The Consumer Credit Protection Act (CCPA) is one of the central consumer protection laws in the United States. Such laws are designed to safeguard American consumers against fraud, deception, and other unfair business practices. Whereas some consumer protection laws regulate the advertising, quality, and safety of the goods and services consumers buy, the Consumer Credit Protection Act is specifically aimed at regulating the consumer credit industry. Credit is a kind of loan that makes it possible for consumers to buy things without paying for them outright, or all at once, at the time of the purchase. When a financial institution extends a line of credit or credit financing to a consumer, it means that the consumer is given permission to spend up to a predetermined amount of money and pay it back over time. Home mortgages, student financial aid, and credit cards are all examples of consumer credit. Financial institutions do not lend out this money for free; rather, they charge interest (a percentage of the money borrowed) and other fees for their services. Also, financial institutions do not lend money to every consumer who asks for it; there is always a risk that the borrower will not be able to repay it. Thus, credit lenders routinely conduct background checks on people who apply for credit, in order to verify that the applicant has a good history of paying his or her bills on time, can afford to repay the amount of money he or she has requested, and is generally a financially reliable person. A person’s credit report is a record of his or her financial history. If this report is deemed unfavorable by the lender, the applicant may be denied credit. Consumer protection legislation is implemented both at the state and the federal level. The CCPA is a federal law that was passed by Congress in order to shield consumers from unfair lending practices. Contained within the CCPA are the Truth in Lending Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and other subchapters, each addressing specific credit-lending issues. The CCPA is enforced by the Federal Trace Commission (FTC; a government agency whose mission it is to protect consumers from various kinds of abuses) and state consumer protection agencies.
Consumer credit was not widely available in the United States during the first half of the twentieth century. In the aftermath of World War II (1939–45), however, the nation experienced an unprecedented boom in population growth, home construction, and consumer spending. The 1950s also marked the birth of the consumer credit industry. The industry grew quickly, as more and more people began to rely on credit as a way to finance their lives. Without any existing regulations or government oversight, however, some lenders took advantage of borrowers by charging exorbitant interest rates or extending credit without fully disclosing the terms of the loan. It was not long before consumer advocates began to call for the government to establish guidelines to specify the difference between fair and unfair lending practices. In 1968 Congress passed the Consumer Credit Protection Act, the umbrella term for what has become a series of laws governing consumer credit transactions.
In addition to requiring transparency from lenders about the terms of their loans, the CCPA also places important restrictions on wage garnishment. Wage garnishment is a legal procedure whereby a portion of a person’s earnings is withheld from his or her paycheck in order to pay off a debt. Wage garnishment can be ordered by a court when a person has defaulted on (failed to repay) a loan. The CCPA stipulates that an employer cannot fire an employee because his or her wages are being garnished for a single debt (the employer can fire the employee if his or her wages are garnished for more than one debt). It also sets a legal limit on how much (what portion) of a person’s wages can be withheld from any one paycheck. Usually, no more than 25 percent of a person’s wages can be garnished.
The Fair Credit Reporting Act (FCRA) was added to the CCPA in 1971. It was the first federal regulation to address the credit-reporting industry. (Credit-reporting agencies, also called consumer-reporting agencies or credit bureaus, are companies that collect and compile consumers’ credit-history information. The three major nationwide credit bureaus are Equifax, Experian, and TransUnion). The FCRA is intended to insure the accuracy, privacy, and fairness of consumer credit files. Protections contained in the FCRA also apply to consumer-reporting agencies that sell information about people’s medical histories (often used by insurance companies to decide whether or not to extend medical insurance coverage to individuals) and rental histories (used by prospective landlords). According to its provisions:
Another amendment to the CCPA, the Equal Credit Opportunity Act, which was added in 1976, prohibits credit lenders from discriminating against applicants on the basis of sex, race, age, marital status, religion, or national origin. Implemented in 1978, the Fair Debt Collection Practices Act (FDCPA) prohibits abusive, deceptive, and unfair debt-collection tactics, such as threats, persistent and intrusive phone calls, and other kinds of harassment.
The CCPA is designed to protect individual consumers. Its larger purpose, however, is to maintain consumer confidence in the financial system and thereby promote a robust economy. If consumers fear that they will be cheated by credit lenders, or that they have no access to, or control over, the information that is contained in their credit histories, their loss of confidence could cause them to avoid lending institutions altogether. A widespread loss of consumer confidence could lead to a major upset in the economy, something that the government, financial institutions, businesses, and consumers all have an interest in avoiding.
The Consumer Credit Protection Act has been amended and updated several times since its inception. Among the most recent additions to the law is the Fair and Accurate Credit Transactions Act (FACTA), an amendment to the Fair Credit Reporting Act. Enacted by Congress in 2003, FACTA is aimed at protecting consumers against identity theft (the illegal act of stealing a person’s financial identity and using their credit to make purchases or otherwise profit). With the rapid growth of the Internet and electronic banking, identity theft has become an increasingly widespread criminal activity, which can cause serious damage to a person’s credit report. In order to help consumers monitor their own credit histories to make sure no one is impersonating them, FACTA stipulates that individuals must be able to obtain a free copy of their credit report from each of the major credit bureaus annually. The act also makes it possible for an individual to place a fraud alert on his or her credit history if he or she suspects that someone has stolen his or her identity.