Consumer Law
Consumer
Consumer law is a body of law meant to protect consumers from unfair and predatory practices. It involves a multitude of state and federal laws including the Uniform Commercial Code. The Consumer Financial Protection Bureau (‘CFPA’) is a decade old federal agency which has become a preeminent regulator in this area of law. It is endowed with the power to draft regulatory rules, supervise financial institutions and enforce a broad range of federal law.
Tim helps clients navigate the many facets of state and federal consumer law and regulation. These run the gamut on industries, products and practices including:
- mortgage lending;
- mortgage servicing;
- lemon vehicles;
- credit card delinquency and error reporting;
Explanations of Selected Consumer Law Topics
Truth in Lending Act
The Truth in Lending Act (TILA) requires “meaningful disclosure of credit terms” in financial documents. It is designed to protect consumers against inaccurate and unfair credit billing and credit card practices by requiring complete and meaningful disclosure of all credit terms in simple easy-to-read language. This encompasses finance charges, annual percentage rates, payment amounts, and fees that may be charged to the consumer. Violations of TILA may entitle a consumer to cash compensation and/or offsets (reductions) of their loan balance. TILA applies in nearly any situation where a consumer obtains credit, including a vehicle loans, payday loans, title loans or other emergency loans, equity lines of credit and other consumer loans.
FAQ's About the Truth in Lending Act
Q: What is the Truth in Lending Act?
A: TILA was passed into law to ensure consumers know the true cost of credit whenever they obtain a loan or finance a purchase. Lenders must provide a Truth in Lending Disclosure Statement that includes information about the amount financed, the annual percentage rate (APR), finance charges (including application fees, late charges, prepayment penalties), a payment schedule and the total repayment amount over the lifetime of the loan. TILA requires lenders to disclose information about all charges and fees associated with a loan. It also requires prompt crediting of a consumer’s payment toward their loan.
Q: To what types of accounts does TILA apply?
A: TILA outlines rules that apply to closed-end accounts, such as home or auto loans, and open-ended accounts like credit cards.
Q: Does TILA govern interest rates which banks charge for loans?
A: No. TILA does not put restrictions on banks regarding how much interest they may charge or whether they must grant a loan.
Q: How does TILA regulate credit cards?
A: TILA regulates credit cards through it enacting regulation known as ‘Regulation Z’ or ‘Reg Z’. Regulation Z is another name for the Truth in Lending Act. The two are used interchangeably. The most significant amendments had to do Regulation Z rules regarding credit cards that came with the 2009 signing of the Credit Card Accountability Responsibility and Disclosure Act (CARD Act).
Q: What is the Card Act?
A: The CARD Act requires financial institutions and businesses to disclose vital information like interest rates, grace periods and annual fees when issuing new credit cards. The issuer is also required to remind you consumers of an upcoming annual fees prior to a card’s renewal. If the issuer offers credit insurance, you consumers must be made aware of the changes. The Card Act has been amended since originally being enacted. Card Act amendments include:
- credit card companies are prohibited from opening a new account or increasing the credit limit on an existing one without first considering the consumer’s ability to pay;
- credit card issuers are required to give consumers at least a 45-day notice before charging a higher interest rate and at least a 21-day “grace period” between receiving a monthly statement and a due date for payment;
- credit card companies are required to disclose on statements that consumers who make only minimum payments will pay higher interest and take longer to pay off the balance;
- fees for using mail, phone or electronic payment method are eliminated, except when using an expedited service;
- credit card companies are prohibited from charging fees for over-the-limit transactions, unless the cardholder opts in to this form of protection;
- credit card companies are prohibited from offering gift cards, t-shirts or other tangible items as marketing incentives for signing up for a card.
Fair Debt Collection Practices Act
The federal Fair Debt Collection Practices Act (FDCPA) prohibits third-party collection agencies from harassing, threatening and inappropriately contacting someone who owes money. The FDCPA covers personal, family and household debts including credit cards, home/auto loans, retail refinancing and medical bills.
