# 32.5: Summary and Exercises

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## Summary

Consumers who are granted credit have long received protection through usury laws (laws that establish a maximum interest rate). The rise in consumer debt in recent years has been matched by an increase in federal regulation of consumer credit transactions. The Truth in Lending Act requires disclosure of credit terms; the Equal Credit Opportunity Act prohibits certain types of discrimination in the granting of credit; the Fair Credit Reporting Act gives consumers access to their credit dossiers and prohibits unapproved use of credit-rating information. After entering into a credit transaction, a consumer has certain cancellation rights and may use a procedure prescribed by the Fair Credit Billing Act to correct billing errors. Traditional debt collection practices—garnishment, wage assignments, and confession of judgment clauses—are now subject to federal regulation, as are the practices of collection agencies under the Fair Debt Collection Practices Act.

## Exercises

1. Carlene Consumer entered into an agreement with Rent to Buy, Inc., to rent a computer for $20 per week. The agreement also provided that if Carlene chose to rent the computer for fifty consecutive weeks, she would own it. She then asserted that the agreement was not a lease but a sale on credit subject to the Truth in Lending Act, and that Rent to Buy, Inc., violated the act by failing to state the annual percentage rate. Is Carlene correct? 2. Carlos, a resident of Chicago, was on a road trip to California when he heard a noise under the hood of his car. He took the car to a mechanic for repair. The mechanic overhauled the power steering unit and billed Carlos$600, which he charged on his credit card. Later that day—Carlos having driven about fifty miles—the car made the same noise, and Carlos took it to another mechanic, who diagnosed the problem as a loose exhaust pipe connection at the manifold. Carlos was billed $300 for this repair, with which he was satisfied. Carlos returned to Chicago and examined his credit card statement. What rights has he as to the$600 charge on his card?
3. Ken was the owner of Scrimshaw, a company that manufactured and sold carvings made on fossilized ivory. He applied for a loan from Bank. Bank found him creditworthy, but seeking additional security for repayment, it required his wife, Linda, to sign a guaranty as well. During a subsequent recession, demand for scrimshaw fell, and Ken’s business went under. Bank filed suit against both Ken and Linda. What defense has Linda?
4. The FCRA requires that credit-reporting agencies “follow reasonable procedures to assure maximum possible accuracy of the information.” In October of 1989, Renie Guimond became aware of, and notified the credit bureau Trans Union about, inaccuracies in her credit report: that she was married (and it listed a Social Security number for this nonexistent spouse), that she was also known as Ruth Guimond, and that she had a Saks Fifth Avenue credit card. About a month later, Trans Union responded to Guimond’s letter, stating that the erroneous information had been removed. But in March of 1990, Trans Union again published the erroneous information it purportedly had removed. Guimond then requested the source of the erroneous information, to which Trans Union responded that it could not disclose the identity of the source because it did not know its source. The disputed information was eventually removed from Guimond’s file in October 1990. When Guimond sued, Trans Union defended that she had no claim because no credit was denied to her as a result of the inaccuracies in her credit file. The lower court dismissed her case; she appealed. To what damages, if any, is Guimond entitled?
5. Plaintiff incurred a medical debt of \$160. She received two or three telephone calls from Defendant, the collection agency; each time she denied any money owing. Subsequently she received this letter:

You have shown that you are unwilling to work out a friendly settlement with us to clear the above debt. Our field investigator has now been instructed to make an investigation in your neighborhood and to personally call on your employer.

The immediate payment of the full amount, or a personal visit to this office, will spare you this embarrassment.

The top of the letter notes the creditor’s name and the amount of the alleged debt. The letter was signed by a “collection agent.” The envelope containing that letter presented a return address that included Defendant’s full name: “Collection Accounts Terminal, Inc.” What violations of the Fair Debt Collection Practices Act are here presented?

6. Eric and Sharaveen Rush filed a claim alleging violations of the Fair Credit Reporting Act arising out of an allegedly erroneous credit report prepared by a credit bureau from information, in part, from Macy’s, the department store. The error causes the Rushes to be denied credit. Macy’s filed a motion to dismiss. Is Macy’s liable? Discuss.

## SELF-TEST QUESTIONS

1. An example of a loan that is a common exception to usury law is a.a business loan
b. a mortgage loan
c. an installment loan
d. all of the above
2. Under the Fair Credit Reporting Act, an applicant denied credit a. has a right to a hearing
b. has the right to be told the name and address of the credit bureau that prepared the credit report upon which denial was based
c. always must pay a fee for information regarding credit denial
d.none of the above
3. Garnishment of wages a.is limited by federal law
b. involves special rules for support cases
c. is a legal process where a creditor obtains a court order directing the debtor’s employer to pay a portion of the debtor’s wages directly to the creditor
d. involves all of the above
4. A wage assignment is a. an example of garnishment
b. an example of confession of judgment
c. an exception to usury law
d. an agreement that a creditor may take future wages as security for a loan
5. The Truth-in-Truth in Lending Act requires disclosure of a. the annual percentage rate
b. the borrower’s race
c. both of the above
d. neither of the above