Accounting and Finance Foundations

Unit 10

Accounting and Finance Foundations Unit 10: Credit 754

Credit

Chapter 22

Lesson 22.2

Student Guide

Credit Regulations (cont’d)

Along with the credit report, creditors also ask potential debtors to complete a credit application. The

questions asked on the form provide the lender with information needed to make decisions about granting

credit. Two major portions of the application are the credit references and the applicant’s signature line.

You should list businesses or individuals who can provide information about your credit worthiness in the

credit reference section. The signature section grants permission to the lender to contact your credit refer-

ences and obtain a copy of your credit report. If you do not fill out the credit application completely, you

are not likely to be issued any credit.

Creditors must verify the information provided on the application. They typically require pay stubs or

financial statements to verify your income, and they may contact your bank to inquire about your differ-

ent accounts. They may also contact other creditors that can report on your payment history. If you list a

personal reference on your application, they may ask that individual to comment on how well you conduct

your private affairs.

Because not everyone is trustworthy, federal and state agencies have created specific laws to protect debtors.

The Truth-in-Lending Act of 1968 launched a series of laws that deal with various aspects of credit practices.

The Truth-in-Lending Act (TILA) requires creditors to disclose the total costs of credit to debtors in writing

prior to extending credit. TILA also requires that all finance charges, interest rates, and credit terms be

stated up front before any contract is signed.

In addition, TILA protects you if your credit cards are lost and stolen. It limits your liability for unauthorized

use of your card to $50.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against any applicant on

the basis of race, sex, age, or marital status. This act helps to protect all individuals and businesses apply-

ing for credit. If an applicant is denied credit, that individual or business can request reasons for the denial

in writing.

The Fair Credit Billing Act (FCBA) requires prompt correction of any billing mistakes. If a debtor notices a

mistake on a bill, s/he must notify the creditor of the error in writing within 60 days. While waiting for a re-

ply from the creditor, the debtor is not required to pay the amount in question. The creditor must acknowl-

edge the complaint within 30 days, and during the investigation, the customer should not incur finance

charges on the amount in question. If the creditor determines that it made a mistake, it must notify the

debtor in writing, credit or debit the account as necessary, and waive finance charges and late fees on the

amount in question. Finally, if no error is found, the creditor must issue a new bill. At that time, the debtor

may be charged any finance charges and missed minimum payments that have accumulated.