Activity 1………….…………The ABCs of Credit

Activity 1………….…………The ABCs of Credit
Activity 2……………….……………Credit Scores Activity 3………….…………Establishing Credit Activity 4………….…Maintaining Good Credit Activity 5………….………………….Credit Cards Activity 6……….Managing Credit Challenges Activity 7……………..…………….Identity Theft Activity 8………Prime and Subprime Lending Activity 9……………………..Predatory Lending Activity 10……………………………..Bankruptcy These slides are derived from the Citi Financial Education Curriculum. For additional background and information, you may find the complete set of lessons at It is advised that you complete the following steps before you present any activity: Review the Facilitator’s Guide of the Citi Financial Education Curriculum, which can be found on its CD-ROM or at For information regarding online facilitator training, please contact 3. Review the materials thoroughly and be prepared with copies of the presentation or from the lesson. Determine for yourself whether or not you are truly comfortable presenting any activity. If you are not, you should ask for assistance, team teach with a colleague who is comfortable with the material, or teach a different lesson. 4. Each of the activities in this presentation may take up to minutes.

The ABCs of Credit ACTIVITY 1 Overview What is credit?
The five Cs of credit Pros and cons of using credit The big decision—Should I use credit? Presentation opening • Welcome the participants. • Introduce yourself briefly. • If this is the first meeting with the class or group, do a brief round of introductions by everyone. • When introducing yourself, print your name where the participants can see and refer to it during the session. For whatever reason, some people may be a little nervous and may not remember your name. Just as you want to use their names, encourage them to call you by your name. Review the topics for discussion in this activity: • What is Credit? • Five Cs of Credit • Pros and Cons of Using Credit • The Big Decision—Should I Use Credit? 2 Credit - Activity 1

A person or company to whom a debt is owed.
CREDIT DEFINITIONS Credit Trust given to another person for future payment of a loan, credit card balance, etc. Creditor A person or company to whom a debt is owed. Write the terms “credit” and “creditor” on the board, flipchart, or blank transparency, leaving enough space to add words or short phrases around them. • Ask participants to define the two terms. • Write down the responses using one-word descriptions, placing these words around the appropriate term. Use “Slide 1: Credit Definitions” to be sure all participants understand the vocabulary. • Credit = Trust given to another person for future payment of a loan, credit card balance, etc. This person is typically called the “borrower.” • Creditor = A person or company to whom a debt is owed. This person or company is typically called the “lender.” Take each definition, and ask participants to identify the words they feel are important in understanding and using credit. As the words are identified, showcase them by underlining or some other method. The key to this discussion is ensuring that participants recognize the impact of various words within the definitions to the successful use of credit. 3 Slide 1 – Credit Definitions Lesson Reference: Credit, Activity 1 – Handout 1

THE FIVE Cs OF CREDIT C = Capacity C = Capital C = Collateral
C = Conditions C = Character Ask the participants whether they have heard the expression, “The Five Cs of Credit.” Explain that the five Cs represent characteristics of a person who is a good candidate to receive credit. Ask participants to share what they think the five Cs represent, and record the responses. If participants have trouble thinking of “C” words, encourage them to think about any things that would be important in the use of credit, and then help them transfer those terms into “C” terms. After a brief period of discussion, use “Slide 2: The Five Cs of Credit” to define and discuss each of the five terms. A few talking points might include the following: Capacity: Capacity to repay is the most critical of the five factors. It is the primary source of repayment — existing cash and your income. Potential lenders also will want to know about other possible sources of repayment, such as investments that can be liquidated if needed to make a repayment. Capital: Capital is the money you personally have and is an indication of how much you have at risk should you experience job or other income loss. Collateral: Collateral or guarantees are additional items of value you can provide the lender. Giving a lender collateral means that you pledge an asset you own, such as your home, to the lender with the agreement that it will be the repayment source in case you can’t repay the loan. A guarantee, on the other hand, is just that — someone else signs a guarantee document promising to repay the loan if you can’t. Some lenders may require such a guarantee in addition to collateral as security for a loan. Conditions: Conditions describe the intended purpose of the loan. Will the money be used for personal use, a car, a home, or home repairs? Character: Character is the general impression you make on the prospective lender and is based on your credit report and credit history (your past use of credit). 4 Slide 2 - The Five Cs of Credit Lesson Reference: Credit, Activity 1 – Overhead 1

