Ch. 4: Consumer Credit

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