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Chapter 27 Your Credit and the Law pp. 434- 447
Chapter 27
Introduction to Business, Your Credit and the Law Slide 2 of 60
Learning Objectives
After completing this chapter, you’ll be able to:
1. Explain how government protects credit rights.
2. Name federal laws that protect consumers.
continued
Chapter 27
Introduction to Business, Your Credit and the Law Slide 3 of 60
Learning Objectives
3. Identify consumers’ credit rights.
4. Describe how to handle credit problems.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 4 of 60
Key Words
usury law
Consumer Credit Protection Act
truth-in-lending disclosure
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Credit Billing Act
continued
Chapter 27
Introduction to Business, Your Credit and the Law Slide 5 of 60
Key Words
collection agent
Fair Debt Collection Practices Act
credit counselor
consolidation loan
bankruptcy
Is it common for small business
owners to use their personal credit
cards to finance their business
operations.
A. B.
00
5
A. Yes
B. No
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Answer: Yes. Most small business owners
prefer the ease of using their own credit cards
to finance their business operations because if
they pay the balance in full every
month, the financing is free. If they
got a bank loan for financing, the
interest starts the day they got the
loan.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 8 of 60
Equal Credit Opportunity Act
The Equal Credit
Opportunity Act says
that a credit application
can be judged only on
the basis of financial
responsibility
(CAPACITY)
Chapter 27
Introduction to Business, Your Credit and the Law Slide 9 of 60
Equal Credit Opportunity Act
The Equal Credit Opportunity Act
requires that all credit applicants be
informed of whether their application
has been accepted or rejected within
30 days.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 10 of 60
Equal Credit Opportunity Act
The three reasons for denying credit
are:
1. Low income
2. Large current debts
3. A poor record of making payments
in the past
A person can be denied credit if the
loan agency (bank) believes that
they are too old.
A. B.
00
5
A. Yes
B. No
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Chapter 27
Introduction to Business, Your Credit and the Law Slide 12 of 60
Why do you need to know credit laws?
To be able to protect yourself from identity theft, and being taken advantage of in relationship to your future usage of credit.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 13 of 60
Protecting Your Credit Rights
To protect consumers the
federal and state
governments regulate the
credit industry.
Laws
Enforcement
Protecting Your Credit Rights
A. B.
00
5
A. Yes
B. No
You are in need of a loan. You go to the bank
(because you know they offer the lowest interest
rate) and fill out an application. Your loan is
approved at 45% Interest.
Can the bank legally charge you
45% interest?
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Chapter 27
Introduction to Business, Your Credit and the Law Slide 15 of 60
Protecting Your Credit Rights
Answer: No.
A law restricting the amount of interest
that can be charged for credit is called a
usury law.
The law is different in each state.
It restricts the MAXIMUM amount
of interest that can be charged,
depending on the obligation
(house, car, personal, etc.)
Chapter 27
Introduction to Business, Your Credit and the Law Slide 16 of 60
Loan Sharking
A loan shark is a person or
body that offers unsecured
loans at a high interest rate
to individuals, often
enforcing repayment by
blackmail or threats of
violence.
I’m so confused?
How do you choose the
best credit opportunity?
A. B.
00
5
A. Go to your favorite
bank. Fill out the papers.
Get the loan.
B. Shop around. Gather
information from many
banks and choose the one
that is right for you.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Answer: Shop around.
Getting the most for your money
requires some time to find the lowest
interest rate.
Amount
Financed
Finance
Charge
Monthly
Payment
Total of
Payments
Annual
Percentage
Rate
$200,000 $156,800 $1234.00 $356,800 7.65%
Still confused?
Chapter 27
Introduction to Business, Your Credit and the Law Slide 19 of 60
Consumer Credit Protection Act
To make comparing credit costs
easier, Congress passed the
Consumer Credit Protection
Act, also known as the Truth in
Lending Law.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 20 of 60
Truth-in-Lending Disclosure
All costs of borrowing must be made
known to the consumer.
These costs are provided in the truth-
in-lending disclosure that a creditor
gives to a borrower.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 21 of 60
Truth-in-Lending Disclosure
The two ways that the cost of credit
must be expressed are:
• The dollar cost of
credit, or the total
finance charge
• The annual
percentage rate
(APR)
Chapter 27
Introduction to Business, Your Credit and the Law Slide 22 of 60
Truth-in-Lending Example
Chapter 27
Introduction to Business, Your Credit and the Law Slide 23 of 60
Truth-in-Lending Disclosure
The truth-in-lending disclosure also
states the credit terms and conditions.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 24 of 60
Advertising Credit
According to the Truth
in Lending Law, a
credit advertisement
must tell the number
of payments, the
amount, and the
period of payments.
You lost your credit card. A stranger found it
and is having a good time charging food and
entertainment on your credit card. He has a lot
of new friends! Do you have to pay for all of
this?