WHEN TO USE CREDIT Can you describe a situation when it is a good time to use credit and when it is NOT a good time to use credit? Ask for a show of hands of who uses credit. Display “Slide 3: When to Use Credit.” Divide the group into teams of two to three. Ask half of the teams to think of when it is a good idea to use credit, and have the other half think about when it is not a good idea to use credit. After a few minutes, call time. Ask for one example from each team. As reasons are shared, gather consensus by asking if the full group agrees. Continue until all reasons are shared. Encourage everyone to add the various reasons to their individual slides. Responses may vary but should include some of the following: When to Use Credit • Great to have in times of emergencies, family crisis, unexpected illness, etc. • Could be a convenient way to manage income by keeping track of spending—provided bills are paid in full each month. • Allows the benefit of having large items such as a home, car, and appliances while still paying for them. When Not to Use Credit • Can lead to spending beyond one’s means because it is so convenient and easy to use. • If one is tempted to live on credit. • When credit takes away the opportunity to use the income that pays off the credit, which is needed for other things. • When there is concern that the credit cards and credit account numbers may be stolen and used by others. 5 Slide 3 – When to Use Credit Lesson Reference: Credit, Activity 1 – Handout 2

QUESTIONS TO ASK BEFORE USING CREDIT
1. 2. 3. 4. 5. 6. 7. Now that participants have a better understanding of when to use and not to use credit, ask them what questions they should ask themselves before using credit. Use Slide 4 to record the questions. As questions are added, get consensus from the group. If everyone agrees that the question is a good one to ask, place a checkmark to the left of it. If there is doubt about a question, allow for discussion to establish consensus. Questions may vary but should include some of the following: 1. Is this a necessity or luxury item? 2. Do I really need this good or service? 3. Can I meet my obligation to pay for it without hurting my existing cash flow? 4. Do I really understand all of the terms and obligations that I must agree to when purchasing this? 5. Do I realize that this would cost less if I paid cash? 6. Have I really thought about the consequences of making this purchase? 7. Can I repay the debt in a timely fashion to avoid finance charges? 6 Slide 4 – Questions to Ask Lesson Reference: Credit, Activity 1 – Handout 3

Credit Scores ACTIVITY 2 Overview Credit scores and their impact
The factors that make up a credit score Strategies to improve your credit score Review the topics for discussion in this activity: • What is a credit score? • The impact of credit scores • How a credit score is calculated • Ways to improve your credit score. 7 Credit - Activity 2

