THE FEDERAL TRADE COMMISSION
The main consumer protection entity within the federal government is the Federal Trade Commission, or FTC. The FTC promotes consumer protection through its Bureau of Consumer Protection, which enforces federal consumer affairs laws and rules that the FTC itself creates. The FTC’s Bureau of Consumer Protection also educates consumers and investigates the use of unfair or deceptive acts. http://www.ftc.gov/
FTC investigations usually begin with a report received from consumers, businesses, or the media concerning false advertising, identity theft, or other types of fraud. Though the FTC only very rarely resolves individual claims, it aggregates complaints to aid future enforcement actions, such as bringing suit in federal court against businesses engaged in deceptive practices.
In addition to its own orders, the FTC is charged with enforcing several important federal statutes.
The Truth in Lending Act (TILA)
TILA allows the FTC to enforce disclosure requirements concerning loans. Under TILA, lenders must disclose key terms and all costs of a loan. The majority of these requirements are found in “Regulation Z,” a part of the Code of Federal Regulations (where federal agencies publish their rules and regulations). http://www.fdic.gov/regulations/laws/rules/6500-200.html
The primary way in which TILA affects the average consumer is that it promotes informed borrowing by standardizing the terminology surrounding borrowing and requiring disclosure of costs and charges. This allows consumers to shop for the best deal.
The Consumer Leasing Act (CLA)
CLA amended TLA in order to provide greater protections to people who take out consumer leases, mainly by requiring additional disclosures. The CLA regulates non-commercial leases of personal property exceeding four months in length. The Act requires lessors to make a considerable number of disclosures about the terms of a lease, limits lessee liability under some circumstances, regulates advertisement of leases, and provides a damage remedy for consumers. http://www.fdic.gov/regulations/laws/rules/6500-2000.html
The Magnusson-Moss Warranty Act
Congress enacted the Magnuson-Moss Warranty Act to standardize product warranties so that consumers could better understand them and the FTC could better enforce their terms. Notably, it does not require warranties on all products, nor does it create implied or non-disclaimable warranties, although it does outline a “floor” of substantive terms that are required for any warranty advertised or presented as a “full warranty.” http://www.ftc.gov/bcp/edu/pubs/business/adv/bus01.shtm
The Act also requires full, clear, and conspicuous disclosure of the terms and conditions of service contracts in readily understood language. Under the Act, any ambiguous terms contained in a warranty must be construed against the drafter of the warranty.
The Act primarily covers “consumer products,” which are defined under as “any tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes,” and which cost the consumer more than $5. Integral parts of real estate (such as structural supports in the home) are covered elsewhere, unless they have been sold “over the counter,” i.e., for the purpose of home improvement undertaken by the homeowner. When there is ambiguity concerning whether a product is covered or not, it is assumed that the product in question is covered.
The persons covered under the Act include the purchaser of the product (the consumer) as well as any person to whom the product is transferred or who would otherwise be entitled to rights or remedies under the warranty itself or applicable state law.
The Credit Repair Organizations Act
This Act prohibits credit repair organizations from performing certain activities, imposes contract disclosure requirements, regulates the content of credit repair contracts, including a mandated three-day right of cancellation, provides for enforcement of its provisions, and for consumer remedies for violations of the Act. http://www.ftc.gov/ro/chro/credit.shtm
The Act bars a credit repair organization from making, or advising anyone to make, any untrue or misleading statement about a persons credit to any reporting agency, creditor of a consumer, or a creditor to whom a consumer has applied for credit. Similarly, the Act also prohibits making a statement, or advising anyone to make a statement, with the intended effect of altering a consumer’s identiﬁcation and concealing adverse information to a reporting agency, creditor, or a creditor to whom a consumer has applied for credit.
Additionally, the Act prohibits a credit repair organization from making or using any untrue or misleading representations about the services a credit repair organization provides for consumers, engaging in any fraud in connection with the sale of credit repair services, and from receiving any payment before agreed upon services are fully performed.
