Law in American Society Ms. Gikas

 Credit: buying goods or services or borrowing money in exchange for a promise to pay in the future  Creditors: people who lend money  Debtors: people who owe the money

 Finance charge: money paid for using the credit.  Interest rate: percentage charged per month for credit Some states set limits on maximum interest rates (not IL)  usury: charging above legal limit  most credit card companies are in states without usury laws because the laws of their home state apply to all consumers, regardless of where consumer lives

 credit property insurance: insures bought item against theft  credit life/disability insurance: insures payment if purchaser dies  service charge: covers seller’s miscellaneous costs  penalty charge: covers costs to seller in case of late payments

 Unsecured credit: credit based on promise to repay with no other backup  Secured credit: credit based on promise and backup property

 Unsecured credit: credit based on promise to repay with no other backup  ex: credit card most credit cards have limits your limit increases the better your credit is don’t have to pay off full amount each month, but they do have minimums you must pay – finance charge different companies charge different interest rates  Annual percentage rate (APR): the percentage cost of credit on a yearly basis  Some companies charge finance charge regardless of time of payment  Others only charge on amount left over  Some companies charge annual fee

 minimum is calculated one of three ways:  adjusted balance system (pro-consumer) bank adds new charges to previous balance, subtracts payments, then multiplies the sum by monthly interest charge.  previous balance system (pro-bank) bank multiplies balance from the previous month and new charges by the monthly interest payment, ignoring payments.  average daily balance method (balanced) bank tracks balance day by day including purchases and payments as they occur. Then multiply average of the daily totals by monthly interest rate.

 debit card: card that deducts money directly from bank account (more like a check)  ATM (EFT) card: card that allows holder to draw money directly from account

 Bob has a balance of $600, spends $400 on 16 th day, pays $300 on 26 th day; APR = %18; 1.5% monthly  Adjusted balance: $600 + $400 - $300 = $700 $700 x.015 = $10.50  Previous balance: $600 + $400= $1000 $1000 x.015 = $15.00  ADB: ([$600 x 15 days] + [$1000 x 10 days] + [$700 x 5 days]) = $22,000 $22,000/30 days = $750 (ADB) $750 x.015 = $11.25

 Secured credit: credit based on promise and backup property  collateral: property of value put forward in exchange for credit

 default: not paying back loans  creditors have several options for collection payment often hire outside collection agencies to get the money

 Practice: calls and letters  restriction: can’t be harassing  if harassing, contact consumer protection agency and demand all contacts stop  Practice: repossession: taking back of collateral  only applies to secured credit  restriction: can not use violence to repossess  Practice: court action  usually last resort because it costs the creditor more  default judgment: a judgment in favor of creditor because defendant didn’t show up (regardless who is right)

 Practice: garnishment: court order forcing debtor’s employer to withhold part of debtor’s wages and pay it directly to creditor  only after a court action in favor of creditor  restriction: Wage Garnishment Act: act limiting garnished amount to 25% of pay after taxes  also federal employees, people on welfare or unemployment can not have wages garnished  also employers can not fire based on garnishment  Practice: attachment: court order forcing a bank to pay creditor from debtor’s bank account  also allows court to seize debtor’s property and sell it to pay off debt

 Bankruptcy: procedure in which debtor places all assets under control of federal court

 Two types  Chapter 13: debtor can pay off some or all of debt over extended period of time under court supervision  Chapter 7: court seizes all assets and sells them to pay off debt Usually assets do not cover all debt

 Record of bankruptcy stays on credit report for 10 years (everything else is 7)  credit report: report of a person’s entire credit history used by companies to determine if future credit will be given  Debt from taxes, child support, student loans can not be wiped out