If a business extends credit to their clients, the business must have certain credit policies and practices. However, the business must keep in mind that the credit rules and regulations should not violate federal and state laws related to credit practices. Most important of these laws is the Federal Trade Commission Act and related Credit Practices Trade Regulation Rules abbreviated as the “Credit Practices Rule”. This is a federal law. The rules regulate certain aspects of the extension of credit to clients from a business. The rules and regulations an organization designs or practices should not violate any part of this federal law. The law also mentions what are unfair credit practices.
Three primary provisions the credit practices rules
Following are three major provisions to the Credit Practices Trade Regulation Rues:
- The contract terms of a creditor shouldn’t be unfair to the customers who are willing to avail of credits.
- The creditors need to clarify the likely liability of consigning with another person, who then fails to pay back.
- The creditor needs to mention the provisions related to late free charges and certain special conditions when late fee charges can be prohibited.
Who must comply with the Credit Practices Rule?
The rule applies to any creditor that falls within the purview of the Federal Trade Commission. Here, creditors include finance companies, car dealers, departmental stores, certain types of retailers, and credit unions that offer credit contracts to consumers.
Unfair credit practices
The Federal Trade Commission Act has clearly mentioned certain practices as unfair credit practices. Section 5 of the act mentions that a lender (as defined the act) or a seller that allows an installment payment system for the purchase of household goods undertakes unfair credit practices if they receive or take an obligation from a consumer a non-possessory security interest against a household product (that the consumer buys) other than a purchase money security interest. According to this rule, household goods include clothing, furniture, crockery, linen, kitchenware, personal items including a wedding ring, one set of radio or television, swing machine, answering machine, household pets, patio furniture, and telephone. This list of household goods does not include electronic equipment solely for entertainment, jewelry except wedding rings, livestock, boat, and many such articles.
According to the Fair Trade Commission, seizure of the articles as mentioned above is a part of unfair trade practice from the part of the creditor because it’s mostly seen that when these articles are seized, they have no or little economic value. There are several other aspects related to unfair credit practices.
Obtain expert support for designing credit practices
The relationships with the sellers are the most valuable part of a business. No business wants to lose any customers. An installment payment option is an attractive option for the sellers. Some businesses have legal permission to extend credit to clients. For fair credit practices, it’s always feasible for the business houses to take legal assistance of and business and commercial attorney to ensure that the policies and practices do not violate the related legal framework.
To report fraud, unfair credit practices, or bad business practices consumers can directly contact the Fair Trade Commission through their website.