The Home Ownership and Equity Protection Act
The Home Ownership and Equity Protection Act of 1994 (HOEPA) creates standards and guidelines to protect consumers who attempt to take advantage of their home equity by borrowing against it. http://www.ftc.gov/ogc/stat3.shtm
Coverage under the Home Ownership and Equity Protection Act is determined by the loan’s APR and the total fees due at or before closing. The Act is intended to cover high-rate or high-fee home equity installment loans or refinancing, not loans to build, reverse mortgages, or home equity lines of credit.
If a loan falls under the Act, the lender must make certain disclosures to the consumer at least three business days prior to finalization. First, the lender must inform the consumer that they are not legally bound to go through with the loan, even though they have completed the loan application. Second, the consumer must be warned that failure to make payments could result in the loss of their home and any money put into it. Third, the lender must disclose the loan rate as an annual percentage (APR), the regular payment amount (including all balloon payments), the total loan amount, and any included credit insurance premiums. For variable rate loans, lenders must include a warning that the consumer’s monthly payment may increase (the lender must also indicate the maximum monthly payment they will charge the customer in such instances).
The Home Ownership and Equity Protection Act also prohibits or limits several abusive business practices utilized by lenders. Lenders cannot require balloon payments on loans with terms shorter than five years, or consolidate multiple months into one advanced payment (backdoor balloon payments).
The Act also bans negative amortization, in which regular monthly payments are too small to decrease the total principal debt. Lenders may not subject the consumer to default rates that are higher than pre-default rates. Rebates of interest upon default must be calculated by the actuarial method or another method no less favorable.
The Home Equity Loan Consumer Protection Act
The Home Equity Loan Consumer Protection Act protects consumers who apply for home equity lines of credit. Consumers can cancel a loan application, and receive a complete refund of all fees related to the application process, when the lender alters the terms or rates of the loan application. http://www.fdic.gov/consumers/consumer/rights/ The Act also restricts lenders from changing the terms of your credit plan once it has been opened.
The Home Equity Loan Consumer Protection Act places additional disclosure requirements under the Truth in Lending Act. These include a description of applicable rates, notification to the consumer of the risk of losing one’s home, notification of the possibility of a change regarding any item on the quote, a description of the loan’s structure, the possibility of balloon payments, and notification of the three-day right of rescission.
STATE CONSUMER PROTECTION
In many cases, seeking relief through local or state consumer protection authorities can be more effective than trying to navigate federal channels. State consumer protection agencies exist in all fifty states. Many cities and counties, especially those with large populations, like New York City and Los Angeles County, have similar agencies. http://www.consumeraction.gov/state.shtml
These agencies perform a number of important roles. First, they seek to prevent fraud by educating consumers, explaining legal protections, and enforcing consumer protection laws. Second, they gather citizens’ complaints (often through a hotline specifically set up for this purpose) and conduct investigations of potential scammers. They are also sometimes charged with prosecuting scammers criminally or bringing private suit on behalf of the scammers’ victims.
If you’ve been victimized, your first step should always be to document the injury by gathering all relevant paperwork and writing a clear, complete account of the events that led you to pursue action. Once you’ve done that, you should seek help from your state or local consumer protection agency.
The Federal Citizen Information Center has made available a list of state consumer protection agencies at http://consumeraction.gov/state.shtml. This list is organized first by state, and then by the type of complaints a particular agency handles. In case you’re not sure what category your complaint might fall under, Citizen Works has compiled a general overview of the various areas covered by most state consumer protection agencies, which is available here.
Automotive – Lemon Laws
“Lemons” are automobiles that are sold with either a major, irreparable defect or many minor defects requiring constant repairs. While warranties can offer some protection in the event that you’ve purchased a lemon, it’s not uncommon for manufacturers and dealers to make token efforts to repair the lemon until the warranty expires, sticking you with bill for later repairs.