In House vs. Third-Party Debt Collectors. Debt collectors don’t necessarily represent the creditor whose debt they are collecting. Some represent card issuers and lenders, but others may have purchased a portfolio of bad debt when the original lender gave up their own collection effort. In both cases, these companies are within their rights to try to collect the amount owed but they must follow the law and regulations. Debts can also be resold multiple times. The name of the creditor might change even though the same debt is being collected. A consumer should demand that the collector identify where the debt originated and how much remains owing.
The FDCPA doesn’t apply to in-house collectors. In house collectors are branches or departments of the company that originally loaned the money or gave credit. Some banks use these in-house departments to collect debts in the early stages of default before turning to outside collection agencies if the debt becomes stale. Both third party collection agencies and in house companies must follow FDCPA rules.
What Collectors Can and Can’t Do. Borrowers are obligated to pay their debts or work with a non-profit debt counselor or management firm to arrive at a repayment plan. If a consumer is delinquent, they are still entitled to privacy and respectful treatment. Specifically, no collection calls are permitted between 9 p.m. and 8 a.m. and none can be made to a workplace, if the consumer isn’t allowed to accept calls. A debt collector can’t use abusive language, threaten violence or arrest, nor can they talk about a consumer’s finances with any unauthorized person. Doing so is a violation of the FDCPA and may subject the debt collector to a penalty. Call Tim if there is a problem.
Rules Governing Creditor Contact with the Debtor. Notifying debt collectors in writing to stop contacting a consumer is their right and the debt collector must respect the consumers wishes. Creditors are still able to sue and send notification of a pending suit. The debtor or their attorney can send the collection agency and cease-and-desist letter via certified mail with verification requested that the letter was received. If the consumer hires Tim as their lawyer he will sends a cease-and-desist letter after which the debt collector must contact Tim and not the consumer. If the consumer doesn’t have a lawyer, the collector may contact other people to discover the consumers address and phone number, or to find out where they work. The outside sources — often called third parties — can generally be contacted no more than once. While talking to a third party, the collector is prohibited from discussing a debtor’s debt. At the beginning of any contact with a consumer, a debt collector is required to notify the consumer they are a debt collector trying to collect a debt.
A debt collector must validate a debt before attempting to collect it. Notice must be sent to the debtor and must include:
- The amount of the debt;
- The date it was supposedly incurred;
- The name and address of the original creditor if different from the current one;
- Proof that the account has been sold or assigned to the collection agency;
Proving a Debt is Due. Under the FDCPA, debt collectors are required to provide details about each debt they are attempting to collect by sending a written notice with the following information:
- name of the creditor;
- amount owed;
- instructions on how to repay the debt;
The foregoing is a validation notice and must be sent to the consumer within five days of initial contact. Following receipt of a validation notice, the consumer has 30 days to contact the debt collector to provide reasons why they don’t owe the debt or why the amount is incorrect. If the consumer fails to do so, the debt is assumed correct. If a debt has been paid, the best proof is a cancelled check. If a debt is contested, verification should include information about payments, interest and fees charged, made and/or waived.
If the debt arises from identity theft, report the incident to the police and send a copy of the police report to the debt collector. This must be done within 30 days of receipt of the validation period or the debt will be assumed valid. After receiving the consumer’s letter, a debt collector may not renew attempts to collect the debt until it has been verified and proof of its legitimacy is returned to the consumer.
If a debt has been paid, the best proof is a cancelled check. If a debt is contested, verification should include information about payments, interest and fees charged, made and/or waived.
If the required information is not forthcoming, all attempts at collection must immediately cease.
Rules Followed by In-House Collectors. The FDCPA contains a loophole for so-called ‘in-house’ collections. An in-house collector is a branch of the bank, retailer or credit-card firm that originally made the loan or offered the credit line. Lenders often try to collect debts themselves during the early stages of a default, using their own collection department. Federal law exempts in house collectors from the FDCPA’s prohibitions against abusive and unfair practices that apply to other debt collectors.
How to File a Complaint. If a debt collector hasn’t followed the FDCPA law, a consumer can complain to law enforcement. Complaints can be made to the state attorney general’s office, the Federal Trade Commission and/or the federal Consumer Financial Protection Bureau (‘CPFB’). A civil suit may also be brought against a debt collector for violating the FDCPA. Colorado has its own collection laws which complement federal statute. It’s advisable to keep records of all contact with debt collectors. If a client inadvertently speaks with a debt collector by phone, document the call describing what was discussed as well as the date and time.