WHAT IS A CREDIT SCORE? A credit score is a number that helps a lender predict how likely an individual is to repay a loan, or make credit payments on time. A credit score is a number that changes as the elements in a credit report change. A credit score has broad use and impact. Your credit past is your credit future. FICO® scores, one of the most common credit scoring systems, vary between 350 and 850. VantageScoreSM, a new credit scoring system developed by the three credit bureaus, ranges from Write the term “credit score” on the board, flipchart, or blank transparency. • Ask participants to define the term. • Debrief participants by showing “Slide 1: What Is a Credit Score?” Talking points for Slide 1: A credit score is a number that tells a lender how likely an individual is to repay a loan, or make credit payments on time. When a lender requests a credit report and score from a credit reporting agency, the score is calculated by a scoring model — a statistical mathematical equation that evaluates many types of information from your credit report at that agency. By comparing this information to the patterns in thousands of past credit reports, scoring identifies your level of credit risk. There are several different credit scoring models that are used today. Examples of different models include the FICO score, which was developed by Fair, Isaac and Company, Inc. and is used by many mortgage lenders; and the VantageScoreSM, which was developed jointly by the three credit reporting companies. FICO scores, which are one of the most common credit scoring systems used by lenders, range between 350 and 850. With these scores, a higher number credit scoring systems consider a variety of factors, such as number of credit accounts, total credit available, amount of outstanding debt and late payment record. The VantageScoreSM was created in 2006 as a more consistent way for the agencies to develop credit scores. In the past, each credit reporting company used its own formula to create its credit scores. The new system allows each company to use the same formula and create a more consistent credit score. The VantageScoreSM ranges from 501 to 990 and includes a rating system similar to an academic grading system (A-F grades). The higher the score, the more creditworthy a consumer is considered to be. • Ask participants how their credit score impacts their life. • Write down responses on flipchart paper. • Responses may include: to get a loan, to get a job, to get an apartment, to get a mortgage loan, to get homeowner’s insurance, and to get car insurance. Discuss the broad use and impact of credit scores. In addition to banks and lenders, there are landlords, employers, merchants, and even insurance companies that are also using credit scores. Note: A credit reporting agency may only provide a copy of your file when the request relates to the extension of credit, collection of a debt, housing rental, an application for employment, or for insurance purposes. Discuss the following example of how credit scores can impact how much you pay for car insurance: To most, it seems that credit histories and driving records have little in common. Insurers, on the other hand, have found that using credit scores to predict how likely someone is to pay premiums has helped them cut their losses. They don’t use the same score that banks and lenders use. Instead, they use an insurance score, which is generated based on a slightly different formula. Research has shown that consumers with better insurance scores generally file fewer claims and have lower insurance losses. Insurers’ use of credit histories to determine rates is under scrutiny nationwide. 8 Slide 1 – What Is a Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 1

Source: Fair Isaac and Consumer Federation of America, 2005
WHAT MAKES UP A TYPICAL CREDIT SCORE? Ask participants whether they know what factors make up a credit score. As participants name each of the five components listed below, write it on flipchart paper and then discuss it using the following talking points. Show “Slide 2: What Makes Up a Typical Credit Score?” Different credit scoring models may use slightly different formulas to determine what makes up a credit score. however, the following information from Fair, Isaac and Company offers a useful guide for understanding how credit scores are compiled. Talking points: • Payment History accounts for 35 percent of your credit score — Some of the factors included in this category are: account payment information; the presence of adverse public records such as bankruptcy, judgments, or lawsuits; how long payments are past due; and the amounts that are past due. • Amounts Owed account for 30 percent of your credit score — Some of the factors included in this category are: how much you owe on your accounts, the number of accounts with balances, and the proportion of balances to total credit limits. • Length of Credit history accounts for 15 percent of your credit score — Some of the factors included in this category are: the time since accounts were opened and the time since account activity. • New Credit accounts for 10 percent of your score — Some of the factors included in this category are: the number of recently opened accounts and the number of recent credit inquiries. • Types of Credit used account for 10 percent of your score – Some of the factors included in this category are: the number and types of accounts that you have open (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.) Source: Fair Isaac and Consumer Federation of America, 2005 9 Slide 2 – What Makes Up a Typical Credit Score? Lesson Reference: Credit, Activity 2 – Overhead 2

