Chapter 27. Your Credit and the Law pp

Your Credit and the Law pp. 434-447

Learning Objectives After completing this chapter, you ll be able to: 1. Explain how government protects credit rights. 2. Name federal laws that protect consumers. continued Introduction to Business, Your Credit and the Law Slide 2 of 60

Learning Objectives 3. Identify consumers credit rights. 4. Describe how to handle credit problems. Introduction to Business, Your Credit and the Law Slide 3 of 60

Key Words usury law Consumer Credit Protection Act truth-in-lending disclosure Equal Credit Opportunity Act Fair Credit Reporting Act Fair Credit Billing Act continued Introduction to Business, Your Credit and the Law Slide 4 of 60

Key Words collection agent Fair Debt Collection Practices Act credit counselor consolidation loan bankruptcy Introduction to Business, Your Credit and the Law Slide 5 of 60

Is it common for small business owners to use their personal credit cards to finance their business operations. A. Yes B. No 5 0 0 A. B. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Answer: Yes. Most small business owners prefer the ease of using their own credit cards to finance their business operations because if they pay the balance in full every month, the financing is free. If they got a bank loan for financing, the interest starts the day they got the loan.

Equal Credit Opportunity Act The Equal Credit Opportunity Act says that a credit application can be judged only on the basis of financial responsibility (CAPACITY) Introduction to Business, Your Credit and the Law Slide 8 of 60

Equal Credit Opportunity Act The Equal Credit Opportunity Act requires that all credit applicants be informed of whether their application has been accepted or rejected within 30 days. Introduction to Business, Your Credit and the Law Slide 9 of 60

Equal Credit Opportunity Act The three reasons for denying credit are: 1. Low income 2. Large current debts 3. A poor record of making payments in the past Introduction to Business, Your Credit and the Law Slide 10 of 60

A person can be denied credit if the loan agency (bank) believes that they are too old. A. Yes B. No 5 0 0 A. B. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Why do you need to know credit laws? To be able to protect yourself from identity theft, and being taken advantage of in relationship to your future usage of credit. Introduction to Business, Your Credit and the Law Slide 12 of 60

Protecting Your Credit Rights To protect consumers the federal and state governments regulate the credit industry. Laws Enforcement Introduction to Business, Your Credit and the Law Slide 13 of 60

Protecting Your Credit Rights You are in need of a loan. You go to the bank (because you know they offer the lowest interest rate) and fill out an application. Your loan is approved at 45% Interest. Can the bank legally charge you 45% interest? 5 A. Yes B. No 0 0 A. B. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Protecting Your Credit Rights Answer: No. A law restricting the amount of interest that can be charged for credit is called a usury law. The law is different in each state. It restricts the MAXIMUM amount of interest that can be charged, depending on the obligation (house, car, personal, etc.) Introduction to Business, Your Credit and the Law Slide 15 of 60

Loan Sharking A loan shark is a person or body that offers unsecured loans at a high interest rate to individuals, often enforcing repayment by blackmail or threats of violence. Introduction to Business, Your Credit and the Law Slide 16 of 60

I m so confused? How do you choose the best credit opportunity? A. Go to your favorite bank. Fill out the papers. Get the loan. B. Shop around. Gather information from many banks and choose the one that is right for you. 5 0 0 A. B. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Answer: Shop around. Getting the most for your money requires some time to find the lowest interest rate. Amount Financed Finance Charge Monthly Payment Total of Payments Annual Percentage Rate $200,000 $156,800 $1234.00 $356,800 7.65% Still confused?

Consumer Credit Protection Act To make comparing credit costs easier, Congress passed the Consumer Credit Protection Act, also known as the Truth in Lending Law. Introduction to Business, Your Credit and the Law Slide 19 of 60

Truth-in-Lending Disclosure All costs of borrowing must be made known to the consumer. These costs are provided in the truthin-lending disclosure that a creditor gives to a borrower. Introduction to Business, Your Credit and the Law Slide 20 of 60

Truth-in-Lending Disclosure The two ways that the cost of credit must be expressed are: The dollar cost of credit, or the total finance charge The annual percentage rate (APR) Introduction to Business, Your Credit and the Law Slide 21 of 60

Truth-in-Lending Example Introduction to Business, Your Credit and the Law Slide 22 of 60

Truth-in-Lending Disclosure The truth-in-lending disclosure also states the credit terms and conditions. Introduction to Business, Your Credit and the Law Slide 23 of 60

Advertising Credit According to the Truth in Lending Law, a credit advertisement must tell the number of payments, the amount, and the period of payments. Introduction to Business, Your Credit and the Law Slide 24 of 60

