Consumer Credit Protection Act of 1968 (CCPA)

What Is the Consumer Credit Protection Act of 1968 (CCPA)?

Understanding the Consumer Credit Protection Act of 1968 (CCPA)

The CCPA, in part, regulates the fair reporting of a customer's financial information, as well as prohibiting deceptive advertising and discrimination by creditors. It also makes the terms of loans more transparent to borrowers who may not be well-versed in finance or banking — the CCPA requires financial institutions to explain finance terminology in terms that are easier to understand for consumers.

The CCPA formed the basis for a variety of consumer protection laws covering lending, the disclosure of terms and conditions, as well as the collection and sharing of a consumer's credit and borrowing history. Below are some of its major provisions.

Title III

Creditors who want to collect an outstanding debt from an individual would under certain circumstances be able to garnish the person's wages. In other words, the bank could deduct money from a person's paycheck to settle a past-due debt. The CCPA has made this more difficult, limiting the powers that creditors have to initiate garnishment and requiring a court order to be obtained.

Title III restricts the amount of earnings that can be garnished to 25% of disposable weekly income after mandatory deductions for taxes or the amount by which disposable earnings are greater than 30 times the minimum wage. Title III ended the practice of creditors snatching a high percentage of wages to pay outstanding debt. However, it does allow up to 50% or 60% garnishment for past-due taxes and child support.

The Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA) regulates the sharing, storing, and collection of a consumer's credit and financial information. It was passed in 1970 to ensure the accuracy and privacy of the personal information contained in the files of the credit reporting agencies, which store all consumers' credit history. Both the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) are charged with updating and enforcing the act.

Consumers' credit history that includes payments, credit card numbers, and loans are stored in their credit report. This report is then used by creditors to review a consumer's financial history and determine whether the individual is creditworthy. The collection of the information is also aggregated into a numerical value of creditworthiness called a credit score.

The FCRA allows consumers to obtain one free copy of their credit report annually to ensure that banks and creditors have reported the consumer's financial history properly. If any information is inaccurate, consumers can dispute it.

Credit reporting agencies can disseminate a consumer's financial information under certain circumstances. The FCRA limits the access that parties have to the information in a consumer's credit report. For example, a mortgage company might pull a consumer's credit report if the person is applying for a mortgage to buy a home. However, an employer who would like to view a person's credit report cannot gain access without the expressed permission of the individual.

The Truth in Lending Act (TILA)

The Truth in Lending Act (TILA) is a federal law designed to protect and help consumers who are borrowing via a loan or other credit product from a lender or creditor.

The key tenets of TILA concern the disclosure of key pieces of information that are needed to calculate the cost of borrowing for a consumer. TILA requires that lenders disclose the term or length of the loan, as well as the annual percentage rate (APR), which represents the total, bottom-line cost to the consumer for the loan, including the interest charges and any fees.

Pursuant to the Act, consumer lenders are obligated to inform consumers about APRs — as opposed to the stand-alone interest rate — special or previously hidden loan terms, and the total potential costs to the borrower. In other words, the true cost of the loan or credit facility must be revealed within the documents presented to the consumer before signing. Information regarding periodic billing statements must also be disclosed.

The goal of TILA is to not only improve transparency but also allow the consumer to be able to shop around to other credit providers for better rates or terms. By establishing a standardized disclosure process for all banks, consumers can more easily compare offers.

Regulations banning deceptive advertising practices for loans fall under TILA, too. The act prevents creditors from steering borrowers to the most profitable loans for the banks versus what's best for the consumer. TILA also provides consumers with a three-day window to back out of a loan even after signing the paperwork at the closing.

The Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA), which was enacted in 1974, prohibits discrimination by creditors and lenders when evaluating a loan application for someone. The act forbids using sex, race, color, religion, and any non-creditworthiness determinants when performing a credit evaluation. For example, creditors cannot deny a loan based on the applicant’s age or whether the person is receiving public assistance.

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act (FDCPA) is a federal law that limits the actions that third-party debt collectors can take when trying to collect an outstanding debt from a consumer or entity — credit card companies, for example, might outsource the collection of outstanding debts to a third-party debt collector. The FDCPA restricts the scope of the actions by these debt collectors and imposes limits as to the number of times a borrower can be contacted and the time of day that calls can be made to borrowers. 

Electronic Fund Transfer Act (EFTA)

The Electronic Fund Transfer Act (EFTA), which was enacted in 1978, protects consumers when they engage in electronic transactions, such as the transfer of funds. The EFTA regulates transfers conducted via automated teller machines (ATMs), debit cards, and automatic withdrawals from bank accounts. It also helps consumers to correct transaction errors and limits the liability for a consumer if a card is lost or stolen.