Banking and Credit Cards

1. Banking and Credit Cards Presented by the Delaware Bankruptcy Inn of Court Much of what follows is based on information from the FDIC’s “Money Smart” Adult Education Program.

2. Banking • The purposes of this section of these materials are to: • Identify the primary reasons to use a bank. • Identify the major types of insured financial institutions. • Describe the steps involved in opening and maintaining a bank account. • Describe the main functions of the people who work in banks.

3. Reasons to Keep Your Money in Banks • There are a number of good reasons to use banks. These include: • Safety • Convenience • Cost • Establishing a Financial History

4. Safety • Safety – The money you have in the bank is safe from theft, loss, fire or any other factor that could cause you to lose money you might keep elsewhere. • Importantly, the Federal Deposit Insurance Corporation (“FDIC”) insures deposits in banks, currently up to $250,000 for each depositor in each insured institution. The FDIC insures all deposit account types at insured banks, including checking, savings, money markets and CDs. Since the start of the FDIC in 1934, no depositor has lot a single penny of insured deposits as a result of a bank failure. • The FDIC does not, however, insure money invested in stocks, bonds, mutual funds, etc., even if they are purchased from the insured banks. • Most financial institutions we will be discussing (all of which we will refer to as “banks”) and which you will be familiar with in Delaware are FDIC insured. But, you should ask the bank you are considering using to confirm that they are FDIC insured. (To learn more about FDIC insurance, you may go on-line to www.fdic.gov). • You will soon learn that credit unions are a type of financial institution similar to a bank. Most credit unions are insured by the National Credit Union Administration (“NCUA”). The deposit insurance rules are the same for NCUA-insured credit unions as for FDIC-insured banks.

5. Convenience • Convenience - Using a bank or credit union allows you to get money quickly and easily and to pay bills by check or on-line conveniently. Other features we will mention later, such as direct or electronic deposits of your paycheck by your employer, save you time and allow you quicker access to your money.

6. Cost • Cost – Using a bank is usually cheaper than using other businesses to cash your checks or issue money orders. But, banks do charge various fees for some transactions and features and you should always be aware of and understand your bank’s fee structure.

7. Establishing a Financial History • Establishing a Financial History – Building a relationship with a bank not only allows you a convenient, safe way to save money and handle your finances, but can establish a good record of paying your bills, all of which may be helpful in getting a loan from that bank or another if you want to do so in the future

8. The Major Types of Financial Institutions • There are 3 Major Types of Financial Institutions • Banks • Credit Unions • Thrifts

9. Banks, Credit Unions and Thrifts • There are three major types of financial institutions that are commonly referred to as “banks.” • Traditionalbanks make loans, pay checks, accept deposits and provide other financial services. • Credit Unions are non-profit financial institutions owned by people who have something in common – often the same employer. You have to become a member of the credit union to keep your money there. • A “Thrift” is a savings bank or savings and loan association that is similar to a bank. • There are many traditional banks, credit unions and thrifts in Delaware to choose from. For example, a quick internet search or review of the Yellow Pages identifies more than 40 banks and 20 credit unions in the Wilmington area. • But, don’t be confused by the number of choices available. Most banks are providing the same basic services and the competition among them means generally that the fees they charge will also be similar. You should be sure to check to make sure those you consider provide the services you want at reasonable cost and are federally insured, but you will also want to consider factors such as the location of the office you will most want to use (i.e., is it convenient to your home or job), whether there is a convenient ATM (automated teller machine) available, etc.

10. Opening and Maintaining a Bank Account • Opening and maintaining a bank account is not difficult, so don’t be put off from entering into a banking relationship because you think it will be hard. • After you have decided on the bank (or banks) that look like the best fit for you, you should plan a visit to the branch of that bank. • To open an account, you will likely talk to a “customer service representative.” This person can help you open your account, explain the services offered by the bank, answer general questions (such as, is the bank federally insured), refer you to other bank employees who can answer more specific questions you might have, and provide written information explaining the bank’s services.