You lost your credit card. A stranger found it and is having a good time charging food and entertainment on your credit card. He has a lot of new friends! Do you have to pay for all of this? A. Yes B. No 5 0 0 A. B. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Protecting Card Owners The Truth in Lending Law states that If your credit card is lost or stolen and used by someone else, your payment for any unauthorized purchases is limited to $50. Introduction to Business, Your Credit and the Law Slide 26 of 60

Protecting Card Owners The Truth in Lending Law also states that credit card companies are not allowed to send REAL cards to consumers who didn t request a credit card. Introduction to Business, Your Credit and the Law Slide 27 of 60

Using your credit card You receive your monthly credit card statement in the mail and you notice a charge for an item that you did not purchase or for more than the amount of money you charged. What should you do? A. Pay it so you can keep your good credit rating. B. Don t pay it. Ignore it forever. C. Notify the company where the purchase was made. 5 0 0 0 A. B. C. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Fair Credit Billing Act The Fair Credit Billing Act requires creditors to correct billing mistakes brought to their attention. Introduction to Business, Your Credit and the Law Slide 29 of 60

Fair Credit Billing Act The law also requires that consumers (you) be informed of the steps they need to take to get an error corrected. Introduction to Business, Your Credit and the Law Slide 30 of 60

Notify the Company Where you made or did not make a purchase 1. The first step in fixing billing mistakes is to inform the company that billed you. Phone call, e-mail, etc. Introduction to Business, Your Credit and the Law Slide 31 of 60

Notify the Credit Card Company 2.The second step in correcting billing errors is to notify the Credit Card company in writing. Introduction to Business, Your Credit and the Law Slide 32 of 60

Dispute the Charge-DO NOT PAY You will not be charged interest on any amount on your credit card that is under dispute. Introduction to Business, Your Credit and the Law Slide 33 of 60

Using your credit card You purchased something on line using your credit card. The item arrives damaged. Your credit card statement requests payment for the damaged item. What should you do? A. Pay it and throw the damaged item away. B. Don t pay it. Ignore it forever. C. Notify the company where the purchase was made. 5 0 0 0 A. B. C. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Stop Payment The Fair Credit Billing Act permits consumers to stop a credit card payment for items that are damaged or defective. Introduction to Business, Your Credit and the Law Slide 35 of 60

Dispute the Charge-DO NOT PAY You will not be charged interest on any amount on your credit card that is under dispute. Introduction to Business, Your Credit and the Law Slide 36 of 60

Dispute a Credit Card Charge Activity Introduction to Business, Your Credit and the Law Slide 37 of 60

Your Credit and the Law pp. 434-447

Learning Objectives 1. Identify consumers credit rights. 2. Describe how to handle credit problems. Introduction to Business, Your Credit and the Law Slide 44 of 60

Fair Debt Collection Practices Act A collection agent is a person or business that has the job of collecting overdue bills. The Fair Debt Collection Practices Act restricts the way collection agents can collect the money owed. Introduction to Business, Your Credit and the Law Slide 45 of 60

10 Ways Debt Collectors Break the Law Introduction to Business, Your Credit and the Law Slide 46 of 60

Using your credit card You are unable to pay your creditors. The collection agent is hounding you for the money. This is upsetting you. He is calling you in the middle of the night (2:00 a.m.) and asking you for the money. Is this legal? A. Yes B. No 16 2 A. B.

Fair Debt Collection Practices Act Answer: No. The Fair Debt Collection Practices Act makes this illegal. Before this act, collection agents could use any method they chose to collect the money. Introduction to Business, Your Credit and the Law Slide 48 of 60

Fair Debt Collection Practices Act If they use the phone, collection agents can only call you at home between 8:00 a.m. and 9:00 p.m. They also cannot continue calling and/or pretend to be someone else. Introduction to Business, Your Credit and the Law Slide 50 of 60

Fair Debt Collection Practices Act 1. Collection agents must identify themselves to the people whose bills they re trying to collect. My name is George and I m hear to collect the $200 you owe XYZ company. Introduction to Business, Your Credit and the Law Slide 51 of 60

Fair Debt Collection Practices Act 2. Collection agents can t tell others about the debt. 3. Collection agents can t contact a person at work if the employer doesn t permit it. Introduction to Business, Your Credit and the Law Slide 52 of 60

Fair Debt Collection Practices Act 4. Collection agents can t state the amount of a debt on a postcard that a neighbor or someone else might see. YOU OWE $1,000,0000 Introduction to Business, Your Credit and the Law Slide 53 of 60

Fair Credit Collection Practices Credit collectors can contact your relatives and ask them how to reach you as long as they don t disclose that you owe money to them and/or how much. 15 A. True B. False 8 A. B.