These days, all fifty states have enacted “lemon laws” to give purchasers of lemons more options. If your car is unfixable, you may be able to compel the dealer or manufacturer to replace the car free of charge or give you a cash refund.
You do not have an unlimited amount of time to make a claim against your lemon’s seller or manufacturer, but depending on the state, you will probably have at least a year from your date of purchase. A majority of states have adopted a standard that gives the consumer 24,000 miles or 2 years, whichever comes first. http://www.lemonlawamerica.com/Lemon-Law-Statutes.htm
Collection of Debt for Health Care Expenses
All fifty states prohibit collection agencies and attorneys from using fraudulent tactics or harassment to collect health care expenses.http://www.communitycatalyst.org/
Deceptive Trade Practices
When a business uses tactics calculated to trick the public into purchasing a service or product, they are engaging in a deceptive trade practice. Every state has some sort of legislation prohibiting deceptive trade practices. http://www.ftc.gov/privacy/privacyinitiatives/promises.html
Most states have adopted the Uniform Deceptive Trade Practices Act (UDTPA) in order to standardize deceptive trade practice laws across the different states. Some examples of activities prohibited by the UDTPA are odometer tampering and false advertising.
Enforcement of the UDTPA or other similar laws may take several forms. In some states, businesses may be criminally liable for using deceptive practices, while others might allow a private citizen to sue for punitive damages. Still others allow the state attorney general to bring lawsuit.
Late Payment Fees on Mortgages
There are many reasons why a mortgage lender might charge a late fee for an overdue mortgage payments, not the least of which is to prevent borrowers from paying late in the first place. But some mortgage lenders charge exorbitant and unconscionable fees for delinquent payment. In response, many states have placed restrictions on a lender’s ability to collect late payment fees. http://www.fdic.gov/CONSUMERS/CONSUMER/news/cnsum07/strategies.html
In some states, such as Connecticut, late payment fees are permissible if they have been disclosed to the borrower, and are not “unreasonable” (i.e., they are similar to fees imposed by other lenders). In other states, such as Colorado, late payment fees are permissible as long as the payment is delinquent by a certain number of days (10 in Colorado) and the late fee is not above a certain percentage of the outstanding balance (5% under Colorado law). Yet other states, such as Alaska, impose no limitations on late fees.
Advertising and Marketing Restrictions for Loan Funding
As consumers, we are constantly bombarded by advertisements for the numerous types of loans available to us from financial institutions. Many states have passed laws restricting these advertisements in a number of different ways, usually by prohibiting misleading statements about the rates or terms of the loans.
Allowance of Balloon Payments
Some loans require the borrower to pay a balloon payment at some predetermined time. A balloon payment is a single payment of a significant portion of the loan’s entire principal. They are a notorious component of many home mortgage loans. Very often, these loans are interest-only (meaning that the borrower does not lower the loan’s principal by making regular payments). When the balloon payment comes due, many borrowers find they cannot pay, and they risk foreclosure or bankruptcy.
Most states have passed laws restricting these advertisements notification and disclosure requirements and maximum allowable balloon payments, although such restrictions vary greatly from state to state.
Consumer Loan Fees
Eleven states (Colorado, Idaho, Indiana, Iowa, Kansas, Maine, Oklahoma, South Carolina, Utah, Wisconsin, and Wyoming) have adopted the Uniform Consumer Credit Code, which allows consumer lenders to charge official fees and taxes, insurance fees, and other charges agreed to by the borrower, but not other fees, such as prepayment penalties. Other states have similar statutes, although some have separate laws governing different types of lenders.
In general, remedies for excessive loan fees are limited to refund of the excessive charges–although some states offer remedies that more aggressively deter lenders from charging excessive fees (for instance, some states, such as Idaho, allow civil penalties).