IMPROVING YOUR CREDIT SCORE
Pay bills on time. Get current and stay current. Don’t open a lot of new accounts too rapidly. Correct mistakes. Shop for loan rates within a focused period of time. Keep balances low on revolving credit. Pay off debt. Check your credit report. Divide the group into teams of two to three. Ask the teams to think about ways to improve their individual credit scores. Have them write down their suggestions. After a few minutes, call time. Display ”Slide 3: Improving Your Credit Score.” Ask the teams whether they came up with any of the suggestions listed on the slide. • Pay bills on time. The best thing you can do to improve your score is to pay your bills on time. You can begin to improve your credit history immediately by making at least the minimum payments on time. Delinquent payments and collections can have a significant negative impact on your score. • If you have missed payments, get current and stay current. The longer history you have of paying your bills on time, the better your score will be. • If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age or the length of time you have the account. People who have had accounts for longer periods of time and have paid them on time tend to have higher scores. Additionally, if you open up several new accounts rapidly, it will appear that there is a risk of you utilizing all of this new credit. Thus, this additional credit could lower your score. • Correct mistakes. Your credit score is a reflection of the information in your credit report. If your credit report contains negative information, it will negatively impact your credit score regardless of whether or not the information is accurate. Review your reports from all three credit bureaus for accuracy once a year, as well as several months before applying for a loan. If you discover inaccuracies in your report, follow the procedure to correct the information. • Do your rate shopping for a loan within a focused period of time. Some scores, such as FICO scores, distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. For example, some scores count all rate inquiries for car loans or mortgage loans in a two-week period as one inquiry. • Keep balances low on credit cards and other “revolving credit.” High outstanding debt can negatively affect a score. • Pay off debt rather than moving it around. The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score. • Remember, it’s okay to request and check your own credit report. When you request your own report, it is considered a consumer inquiry. This won’t affect your score, as long as you order your credit report directly from one of the credit-reporting agencies or through an organization authorized to provide credit reports to consumers. Now that participants have a better understanding of how to improve their credit scores, ask them whether they learned anything new about strategies to improve their credit scores. 10 Slide 3 – Improving Your Credit Score Lesson Reference: Credit, Activity 2 – Handout 2

Establishing Credit ACTIVITY 3 Overview Types and sources of credit
Credit safeguards Applying for credit Questions to ask when applying for credit Review the topics for discussion in this activity: • Types of Credit • Credit Safeguards • Applying for Credit • Questions to Ask When Applying for Credit 11 Credit - Activity 3

TYPES OF CREDIT Cash Credit Sales Credit I.O.U. Secured Credit
Revolving Credit I.O.U. Single Payment Credit Installment Credit Other Types of Credit Consider providing copies of this handout, which can be found in the Citi Financial Education Curriculum: “Credit”, p. 39. Use “Slide 1: Types of Credit” to build an awareness of the different types of credit available to consumers. Cash Credit: Receiving money as a loan. Sales Credit: Buying goods and services now with the promise to pay for them in the future. Secured Credit: Requirement to promise something of value to guarantee repayment of credit. Revolving Credit: A predetermined line of credit that is constantly renewed as it is repaid. I.O.U.: A written promise to pay a debt. Single Payment Credit: Buying goods and services now with the promise to pay “in full” at a predetermined time. Installment Credit: Buying goods and services with the agreement that payment will be made at fixed intervals over a period of time, with each payment carrying interest charges. Other Types of Credit: Utility bills, rent, and similar payments that can negatively impact your credit if not paid. • Caution participants that lenders often have unique names for their credit options, so participants will not always see these exact terms. Therefore, it is their responsibility to know the descriptions and ask questions prior to making any commitment. • Hold up sample applications to illustrate the types of available credit. Do not distribute at this point; a sample application will come into play later in the activity. 12 Slide 1 – Types of Credit Lesson Reference: Credit, Activity 3 – Handout 1