Fair Credit Reporting Act When you apply for and use credit, the information goes into a file at one or more credit bureaus. (Trans Union, Equifax, Experian). A credit file includes current and past addresses, employment history, financial information and criminal record. Introduction to Business, Your Credit and the Law Slide 55 of 60

Fair Credit Reporting Act The Fair Credit Reporting Act was passed because of concerns about the accuracy of credit file information. Introduction to Business, Your Credit and the Law Slide 56 of 60

Your Credit Report is Inaccurate You are reviewing your credit report and find a mistake. You never had an account with Financial Funding. You don t owe them $10,000. What should you do? A. Ignore it. B. Get a lawyer and pay him/her to get it fixed. C. Contact a credit repair agency and pay them to fix it. D. Write a letter to the Credit Reporting Agency (Trans Union, Equifax, or Experian and dispute the error. 17 3 2 1 A. B. C. D.

Fair Credit Reporting Act Answer: Dispute the discrepancy. The Fair Credit Reporting Act requires the credit reporting agency (Trans Union, Experian, Equifax) to research this discrepancy. They must either prove that the charge is accurate, or they must remove it from your credit report with 30 days. Introduction to Business, Your Credit and the Law Slide 58 of 60

Figure 27.2 WHAT IF YOU RE DENIED CREDIT? Reasons Reporting Agency Introduction to Business, Your Credit and the Law Slide 59 of 60

Figure 27.2 WHAT IF YOU RE DENIED CREDIT? Introduction to Business, Your Credit and the Law Slide 60 of 60

Denied Credit Card You applied for a credit card at Sears. You receive a letter in the mail stating that you have been denied a credit card because of the credit report they received from Trans Union. What should you do? A. Ignore it. Apply for a credit card at another store. B. Call Sears and yell at them. C. Contact Trans Union and ask for a copy of your credit report. 3 5 15 A. B. C.

Fair Credit Reporting Act Answer: Contact Trans Union and ask for a copy of your credit report. The Fair Credit Reporting Act requires the credit reporting agency (Trans Union, Experian, Equifax) to provide you with a FREE copy of your credit report if you are denied credit. If there is an error on this report, dispute it immediately. Introduction to Business, Your Credit and the Law Slide 62 of 60

Figure 27.2 WHAT IF YOU RE DENIED CREDIT? Write the wrong. The law requires credit card companies to correct inaccurate or incomplete information in your credit report. Is it best to request changes of incorrect information by letter rather than by phone? Introduction to Business, Your Credit and the Law Slide 63 of 60

Right to Privacy According to the law, only authorized persons can see a copy of your credit report. Introduction to Business, Your Credit and the Law Slide 64 of 60

Right to Be Notified The Fair Credit Reporting Act states that you must be notified when an investigation is being conducted on your credit record. Introduction to Business, Your Credit and the Law Slide 65 of 60

Right to 1 Free Credit Report Each Year The Fair Credit Reporting Act also states that you are entitled to 1 FREE credit report each year, from each of the reporting agencies (Trans Union, Equifax, Experian). Introduction to Business, Your Credit and the Law Slide 66 of 60

Credit Report Commercials Commercials Introduction to Business, Your Credit and the Law Slide 67 of 60

Credit Services Some companies charge a fee to clean up your credit rating but they re seldom able to restore a bad credit rating. Video Introduction to Business, Your Credit and the Law Slide 68 of 60

Correct Your Credit Report Which is the BEST way to correct your credit report. A. Contact an agency who specializes in this area and pay them a fee. B. Get a copy of your credit report, write the credit reporting agency and dispute the inaccuracies. C. Ask Mrs. Miller to do it for you. D. Ignore it. 0 0 0 3 1 2 3 4

Graphic Organizer Chapter 27 Graphic Organizer Consumer Credit Rights Consumer Credit Protection Act Right to know costs and terms of credit Equal Credit Opportunity Act Fair Credit Reporting Act Fair Credit Billing Act Fair Debt Collection Practices Act Right to fair opportunity to obtain credit Right to know what s in your credit file Right to have billing mistakes resolved Right to be protected from collection agencies Introduction to Business, Your Credit and the Law Slide 70 of 60

February 2010-new regulations so that banks cannot dig borrowers deeper into debt. Video New Credit Law Introduction to Business, Your Credit and the Law Slide 71 of 60

New Credit Law 1. Interest Rates cannot be raised in the first year after an account is opened UNLESS it is an introductory teaser rate. Introduction to Business, Your Credit and the Law Slide 72 of 60

New Credit Law 2. Your monthly bill will show you how long it will take you to pay off your debt IF YOU ONLY MAKE THE MINIMUM PAYMENT. Introduction to Business, Your Credit and the Law Slide 73 of 60