FAQ's
Q: What If a Debt Collector Sues?
A: If a consumer is sued over a debt, they or their lawyer must answer or appear in court on the scheduled date. If no appearance is made, a judgment automatically is entered and becomes final after 30 days. Armed with a judgment, the collection agency will have legal recourse to continue its efforts to collect.
Q: What are the consequences if a debt collector violates the FDCPA?
A: Statutory Damages of $1,000 can be awarded to a consumer for a debt collectors’ violation of the FDCPA. Because the FDCPA says that the consumer can recover “up to $1,000,” the amount awarded could be less. This $1,000 is per lawsuit, not per violation. If a debt collector violates the FDCPA once or multiple times, the consumer can still be awarded up to $1,000.
Q: Are attorney’s fees and costs awarded in FDCPA lawsuits?
A: Yes. In cases where a debtor successfully proves a FDCPA violation, the court may allow recovery of attorneys’ fees and costs. This recovery is important because without this reimbursement, debtors might not be able to afford to bring FDCPA actions against unscrupulous debt collectors.
Q: What is the Statute of Limitations for FDCPA Lawsuits?
A: Under the FDCPA, lawsuits alleging violations of the FDCPA must be brought “within one year from the date on which the violation occurs.” (15 U.S.C. § 1692k(d)). In the case of Rotkiske v. Klemm, 589 U.S. ___ (2019), the U.S. Supreme Court clarified that the one-year statute of limitations for an FDCPA violation begins to run when the alleged violation occurs, not when the offense is discovered, absent the application of an equitable doctrine.
Defective Vehicle Lemon Laws
When a new vehicle has been purchased with a manufacturer’s warranty and it has a defect that substantially impairs its use and market value within one year of purchase and that defect is not repaired after a “reasonable number of attempts,” the consumer may have recourse under Colorado’s Lemon Law. A court may order the manufacturer to replace the vehicle or refund the purchase price less a reasonable allowance for use of the vehicle.
Reasonable Number of Repair Attempts. Under state law, a “reasonable number of repair attempts” applies when the same defect remains after it has been subject to repair four (4) or more times within the first year after the date of original delivery. It also applies when the vehicle is out of service for repairs for a cumulative total of thirty (30) or more business days during the warranty term or one year after original delivery, whichever comes first.
Magnitude of Defect. Defects, such as rattles or squeaks, which do not substantially impair the use or market value of the vehicle are not covered. Neither are defects resulting from abuse, neglect, or unauthorized modifications or alterations of the vehicle by a consumer.
Procedure. Prior to bringing suit against a manufacturer for refund or replacement of a vehicle, the consumer must first send written notice of defect by certified mail to the manufacturer. The consumer must give the manufacturer a chance to repair the vehicle and go through the manufacturer’s informal dispute settlement procedure, if one exists. Many large manufacturers use the dispute settlement procedure offered through the Better Business Bureau. A new vehicle owner’s manual should contain a form with the manufacturer’s name and business address.
The Magnuson-Moss Warranty Act. The Magnuson-Moss Warranty Act is a Federal Law that protects the buyer of any product which costs more than $15 and comes with an express written warranty. This law applies to any product which does not perform as it should. Under the Magnuson-Moss Warranty Act, a warrantor should perform adequate repairs in at least two, and possibly three, attempts to correct a particular defect. The Act’s reasonableness requirement applies to the vehicle as a whole rather than to each individual defect that arises. An important part of the Act is its fee shifting provision. This means that a consumer may recover their attorney fees incurred if prosecuting a lawsuit becomes necessary. The Act does not:
- require that a manufacturer provide a written warranty;
- apply to oral warranties;
- apply to products sold for resale or used for commercial purposes.
The Uniform Commercial Code. A consumer may derive additional warranty rights from their state’s Uniform Commercial Code (the UCC). The UCC is reasonably uniform from state to state and creates a universal standard for governing for interstate commercial transactions. UCC laws are established to regulate sales of personal property and other business transactions. Every state has adopted some version of the UCC including Colorado. Transactions such as borrowing money, leasing equipment or vehicles, setting up contracts and selling goods are all covered by the UCC. In most states, the UCC does not allow recovery of attorney fees and is not as consumer friendly as other laws like the federal Magnuson-Moss Warranty Act or Colorado’s lemon law.