Mortgage & Loan Companies Credit Unions & Caisses Populaires
SOURCES OF CREDIT Banks Mortgage & Loan Companies Retail Stores Finance Companies Credit Unions & Caisses Populaires Internet Stores Ask for a show of hands of participants who have applied for credit. • Ask them how stressful they felt it was to apply for credit, on a scale of 1 to 5, with 1 being low and 5 being high. • Informally encourage participants to share some of their experiences. • In discussions such as this, be careful not to pass judgment on any contribution made by participants. Ask those participants who have applied for credit to share where they went to obtain credit. Allow for a few responses to establish a participatory environment and then move to the next step. Use “Slide 2: Sources of Credit” to identify places that an individual can go to obtain credit. • The slide lists six sources. Encourage participants to add additional sources. • Be careful not to pass judgment on sources that are recommended. • Responses will vary but should include some of the following: consumer finance companies, insurance policies, cheque-cashing stores, family and friends. • Before moving on, ask the question at the bottom of the slide, “What sources should a person avoid when seeking credit?” • Next, you will discuss the dangers of loan sharks, cash advances from credit cards, pawnbrokers, and other such operations. These sources provide credit with particularly high interest rates and make it difficult, if not impossible, to build wealth. What are other sources of credit? What sources of credit should be avoided? Why? 13 Slide 2 - Sources of Credit Lesson Reference: Credit, Activity 3 – Overhead 1

STEPS TO TAKE TO AVOID ABUSIVE LENDING
Have you shopped around for the best deal? Do you feel the lender pressured you to take the loan? Do you understand the terms of the loan? Ask the questions: • Are all credit sources reliable? • Should all credit sources be trusted? Encourage discussion. Take care to avoid too many “war stories” from participants. Tell participants that they will soon look at a sample credit application. Beforehand, though, they will become aware of warning signs of unfair lending practices that may or may not be readily visible. They want to be aware of these dishonest practices before they get into trouble with one of them. Display “Slide 3: Steps to Take to Avoid Abusive Lending.” Cover the content with participants so that they are aware of what to watch out for and what to do if they are targeted. These steps can also be applied to predatory lending. 1. Have you shopped around for the best deal? Rates, fees, costs, etc. vary depending on the financial institution, the type of loan, your credit history, your ability to repay, etc. Call around to several financial institutions, explain what you want, and discuss interest rates, fees, options, etc., that are available. 2. Do you feel the lender pressured you to take the loan? A loan is abusive if the lender charges more than a reasonable amount for your loan. Many times, the lender uses aggressive sales techniques to pressure the individual. A “good deal” today should be a “good deal” tomorrow. Talk to people you trust and ensure that the rate promised to you verbally is the same rate printed on the loan document itself. 3. Do you understand the terms of the loan? NEVER sign any agreement that you do not understand. If you do not receive a satisfactory answer to your question, ask someone you trust to review the document and give you advice. BEFORE you agree to any loan, read the fine print; make sure you understand all of the terms and conditions of the loan. After the discussion, encourage participants to check carefully for such practices before agreeing to any type of credit. 14 Slide 3 – Avoiding Abusive Lending Lesson Reference: Credit, Activity 3 – Handout 2

COMMON PARTS OF A CREDIT APPLICATION Reason for Loan
Personal Identification Information Employment Information Mortgage/Rental Information Documentation Required (for some applications) Current Debts Credit References Collateral (for some applications) Bank References Signature and Date Display “Slide 4: Common Parts of a Credit Application and Sample Credit Application.” • Explain that the group will use the slide to compare and discuss information on typical credit applications. • Emphasize that the information may be located in different physical spaces on different applications. The placement is the creditor’s choice, and is not mandated by law. Move through the slide by identifying each section and allowing participants sufficient time to locate the information on the sample application (on the second page of the slide). • Respond to questions they raise and encourage discussion. 15 Slide 4 – Parts of a Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

SAMPLE CREDIT APPLICATION
Consider providing copies of this application handout, which can be found in the Citi Financial Education Curriculum: “Credit”, pp. 43. Review slide. 16 Slide 5 – Sample Credit Application Lesson Reference: Credit, Activity 3 – Handout 3

QUESTIONS TO ASK WHEN APPLYING FOR CREDIT
What is the annual fee? What is the annual percentage rate (APR)? When are payments due? What is the minimum payment required each month? Is there a grace period? Are there other fees associated with the credit, such as minimum finance charges? What is the credit limit? What are the penalties for late or missed payments? What are the terms and conditions of the credit? What else is included in the fine print? Stress that although all creditors are required to provide the applicant with information about the loan, it is also the applicant’s responsibility to ask questions before making any commitment. • Use “Slide 6: Questions to Ask When Applying for Credit” to emphasize those types of questions. • Ask participants whether additional questions should be asked. Add those questions to the list. 17 Slide 6 – Questions to Ask Lesson Reference: Credit, Activity 3 – Handout 5

