If you are concerned about the way credit card companies and other lenders do business, you will be pleased to discover a little known regulation enacted for your protection. Regulation Z, or the Truth in Lending Law, regulates certain credit card practices and helps you know the true cost of credit and achieve a fair and timely solution to credit card billing disputes.
When Does Regulation Z Apply?
Regulation Z applies to:
- Credit offered or extended to a consumer;
- Credit used primarily for personal, family or household purposes;
- Credit subject to a finance charge or made payable by a written agreement in more than four installments;
- The advertising of such credit transactions, i.e. credit card applications sent by mail or offered by telephone.
If the offer is for a credit card, then Regulation Z may apply even if there is no finance charge or the credit is not payable by a written agreement in more than four installments.
When does the creditor have to post my payment?
The simple answer is as soon as the creditor receives it! How many times have you argued with a creditor over the posting of a payment that you sent on time? If that creditor acted properly, under Regulation Z, any payment you sent must be credited to your account as of the day the creditor actually received the payment, and NOT when the creditor gets around to posting it. If there is a delay in posting the payment, you cannot be charged additional fees. The only exception is when the delay in crediting the payment does not cause you to pay a finance charge.
Even if you do not follow a creditor’s instructions for sending in payments (using the special envelope, including account number, etc.), if the creditor accepts your payment, it has to credit your account within five business days.
But if you always wait until the last minute to send your payments and do not send it so that it conforms to your creditors’ requirements, your payment might be recorded after the due date and result in a late charge, even though it arrived on time.
How will I know what the terms of the credit are and if the amount the creditor charges me Is correct?
Under Regulation Z, consumers must be told important information about how much the credit will cost them and the term of that credit. When you are given an application or offer to open a credit or charge card account, the card issuer must disclose certain information before you agree to accept the credit offer, including:
- Annual percentage rate (how much the credit will cost you, expressed as a yearly rate) and the “periodic rate” (how the creditor will determine the finance charge for each billing period).
- Annual fees the consumer must pay for the card or for the availability of credit (usually $25-$50 for regular cards and $75 or more for a “gold” or “platinum” card).
- User fees (or transaction fees) the consumer must pay for charging more than the established credit limit, making late payments, using a card to receive a cash advance or set fees a consumer may have to make each month just for having the card.
- Grace period. Whether a grace period is provided, allowing the consumer to avoid paying a finance charge by paying the full amount due each month before the due date. If no grace period is provided, consumers must be told up front.
Knowing this information before deciding whether to accept an offer of credit will help you compare credit offers and decide which ones best suit your needs.
Likewise, creditors have many requirements under Regulation Z for closed-end credit, such as a loan. Before the credit is granted, the creditor must inform the consumer of important terms, some of which include:
- Total finance charge— how much the credit will cost you during the time you are using it.
- Amount financed — the total amount of credit that is being provided to you, including the loan amount and other sums that the creditor has agreed to finance (minus finance charges that the consumer has prepaid).
- Annual percentage rate — how much the credit will cost you, expressed as a yearly rate.
- Variable rate — information about the terms of the variation, including how much the rate can go up and under what circumstances.
- Schedule for repayment and total number of payments — amount and timing of payments.
- Fees for late payments — how much the creditor will charge the consumer if payments are late.
- Provision demanding full payment — the circumstances under which the consumer could be required to pay the amount owed in full.
What if I accidently pay more than I was supposed to?
If you pay too much, as long as the amount is more than a dollar, the creditor must credit the excess to your account. Or if you prefer, you can send a letter requesting that a refund be sent to you and the creditor must comply within seven days from receiving your written letter. If the creditor does not credit the extra amount to your account and a finance charge is imposed, the creditor must refund the amount of the finance charge to your account the next month.
How often should I receive a statement and what information should be on it?
You should get a statement periodically in the mail, such as monthly or quarterly. The statement should give information about your account, including:
- How much you owe at the beginning of the billing cycle;
- A list of all transactions occurring on the account during that billing cycle;
- Any amount that may have been credited to the account as a result of payments;
- The amount of finance charges added to total;
- The outstanding balance at the end of the billing cycle;
- The date you must make a payment to avoid further finance charges; and
- An address where you can contact the creditor to ask questions about the bill.
What if I think the creditor made a mistake on my bill?
The billing procedure (also called the Fair Credit Billing Act) applies to all open-ended credit accounts and consumer credit cards. If you think that an error has occurred on a bill, put your concerns in written form to the creditor at the address given on the statement within 60 days after receiving the incorrect bill. The letter should include:
- Your name;
- The account number; and
- An explanation of why you think the bill is wrong, including the type, date and amount of the error.
You should receive an acknowledgment that the creditor has received your letter and the matter should be addressed within two billing cycles. Until the billing error is resolved, you may not have to pay any part of a payment that is due, including finance charges, if you think the amount that is due is related to the amount that is being disputed. During this time, creditors should not try to collect the payment and may not report, or threaten to report, the failure to pay so that your credit is adversely affected.
If, after an investigation, the creditor concludes that the bill is correct, he must provide an explanation as to why it believes that the bill is accurate. If you ask, the creditor should give you the paperwork that the creditor relied on in making the decision. You must be told in writing when payment is due and how much you still owe (no additional finance charges may be added during this time). The creditor cannot report you as delinquent for the entire time period the creditor has given you to make payment or for 10 days, whichever is longer. After that time, the creditor has the right to report to the credit bureau that you have not made payment on time. A creditor can also report adverse information if you do not pay and still claim that the bill is wrong, if the creditor:
- Reports to the credit bureau that the amount owed is still being disputed;
- Tells you in writing the name and address of everyone the creditor notified that the payment has not been made; and
- Immediately contacts everyone he had previously notified of the delinquency once a resolution occurs.
Once the creditor has engaged in the dispute process described, he does not have to investigate further if you still claim that there is a billing error if you still believe that an error has occurred you may want to contact the state consumer protection office for further help. If, instead, the creditor acknowledges that an error has been made, the creditor must correct the error within two billing cycles. Your account should be credited and you should be notified of the result.
Does Regulation Z give any special protection to homeowners who have used their home as collateral?
Absolutely. Home equity loans or home improvement loans are common examples of a type of loan where you may use your home for collateral. In this situation, a creditor lends money to you using your house as collateral. If you do not pay the debt, the lender can then sell your house for payment.
The intent of the Regulation Z was to assist homeowners who may be in danger of losing their home if they default without realizing the consequences of their actions. Under the “rescission rights” portion of the law, homeowners generally have three days after entering into any contract where they have put their house up for collateral to change their mind or “rescind” the contract without needing a reason. The provision is intended to give you the chance to reconsider your decision before you risk losing your home. In any transaction where rescission is a possibility, the creditor should give you notice on a separate piece of paper that explains how you can rescind the agreement.
Under certain circumstances, a homeowner may have up to three years to rescind the contract where:
- The homeowner has not sold the home, and
- Important disclosures were not made to the homeowner at the time the original transaction took place.
A homeowner who wants to rescind an agreement should notify the creditor in writing. Notice is considered to be given when the homeowner mails the letter.
Regulation Z was passed to help you understand the terms and conditions surrounding the extension of credit.
You may find it helpful to have your own copy of Regulation Z to refer to as questions arise. If you would like to obtain your own copy, contact the Federal Reserve Board here.