Your Rights as a Borrower

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My credit card interest rates seem so high, and now they are being raised! Is this fair?

When you express interest in a credit card, all of the following should be disclosed to you before sign-up: annual fees (often called “membership” fees), annual interest rate, transaction fees, and any “free” periods. If you believe that your credit card company failed to tell you about any of these charges, or unfairly is changing the terms of your agreement without notice, contact the company immediately in writing and cease use of the card until you get a satisfactory answer.

Under the Truth in Lending Act, you have the right to be informed of these basic policies.

I’m nervous about the loan I just took out on my home. Can I get out of this decision?

It is possible. There is a three day “cooling off period” after a closing, and you have the right to “rescind” a loan during this time. Additionally, if there has been a violation of any of your lending rights, or if there were predatory and illegal terms in your loan, you have an absolute right to sue and get out of the contract after this period. In any case, you should talk to a lawyer about any concerns you may have.

What happens if I “rescind” a loan?

Generally, if you “rescind” a loan, any money that you have paid must be given back to you within 20 days. Keep in mind that there always is a chance that you could be sued for any benefit you have gained because of the loan process (such as improvements you have made or materials you have gained because of the loan).

You have the right to be informed. You must be informed three days prior to closing that you have a high interest loan. You additionally have three days to rescind the loan if you choose. Any lender who violates these rights may be fined or sued for deceptive trade practices, which actually could expand your rights.

I’m not sure I understand all of the terms in my home loan. What rights do I have?

The law does not say that you necessarily need to be pointedly informed. Talk with a lawyer about any terms you do not understand. In future agreements, it is wise to confirm that any explanations that you ask for be put in writing. Then, if there are any “surprises” after receiving your loan, you have proof that you were not merely signing documents, but you asked for thorough explanations.

What is a “high-cost” mortgage?

The law states that a mortgage is high-rate or high-cost when the APR is 10% higher than typical rates, or when “points and fees” are more than $400 or 8% of the “total loan amount”. Unfortunately, it can pretty easy for a sophisticated lender to stay below the legal definition, and also pretty easy for a consumer to be oblivious. As always, ask for a statement in writing if you think that your mortgage might be in the high-cost category.

Are there laws to protect me when I borrow money?

Yes. There are state and federal laws regarding loan rates, what you can be told, and when a contract cannot be enforced as planned. Keep in mind that these laws go both ways – both you and your lender have certain obligations. If you feel that you have been cheated or treated unfairly, then consider contacting your state’s attorney general’s office for consumer affairs. Additionally, you may be able to get free legal advice or help through a local legal aid society.

With so many choices, loan products often are confusing. The law, however, is very clear. You have a right to know these five things: (1) Annual Percentage Rate (2) Amount Financed (3) Pay-off Amount (4) Finance Charges and (5) Schedule.

What scams should I look out for?

Lending scams are becoming more common, and there are several red flags to watch out for. As a precaution, be wary of anyone who calls you on the phone. Common scams involve loan flipping, in which you are sold a loan with a series of increasingly high interest rates. Equity stripping also is common, and involves a lender going after the equity in your home after promising initial easy payments that are followed up by balloon payments. You can prevent harmful scams by insisting that a lawyer look at any offer before you agree.

Is the internet a safe place to look for loans?

Yes and no. Because of the ability to compare loan rates quickly, the internet can improve your chances of finding the best loan. However, this also leads many people to act too quickly. Before making any decisions, call the lending company and get as much information as you can, and do so before giving information about yourself. View any offers you find online with skepticism, and expect any internet lender to understand your reluctance.