A. B.
00
5 A. Yes
B. No
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Chapter 27
Introduction to Business, Your Credit and the Law Slide 26 of 60
Protecting Card Owners
The Truth in Lending
Law states that If your
credit card is lost or stolen
and used by someone
else, your payment for any
unauthorized purchases is
limited to $50.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 27 of 60
Protecting Card Owners
The Truth in Lending
Law also states that
credit card companies
are not allowed to
send REAL cards to
consumers who didn’t
request a credit card.
You receive your monthly credit
card statement in the mail and
you notice a charge for an item
that you did not purchase or for
more than the amount of money
you charged. What should you
do?
A. B. C.
0 00
5
Using your credit card
A. Pay it so you can keep your
good credit rating.
B. Don’t pay it. Ignore it forever.
C. Notify the company where the
purchase was made.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Chapter 27
Introduction to Business, Your Credit and the Law Slide 29 of 60
Fair Credit Billing Act
The Fair Credit Billing Act requires
creditors to correct billing mistakes
brought to their attention.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 30 of 60
The law also requires
that consumers (you) be
informed of the steps
they need to take to get
an error corrected.
Fair Credit Billing Act
Chapter 27
Introduction to Business, Your Credit and the Law Slide 31 of 60
Notify the Company Where you made or did not make a
purchase
1. The first step in fixing billing
mistakes is to inform the company
that billed you.
Phone call, e-mail, etc.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 32 of 60
Notify the Credit Card Company
2.The second step in correcting billing
errors is to notify the Credit Card
company in writing.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 33 of 60
Dispute the Charge-DO NOT PAY
You will not be
charged interest
on any amount on
your credit card
that is under
dispute.
You purchased something on
line using your credit card. The
item arrives damaged. Your
credit card statement requests
payment for the damaged item.
What should you do?
A. B. C.
0 00
5
Using your credit card
A. Pay it and throw the damaged
item away.
B. Don’t pay it. Ignore it forever.
C. Notify the company where the
purchase was made.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
21 22 23 24 25 26 27 28 29 30
Chapter 27
Introduction to Business, Your Credit and the Law Slide 35 of 60
Stop Payment
The Fair Credit
Billing Act permits
consumers to stop a
credit card payment for
items that are
damaged or defective.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 36 of 60
Dispute the Charge-DO NOT PAY
You will not be
charged interest
on any amount on
your credit card
that is under
dispute.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 37 of 60
Dispute a Credit Card Charge Activity
Chapter 27 Your Credit and the Law pp. 434- 447
Chapter 27
Introduction to Business, Your Credit and the Law Slide 44 of 60
Learning Objectives
1. Identify consumers’ credit rights.
2. Describe how to handle credit problems.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 45 of 60
Fair Debt Collection Practices Act
A collection agent is a person
or business that has the job of
collecting overdue bills. The
Fair Debt Collection
Practices Act restricts the way
collection agents can collect
the money owed.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 46 of 60
10 Ways Debt Collectors Break the Law
You are unable to pay your creditors. The collection agent is
hounding you for the money. This is upsetting you. He is calling
you in the middle of the night (2:00 a.m.) and asking you for the
money. Is this legal?
A. B.
16
2
Using your credit card
A. Yes
B. No
Chapter 27
Introduction to Business, Your Credit and the Law Slide 48 of 60
Fair Debt Collection Practices Act
Answer: No. The Fair Debt Collection
Practices Act makes this illegal.
Before this act, collection agents
could use any method they chose to
collect the money.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 49 of 60
Fair Debt Collection Practices Act
Answer: No. The Fair Debt Collection
Practices Act makes this illegal.
Before this act, collection agents
could use any method they chose to
collect the money.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 50 of 60
Fair Debt Collection Practices Act
If they use the phone, collection agents
can only call you at home between
8:00 a.m. and 9:00 p.m. They also
cannot continue calling and/or pretend
to be someone else.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 51 of 60
Fair Debt Collection Practices Act
1. Collection agents must identify
themselves to the people whose bills
they’re trying to collect. My name is George
and I’m hear to
collect the $200 you
owe XYZ company.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 52 of 60
Fair Debt Collection Practices Act
2. Collection agents can’t tell
others about the debt.
3. Collection agents can’t
contact a person at work
if the employer doesn’t
permit it.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 53 of 60
Fair Debt Collection Practices Act
4. Collection agents can’t state the
amount of a debt on a postcard that
a neighbor or someone else might
see. YOU OWE
$1,000,0000
Credit collectors can contact your
relatives and ask them how to reach
you as long as they don’t disclose that
you owe money to them and/or how
much.