Fair Credit Loan Funding
Most states have laws prohibiting financial institutions from disseminating confidential credit information about its customers without authorization. Generally, if your confidential records have been disclosed without your permission, you may be able to sue for damages. In most states, you are allowed to place a “security freeze” on your confidential information, such as your credit report, by sending a written request to your state consumer reporting agency. http://www.ftc.gov/credit
Each state has some sort of limit on the maximum interest rate that can be charged on a consumer contract. Despite this, it is legal in nearly every state for both parties to a consumer contract to agree to a higher interest rate. http://www.ftc.gov/bcp/menus/consumer/credit.shtm
In general, more rural areas have lower ceilings on interest rates while urban areas have virtually no limit on the amount of interest that can be charged. In some areas, maximum interest rates are tied to the Federal Reserve’s rate.
All states prohibit usury, defined as charging unconscionable or exorbitant rates on loans. In a few states, there are criminal penalties, while others provide for economic remedies only.
Most states prohibit lenders from making loans that are too expensive for a borrower to repay, from refinancing loans without any benefit to the borrower, or increasing interest rates after default. http://ftcsearch.ftc.gov/Predatory+Lending
Most states use one of three types of laws. Some states place explicit limits on interest rates or fees. Other states have broad homebuyer protection statutes that may include more substantive remedies (such as non-enforcement of the terms of the lease). Yet other states have passed laws setting forth conditions that lenders must meet in order to retain their license to lend.
Maximum Allowable Fees and Methods of Fee Calculation for Residential Mortgages
Lenders and brokers of residential mortgages are subject to general limitations on fees in most states. They are also prohibited from such tactics as collusion, kickbacks, and after-the-fact referral fees. http://www.ftc.gov/bcp/menus/consumer/credit/loans.shtm
Service Contracts and Extended Warranties
Service contracts and extended warranties offer some measure of supplemental insurance against damage to or failure of purchased goods.
Warranties usually only cover flaws in an item, whereas service contracts also cover damage resulting from use of the item. Most statutes concerning service contracts cover only damage that occurs in the normal use of the item. http://ftcsearch.ftc.govService Contracts and Extended Warranties
Maximum APR for First and Second Mortgages
The total cost of a loan is normally expressed as an APR or “Annual Percentage Rate.” APR includes both the interest rate and the lender’s fees, but not usually third-party fees.
Statutes vary widely from state to state, but most statutes cover a specific type of loan, such as a first mortgage, second mortgage, variable mortgage (also known as an adjustable rate mortgage), or interest-only mortgage. Generally, greater protections are given to consumers the more non-traditional the mortgage (as in, the further the loan is from a standard first mortgage). In some states, there are special provisions for high-APR loans. http://www.ftc.gov/bcp/menus/consumer/credit/loans.shtm
Shutting Off Telephone Service
It is unlawful in most states to shut off basic service (local landline telephone service) when a customer has paid the portion of his telephone bill that covers basic service. In some cases, this prohibition is part of a state utility commission’s orders and, therefore, does not show up in statute form. http://www.consumeraffairs.com/links/state_pucs.html
Basic service should not be confused with universal service. Universal service programs, such as Lifeline and Link Up, are subsidized phone services funded by the federal government but administered by state and local entities; they are also governed by federal, not state, legislation.
There are fewer protections from shut-off for non-basic service, such as long distance or caller ID.
Shutting Off Utilities
Almost every state requires a showing of reasonable cause from the utility company in order to shut off electric, heat, or gas once service has been established. Proof of non-payment is normally sufficient to show reasonable cause, but most states require utility companies to adhere to a timeline that allows for customer notification before actually disconnecting service. By showing a legitimate dispute over the bill, a customer can sometimes delay shut-off until resolution of the dispute.
If you are part of a protected class (disabled, elderly, or ill) you may qualify for special protection from shut-off: in some instances, the utility company will be prohibited from shutting off heat in the winter months. In some states, budget billing programs must be offered to customers in order to avoid shut-off. http://www.consumeraffairs.com/links/state_pucs.html