New Credit Law 3. Service fees (activation and annual fees) will be capped at 25% of the credit limit during the first year of use. If your credit limit is $5,000 the annual fee can be as much as $1250. Introduction to Business, Your Credit and the Law Slide 74 of 60

New Credit Law 4. Due date is consistent. 5. Statement must be sent out 21 days before the payment due date. 6. Over the limit fees You will be informed BEFORE you go over the limit. Introduction to Business, Your Credit and the Law Slide 75 of 60

New Credit Law 7. Cannot raise interest rates on existing balances. 8. Credit cards CANNOT be issued to anyone under 21, UNLESS there is a co-signer or you have the capacity (JOB) to pay a loan. 9. Banks are not allowed to hand out gifts on or near college campuses or at their events. Introduction to Business, Your Credit and the Law Slide 76 of 60

Enforcing the Laws The Federal Trade Commission (FTC) is responsible for enforcing the laws on credit. The FTC also helps consumers with credit problems. Introduction to Business, Your Credit and the Law Slide 77 of 60

Enforcing the Laws On the state level, you can contact your state banking department about credit problems. Introduction to Business, Your Credit and the Law Slide 78 of 60

Enforcing the Laws A consumer protection division of your state attorney general s office deals with complaints that other government agencies might not handle. Introduction to Business, Your Credit and the Law Slide 79 of 60

Agencies that Enforce Credit Laws You are about to purchase a new car at a local car dealership. Before signing the contract, you notice that the interest rate is 24%. You remember the salesperson saying that the interest rate was only 5%. What should you do? A. Tell your friends. B. Report the card dealer to your Attorney General. C. Nothing. You really want the car. D. Contact your own lawyer, which will cost you money. 13 5 1 1 A. B. C. D.

Figure 27.1 FEDERAL AGENCIES THAT ENFORCE THE LAW The law gives you certain rights as a credit consumer. What types of complaints about a creditor might you report to these government agencies? Introduction to Business, Your Credit and the Law Slide 81 of 60

Debt! Help! You have over spent and are in debt. What should you do? Introduction to Business, Your Credit and the Law Slide 82 of 60

Debt! Help! The first thing you should do is contact your creditors (bank, credit card companies, etc.) and ask them if they can lower your payments due to your financial situation. Most companies are willing to work with you. Introduction to Business, Your Credit and the Law Slide 83 of 60

2. Credit Counseling A credit counselor can help you revise your budget, contact creditors to arrange new payment plans, or help you find other sources of income such as getting a part time (seasonal) job. Introduction to Business, Your Credit and the Law Slide 84 of 60

Credit Services If you need a credit counselor, you can check with your Better Business Bureau or contact your local Chamber of Commerce. Introduction to Business, Your Credit and the Law Slide 85 of 60

3. Consolidating Debts A consolidation loan combines all your debts ($2,000 in monthly payments) into one loan with lower payments. 1. Kohls 2. Shell 3. Master Card 4. Visa 5. Mobil 6. Sears 7. Wal-Mart New Loan at Harris Bank ($1200 in monthly payments) Introduction to Business, Your Credit and the Law Slide 86 of 60

Consolidating Debts The two problems with a consolidation loan are: There is usually a high interest rate because people who get such loans are considered poor credit risks. continued Introduction to Business, Your Credit and the Law Slide 87 of 60

Consolidating Debts Because there is only one monthly payment, you might feel that the credit problem is under control and start charging new purchases. CUT UP THOSE CHARGE CARDS Introduction to Business, Your Credit and the Law Slide 88 of 60

4. Bankruptcy Bankruptcy is a legal process in which you are relieved of your debts, but your creditors can take some or all of your assets. You must get an attorney and pay a filing fee. This could cost you as much as $1,800. Introduction to Business, Your Credit and the Law Slide 89 of 60

4. Bankruptcy Chapter 7: basic liquidation for individuals and businesses; relieved of all debts. Wipe the slate clean. Chapter 11: rehabilitation or reorganization, financial reorganization which typically allows people to follow a debt repayment plan that they can afford. Introduction to Business, Your Credit and the Law Slide 90 of 60

4. Bankruptcy When bankruptcy is declared, the debtor, the creditor, and a courtappointed trustee come up with a plan to repay the debt on an installment basis. Introduction to Business, Your Credit and the Law Slide 91 of 60

4. Bankruptcy You should avoid bankruptcy because it gives you a bad credit record. Recent changes in the law have made it harder to declare bankruptcy. Introduction to Business, Your Credit and the Law Slide 92 of 60

Your Credit Report is Inaccurate Which of the following is the 1 st step you should take when you can t pay your creditors? A. File Bankruptcy B. Contact your creditors. C. Get a consolidation loan D. Find a credit counselor.

End of Chapter 27 Your Credit and the Law