A. B.
8
15
Fair Credit Collection Practices
A. True
B. False
Chapter 27
Introduction to Business, Your Credit and the Law Slide 55 of 60
Fair Credit Reporting Act
When you apply for and use credit, the
information goes into a file at one or more
credit bureaus. (Trans Union, Equifax,
Experian).
A credit file includes current and past
addresses, employment history,
financial information and criminal
record.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 56 of 60
Fair Credit Reporting Act
The Fair Credit
Reporting Act was
passed because of
concerns about the
accuracy of credit file
information.
You are reviewing your credit report and find a mistake. You
never had an account with Financial Funding. You don’t owe
them $10,000. What should you do?
A. B. C. D.
3
17
21
Your Credit Report is Inaccurate
A. Ignore it.
B. Get a lawyer and pay him/her
to get it fixed.
C. Contact a credit repair agency
and pay them to fix it.
D. Write a letter to the Credit
Reporting Agency (Trans
Union, Equifax, or Experian
and dispute the error.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 58 of 60
Fair Credit Reporting Act
Answer: Dispute the discrepancy. The Fair
Credit Reporting Act requires the credit
reporting agency (Trans Union, Experian,
Equifax) to research this discrepancy. They
must either prove that the charge is
accurate, or they must remove it from
your credit report with 30 days.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 59 of 60
Figure
27.2 WHAT IF YOU’RE DENIED CREDIT?
Reasons
Reporting
Agency
Chapter 27
Introduction to Business, Your Credit and the Law Slide 60 of 60
Figure
27.2 WHAT IF YOU’RE DENIED CREDIT?
You applied for a credit card at Sears. You receive a letter in the
mail stating that you have been denied a credit card because of
the credit report they received from Trans Union. What should
you do?
A. B. C.
3
15
5
Denied Credit Card
A. Ignore it. Apply for a credit
card at another store.
B. Call Sears and yell at them.
C. Contact Trans Union and ask
for a copy of your credit
report.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 62 of 60
Fair Credit Reporting Act
Answer: Contact Trans Union and ask for a
copy of your credit report. The Fair Credit
Reporting Act requires the credit reporting
agency (Trans Union, Experian, Equifax) to
provide you with a FREE copy of your credit
report if you are denied credit.
If there is an error on this report, dispute
it immediately.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 63 of 60
Figure
27.2 WHAT IF YOU’RE DENIED CREDIT?
Write the wrong. The law
requires credit card
companies to correct
inaccurate or incomplete
information in your credit
report.
Is it best to request changes
of incorrect information by
letter rather than by phone?
Chapter 27
Introduction to Business, Your Credit and the Law Slide 64 of 60
Right to Privacy
According to the law, only authorized
persons can see a copy of your credit
report.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 65 of 60
Right to Be Notified
The Fair Credit Reporting Act states
that you must be notified when an
investigation is being conducted on
your credit record.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 66 of 60
Right to 1 Free Credit Report Each Year
The Fair Credit Reporting Act
also states that you are entitled
to 1 FREE credit report each
year, from each of the reporting
agencies (Trans Union, Equifax,
Experian).
Chapter 27
Introduction to Business, Your Credit and the Law Slide 67 of 60
Credit Report Commercials
Commercials
Chapter 27
Introduction to Business, Your Credit and the Law Slide 68 of 60
Credit Services
Some companies charge a fee to
“clean up” your credit rating but
they’re seldom able to restore a bad
credit rating.
Video
Which is the BEST way to correct your
credit report.
1 2 3 4
0 0
3
0
Correct Your Credit Report
A. Contact an agency who specializes in
this area and pay them a fee.
B. Get a copy of your credit report, write
the credit reporting agency and
dispute the inaccuracies.
C. Ask Mrs. Miller to do it for you.
D. Ignore it.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 70 of 60
Graphic Organizer Consumer Credit Rights
Graphic Organizer
Consumer Credit Protection Act
Equal Credit Opportunity Act
Fair Credit Reporting Act
Fair Credit Billing Act
Fair Debt Collection Practices Act
Right to know costs
and terms of credit
Right to fair opportunity
to obtain credit
Right to know
what’s in your credit file
Right to have billing
mistakes resolved
Right to be protected
from collection agencies
Chapter 27
Introduction to Business, Your Credit and the Law Slide 71 of 60
February 2010-new regulations so that
banks cannot dig borrowers deeper into
debt.
Video
New Credit Law
Chapter 27
Introduction to Business, Your Credit and the Law Slide 72 of 60
1. Interest Rates cannot be raised in the
first year after an account is opened
UNLESS it is an introductory “teaser” rate.
New Credit Law
Chapter 27
Introduction to Business, Your Credit and the Law Slide 73 of 60
2. Your monthly bill will
show you how long it will
take you to pay off your
debt IF YOU ONLY
MAKE THE MINIMUM
PAYMENT.
