1. Economics Ms. McRoy-Mendell
Credit Cards
Economics
Ms. McRoy-Mendell

2. Aim
Why do people use credit cards?

3. “Do-Now”

4. Truth in Lending Act The Truth in Lending Act (TILA) of 1968
United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
Schumer Box: an easy-to-read table or “box” that discloses the rates, fees, terms and conditions of a credit card agreement as required under the federal Truth in Lending Act (TILA). 

6. Key Definitions:
Grace Period: the time during which you are allowed to pay your credit card bill without having to pay interest.
APR (annual percentage rate): the amount of interest you will pay on an unpaid balance.
Balance Transfer: when you transfer a balance from another credit card.
Cash Advances: when you withdraw money from your credit card.
Penalty APR: a higher APR that the company can charge you if…
You make a late payment
Go over the credit limit
Make a payment that is returned

7. Fees!!! Annual Fee Foreign Transaction Fee Late Payment Fee
Over Limit Fee
Returned Payment Fee

8. Types of Credit Cards
Standard credit cards: Most common and are readily available from most banks and financial groups.
Unsecured: you do not have to put down a security deposit to prove the money can be repaid.

9. Types of Credit Cards (cont’d)
Credit cards with rewards programs
Reward credit cards allow users to earn incentives for making purchases with their credit card.
Reward cards usually require better-than-average credit for approval.
There are six major types:
Cash back credit cards
General reward points credit cards
Gas cards with points or rebates
Hotel or travel points credit cards
Retail rewards credit cards
Airline mile/frequent flier credit cards

10. Types of Credit Cards (cont’d)
Bad credit and/or credit repair cards:
Credit cards designed to help rebuild poor credit histories.
Secured credit cards: Secured credit cards require collateral for approval.
Prepaid credit cards: Prepaid cards are not credit cards at all, but are used and accepted just like them. The advantages of prepaid cards is that there are no finance charges and they help you avoid debt since all purchases are paid for beforehand.
Although most prepaid cards do not charge finance fees, other fees may apply, including monthly fees, startup or application fees, over-limit fees, ATM fees, reload fees and more. 
Secured credit card - A security deposit of a predetermined amount is needed in order to secure the credit card, and the security deposit generally needs to be of equal or greater value than the credit amount. Or collateral can come in the form of a car, boat, jewelry, stocks or anything else of monetary value.
Pre-paid credit card - With these cards you determine the credit line by transferring however much money you'd like to have available to spend to the card. 

11. Types of Credit Cards (cont’d)
Specialty credit cards
Student Credit Cards: Many college students need a credit card, but they generally have little or no credit history, which makes it difficult to get approved for a traditional card. Helps them help them build a credit history from the ground up. 
Compared to consumer credit cards, student credit cards are often scaled back somewhat in terms of rewards, features and other benefits.

12. Potential Losses
The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offer protection if your credit, ATM, or debit cards are lost or stolen.
For credit cards:
If you report…
Your maximum loss…
Before any unauthorized charges are made with the credit card or if only the number is stolen and not the card. $0
Within 60 days of your statement being sent to you
$50

13. Potential Losses
The Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA) offer protection if your credit, ATM, or debit cards are lost or stolen.
For debit cards:
If you report…
Your maximum loss…
Before any unauthorized charges are made. $0
Within 2 business days after you learn about the loss/theft
$50
More than 2 days after you learn of the loss/theft but fewer than 60 days after your statement is sent to you
$500
More than 60 days after your statement is sent to you
All transactions undertaken

14. Types of Credit Two main categories
Closed-ended (aka installment credit): This form of credit is used for a specific purpose, for a specific amount, and for a specific period of time. Payments are usually of equal amounts
Open-ended (aka non-installment credit): Revolving credit

15. Types of Credit (cont’d)
Closed-ended
Loans
Mortgages
Open-ended
Credit Cards
Personal Lines of Credit

16. Typical Loan Characteristics
Interest Rates
Fixed: When the interest rate does not fluctuate during the duration of the loan
Variable: When the interest rate varies during the duration of the loan (typically anchored to the prevailing discount rate)
When initiating a loan, the fixed rate presented is typically higher than the starting variable rate.

17. Consequences of Default
Repossession: When a financial institution takes back an object that was either used as collateral, rented, or leased.
Eviction: The removal of a tenant from rental property by the landlord.
In some jurisdictions it may also involve the removal of persons from premises that were foreclosed by defaulting on a mortgage

18. Consequences of Default
Foreclosure: The process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payment
Lien:  A legal claim that someone or something has on the property of another person until a debt has been paid back

19. Consequences of Default
Bankruptcy: Filing for bankruptcy is a legal proceeding in which the debtor petitions the court for forgiveness of existing debt.

20. Fair Debt Collection Practices Act
Established legal protection from abusive debt collection practices
E.g. When attempting to collect debt, the creditor must NOT do to the following
Contact consumers by telephone outside of the hours of 8:00 a.m. to 9:00 p.m. local time
Fail to cease communication upon written request, other than for litigation purposes
Cause a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with intent to annoy, abuse, or harass any person at the called number

21. Fair Debt Collection Practices Act
Communicate with consumers at their place of employment 
Contact consumer known to be represented by an attorney
Use abusive or profane language in the course of communication related to the debt
Communicate with third parties and reveal or discussing the nature of debts with third parties (other than the consumer's spouse or attorney)
Collection agencies are allowed to contact neighbors or co-workers but only to obtain location information;
Disreputable agencies often harass debtors with a "block party" or "office party" where they contact multiple neighbors or co-workers telling them they need to reach the debtor on an urgent matter.
Reporting false information on a consumer's credit report or threatening to do so

22. Credit CARD Act
The Credit Card Accountability Responsibility and Disclosure Act (CARD Act) of 2009 
Banned credit card issuers from issuing credit cards to anyone under 21 unless they have adult co-signers or can show proof of income to repay the debt
Credit card companies must stay at least 1,000 feet away from college campuses if that are offering gifts to entice students to apply for credit cards
Significant changes in terms on account cannot occur without 45 days’ advance notice of changes

23. Credit CARD Act Banned unfair rate increases. Banned Unfair Fee Traps
Existing Balance APR’s can’t be raised “any time, for any reason”
Promotional Offers need to last more than a few days
Banned Unfair Fee Traps
Late fees based on shifting due dates
Over-limit fees automatically charged
Limits fees on gift cards
Plain language in plain sight
Opening an account: Terms and Conditions
Once account is active: Monthly Statement
Financial consequences of decisions
Increased accountability
Increased penalties

24. Aim
Why do people use credit cards?

25. Types of Credit Cards (cont’d)
Specialty credit cards These types of cards are for consumers with unique needs for their credit use, such as business professionals and students.
Business Credit Cards: Available for business owners and executives and have many of the same features as traditional credit cards:
i.e. low introductory rates, cash back programs, and airline rewards.
The difference is these cards come with many additional benefits and perks exclusively for those in the business world.
Some of these bonuses include: Business expenses kept separate from personal expenses; special business rewards and savings; expense management reports; additional cards for employees; and higher credit limits.

26. Other Sources of Credit
Consumer Finance Company
A financial institution that specializes in providing loans directly to consumers who are unable to secure bank loans. A consumer finance company generally charges a higher interest rates than a bank.
E.g. HSBC Finance, CitiFinancial, Wells Fargo Financial

27. Typical Loan Characteristics
Principal
Interest
Term
The larger each of these is, the more expensive the loan. The smaller, the cheaper