CHAPTER 24: CONSUMER LAW 11
• Require companies to send out monthly bills to cardholders twenty-one days before the due
date.
• Prevent companies from increasing the interest rate on a customer’s credit-card balance
except in certain situations such as the expiration of a promotional rate.
• Prevent companies from charging over-limit fees except in certain situations.
• Require companies to apply payments in excess of the minimum amount due to the
customer’s highest-interest balance first when the borrower has balances with different rates.
• Prevent companies from computing finance charges based on the previous billing cycle.
B. THE FAIR CREDIT REPORTING ACT
must be notified of the fact and of the agency that issued the report. Consumers must be allowed to
correct any misinformation. Inaccurate information must be deleted within a reasonable period of
time.
2. Remedies for Violations
• The Fair and Accurate Credit Transactions Act (FACT Act) established a national “fraud alert”
system so that consumers who suspect identity theft can place an alert on their credit files.
• The FACT Act requires credit-reporting agencies to provide consumers with free copies of their
reports and to stop reporting allegedly fraudulent information once a consumer shows that identify
theft occurred.
whole or in part.
12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
To avoid such problems, Section 607(a) of the Fair Credit Reporting Act (FCRA) [15 U.S.C. § 1681]
requires that credit bureaus maintain adequate procedures to insure that obsolete data is not included in any
credit report. The FCRA also requires that credit bureaus take reasonable steps to verify the accuracy of the
information contained in their reports. Despite concerns expressed in Congress and elsewhere, however, the
FCRA contains no requirement that the information contained in the credit report be relevant. In other words,
all sorts of extraneous data, regardless of whether or not it reflects on the creditworthiness of the applicant,
may be included in the report.
Due to problems arising from misinformation in as many as a third of consumers’ credit files, under the
Fair and Accurate Credit Transactions Act of 2003, the major credit-reporting agencies must provide
consumers, annually, copies of their credit reports on request, free of charge. Due to current difficulties in
obtaining the free reports, however, and because the reports do not include the FICO scores developed by
Fair Isaac Corp. on which lenders and others commonly rely, many consumers might find it more effective to
buy the reports from a source that includes the FICO score in the reports.
D. THE FAIR DEBT COLLECTION PRACTICES ACT
The Fair Debt Collection Practices Act (FDCPA) of 1977 regulates the practices of collection agencies
collecting consumer debts. It applies only to debt-collection agencies that, usually for a percentage of the
amount owed, attempt to collect debts on behalf of someone else.
• Contacting third parties other than the debtor’s parents, spouse, or financial advisor about
payment unless a court agrees.
• Using harassment, or false and misleading information.
• Contacting the debtor any time after the debtor refuses to pay the debt, except to advise the
debtor of further action to be taken.
CASE SYNOPSIS—
Case 24.3: Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA
On behalf of Countrywide Home Loans, Inc., the law firm of Carlisle, McNellie, Rini, Kramer & Ulrich, LPA
(Carlisle), initiated a foreclosure action against Karen Jerman. She was served notice that the debt would be
assumed valid unless she disputed it in writing. She objected. Carlisle determined that the debt had been paid
and withdrew the foreclosure suit. Jerman then filed a suit in a federal district court against Carlisle, alleging
that the notice violated the FDCPA. The court ruled in Carlisle’s favor. The U.S. Court of Appeals for the Sixth
Circuit affirmed. Jerman appealed.
The United States Supreme Court reversed and remanded. Carlisle here violated the FDCPA by requiring
Jerman to dispute the debt in writing. This was a mistake of law. Carlisle argued that its mistake was not
intentional because it had not known that its conduct was unlawful, and therefore qualified as a “bona fide
error.” But Congress did not expressly include mistakes of law as a defense to liability under the FDCPA.
Among other things, the Court reasoned that the reference to “procedures” in the FDCPA “indicates that the
relevant procedures are ones that help to avoid errors like clerical or factual mistakes.” Mistakes of law are
errors in legal reasoning, which “is not a mechanical or strictly linear process.”
………………….………….………………………………..………………………….………………...…………………
Notes and Questions
What should the notice to the debtor have stated to avoid the suit in this case? From the Court’s
opinion it seems clear that the notice should not have told the debtor that the debt would be assumed valid
unless it was disputed in writing. The notice might have left out the “in writing” clause to avoid this suit, or it
might have been phrased to tell the debtor what to do in the case of a dispute without expressing any
assumptions.
How might this ruling benefit debtors in the long run? Debtors benefit when creditors deal fairly and
accurately. This ruling clarifies the notice that creditors may serve on debtors during foreclosure and most
likely other collection cases.
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Cyberlaw Link
What legal protection against cyberfraud exists? What are the legal issues for advertising and
promoting a product on a Web site?
not to use language that may have obvious factual inferences.
2. How does a bait-and-switch advertisement work? Bait-and-switch advertising involves displaying a low
price in a store window, for example, of a particular item that will likely be unavailable to the consumer, who will then
be encouraged to purchase a more expensive item. The low price is the “bait” to lure the consumer into the store. The
Assuming that the FTC investigation indicates that further action is warranted by the government, the FTC may issue
a cease-and-desist order requiring that the company cease and desist its advertising practices. Moreover, the FTC
may order affirmative advertising (which requires the company to provide specific information about its advertisement
so as to prevent consumers from being misled), counteradvertising (in which the company admits that prior claims
about its product were untrue) or multiple product orders (which require a firm to cease and desist from false
latter will govern the sale. In addition, the FTC requires the seller to notify the buyer of the right to cancel the sale
within the specified time, and if the sale is conducted in Spanish, notice of the right to cancel must also be given in
Spanish.
