What Laws Govern Credit Card Practices?
Almost every day, Americans receive pre-approval notices for credit cards in their mailboxes. Credit card companies seem to want everyone to have a line of credit, only to charge crushing APRs on top of them. Although the prevalence of credit cards and credit card use can seem unregulated, there are actual laws that keep credit card practices in check. This article explores what laws govern credit card use.
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History
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The idea of extending a line of credit to someone in the hope that he will pay it back with interest has been around since the late 1800s when travelers didn't want to carry cash at each stop between coasts. When cars were first invented and popularized, banks sought to make it easier for customers to purchase one by offering lines of credit identified by paper card stock markers. The Diners Club card, created in the late 1950s, added flexibility for travelers. They could pay for travel and lodging on the card, only to pay the full balance by the end of the month. When Bank of America created the BankAmericard in 1958, they were one of the first to use the Visa banking network that extended all over the world, making it possible for Americans to use credit cards outside of the country. But with all this expansion came regulation.
Function
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There are rules and regulations that begin even before you get a credit card. One basic law that helps regulate credit card use is the Truth in Lending law. It states that credit card companies must give you basic information on the true costs of the credit card. In other words, you must have access to all the applicable APRs, fees, finance charges and limitations of the credit card. You are also allowed to compare costs of cards to each other, in order to prevent monopoly on cards.
There are also discrimination laws in place so that people cannot be denied cards because of race, gender, creed, religion and other categories. This is called the Equal Credit Opportunity Act. This doesn't guarantee you will get credit; it only guarantees you cannot be turned down because of these reasons.Credit card companies are also not allowed to turn you down if you receive public assistance. Nor can they deny you credit based on the appraisal value of your home should you look to get a secured card.
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Features
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Once you are approved for a credit card, there are other laws that keep the credit card company honest with your account. The Fair Credit Billing Act states that companies must correct any billing errors quickly and without damage to your credit rating or score. You have to give notice within 60 days of receiving the errors, but you must also pay any parts of the bill that are not within dispute. Credit Card companies must tell you within 30 days whether the error is correct; they have up to 90 days (or two billing cycles) to fix the error without charging you any finance fees.
There are also laws stating that you can withhold payment on damaged goods. If you receive something that has been damaged and the merchant will not fix it, you can withhold payments for items more than $50. The purchase must also have been made within 100 miles of your home.
Misconceptions
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Some people may think that credit card companies should not be allowed to send you all those pre-approval letters and advertisements. The truth is that the advertising is legal. However, a card company is not allowed to send you an unsolicited credit card. They are allowed to send you a replacement card.
Expert Insight
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These laws do not exist without penalty to the credit card companies should they be violated. For example, if you find your company in violation of the Truth in Lending laws and you take them to court, you can win between $100 and $1,000 with reimbursement for attorney's fees. Violation of Equal Opportunity for Credit laws carries an even stiffer penalty. You can win up to $10,000 and reimbursement of attorney's fees. In both cases, you can participate in a class action lawsuit versus a company if similar people make the same claim. There are similar penalties should creditors fail to correct billing and reporting errors in a timely manner or allowing unauthorized people to look at your credit.
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