By Gretchen A. Mundorff,
Recent changes by the Federal Reserve and the Federal Trade Commission have added greater protections for consumer credit rights. The new rules are important to understand, especially during uncertain economic times when vulnerable consumers are more likely to become victims of unscrupulous companies offering too-good-to-be-true credit plans and promises to “fix” credit problems.
The Federal Reserve put rules into place several weeks ago to protect credit card users from unreasonable late payment and penalty fees and to require credit card companies to reconsider interest rates. Consumers are now ensured the following protections:
- A late fee can be no more than $25, unless one of the credit card holder’s last six payments was late (in which case the fee may be up to $35) or the credit card company can justify a higher fee
- A late payment fee cannot be greater than the credit card holder’s minimum payment
- Only one fee can be charged for a single late payment
- Fees cannot be charged for not using a credit card
- Increases in a credit card’s APR (annual percentage rate) must be explained
Just a few weeks ago, the Federal Trade Commission put new rules into effect to crack down on debt-settlement companies selling services over the telephone. The rules specifically take aim at for-profit companies making fraudulent claims about their abilities to reduce consumers’ debt balances, interest rates and penalty fees. A debt-settlement company must now disclose the following information to potential clients:
- How long it will take the debt-settlement company to get results
- How much the debt-settlement company charges for its services
- The potential negative consequences of seeking debt relief
Additional FTC rules that take effect on Oct. 27 will make it illegal for a debt-relief service to charge upfront fees. A company selling its services over the telephone can’t get paid until it successfully settles or reduces a client’s credit card or other unsecured debt.
Previously, debt-settlement companies often told their clients to stop paying their bills and send money to the debt-settlement companies to pay creditors. Under the new rules, a dedicated account must be established at an insured financial institution and the money belongs to the consumer, who can withdraw it at any time with no penalty.
It’s important to note that the new rules do not apply if there is a face-to-face meeting with a debt-settlement company representative before a contract is signed or if the transaction takes place entirely online.
Gretchen A. Mundorff is president of the Pennsylvania Bar Association, the state’s largest association for lawyers. As part of its ongoing public education programs, the association has a free brochure about credit rights available on its website, www.pabar.org.