11. Account Verification • The first step in opening a bank account is a process called “account verification.” The bank wants to confirm that you will be a responsible customer. If you have had problems with banks in the past, they may not want to risk having you as a customer now. • The bank may review your history of using checking accounts and it may run a credit report on you. • The bank will need to see a photo identification, such as a driver’s license, and your Social Security or Individual Taxpayer ID number to verify your identity. • If you are not a U.S. citizen, the bank may accept other forms of photo identification, such as a passport or a resident alien card (Green Card). • You might want to call the bank before you visit it and ask what types of ID will be required to open an account. • If the bank determines that you are eligible to open an account, you can deposit money into your new account. • If you are unable to open an account, ask whether you are eligible for any “second chance” checking program. The programs may allow you to open a checking account after meeting certain requirements, such as completing a check-writing workshop. There may be fees associated with these programs.

12. Deposit • A deposit is money you add to your account. To do so, you must fill out a deposit slip. The deposit slip tells the bank how much money, in cash or by check, you are adding to your account. If your deposit is by payroll check or a check drawn on another bank, you may not have immediate use of the money because the bank must make sure there are funds in the account at the bank on which the check was written to cover the check. You can ask your bank when you can use the money you deposited.

13. Withdrawals and Balance • Withdrawal • When you make a withdrawal, you are taking money out of your account. You can withdraw funds by writing a check, giving a teller a withdrawal slip or using an ATM. • A withdrawal slip is similar to a deposit slip except you are taking money out of, rather than adding to, your account. • You always need to know how much is in your account so you will not try to withdraw – for example, by writing a check to pay a bill – more money than you have. • If you overdraw your account, or “bounce a check,” you will be charged a fee by the bank. • Balance • The balance is the amount of money you have in your bank account. So it is the difference, at any one time, between what you have deposited in the account and what you have withdrawn.

14. Fees and Interest • Fees • Banks charge fees for different services, such as a monthly maintenance fee for keeping your account open, for ordering checks for you to use or for bouncing a check or taking more money out than you have in your account. Be sure you understand the types and amounts of fees that your bank charges. • Even though banks charge fees, it is generally the case that it is cheaper to use a deposit account at a bank than a check-cashing service or purchasing money orders. • Interest • Interest is the percentage of the balance in your account that the bank pays you for keeping your money at that bank. Not all accounts pay interest. Because of the current economic situation, the interest banks are paying on checking (if any) and savings accounts is very low. The interest rate being paid by the bank you are considering is one of the factors to weigh as you decide with what bank to do business.

15. Additional Banking Services • Some banks offer additional services with some checking and savings accounts. In some cases, an additional fee may be charged. Some services that might be useful to you are: • Direct Deposit – Your employer or government agency can pay you your pay or benefits check directly into your bank account electronically. That money is immediately available and some banks will not charge monthly fees if direct deposit is used. • Automated Teller Machines or ATMs – An ATM is a kiosk or terminal in or outside a bank where you can deposit cash and checks, withdraw cash, or transfer money from one account to another 24 hours a day. You can do so literally around the world. Although, if you are using an ATM that is not your bank’s, a fee may be charged. • Telephone Banking – This allows you to: • check account balances; • transfer money between accounts; • obtain account history, such as recent deposits or withdrawals; and • stop payment on a check. • Online Banking – This allows you to do many of the tasks on a computer that you would otherwise do in person, such as paying bills, reviewing account balances and transferring funds between accounts. • Debit Card – This looks like a credit card, but when you use it to buy something from a store, the money comes out of your account immediately.

16. Other Bank Employees • In addition to the customer services representative, whose duties in helping you set up your accounts we have discussed, other bank employees with whom you may come in contact are: • Tellers, who deposit your money, cash your checks or withdrawal slips, and answer questions or refer you to someone who can. • Loan Officers, who take applications for loans, provide information about loans offered by the bank and help you fill out a loan application. • Branch Manager, who supervises all the bank’s operations that take place at that branch and help resolve questions that other bank employees can’t.

17. Hopefully, the information we have discussed has given you a better understanding of what services banks offer, how they may be advantageous to you and how to go about entering into a relationship with a bank best suited for your needs.

18. Credit Cards • The purposes of this section are to: • Identify the primary reasons to obtain and use a credit card. • Identify the major types of credit cards. • Practical ways to manage the use of a credit card. • Identify which reason to use a credit card is most important to you.