5. When must a recipient of unsolicited merchandise return the merchandise to the sender? Never.
problems before applying for credit.
12 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
To avoid such problems, Section 607(a) of the Fair Credit Reporting Act (FCRA) [15 U.S.C. § 1681]
requires that credit bureaus maintain adequate procedures to insure that obsolete data is not included in any
credit report. The FCRA also requires that credit bureaus take reasonable steps to verify the accuracy of the
information contained in their reports. Despite concerns expressed in Congress and elsewhere, however, the
FCRA contains no requirement that the information contained in the credit report be relevant. In other words,
all sorts of extraneous data, regardless of whether or not it reflects on the creditworthiness of the applicant,
may be included in the report.
Due to problems arising from misinformation in as many as a third of consumers’ credit files, under the
Fair and Accurate Credit Transactions Act of 2003, the major credit-reporting agencies must provide
consumers, annually, copies of their credit reports on request, free of charge. Due to current difficulties in
obtaining the free reports, however, and because the reports do not include the FICO scores developed by
Fair Isaac Corp. on which lenders and others commonly rely, many consumers might find it more effective to
buy the reports from a source that includes the FICO score in the reports.
D. THE FAIR DEBT COLLECTION PRACTICES ACT
The Fair Debt Collection Practices Act (FDCPA) of 1977 regulates the practices of collection agencies
collecting consumer debts. It applies only to debt-collection agencies that, usually for a percentage of the
amount owed, attempt to collect debts on behalf of someone else.
• Contacting third parties other than the debtor’s parents, spouse, or financial advisor about
payment unless a court agrees.
• Using harassment, or false and misleading information.
• Contacting the debtor any time after the debtor refuses to pay the debt, except to advise the
debtor of further action to be taken.
CASE SYNOPSIS—
Case 24.3: Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA
On behalf of Countrywide Home Loans, Inc., the law firm of Carlisle, McNellie, Rini, Kramer & Ulrich, LPA
(Carlisle), initiated a foreclosure action against Karen Jerman. She was served notice that the debt would be
assumed valid unless she disputed it in writing. She objected. Carlisle determined that the debt had been paid
and withdrew the foreclosure suit. Jerman then filed a suit in a federal district court against Carlisle, alleging
that the notice violated the FDCPA. The court ruled in Carlisle’s favor. The U.S. Court of Appeals for the Sixth
Circuit affirmed. Jerman appealed.
The United States Supreme Court reversed and remanded. Carlisle here violated the FDCPA by requiring
Jerman to dispute the debt in writing. This was a mistake of law. Carlisle argued that its mistake was not
intentional because it had not known that its conduct was unlawful, and therefore qualified as a “bona fide
error.” But Congress did not expressly include mistakes of law as a defense to liability under the FDCPA.
Among other things, the Court reasoned that the reference to “procedures” in the FDCPA “indicates that the
relevant procedures are ones that help to avoid errors like clerical or factual mistakes.” Mistakes of law are
errors in legal reasoning, which “is not a mechanical or strictly linear process.”
………………….………….………………………………..………………………….………………...…………………
Notes and Questions
What should the notice to the debtor have stated to avoid the suit in this case? From the Court’s
opinion it seems clear that the notice should not have told the debtor that the debt would be assumed valid
unless it was disputed in writing. The notice might have left out the “in writing” clause to avoid this suit, or it
might have been phrased to tell the debtor what to do in the case of a dispute without expressing any
assumptions.
How might this ruling benefit debtors in the long run? Debtors benefit when creditors deal fairly and
accurately. This ruling clarifies the notice that creditors may serve on debtors during foreclosure and most
likely other collection cases.
16 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
Cyberlaw Link
What legal protection against cyberfraud exists? What are the legal issues for advertising and
promoting a product on a Web site?
not to use language that may have obvious factual inferences.
2. How does a bait-and-switch advertisement work? Bait-and-switch advertising involves displaying a low
price in a store window, for example, of a particular item that will likely be unavailable to the consumer, who will then
be encouraged to purchase a more expensive item. The low price is the “bait” to lure the consumer into the store. The
Assuming that the FTC investigation indicates that further action is warranted by the government, the FTC may issue
a cease-and-desist order requiring that the company cease and desist its advertising practices. Moreover, the FTC
may order affirmative advertising (which requires the company to provide specific information about its advertisement
so as to prevent consumers from being misled), counteradvertising (in which the company admits that prior claims
about its product were untrue) or multiple product orders (which require a firm to cease and desist from false
latter will govern the sale. In addition, the FTC requires the seller to notify the buyer of the right to cancel the sale
within the specified time, and if the sale is conducted in Spanish, notice of the right to cancel must also be given in
Spanish.
5. When must a recipient of unsolicited merchandise return the merchandise to the sender? Never.
problems before applying for credit.