1. Credit/Consumer Rights
Ch. 20
Credit/Consumer Rights

2. Credit
Credit—Borrowing money to pay for something now while promising to repay at a later time.
Principle: Actual cost of the good or service.
Interest: Amount paid for the use of money.

3. 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.

4. Types of Charge Accounts
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
Regular Account
Billing cycles where a bill is sent at the end of the month
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 2019, certain amount each month, but with no interest.
Revolving Account
Interest charged on portion not paid
Account can still be used until credit limit is reached
Example: Credit Cards

5. 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 (ATMs)
Now can be tied directly to checking accounts (check cards)

6. Credit Cards Make purchases without having the money
Charge high interest rates – 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

7. 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

8. 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

9. Credit Bureaus

10. 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

11. 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 go bankrupt as well.

12. 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.

13. 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. (satisfies your needs)
Discretionary Income – money remaining after paying for necessities (satisfies your wants)
Either save or spend it

14. Consumer Rights cont.
Consumerism – a movement to educate buyers on purchases and to make sure products are safe---caveat emptor—”let the buyer beware”
Congress laws – Pure Food and Drug Act in 1906
Private groups – BBB or Better Business Bureau (120 located in principal cities around the U.S.)
Run by businesses to gain the trust of customers
Consumer Bill of Rights (1960s)
Consumers have…
Right to a safe product
Right to be informed
Right to choose
Right to be heard
Right to redress

15. Consumer Responsibilities
Smart Buying Strategies
Info on products (consumer reports, reviews on various websites)
Watch out for advertising that appeals to your emotions
Comparison shopping – find out prices on product from different stores/internet
Brand Name vs. Generic
When product fails
Report the problem immediately
Check the warranty, self repair may void any warranties for product
Keep a copy of records; names of people spoken to
Be calm; person you speak to may not be responsible for said problem
Make Fair complaints
Ex. Exhibit ethical behavior (we expect honesty from sellers, they expect that from consumers as well)