Chapter 25: Credit and Other Financial Services

The Basics about Bank Accounts

2 types of accounts: savings and checking

Do not spend more than you have in the account (you can get overdraft protection)

ALWAYS REVIEW YOUR BANK STATEMENT!

Banking Fees

Banks may charge fees for:› Having an account› Ordering checks› Failing to keep a

minimum balance› Bouncing a check› Guest ATM fees

ATM: automatic teller machine

Debit Cards: automatically deduct the amount from your checking account

3 ways to pay for an item: cash, savings or checking accounts, and credit

Lost and Stolen Check Books and Cards

If you lose your checkbook tell you bank immediately to stop payment!

If you lose your check card you can be liable for up to $50 but you must notify your bank immediately!

An Introduction to Credit You are buying something now with

the promise to pay later. Creditors: People who lend money

or provide credit… Give an Example Debtors: People who borrow money

or buy on credit

http://www.youtube.com/watch?v=7dFbNw3bpKE

Why do people need credit? What are forms of credit? Is credit good?

Finance Charge: the additional money owed to a creditor for the privilege of borrowing money (example: interest)

2 types of Credit: Secured and Unsecured

Unsecured Credit: credit extended with a promise to repay in the future, not required to pledge property to get credit. - Credit cards and store accounts are unsecured credit

Secured Credit: credit in which the debtor must put up some property of value in case a loan is not repaid (collateral)

How Credit Works

When paying a credit bill you must make the minimum monthly payment!

Interest will be charged on the unpaid balance. (usually 18-20%!)

Annual Percentage Rate (APR): interest rate for credit cards

Billing Error

Fair Credit Billing Act: requires that if you complain in writing about the billing error within 60 days of the statement, the creditor must respond to the complaint within 90 days

American Credit Woes

Paying for College

Student loans are easy to get and generally offer low interest rates. › FAFSA Form! (Free Application for FederalStudent Aid)

The Cost of Credit

Interest Rates:› Usury: (Use Ur E) charging an interest rate

above the legal limit› Variable Interest Rates: the rate you are

charged changes based on economic conditions

› Late Fees› Service Fee

Costly Credit Arrangements Loan Sharking: lending money at

high, often illegal, rates (often used by people who cannot get legal loans)

Balloon Payments: the last payment is much larger than the monthly payments

Acceleration Clause: makes the entire debt due immediately if a payment is not made on time or another condition is not met

Bill Consolidation: combining all your bills into a single one› Can lead to payments over a longer period

of time and higher interest rates

Truth in Lending

Truth in Lending Act: a law that requires creditors to give you certain basic info about the cost of buying credit› Must tell you IN WRITING the finance

charge and APR› Must tell the consumer about fees for late

payments

Secret History of Credit Cards

http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

What Lenders Want to Know Before Extending Credit

Is the consumer a reliable person?

Does the consumer have a steady income?

Can the consumer pay for the items they purchase?

Does the consumer have a good credit rating?

Equal Credit Opportunity Act: protects consumers against credit discrimination

Contact the Federal Trade Commission if you think you have been discriminated against by a company.

What to do if you are Denied Credit

The Equal Credit Opportunity Act requires creditors to tell you specifically WHY they are denied credit

You should obtain a copy of your credit report to make sure all information is correct.

Your credit history (good or bad) stays with you for 7 years!

Default and Collection Practices

Default: when a consumer is unwilling to or unable to pay a debt

If you Default …› Create a budget› Ask your creditor to refinance your credit

Bankruptcy

Bankruptcy: a procedure when a person places their assets under the control of a court in order to be relieved of their debt› Chapter 13 Bankruptcy: the court

supervises a person and allows them to pay off the debt over an extended period of time

› Chapter 7 Bankruptcy: the court takes control of a person’s assets, sells them, and pays off as much debt as possible

Bankruptcy

Bankruptcy remains on your credit report for 10 years and it can be hard to obtain credit or borrow money.

Creditor Collection Practices

Fair Debt Collection Practices Act: protects consumers from abusive and unfair collection practices by debt collectors.› Creditors CAN repossess collateral if you

default on a loan› If you fail to pay a loan the creditor can

sue you in court. › Creditors can garnish (withhold) your

wages up to 25%

Scenarios

Page 298-299 A-B Page 307 A-C

Illustrate your knowledge!

Create a visual (Cartoon, Sketch, Graphs) to illustrate 3 of the 4: loan sharking, balloon payments, acceleration clauses, and bill consolidation)› You must include an explanation of what

each visual is about. (1-2 sentences)