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Ch. 4: Consumer Credit

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14 diapositives · 306 Views · Aug 04, 2014

Credit cards are convenient tools that allow consumers to make purchases now and pay later, but they come with important considerations. Understanding credit cards involves knowing about revolving charge accounts, interest rates, and monthly payment obligations. Consumers enjoy certain protections under the Truth-in-Lending Act and the Fair Credit Billing Act, safeguarding them against loss, theft, or billing errors. This guide outlines key aspects to be aware of, ensuring you make informed decisions when using a credit card responsibly.

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Ch. 4: Consumer Credit
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  1. Ch. 4: Consumer Credit 4.4 Credit Cards

  2. What do you need to know when using a credit card? • Make a list of 5 things that you might need to know when you use a credit card.

  3. What do you need to know when using a credit card? • Well, what is a credit card? • A plastic card that allows the card holder to buy something now and pay for it later • Very prevalent today • Credit cards increase impulse buying • Buying something that the customer was suddenly attracted to but had no intention of buying

  4. 2 types of credit card accounts… • The most commonly used is called a revolving charge account • The entire bill does not have to be paid in full each month • There is a minimum monthly payment and a finance charge for the following month if the bill is not paid in full • High interest rates • A charge card is another type of credit card • Monthly bill must be paid in full • Only accepted certain places • No interest charged

  5. Is there any protection? • Well of course!!! • Truth-in-Lending Act– protects your card if it is lost or stolen • You may be liable for up to $50 of unauthorized charges • Once you contact the creditor you are no longer liable • Fair Credit Billing Act – protects you if there are any errors in your monthly statement • You are responsible to notify creditor

  6. Is there any protection? • Fair Debt Collection Practices Act – prohibits the creditor form harassing you or using unfair means to collect amount due • Unlike a credit card, but also made of plastic, is called the debit card • place money in an account and the debit card acts as an electronic check • You deduct money directly from your account • Electronic Funds Transfer Act – protects debit card users from unauthorized use of their cards • Not responsible for purchases made when lost or stolen

  7. Example 1 • Frank lost his credit card in a local mall. He notified his creditor before the card was used. However, later in the day, someone found the card and charged $700 worth of hockey equipment on it. How much is Frank responsible for paying?

  8. Check your understanding • Carrie’s credit card was stolen. She didn’t realize it for days, at which point she notified her creditor. During that time, someone charged $2,000. How much is Carrie responsible for paying?

  9. Example 2 • Credit card companies issue a monthly statement, therefore APR (annual percentage rate) must be converted to a monthly percentage rate. If the APR is 21.6%, what is the monthly interest rate?

  10. Check your understanding • If a monthly statement shows a monthly interest rate of x percent, express the APR algebraically.

  11. One last term… • The average daily balance is the amount you owe each day of the billing period • This changes as you make different purchases or payments

  12. Example 3 Rebecca did not pay last month’s credit card bill in full. Below is a list of Rebecca’s daily balances for her last billing cycle. For seven days she owed $456.11. For three days she owed $1,177.60. For six days she owed $990.08. For nine days she owed $2,115.15. For five days show owed $2,309.13. Find Rebecca’s average daily balance.

  13. Example 4 • Rebecca (from Example 3) pays a finance charge on her average daily balance of $1,441.60. Her APR is 18%. What is her finance charge for this billing cycle?

  14. Assignment • pp.197-198#2-7, 9, 10