Credit allows consumers to finance transactions without having to pay the full cost of the merchandise at the time of the purchase. A common form of consumer credit is a credit card account issued by a financial institution. Merchants may also provide financing for products which they sell. Banks may directly finance purchases through loans and mortgages. Consumers imperatively rely on credit, so it is necessary that credit laws help protect the consumer. I will discuss some of the major credit laws that impact the consumer, examine whether these laws are working, and talk about possible changes that might be needed to make sure the consumer is rightly protected.
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(“About the Federal Trade Commission”)
The FTC’s work is performed by the Bureaus of Consumer Protection, Competition and Economics. The body of the Bureau of Consumer Protection was created to protect consumers against unfair, deceptive or fraudulent practices in which it enforces a variety of consumer protection laws enacted by Congress. It protects consumers obtaining credit to finance their transactions, ensures that adequate credit is provided, and governs the credit industry in general. Congress passed the Consumer Credit Protection Act, in part, to regulate the consumer credit industry, requiring creditors to disclose credit terms to consumers. The Consumer Credit Protection Act also protects consumers from loan sharks, restricts the garnishing of wages, and established the National Commission on Consumer Finance to investigate the consumer finance industry. Credit card companies, credit reporting agencies, and certain debt collectors are regulated by the Act. The Act also prohibits discrimination based on sex or marital status in extending of credit.
Even with these acts there to protect consumers from obtaining bad credit, there still are complaints about lenders that are non-compliant in their credit agreements. In 1974, the Consumer Credit Protection Act stated that borrowers could take lenders to court “only for extortionate lending, which [usually] meant showing the payments were ‘grossly exorbitant’ […] Only about 30 such credit cases are known to have reached the courts and, of those, only 10 succeeded” (Willman, 2007). As Willman pointed out, there are still flaws in the credit industry that need to be corrected.
One of the recent changes that took place in 2006 provided for closer regulation of lenders. If determined that they have acted irresponsibly in offering credit advice, lenders can be ordered to compensate consumers who were wronged, repay interest and fees, or write off a debt. The changes also make it easier for borrowers “to challenge unfair credit agreements in court, following the introduction of an ‘unfair relationships test’ which will make it easier to have a complaint heard” (Willman 2007). These changes go a long way from 1974 when sneaky lenders could more easily get away with unfair lending practices.
Another act that is important in today’s economy is the Truth in Lending Act; especially since the mortgage industry affects the economy so drastically. Under the Truth in Lending Act, the law states that there must be clear disclosure of key terms of the lending arrangement and all costs involved. The Federal Reserve alone has the authority to prohibit certain mortgage lending practices. The Truth in Lending Act was implemented to clarify credit transactions, but “improvements are needed in the manner that loan terms are explained to borrowers, as current disclosure forms are often opaque” (Annett, 2007). Annett goes on to quote a mortgage executive, who says, "No one's reading them." Because of...