FAQ's
Q: What vehicles are covered by Colorado’s lemon law?
A: Colorado’s Lemon Law covers only new (not older than a year), self-propelled vehicles, including pickups and vans not used for commercial purposes. Motor homes, commercial vehicles and motorcycles are excluded from the Lemon Law.
Q: Does federal law apply to defective vehicles?
A: Yes, the Magnuson-Moss Warranty Act. The act requires manufacturers to provide consumers with detailed warranty information. It also prevents disclaimer of implied warranties by manufacturers.
Q: Are used vehicles covered by the Lemon Law?
A: No but they may be covered by enforcement of other legal remedies such as an extended warranty.
Q: What happens when a consumer wins a lemon law action?
A: If a consumer wins a lemon law suit in Colorado, the manufacturer must either replace the vehicle with a comparable one or refund the original purchase price of the vehicle, minus a reasonable allowance to the manufacturer for the wear and tear while the consumer used the vehicle.
Q: Are there pre-conditions which must be satisfied before resorting to Colorado’s lemon law?
A: Yes. Before resorting to Colorado’s Lemon Law:
- The car dealer from whom the vehicle was purchased must be given a reasonable number of attempts to repair the defective vehicle. In practical terms, the manufacturer will be allotted four attempts to repair;
- The vehicle must have has been in possession of the manufacturer or an authorized repair location for at least 30 cumulative days, due to the repairs of the vehicle;
- A consumer must first participate in mediation/arbitration with a mediator/arbitrator of the manufacturer’s choice.
Fair Credit Billing Act
Where does a consumer turn to correct billing mistakes on their credit card invoice? A consumer is initially encouraged to deal directly with the creditor to settle a dispute. If the parties don’t resolve the matter, consumers may turn to the Fair Credit Billing Act (‘FCBA’).
The FCBA protects consumers by requiring creditors investigate and timely respond to billing disputes as well as promptly crediting refunds. The FCBA:
- requires creditors to promptly correct billing errors and credit consumer accounts to avoid late fees;
- allows a consumer to withhold payments on defective goods;
The FCBA fines disobedient creditors actual damages and statutory damages of up to $5,000 and contains “fee-shifting” provisions which may require a creditor to pay for the plaintiff’s attorney fees and court costs.
Regulated Parties. The FCBA applies to open-end credit. Open end credit is flexible – a consumer may extend themselves a non-fixed amount of credit up to a limit. Credit card companies are the most common examples of issuers of open-ended credit. The FCBA also applies to banks, credit unions, and other lenders when an open-end loan, such as a line of credit, is extended.
Billing Errors. The law defines a ‘billing error’ as any charge not:
- incurred by the consumer or made by an unauthorized user of the consumer’s account;
- properly identified on the consumer’s bill;
- the same amount as the actual purchase price;
- recorded on the same date the purchase was made;
- received or accepted on delivery or that was not delivered according to agreement.
Billing errors also include:
- errors in arithmetic;
- failure of a company to show a payment or other credit to a consumer’s account;
- failure of a creditor to mail the bill to the consumer’s current address, assuming the consumer informed the creditor about the address change at least 20 days before the end of the billing period, or;
- a questionable item, or an item for which the consumer needs more information.
Contesting Incorrect Billing. The consumer must contact the creditor in writing within 60 days after the first bill was mailed which shows the error. The consumer must use the address the creditor lists for billing inquiries and must provide the following information:
- the consumer’s name and account number;
- the date and suspected amount of the error or the item the consumer wants explained, and;
- a statement that the consumer believes their bill contains an error and why the consumer believes it to be incorrect.
The consumer must still pay the balance of their bill not in dispute without paying the amount in question (the “disputed amount”). A creditor must acknowledge a consumer’s dispute letter within 30 days, unless the issue can be resolved before then. Within two billing periods–but in no case longer than 90 days–either the consumer’s account must be corrected or they must be told why the creditor believes the bill is correct.
