Consumer Credit Laws
If your business extends credit to its customers, you'll need to comply with federal consumer credit laws.
Many small businesses don't extend credit directly to consumers. With the widespread availability of credit cards, this is often the safest and most cost-effective way to accept payment from customers. However, if your business does grant credit, you must comply with federal laws affecting credit sales to consumers. Also, states are beginning to adopt consumer credit laws that mirror federal law.
Here's an introduction to the relevant federal laws:
1. The Truth in Lending Act
This statute helps customers know what they're getting into. It requires you to disclose your exact credit terms to credit applicants and regulates how you advertise consumer credit. Among the items you must disclose to a consumer who buys on credit are the following:
- the monthly finance charge
- the annual interest rate
- when payments are due
- the total sale price (the cash price of the item or service, plus all other charges), and
- the amount of any late payment charges and when they'll be imposed.
2. The Fair Credit Billing Act
This law tells you what to do if a customer claims you made a mistake in your billing. The customer must notify you within 60 days after you mailed the first bill containing the claimed error. You must respond within 30 days unless the dispute has already been resolved. You must also conduct a reasonable investigation and, within 90 days of getting the customer's letter, explain why your bill is correct or else correct the error.
If you don't follow this procedure, you must give the customer a $50 credit toward the disputed amount -- even if your bill was correct. Until the dispute is resolved, you can't report to a credit bureau that the customer is delinquent.
| Example: | | Ron notifies CompuCo that he wasn't properly credited for a payment he sent in on his computer purchase. Under the Fair Credit Billing Act, CompuCo must acknowledge Ron's notice within 30 days. And within 90 days, CompuCo must either agree with Ron and correct his account or, after conducting a reasonable investigation, send Ron a letter explaining why the company feels his bill was correct. While this is happening, Ron doesn't have to pay the disputed amount. And he can't be penalized for withholding payment. During this period, CompuCo can't tell a credit reporting agency that this is a delinquent bill. CompuCo can charge interest on the disputed amount, but if Ron turns out to be right, the interest must be dropped. |
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Copyright 2004 Nolo