Maintaining Good Credit
ACTIVITY 4 Maintaining Good Credit Overview Debt to income thermometer Credit process Credit reporting agencies Credit safeguards for consumers Credit reports, ratings and scores Establishing a credit history Review the topics for discussion in this activity: Debt to income thermometer Credit process Credit reporting agencies Credit safeguards for consumers Credit reports, ratings and scores Establishing a credit history 18 Credit - Activity 4

DEBT-TO-INCOME THERMOMETER
Explain that it is not difficult for anyone to become overwhelmed by debts, especially with the rising costs of groceries, housing, gasoline, and clothing. All of these are very basic costs but don’t include providing for emergencies or even the opportunity for a special dinner, a trip to the movies, etc. Display “Slide 1: Debt-to-Income Thermometer.” Walk participants through each stage of the debt-to-income thermometer, explaining how to determine whether or not you may have too much debt. Refer to the following example of a family with an annual income of $40,000. Explain that this is an example only and actual effects vary depending on a variety of circumstances. These scenarios should include housing payments. Annual household income: $40,000 Debt Percent Comment If their annual debt is: $24, % Danger $16, % High $12, % Fair $8, % Good $6, % Great 19 Slide 1 – Debt-to-Income Thermometer Lesson Reference: Credit, Activity 4 – Overhead 1

THE CREDIT PROCESS CREDIT HISTORY • CREDIT BUREAU CREDIT REPORT
CREDIT SCORE CREDIT RATING Continue to the next topic by explaining that credit is often discussed from the creditor’s viewpoint—what will protect the creditor when granting credit to individuals. Despite this, consumers have historically received substantial protection. Use “Slide 2: The Credit Process” to introduce the idea that many things in the credit process are interrelated when it comes to an individual’s credit records. • Ask participants whether they recognize the terms on the slide. • Keep Slide 2 where participants can see and refer to it. CREDIT HISTORY • History of an individual’s record of paying debts. • Reflects “The Five Cs of Credit” (Capacity, Capital, Collateral, Conditions, Character). • One’s credit behavior affects one’s ability to get credit into the future. CREDIT BUREAU • A business that collects information on the credit history of individuals and sells that information to potential creditors, employers, and insurance companies. • Receives information from various places where individuals do business. CREDIT REPORT • Financial information collected by businesses and used by lenders to determine creditworthiness of individuals. • Contains personal and employment history on an individual. • Includes payment history of all debts by an individual. • Credit reporting companies do not make the decision about creditworthiness; they only supply the information. Lenders make the decisions. • Individuals, potential employers, and potential landlords can contact credit reporting companies for a copy of their credit report. • Credit Reporting Companies: • Equifax Canada • Northern Credit Bureaus • TransUnion of Canada CREDIT SCORE A numerical rating based on credit report information that represents a person’s level of creditworthiness. CREDIT RATING • A ranking, generally between A and F, given to an individual by a credit reporting agency, specifically as it relates to an individual’s ability to pay debts. • Reflects past performance in paying debts. • Projects future performance in paying debts. • Positive rating may allow an individual to receive favorable consideration in loans and credit cards, such as lower interest rates. 20 Slide 2 - The Credit Process Lesson Reference: Credit, Activity 4 – Overhead 2