19. Reasons to Obtain and Use a Credit Card There are a number of good reasons to obtain and use a credit card. These include: • To Do Things that Require the Use of a Credit Card • To make small daily purchases without having to use cash or a check each time • To help you keep track of your expenses • To purchase a large item by paying for it later

20. To Do Things Requiring a Credit Card • A credit card also enables you to do transactions --- such as buying things on the internet, renting a car, or reserving a hotel room --- that require a credit card.

21. To Make Small Daily Purchases Without Using Cash or a Check • A credit card gives you the convenience of not always having to have cash on you, or your checkbook. It comes in handy for time when you need money fast and you don’t have cash on you. For example, if you are running out of gas and have no cash, you can go to the nearest gas station and pay for gas with your credit card. A credit card also lets you make purchases or rentals that typically require a credit card, such as purchases on the internet or renting a car. A credit card gives you a revolving line of credit. This means you can make an unlimited number of purchases up to a preapproved dollar amount, such as $3,000.00. Essentially, a credit card gives you a convenient way to borrow money - - - that is, money that you have to pay back. As long as you have the money to pay the bills, and you are disciplined enough to pay off your balance, a credit card is a useful tool.

22. To Help Keep Track of Expenses • When you use a credit card, you receive a statement that lists all of your charges, including where you spent money and how much. For many people, this is a convenient way to keep track of small and large purchases.

23. To Purchase a Large Item by Paying for it Later • For some people, a credit card will help in making large purchases. Essentially, a credit card gives you a convenient way to borrow money --- that is, money that you have to pay back. Because of the relatively high rate of interest on most credit cards, though, large purchases made using a credit card will require payment of substantial interest until the balance is repaid in full. For this reason, using a credit card for this purpose can be very expensive and other alternatives, or delaying the purchase until you have the money, should be considered.

24. The Major Types of Credit Cards • There are many types of credit cards. Banks, department stores, and even gasoline stations offer credit cards. But, let’s suppose that you are interested in getting a credit card for your daily necessities, such as food, clothing, and drugstore items. Which type of credit card would be best for this use? • Grocery Store Loyalty Cards. • No. A grocery store savings club card is not the same as a credit card. It is normally free and gives you special offers at the particular grocery store where you received the card. • Department Store and Gasoline Credit Cards. • Nice try, but a department store credit card limits you to purchasing items in one particular store. You are looking for a credit card that give you the most flexibility to use in various stores, for almost any type of purchase. • Bank Credit Cards. • Yes. A bank credit card would make the most sense in this case. When a bank issues a credit card to you, you can use it for purchases at most any retail store. It gives you flexibility and convenience. Like all credit cards, you will be given a revolving line of credit. This means you can make an unlimited number of purchases up to a certain amount of money such as $3,000. You must pay at least a portion of the bill every month. This is called a minimum payment.

25. Types of Bank Credit Cards Include: • Secured Credit Card • Unsecured Credit Card • Rewards Card • Smart Card • Debit Card

26. Secured Credit Card • A secured credit card is a good choice if you have no credit history or have had credit problems in the past. A problem with your credit may be, for example, if you have not been able to pay your bills on time. Then, the bank may consider it risky to loan you money. If this is the case, to get a secured card you need to use a bank savings accounts as collateral. This means the bank will hold the money in the savings account as security for you to pay back the loan for purchases. • For people with: • No credit history • Credit problems • Requires: • Bank savings account with minimum balance maintained. • Savings account as guarantee to bank. • Application and processing fees.

27. Unsecured Credit Card • Most credit cards are unsecured, meaning that you do not have to provide collateral. Collateral is what you promise to give the bank if you do not pay back the loan. Items like homes, cars, or savings and investment accounts can serve as collateral. • Most credit cards. • No collateral needed.

28. Rewards Card • One kind of credit card is a rewards card. A rewards card combines a bank credit card with a reward system and will have the name of the participating merchant, airline or hotel on the card. When you use these credit cards, you earn points toward goods or services, and you may also receive cash rebates. You may be charged annual fees for reward cards.

