C R E D I T / C O N S U M E R R I G H T S

CH. 20

CREDIT

• Receiving something with the promise of payment at a later time.• Principle: Actual cost of the good or service.• Interest: Amount paid for the use of money.

CHARGE ACCOUNTS

• Buy goods and services at individual stores and pay for them later.• Credit limit: Maximum amount a person can buy

with the promise of payment at a later time.• Three types of accounts are installment, regular,

and revolving.

TYPES OF CHARGE ACCOUNTS1. Installment Account

• Repaid with equal payments over a certain period of time

• Part of the payment goes towards interest & part towards the principle• Car loan or mortgage

2. Regular Account• Billing cycles where a bill is sent at the end• No interest is charged if entire bill is paid• Account can’t be used again until the balance is paid• Interest is charged on the balance not paid

• Furniture Stores usually do this. Pay by 2010, certain amount each month, but with no interest.

3. Revolving Account• Billing cycles where a bill is sent at the end• Interest charged on portion not paid• Account can still be used until credit limit is reached

• Example: Credit Cards

CREDIT AND DEBIT CARDS

• Credit cards: Make purchases without cash.• Used to purchase items and receive loans.• Charge high interest rates (Avg. 18%) in the

1990’s.• Lower interest rates if the customer is “reliable”.

• Debit Cards: Transfer funds electronically.• Popular use in Automated Teller Machines

(ATM’s)• Now can be tied directly to checking accounts

(check cards)

CREDIT CARDS• Make purchases without having the money• Charge high interest rates – usually @ 18%• Lower interest rates if the customer is reliable• Finance Charges – Cost of credit (interest)

expressed in dollars • APR – Cost of credit (interest) expressed as a

percentage

APPLYING FOR CREDIT

• Fill out application• Credit Bureau does a credit check• Creditor may ask for references• Credit checks show your income, debt and ability

to pay debts in the past

CREDIT RATING• Rating of risk: Excellent, Good, Average or

Poor• Ratings have a number associated with

them• 3 Credit Bureaus: Experian, Transunion &

Equifax• Gives lenders an idea of reliability when

issuing loans• Higher Credit Score = less interest you are

charged on a loan = saving money• Unsecured loans – loan based on reputation• Secured loans – have collateral to back up

the loan

CREDIT BUREAUS

GOVERNMENT REGULATIONS

• Equal Credit Opportunity Act: a person can’t be denied credit because of race, religion, national origin, gender, marital status or age• Usury Laws: Restrict the amount of interest

companies, not banks, can charge• In North Carolina, it is 8%. Lend neighbor $100 loan can

only receive $8 from interest

BANKRUPTCY

• Debts are so large they can’t be paid back• Most of what a debtor owns is sold or given to

creditors• Takes 10 years to reestablish credit• States can become bankrupt too

FINANCIAL INSTITUTIONS

• Commercial banks: Main functions are accepting deposits, lending money, and transferring funds.• Savings and loan: Very much like commercial

banks. Normally smaller banks.• Savings banks: Original purpose was to help

those overlooked by large banks. Sometimes charge higher interest rates.• Credit Unions: Offer high interest on saving and

low interest on loans. Must be a member to use their services.• Finance Companies: Charge high interest rates.

Used by those with bad credit history.

CONSUMER RIGHTS• Consumer – someone who buys a product or

service (YOU!)• Types of Income• Disposable Income – money remains after taxes taken

out. • Money to pay for house, car, etc.

• Discretionary Income – money remaining after paying for necessities• Either save or spend it

CONSUMER RIGHTS CONT.

• Consumerism – a movement to educate buyers on purchases and to make sure products are safe• Congress laws – Pure Food and Drug Act in 1906• Private groups – BBB or Better Business Bureau

• Consumer Bill of Rights• Consumers have…• Right to a safe product• Right to be informed• Right to choose• Right to be heard• Right to redress

CONSUMER RESPONSIBILITIES • Smart Buying Strategies • Info on products• Watch out for advertising• Comparison shopping – find out prices on

product from different stores/internet• Brand Name vs. Generic

• When product fails• Report it• Check the warranty• Keep a copy of records• Be calm

• Make Fair complaints• Ex.