SAMPLE CREDIT REPORT Consider providing copies of the credit report handout, which can be found in the Citi Financial Education Curriculum: “Credit”, pp. 53. Display “Slide 3: Sample Credit Report.” Move through the sample report, discussing the purpose of the following areas on the report: • Individual personal information (name, address, birth date, Social Insurance Number, etc.) • List of creditors • Date credit opened with each creditor • Most recent reporting date • Type of credit received from each creditor • Credit limit • High balance • Current balance • Status of payment (never late, missed payments, etc.) Stress that errors do happen; therefore, participants should maintain oversight of their credit reports. If they find an error, which is not uncommon, they should have it corrected as soon as possible. 21 Slide 3 – Sample Credit Report Lesson Reference: Credit, Activity 4 – Handout 2

CREDIT SAFEGUARDS FOR CONSUMERS
Bank Act (Cost of Borrowing Regulations) Consumer Protection Act Personal Information Protection & Electronic Documents Act (PIPEDA) Credit Reporting Acts Collection Agencies Acts Display “Slide 4: Credit Safeguards for Consumers.” • Move through the slide, and review the legal protections that consumers have when using credit. • Encourage everyone to keep the slide as a reference for future credit use. Bank Act (Cost of Borrowing Regulations) Banks must disclose to consumers the cost of borrowing and their rules for loan prepayments. Consumer Protection Act (applicable in Ontario, Manitoba, and Quebec) Consumers must be informed about the total cost of purchases and loans in writing. Personal Information Protection & Electronic Documents Act (PIPEDA) Principles on collection, use, and disclosure of personal information by businesses, implying that credit reports should be used only for financial reasons. Credit Reporting Acts (by all provinces except New Brunswick and the Territories) Stipulate the acceptable uses of personal credit history information and the right of consumers to know what is being reported about them. Collection Agencies Acts (provincial) Stipulate what collectors can and cannot do, ensuring consumers’ rights are not violated. 22 Slide 4 - Credit Safeguards for Consumers Lesson Reference: Credit, Activity 4 – Handout 3

THINGS TO DO TO ESTABLISH AND MAINTAIN GOOD CREDIT
What can everyone do to establish and maintain good credit? 1. Pay all bills on time. 2. Avoid late fees. 3. 4. 5. 6. Use “Slide 5: Things to Do to Establish and Maintain Good Credit” as a closure. Responses may vary but should include items such as: • Always pay your bills on time. • Have chequing and savings accounts that are current. • Avoid late fees. • Get a copy of your credit report every year. Check to make sure it is accurate, and report any problems with it immediately. • Do not live off credit or be tempted to use credit to spend beyond your means. • Use credit card numbers only when you are sure the transaction is secure. 23 Slide 5 - Things to Establish Good Credit Lesson Reference: Credit, Activity 4 – Overhead 3

Credit Cards ACTIVITY 5 Overview Types of credit cards
Shopping for a credit card Costs of credit Review the topics for discussion in this activity: • Types of Credit Cards • Shopping for a Credit Card • Costs of Credit 24 Credit - Activity 5

TYPES OF CREDIT CARDS Private Label Issued by a single source
Can only be used at a single source Examples: Department Stores, Gasoline Companies General Label Can be used in many places Examples: Bank Card, Major Credit Card Use “Slide 1: Types of Credit Cards” to explain the difference between the two types of cards. • Be prepared to cite local examples of department store cards and gas cards. have specific examples of bank and major credit cards that your audience will know, such as MasterCard, Visa, and American Express. • Consider the audience, and if appropriate, ask the participants to look at the credit cards in their wallets to determine whether they have the two kinds of credit cards. 25 Slide 1 - Types of Credit Cards Lesson Reference: Credit, Activity 5 – Overhead 1

SHOPPING FOR A CREDIT CARD
DECISIONS, DECISIONS... ANNUAL FEE? APR? COMPUTATION METHOD? GRACE PERIOD? FINANCE CHARGE? CREDIT LIMIT? CARD INCENTIVES? Ask for a show of hands of who has a credit card. Ask the following questions: • Why do you have a credit card? • When did you decide to use a credit card? • Has a credit card been good or bad for you? Why? • How did you get a credit card? • Would you recommend a credit card to others? Why? Ask those who have credit cards to share the questions they asked the lender before accepting a credit card. Responses will vary, but research tells us that the majority of individuals never ask critical questions about the use of a credit card before accepting its use. Use “Slide 2: Shopping for a Credit Card” to illustrate some of the many topics that should be discussed before accepting a credit card. The definitions will be covered later in the activity. For now, ask for general definitions from participants. 26 Slide 2 - Shopping for a Credit Card Lesson Reference: Credit, Activity 5 – Overhead 2

