Unsecured loans are not tied to any property or asset. Instead, lenders decide whether to offer an unsecured loan based on the applicant's creditworthiness. This means that if you default on the loan the creditor cannot repossess any of your belongings. Such loans are covered by a few different federal and state laws.
Debt Collection
Should you default on your unsecured personal loan, your lender is within his rights to pursue repayment and even to sue you for the amount due. Additionally, your lender can send your unsecured debt to a debt collection agency. However, at that point the collection practices are limited by the Fair Debt Collection Practices Act. The debt collector is not allowed to discuss your debt with anyone but you and can call you only during reasonable hours. They may also not threaten you or pretend to be someone they are not. Violation of the FDCPA should be reported to the Federal Trade Commission.
Usury
Usury, also called predatory lending or loan sharking, is when an unreasonable interest rate is charged on a loan. Many states have laws limiting the interest that may be charged on loans. However, national banks are covered by federal rather than state laws. These banks can charge no more than twice the interest rate defined as usury in your state and may be further limited to rates no more than a few points above the Federal Reserve Discount Rate.
Truth in Lending Act
The Truth in Lending Act, passed in 1968, requires lenders to make important terms and costs associated with any loan clear to the borrower. This act does not limit the charges and fees that may be associated with a loan; it merely requires that they be clearly explained and presented in writing. Things that must be disclosed include the identity of the creditor, amount of the loan, annual percentage interest rate, finance charges, total payments that will be due, when payments will be due and any penalties for late payments, according to the FDIC.
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