29. Smart Card • Another kind of a credit card is a smart card. A smart card resembles a standard credit card in size and shape, but inside it is completely different. The inside of a smart card usually contains an embedded microprocessor or computer ship. The chip is under a gold contact pad on one side of the card. Think of the computer chip as replacing the usual magnetic strip on a credit card or debit card. A smart card can be used for the following: • Credit cards. • Electronic cash. • Computer security systems. • Wireless communications. • Loyalty systems (like frequent flyer points). • Banking. • Government identification.

30. Debit Card • A debit card resembles a credit card except that it is tied to your checking account. When you use it to make purchases or to withdraw money at an automated teller machine (ATM), the money is immediately taken out of your checking account. You need to be sure you have money in your checking account before you use a debit card.

31. Comparing a Credit Card with a Debit Card • Let’s compare a credit card and a debit card. Your credit card is a buy now, pay later card. You can make purchases with it through the billing period, then pay for them when your statement arrives. Your debit card, on the other hand, immediately removes money from your account when it is presented as payment. Credit cards can offer freebies, such as rebates and bonus points. Many credit cards may include additional purchase protections. Credit cards also have fees and penalties attached, and some do not have grace periods for payment. It can be easy to accumulate debt. By comparison, using a debit card is like writing a check.

32. Credit Cards and Debit Cards

33. Key Credit Card Terms. • Whether you have an unsecured or secured credit card account, there are many options to choose from. If you understand some of the key terms associated with credit card options, it will make the process of deciding which one to use much easier. Here is an example of some of the important terms of a bank credit card offer.

34. Key Credit Card Terms Described • Annual Percentage Rate (APR) – The interest rate per year on all outstanding balances. A variable rate of interest means the credit card company can change your rate of interest. Cards also provide for a higher rate of interest, or a “penalty” APR if you do not pay on time. • Annual Fee – The fee (in addition to interest and other charges) that you must pay each year to have the use of the credit card. • Monthly Minimum Payment – The minimum amount that you must pay each month to not be in default and owe late charges. • Minimum Finance Charge – The minimum amount of finance charge that will be charged against your account each billing period. This is not the maximum amount of interest, which can be much higher. • Method for Computing Interest – The method the credit card company uses to compute the interest charged. • Billing Cycle – The length of time between each month’s bill. • Grace Period – The period of time within which you can pay the amount owing for purchases before interest starts being charged on these purchases.

35. Examples of Credit Card Terms

36. Some Things to Watch Out For Some Things to Watch Out For In a Credit Card Offer: • Terms for Which You “Might” Qualify – Credit card offers often state that you “may” qualify for attractive terms. There is no guaranty that the credit card company will continue to offer those terms to you once it has processed your application. • Teaser Rates – New credit cards may have a “teaser rate” - - - a low initial rate that later increases to a substantially higher rate. Some Things to Watch Out For After You Have Your Credit Card: • Late Fees – Late fees are expensive, can add up, and are payable even if your payment is minutes late. A new law requires your credit card company to give you at least 21 calendar days from the date the statement is mailed to you for you to make at least the minimum payment to avoid the late fee. • Changes in Interest Rate – A new law restricts interest rate increases on existing balances and retroactive increases due to late payment.

37. New Protections for Credit Card Holders The Credit Card Accountability, Responsibility and Disclosure Act (CARD) Gave Credit Card Holders new protections and imposed certain limitations regarding: • Retroactive Rate Increases • Advance Notice of Rate Increases • Limitations on Fees • Billing and Payment Times • Application of Payments • Cards to Minors Under 21 Years Old

38. Retroactive Rate Increases • Your credit card company cannot increase your interest rate for the first 12 months after you open your card account, unless: • Your card has a variable rate and the index for the rate goes up • You agreed to an introductory interest rate, but you are entitled to that interest rate for at least 6 months • You are more than 60 days late paying or are in a workout agreement and do not make the required payments on time.

