Chapter 25: Credit and Other Financial Services

1. Chapter 25: Credit and Other Financial Services

2. 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!

3. 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

4. 3 ways to pay for an item: cash, savings or checking accounts, and credit

5. 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!

6. 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

7. http://www.youtube.com/watch?v=7dFbNw3bpKE • Why do people need credit? • What are forms of credit? • Is credit good?

8. 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

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

10. 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

11. 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

12. American Credit Woes

13. Paying for College • Student loans are easy to get and generally offer low interest rates. • FAFSA Form! (Free Application for Federal Student Aid)

14. 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

15. 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

16. Bill Consolidation: combining all your bills into a single one • Can lead to payments over a longer period of time and higher interest rates

17. 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

18. Secret History of Credit Cards • http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

19. 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?

20. 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.

21. 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!

22. 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

23. 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

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

25. 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%

26. Scenarios • Page 298-299 A-B • Page 307 A-C

27. 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)