The Federal Trade Commission’s Credit Practices Rule bars creditors from including certain provisions in most kinds of credit contracts. Therefore, anyone who borrows money, buys items on installment credit, or cosigns for another’s debt should know about the Credit Practices Rule ("the Rule").
What Kind of Contracts are Covered?
Consumer credit contracts offered by the following must comply with the Rule:
- Finance companies
- Credit unions
It does not apply to:
- Savings and loan associations
- Banks or bank credit cards
- Some non-profit organizations
- Business credit
What Is Prohibited under the Rule?
There are certain provisions that cannot be included in consumer credit contracts:
- You cannot be required to give up your state-law protections that allow you to keep certain belongings even if you do not pay your debt.
- You cannot be required to use certain personal items as collateral. These items usually have a unique, significant value to the debtor but not much value to the creditor.
- You cannot be required to agree in advance to give up the right to be notified of a court hearing or your right to hire an attorney for representation in the event that you are sued for non-payment.
If you believe your creditor is violating the Rule, you can file a complaint with the Federal Trade Commission (FTC).
What about Late Fees?
You can be charged a late fee if you do not make your payments on time. However, you cannot be charged late fees just because you have not paid a late fee that you owe ("pyramiding late fees"). Thus, a creditor cannot subtract a late fee from your payment and then charge you another late fee for the current payment. It is advised that you bring your account up to date.
Do I Need a Lawyer Experienced with the Rule?
A qualified lawyer can inform you of the creditor’s responsibilities and your rights under the Rule. A lawyer can also tell you what your obligations are and how you can avoid any credit problems. A lawyer can also help you if you decide to pursue a complaint against the creditor.