Credit and Your Consumer Rights

The lives of American consumers are increasingly like open books: vulnerable to sophisticated cyber-snoopers capable of discovering a great deal about how people save and spend. Yet even as the ability to gather financial data expands, federal laws limit what others are allowed to collect about a person’s financial history and what they can do with the information once they have it.

Starting with the Consumer Credit Protection Act of 1968, Congress moved to shield consumers and their financial records from abuse. In the years following, other laws refined consumer rights, spelling out how government can access bank customers’ information, how banks treat borrowers and the way banks handle customer deposits.

Right to Financial Privacy Act

The federal Right to Financial Privacy Act limits government access to personal financial records. Congress passed the law, which protects the confidentiality of personal financial records, in response to the 1976 Supreme Court’s United States v. Miller ruling which found that the consumer bank account records aren’t subject to constitutional privacy protection.

The 1978 law extended Fourth Amendment privacy protection to such information.

Under the Financial Privacy Act, government officials normally must get written consent, or obtain a subpoena or search warrant in order to peruse your financial records. Before authorized searches can take place, investigators must serve notice on the account holder and wait 10 days for a response, or 14 days from the date a notification was mailed.

Importantly, the law only applies to the federal government and its officers, agents, agencies and departments. It doesn’t govern local or state governments, nor does it regulate the activities of private businesses.

The act identifies the sort of financial institutions it covers. Not only does it cover accounts held at traditional banks, but it pertains to records held by merchant credit-issuing entities. So department store and gas station credit card accounts fall under the act’s regulations.

In 2002, the act was expanded to include an assortment of institutions, some of which might not commonly be considered financial. These include:

• Depository institutions like banks, thrifts and credit unions
• Money services businesses
• Money-order issuers
• Travelers’ check issuers
• The U.S. Postal Service
• Securities and futures brokerages
• Commodity trading advisors
• Casinos and card clubs

The law’s protections are limited to individuals and partnerships of five or fewer people. Companies and large groups like trade associations and labor unions aren’t covered.

There are some exceptions to this rule:

• Under specific circumstances, you may not be asked or told ahead of time that a government agency is viewing your files
• A bank or other financial institution has the right to notify police if it has information about illegal activity
• Your bank has the right to submit copies of your financial records to a court in order to prove a bankruptcy claim or attempt to collect a debt
• A financial institution also may release your records if it removes all personal identifying information

The law does not apply if a supervisory or consumer rights agency needs records to investigate consumer complaints. In these instances, the records are used to scrutinize the financial institution and not you.

Credit Practices Rule

The Federal Reserve Board adopted the Credit Practices Rule in 1985 to protect the rights of consumers in debt. It applies to consumer credit contracts made with creditors such as car dealers, department stores and financing companies. It doesn’t apply to real estate purchases, bank loans or contracts with loan associations, yet it covers mobile homes and houseboats.

The rule blocks banks and their subsidiaries from putting certain provisions in consumer credit contracts. These restricted provisions include:

• Any clause that either waives a borrower’s right to be notified of a court hearing or relinquishes his right to be heard in court – if a suit is brought alleging a debt default
• Contract provisions that force a consumer to relinquish legal protections of his home, possessions or wages against seizure to satisfy a judgment – such a waiver is permitted if the property is given as collateral in the credit obligation
• Any wording that gives banks the right to collect a consumer’s future wages or earnings to cover a loan default – some creditors may want you to agree to have money automatically deducted from your paychecks if you fall behind on loan or debt payments, but creditors are allowed to offer this option only under the condition that you can cancel automatic deductions at any time
• Clauses that allow the lender to take the borrower’s household goods to cover a debt – the restriction applies only to items not purchased using the bank’s credit line
• Ones that allow a practice known as pyramiding late fees – if you make your usual payment on time but fail to include the owed late fee, the creditor cannot charge you an additional late fee

The lender is also required notify any cosigners to a credit arrangement an explanation of what taking on the debt entails. The notification must be provided in a separate document or in a credit obligation prior to the issuance of the loan or credit line. Among other things, it might state that bank can attempt to collect a debt from the cosigner before it goes after the borrower, and it spells out all the cosigners obligations.

Expedited Funds Availability Act

The Expedited Funds Availability Act, passed in 1987 and amended in 2010, spells out how long you have to wait to withdraw money after depositing it in a bank account.

A 2010 amendment to the act detailed when certain amounts of a deposit are available to an account holder.

Deposits of cash, wire transfers and some government checks are available for withdrawal on next business day. So are checks drawn on the same institution where they are deposited and items like cashier’s checks, certified checks and teller’s checks.

So, if you make a deposit on Monday, the funds must be available on Tuesday. A deposit made during a weekend is treated as if it were made on Monday and are also available Tuesday.

In addition, up to $100 of the total of all checks deposited by one customer on a single business day will be available the next business day.

For personal checks or checks over $100, the wait time may increase. Here are some of the wait rules:

• Two business days after the deposit of all local checks
• Five business days following the deposit on non-local checks
• An additional one-day extension of time applies to checks deposited in accounts in Alaska, Hawaii, Puerto Rico or the Virgin Islands and drawn on a depository institution in another state, commonwealth or territory
• Special available rules apply to deposits made at ATMs not owned and operated by the bank in which the deposit is made
• Still longer waiting periods can apply to new accounts of more than $5,000, checks for amounts larger than $5,000, checks re-deposited after they are returned unpaid, any deposit account repeatedly overdrawn and any emergency condition that prevents losses due to fraud

If a bank fails to follow the rules, it can be sued. A one-year limitation period applies, and a bank cannot be held civilly liable for a true error. Liability can’t exceed the amount of the check that gave rise to a loss. In some cases, other damages might apply.

Other Consumer Protections

These are just a few of the provisions relating to consumer financial rights. The Consumer Credit Protection Act, for example, deals with credit reports and other aspects of debt and credit. To learn more about your credit and consumer rights, read about the Federal Trade Commission, or visit their website.