Your Rights When Borrowing Money
Federal law and many state laws give you basic rights in applying for credit. These include the following:
•You have the right to shop for the best loan available to you and compare the charges of different lenders.
•You have the right to be informed about the total cost of your loan, including the interest rate and other fees.
•You have the right to have a clear understanding of the terms and total cost of credit. Disclosures setting forth the key credit terms must be provided to you in a form you can keep before you are bound to a credit transaction.
•You have the right not to be discriminated against in connection with a credit transaction—either refused credit or charged more for credit—based on race, color, religion, national origin, gender, marital status, or age; because your income derives from any public assistance program; or because you have exercised in good faith your rights under any title of the federal Consumer Credit Protection Act. The Consumer Credit Protection Act includes the Truth in Lending Act, Consumer Leasing Act, Fair Credit Reporting Act, Equal Credit Opportunity Act, Fair Debt Collection Practices Act, and Credit Repair Organizations Act.
•You have the right to have your performance on credit obligations reported accurately by credit bureaus if it is reported at all. Contrary to popular belief, there is no legal requirement that creditors report to credit bureaus unless they promise you to do so in a contract.
•You have the right to be informed if the information in your credit file has been used against you, to either deny credit or insurance or increase the cost of credit or insurance. This is done by means of what is generally called an adverse-action notice.
•You have the right to know what is in your credit file and to receive a free credit report from each consumer-reporting agency (credit bureau) once per year.
•You have the right to ask for your credit score.
•You have the right to dispute incomplete, inaccurate, or obsolete information in your credit file.
•You have the right to have your credit file used only for specified “permissible purposes,” such as to review or collect an account or to evaluate a request for credit. (Although the written permission of the subject of the report is a permissible purpose, it is—contrary to popular belief—not necessary to obtain written permission if another permissible purpose exists, such as a request for credit.)
•You have the right not to be subject to deceptive marketing, servicing, and collection tactics regarding credit.
Several important warnings about applying for credit are also appropriate at the outset. First, under no circumstances should a consumer pay money in advance for arranging a loan, other than a modest application fee and fees for credit reports or appraisals for a mortgage or business loan. We have seen consumers charged $1,000 and more for application fees and assistance in applying for credit. They generally get nothing for their money. Advance-fee schemes are generally illegal scams.
Second, under no circumstances should a consumer ever agree to provide false information or documents in connection with an application for credit. Doing so has serious criminal and civil consequences. It is generally a crime to submit false information to a financial institution. The resulting extension of credit may be nondischargeable in bankruptcy.
CAUTION
Never provide incorrect information on a credit application.
CAUTION
Oral promises from creditors are worth the paper they are written on.
Third, review carefully any loan or other credit documentation you receive and make sure that it accurately states the terms of the intended transaction and contains all promises made to you. We hear from many consumers who claim that a lender or car dealer promised them that their rate would be reduced after six months. If it isn’t in the documents, it is not enforceable.
Review any credit application you fill out to make sure it is accurate and complete. If any blanks do not apply to you, do not leave them blank; instead, insert “N/A” or “not applicable.”
Certain businesses, such as car dealers and mortgage brokers, have been known to insert or alter information on credit applications. If you have any reason to suspect the accuracy of the information supplied to a financial institution through a third party, ask the financial institution for a copy of the information submitted in your name and confirm the request in writing. If it turns out that the copy that the financial institution has is not identical to what you believe you submitted, notify the institution immediately, in writing, of the discrepancy.
Also, beware if you fill out a credit application in handwriting and are then asked to sign what is represented to be a typed version of the same application. Compare the documents carefully. We have seen multiple cases where the typed document is not the same as the handwritten one.
Finally, if false or misleading information is submitted on your behalf, it is usually because the truth would result in your not obtaining the credit applied for or because the transaction is predatory and not in your interest. Many lenders, such as banks, are required by law to comply with “safety and soundness” standards, including a requirement that they only extend credit that they expect you to be able to repay without default. These standards protect both the public, which insures banks against failure as a result of excessive loan losses, and you, the consumer. The submission of false information by dealers and brokers is an attempt to circumvent these standards.
In some cases, lenders that are not subject to such standards or their agents have consumers fill out false applications as a means of covering themselves against liability for predatory lending. If challenged, they can claim that you defrauded them by submitting false information to obtain credit you knew you did not qualify for. Furthermore, although many of the laws discussed in this volume provide for an award of attorney’s fees to a consumer to encourage enforcement of legal rights, attorneys are unlikely to take cases where the client is subject to a counterclaim for fraud. In a practical sense, a false loan application thus amounts to a waiver of your legal rights.