This is a guest post by Elizabeth Warren’ s secret lover. Enjoy!
What do the following scenarios have in common?
- When applying for a mortgage, you are asked to close a specific credit card with the mortgage company rep on the line
- Your Paypal accounts got shutdown or frozen with hundreds of dollars that you are unable to move
- You applied for a credit card but when you receive the card it was not what you applied for
When most folks are confronted with these scenarios they know something is not quite right, yet they are uncertain on what to do. For individuals it can be both daunting and challenging to deal with institutions (many of which of significant size) that have such control / impact over our finances. To make things even more complicated, laws and rules for financial institutions in the US are complex and fragmented, making it difficult for consumers to clearly understand their rights.
The good news is that regulation and oversight of consumer financial matters has been becoming more centralized and accessible to the average consumer. An example of that is the Consumer Financial Protection Bureau and how its role has evolved in oversight of several consumer financial matters.
Generally there are 3 major types of issues that you as a consumer may face:
- Things advertised and not delivered as promised
- Credit / lending issues
- General problems with your account
Things advertised and not delivered as promised
There are 2 main types of laws that protect consumer: marketing / advertising laws, which set what / how companies can advertise – regardless of industry (e.g., advertising claims or comparative advertising); financial regulation, mainly in the form of Dodd-Frank Act. Dodd-Fact Act prohibits specifically “unfair, deceptive, abusive acts and practices” (UDAAP in industry jargon, which is covered below).
Marketing and advertising laws set guardrails to what companies in general can do. Some main areas that these marketing laws cover:
- Ensure that marketing is truthful and not deceptive
- Telemarketing rules
- Electronic SPAM (mainly via the form of email)
- There are some aspects related to finance and real estate
These set of laws combined with “unfair, deceptive, abusive acts and practices” standard are some of the strongest consumer protections that individuals can have.
Unfair, deceptive, abusive acts and practices
“Unfair” acts occurs when an act causes or is likely to cause harm to consumers, the harm cannot be reasonability avoided by consumers and the harm that is causes does not outweigh the benefits it creates to consumers. An example of this would be a bank selling a “free” checking account (no monthly fees) if you did a monthly deposit at a teller, yet charges for each teller transaction.
“Deceptive” acts occur when there is an act / practice that (potentially) misleads consumers in a material way, or could be interpreted as misleading by a “reasonable consumer”. An example of this would be a CD advertising an interest rate, without disclosing there is a minimum balance required to get that rate.
Finally, “Abusive” acts occurs when acts or practices are in the way of consumers to understand the terms of the product, or those acts take unreasonable advantage of consumers lack of understanding of the product terms. An example of this would be a bank selling a “rewards” checking account based on certain volume of debit card transactions and not disclosing / not making consumers aware that transactions must post during the account cycle to meet the requirements.
These definitions may seem a bit complex, but think whether things are “fair” / “transparent” and “balanced”. A couple of key questions to reflect whether something is not quite right:
- Did something cause you substantial harm, without clear benefit and you could not reasonably avoid?
- Where you told about the important / critical terms of the product?
- Where the terms clear enough that you could explain to a friend on the street in a casual short conversation?
Credit / lending issues
As with advertising there are several set of laws that govern credit – a summary list can be found here. These laws generally govern things like:
- How companies can give consumers credit and price that credit in a consistent and non-discriminatory fashion
- Under what circumstances a company can use / report credit bureau data
- Disclosures that must be made to consumer in related to contracts
- Several rights and protections related to credit card products and debt collection
In general there are very tight rules in terms of how financial institutions process credit applications and give credit – and here is a list of areas where consumers should be aware of their rights:
- Terms should be clearly disclosed
- No one should “steer” you to / away from a product (or even “recommend”) – whether their own or a “competitor”
- Any hard credit inquiry has to have express consent from you (exceptions apply) – and has a very specific use (that’s why you can’t apply for a card and the company gives you another, unless it is very clearly disclosed upfront)
- There are limited things that companies can do with your credit information (laws actually limit the permitted uses of that information)
- You should be treated the same way as other folks as in the same situation
Most of the lending issues that I have heard about relate to situations that are not very black / white and very grey to customers. It is important, especially when interacting directly with folks with credit decision authority (e.g., mortgage underwriters) to thread lightly, pause and inquire about intentions / interactions.
General problems with account
On top of the laws described above there are several laws that cover specific areas for financial services – all the ways to real estate, to brokerage or even how payments are processed. It’s very hard to describe all sets of existing laws, but keep in mind that specific issues may be covered by additional specific regulation.
Part 2 ‘How to Complain’ is coming soon.