39. Advance Notice of Rate Increases • Your credit card company must send you a written notice at least 45 days in advance of its raising the interest rate on your credit card or change certain fees, such as annual fees, cash advance gees and late fees, or make other major changes to your account • If the credit card company wants to make such changes it must give you the option of cancelling your credit card account • The 45-day notice requirement does not apply if you are more than 60 days late paying or are in a workout agreement and do not make the required payments on time

40. Limitations on Fees • If the credit card company increases your interest rate, the new rate applies only to new purchases and not to the old credit balance • Over-the-limit transactions must now be declined, and no fee charged, unless you previously contacted the credit card company and asked that such transactions be honored, and then the company is allowed only one fee per billing cycle and you can revoke at any time • Annual or application fees cannot add up to more than 25% of the initial credit card limit

41. Billing and Payment Times • Credit card company must mail or deliver your credit card bill at least 21 days before the payment due date

42. Application of Payments • If you pay more than the minimum monthly payment, then the additional amount must be applied against the balance with the highest interest rate, unless you made a purchase under a deferred interest plan (such as “no interest if paid in full by” a specified date) • Credit card company cannot do double-cycle billing, and can only charge interest on balance due in current billing cycle

43. Cards to Minors Under 21 Yrs. Old • Card applicants under 21 years old must now show that they can make payments, or must obtain a co-signer to open a credit card account • Co-signer must provide written permission for any credit limit increases

44. What New “CARD” Rules Don’t Do • Credit card company can reduce your credit limit without notice, unless the limit would trigger a penalty • New rules donot limit the interest rate that a credit card company can charge

45. What to Do About Errors In Your Credit Card Statement • If you find a difference between one of your credit card receipts and how it is listed on your monthly statement, what would you do? • Don’t pay the specific charge where you found the difference? • Hold onto the bill to see if it is corrected in next month’s statement? • Contact your credit card company in writing within 60 days? • The answer is no. 3. As soon as you locate the difference or error between your receipts and the monthly statement you should notify your credit card company immediately by phone. But to be fully protected, you must report a discrepancy to your credit card company in writing within 60 days from the day the bill was sent to you. When you speak to the credit card company, ask them exactly what information you need to include in the letter.

46. What to Do If You Cannot Pay Your Balance in Full • If you are unable to pay the total balance on your credit card, what is you best option? • Pay as much as you can according to your monthly budget? • Pay nothing now and wait until your pay check next month to pay off the total amount? • Pay the minimum payment amount of $10? • The best answer if you are unable to pay the balance in full, is to pay as much as your budget allows. The faster you can pay off your bill, the less interest you have to pay, and the less money you’ll pay over time.

47. Minimum Payment or More --- What a Difference!

48. What Should You Do If You Have Balances on More Than One Credit Card That You Cannot Pay In Full • Even when trying to stick to your personal budget and minimize your spending, having too many credit cards can make it tempting to overspend. There’s nothing wrong with having credit cards, but be careful not to overspend. • If you have balances on more than one credit card that you cannot pay in full, what should you do? 1. Get a cash advance on another credit card to pay part of the bill? 2. Pay for future purchases using cash or check? 3. Reduce your expenses by paying off the balance on your highest rate loans first? • The best answers are 2 and 3. You should pay off the credit card that is costing the most in interest. For example, if you are paying 18% APR on a $4,000 loan and 5% APR on a $5,000 loan, you are paying more for the $4,000 on a monthly basis. You may want to also start using cash or check for your minor purchases, so you can avoid finance charges from the credit card bills.

49. What To Do If You Simply Cannot Pay Your Credit Cards • The first think you should do if you are having trouble paying your credit card debt is contact your credit card company and try to negotiate a settlement, even if you have been turned down before. If at first you don’t succeed, be persistent. • Another option is to contact a credit counselor. Credit card statements direct cardholders to information about finding nonprofit counseling agencies. Reputable credit counseling organizations advise people on managing money, bills and debts, help them develop a budget, and usually offer free information and workshops. • If you decide to pay a company to negotiate your debt, do some research. Consider other people’s experiences. One way to do that is to enter the company name with the word “complaints” into a search engine. Read what others have said. • The FTC suggests that it is best to avoid any company that promises to settle your debt if it: • touts a “new government program” to bail out personal credit card debt; • guarantees it can make your unsecured debt go away; • tells you to stop communicating with your creditors; • tells you it can stop all debt collection calls and lawsuits; • guarantees that your unsecured debts can be paid off with pennies on the dollar; • requires that you pay the full fee within the first few months.