the particular account be blocked from their credit report. Each of the three credit bureaus have methods by which to do this.
The FCRA also allows for a consumer to get a copy of their credit report if they received an adverse decision based on information in their credit report. It also allows for a consumer to get a copy of their report if they are on public assistance. If a consumer will be applying for employment in the next 60 days, they may also request their credit file.
The Fair Credit Reporting Act or FCRA is legislation that was enacted to promote the privacy of the information included in consumer reports. It is also important, according to the FCRA, that the information be accurate and fair. The FCRA allows consumers a free copy of their report based on certain criteria. A subsequent act that gave every consumer a right to a free annual credit report, the Fair and Accurate Credit Transactions Act or FACT Act, is an amendment to the FCRA.
Fair Debt Collection Practices Act (FDCPA)
The Fair Debt Collection Practices Act, often abbreviated FDCPA, is a federal law addresses creditor harassment. A handful of states also have laws that govern what creditors may and may not do while attempting to collect on debt. California, Colorado, Florida, Georgia, Illinois, and Washington all have some sort of law that protects consumers similarly to the FDCPA.
Fair Debt Collection Practices Act (15 USC 1692) is a strict liability statue, which means intent need not be proven, just the act itself. For each violation, the damages are set to $1000. The statute also has a provision for reasonable attorney fees and actual damages. An action under the FDCPA must be brought before the statute of limitation expires at one year from the date of the violation of the act.
The FDCPA covers collections of debt by a third party on a debt that resulted from a transaction. The types of debt not covered are child support payments, personal taxes, and civil liabilities from wrongful acts. The validity of the debt has no bearing on a claim for relief under the FDCPA.
Under the FDCPA third party collectors (also known as debt collectors) may not engage in harassment of any kind. Phone calls to a place of employment are not permissible if the debt collector knows that the employer prohibits personal calls. Even if a debt collector has reason to believe such calls are prohibited, these calls are not permitted under the FDCPA. Phone calls prior to 8am and after 9pm are deemed unusual or inconvenient and therefore prohibited under the FDCPA. Additionally, if the consumer notifies a creditor that it is not a convenient time for this call, that action adds that specific time of that call to the prohibited call time and the debt collector must disengage from the call.
Without limitation, the FDCPA prohibits all false, abusive, and unfair collection practices. Some examples include threating to take legal action that may not be taken or is not being taken. Attempting to collect on “obsolete debt” as defined by the Fair Credit Reporting act is not allowed under the FDCPA. Filing a law suit, or even threatening to file a law suit on a debt that has already exceeded the statute of limitations for such a suit is also not allowed under the FDCPA. The list of unfair, false, and abusive practices that some debt collectors have employed to collect on debt is quite extensive, and most of it is barred by the FDCPA.
A debt collector must also give a consumer time to dispute the validity of the debt. If the consumer disputes the debt, the debt collector must report to the credit bureaus that some or all of the debt is disputed. Debt collectors may only add charges that are expressly authorized by law or the original contract.
The standard used for testing whether a debt collector’s statements would be considered deceptive is what is known as the “least sophisticated consumer” standard, which looks at a consumer of below-average intelligence. This standard asks the question: “would someone of below-average intelligence believe what the debt collector has told them?” If the “least sophisticated consumer” would find the false statement believable, then it is viewed as deceptive under the FDCPA.
Attorneys who act as debt collectors are under more scrutiny when it comes to the FDCPA as their communications are often more intimidating to consumers as a whole and especially the “least sophisticated consumer.” Attorney, acting as debt collectors, sending collection letters must be personally involved in sending the letter. They may only pursue collection actions where the contract was signed or where the consumer resides. Additionally, the attorneys, acting as a debt collector, must be personally involved with the file.
Florida Consumer Collection Practices Act is similar to FDCPA in what is prohibited and required of debt collectors. It also applies the limitations to creditors. The statute does however have a two-year statute of limitations, allows for punitive damages as well as equitable relief.
Other states such as California, Colorado, Georgia, Illinois, and Washington have enacted laws that extend the protections for consumers.
The Fair Debt Collection Practices Act limits what a third-party debt collector may do to collect on a debt. It sets a specific amount for damages as well as how long from the date of violation a consumer has to bring action against the debt collector. States such as Florida have their own versions of the FDCPA which give additional time to bring a suit as well as additional damages that may be awarded for the violations of the act.