New Credit Law
Chapter 27
Introduction to Business, Your Credit and the Law Slide 74 of 60
3. Service fees (activation and annual fees)
will be capped at 25% of the credit limit
during the first year of use.
New Credit Law
If your credit limit
is $5,000 the
annual fee can be
as much as
$1250.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 75 of 60
4. Due date is consistent.
5. Statement must be sent out
21 days before the payment due
date.
6. Over the limit fees – You will
be informed BEFORE you go
over the limit.
New Credit Law
Chapter 27
Introduction to Business, Your Credit and the Law Slide 76 of 60
7. Cannot raise interest rates
on existing balances.
8. Credit cards CANNOT be
issued to anyone under 21,
UNLESS there is a co-signer or
you have the capacity (JOB) to
pay a loan.
9. Banks are not allowed to
hand out gifts on or near
college campuses or at their
events.
New Credit Law
Chapter 27
Introduction to Business, Your Credit and the Law Slide 77 of 60
Enforcing the Laws
The Federal Trade Commission
(FTC) is responsible for enforcing the
laws on credit.
The FTC also helps consumers with
credit problems.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 78 of 60
Enforcing the Laws
On the state level, you can contact
your state banking department
about credit problems.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 79 of 60
Enforcing the Laws
A consumer protection division of your
state attorney general’s office deals
with complaints that other government
agencies might not handle.
You are about to purchase a new car at a local car
dealership. Before signing the contract, you notice that
the interest rate is 24%. You remember the salesperson
saying that the interest rate was only 5%. What should
you do?
A. B. C. D.
5
11
13
Agencies that Enforce Credit Laws
A. Tell your friends.
B. Report the card dealer to your
Attorney General.
C. Nothing. You really want the car.
D. Contact your own lawyer, which will
cost you money.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 81 of 60
Figure
27.1 FEDERAL AGENCIES THAT ENFORCE THE LAW
The law gives you
certain rights as a
credit consumer.
What types of
complaints about a
creditor might you
report to these
government
agencies?
Chapter 27
Introduction to Business, Your Credit and the Law Slide 82 of 60
Debt! Help!
You have over spent and are in debt.
What should you do?
Chapter 27
Introduction to Business, Your Credit and the Law Slide 83 of 60
Debt! Help!
The first thing you should do
is contact your creditors
(bank, credit card companies,
etc.) and ask them if they can
lower your payments due to
your financial situation. Most
companies are willing to work
with you.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 84 of 60
2. Credit Counseling
A credit counselor can help you
revise your budget, contact creditors to
arrange new payment plans, or help
you find other sources of income such
as getting a part time (seasonal) job.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 85 of 60
Credit Services
If you need a credit counselor, you
can check with your Better Business
Bureau or contact your local
Chamber of Commerce.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 86 of 60
3. Consolidating Debts
A consolidation loan combines all your
debts ($2,000 in monthly payments) into
one loan with lower payments. 1. Kohls
2. Shell
3. Master Card
4. Visa
5. Mobil
6. Sears
7. Wal-Mart
New Loan at Harris
Bank ($1200 in
monthly payments)
Chapter 27
Introduction to Business, Your Credit and the Law Slide 87 of 60
Consolidating Debts
The two problems with a consolidation
loan are:
• There is usually a high interest rate
because people who get such loans
are considered poor credit risks.
continued
Chapter 27
Introduction to Business, Your Credit and the Law Slide 88 of 60
Consolidating Debts
• Because there is only one monthly
payment, you might feel that the credit
problem is under control and start
charging new purchases.
• CUT UP THOSE CHARGE CARDS
Chapter 27
Introduction to Business, Your Credit and the Law Slide 89 of 60
4. Bankruptcy
Bankruptcy is a legal process in which you are
relieved of your debts, but your creditors can take
some or all of your assets.
You must get an attorney and pay a filing fee.
This could cost you as much as $1,800.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 90 of 60
4. Bankruptcy
Chapter 7: basic liquidation for individuals and businesses; relieved of all debts. Wipe the slate clean.
Chapter 11: rehabilitation or reorganization, financial reorganization which typically allows people to follow a debt repayment plan that they can afford.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 91 of 60
4. Bankruptcy
When bankruptcy is declared, the
debtor, the creditor, and a court-
appointed trustee come up with a plan
to repay the debt on an installment
basis.
Chapter 27
Introduction to Business, Your Credit and the Law Slide 92 of 60
4. Bankruptcy
You should avoid bankruptcy because
it gives you a bad credit record.
Recent changes in the law have made
it harder to declare bankruptcy.
Which of the following is the 1st step you should take when you can’t pay your creditors?
Your Credit Report is Inaccurate
A. File Bankruptcy
B. Contact your creditors.
C. Get a consolidation loan
D. Find a credit counselor.
End of Chapter Your Credit and the Law
27
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