If the creditor made a mistake, the consumer does not pay any finance charges on the disputed amount. The account must be corrected, and the consumer must be sent an explanation of any amount that remains owing.
If no error is found, the creditor must send the consumer an explanation of the reasons and promptly send a statement of what is owed which may include any finance charges that have accumulated and any minimum payments missed while the bill was in dispute. A consumer has the right to demand that the creditor send the requested information. A creditor may not threaten a consumer’s credit rating during a billing dispute and may not take any action to collect the disputed amount.
FAQ's
Q: How long does a consumer have to notify a creditor once a billing error is discovered?
A: When a consumer discovers an error on their statement, they have 60 days to notify the creditor from the first date the error appeared on their bill.
Q: How should a consumer notify a creditor of the billing error they have discovered?
A: The notice must be in writing and allow the creditor to identify the consumer’s name and account number. The notice must also include a description of the error and why the consumer believes an error was made. It must be mailed to the address provided by the creditor to receive disputes.
Q: What are a creditor’s obligations after receiving notice of a billing error?
A: After receiving the error notice, the creditor must acknowledge receipt of the notice within 30 days and, unless the creditor is going to correct the error, it must conduct a reasonable investigation. The investigation must be completed no later than 90 days after it receives the error notice. If the creditor determines that an error has occurred, it must correct the error and credit the account with the disputed amount and any related charges. It also must mail a correction notice to the consumer. If the creditor determines that no error occurred, or a different error than the one reported occurred, it must mail an explanation of the reasons for its determination to the consumer, give the consumer evidence of its determination, if requested, and correct any other error which it may have discovered.
Q: Can a creditor attempt to collect the amount while a debt is in dispute?
A: No. During the period the creditor is investigating the reported error, it cannot attempt to collect the amount that in dispute.
Q: Can billing errors also include defective or poor-quality goods or services?
A: Yes.
Fair Credit Reporting Act
Q: Can billing errors also include defective or poor-quality goods or services?
A: Yes.
Q: Who is regulated by the Fair Credit Reporting Act (FCRA)?
A: Consumer Reporting Agencies, including credit bureaus and credit reporting companies
Q: Must entities regulated by the FCRA furnish correct and complete information to businesses to use when evaluating an application for credit, insurance and employment?
A: Yes.
Q: Who can see a consumer’s credit report and what do they see?
A: The FCRA provides rules about who can access a consumer’s report, what can be reported and, for how long an item can be reported. It also provides rules about credit reporting agencies and information suppliers (also called “furnishers“) must do if information is disputed by a consumer. Inaccurate information in a report could lead a creditor to denial of a loan, credit card, employment or tenancy if a landlord uses it to determine suitability of a prospective tenant.
Q: What happens if a FCRA violation occurs?
A: If an FCRA violation happens, a consumer can seek a civil remedy in court. Recovery of damages is available if a consumer can show that the violator, information furnisher, or entity using the information willfully or negligently violated the FCRA. ‘
* Willfully‘ means acting ‘recklessly‘. The reporting entity knew or should have known that it was violating the FCRA. ‘Negligently’ means failure to exercise care towards other which a reasonable or prudent person would use in the same circumstances. To find negligence, the injured consumer must prove: 1) the defendant had a duty to the injured party or public; 2) that the defendant’s action or failure to act was not at the level of a reasonably prudent person, and; that damages were proximately caused by the negligence. It helps if damages were reasonably foreseeable at the time of the alleged carelessness.
Q: What damages are available to a consumer?
A: Basic damages which are available for a willful violation include actual (provable) damages (without limit), or statutory damages between $100 and $1,000 (where proof of harm is unnecessary). Punitive damages, as decided by a court can be requested. For a negligent violation, a consumer can be awarded damages if they can show that the reporting entity or other entity failed to comply with their obligations under the FCRA. This includes: actual damages (no set limit or minimum), and; attorneys’ fees and costs. (15 U.S.C. § 1681o). See also 15 U.S.C. §§ 1681n and 1681o.
Q: What is the statute of limitations for filing a FCRA lawsuit?
A: Suit must be filed no later than:
- two years after the date the violation was discovered, or;
- five years after the date of the violation. (15 U.S.C.A. § 1681p).