QUESTIONS TO ASK WHEN SHOPPING FOR A CREDIT CARD
Annual fee Annual percentage rate (APR) Minimum payment Computation method Grace period Finance charges Card incentives Display “Slide 3: Questions to Ask When Shopping for a Credit Card.” • Define the terms and have participants determine what questions they should ask when shopping for a credit card. • Encourage participation with this exercise, as it will be extremely helpful to all individuals who accept credit cards. • Encourage participants to write their questions in the space provided and to use them as a reference if they shop for a credit card. Sample questions can include the following: - Annual Fee: How much is the annual fee and when is it charged? - APR: What is the APR and can it increase? - Minimum payment: When is it due? - Computation method: How is it calculated? - Grace period: Is there a grace period and how long is it? - Finance charges: When are they charged? - Card incentives: What are the restrictions on incentives? Ask participants to share advice on how to keep credit cards safe. Even participants who do not have credit cards can provide advice. 27 Slide 3 – Questions to Ask Lesson Reference: Credit, Activity 5 – Handout 1

COSTS OF CREDIT How much can credit cost? If you make only the minimum payment for an item, here are some examples of what you might actually pay and how long it will take you to pay it. While participants are thinking about getting a credit card, it’s important that they also think about how they will pay for the items they purchase with a credit card. Display “Slide 4: Costs of Credit” to show participants how much an item could cost if they make only the minimum payments. Point out that “true cost” and time can be less than indicated in the chart if they make larger payments or pay the full balance; or the “true cost” and time can be greater if they miss payments. *Assumptions: 1. No additional sales 2. Customer is paying minimum due only (assuming 2.5% of payment rate for interest calculation). 3. Payment is made on time. 4. Minimum is the positive amortization scenario, maximum of financial charge + late fee + 1% and $20, with a floor of 1.5%. Discuss default pricing as another cost of credit. Most credit card companies have what is called “default pricing”, the terms of which are disclosed in all credit card agreements. Default pricing goes into effect when a customer defaults on the agreement, for example, by failing to pay the minimum amount due by its due date. It can result in the credit card company raising the interest rate (or APR) on that customer’s account. Failing to make at least minimum due payments on time can reflect negatively on one’s credit score and can ultimately cost the customer more when using credit. Encourage the students to always read credit agreements before signing them. If they have any questions, they should either ask the credit card company to clarify or ask someone they trust. And, as always, emphasize the importance of making timely payments. 28 Slide 4 – Costs of Credit Lesson Reference: Credit, Activity 5 – Handout 2

Managing Credit Challenges
ACTIVITY 6 Managing Credit Challenges Overview Warning signs of credit abuse Credit card reductions Correcting credit errors Resources and assistance Review the topics for discussion in this activity: Managing Credit Challenges • Warning signs of credit abuse Credit card reductions Correcting credit errors • Resources and Assistance 29 Credit - Activity 6

MEASURING THE SERIOUSNESS OF CREDIT TROUBLE SIGNS
Rate how serious you think each of the following trouble signs is. 1 = Not Serious = Very Serious Trouble Signs Display “Slide 1: Measuring the Seriousness of Credit Trouble Signs.” Review the slide to make sure everyone understands the directions. Some terms may be unfamiliar to participants. Discourage any discussion at this point, but encourage participants to do their best in estimating the level of seriousness. • Facilitators should note that all of the trouble signs should be marked 4. The task’s objective is to emphasize that all trouble signs are serious and there are no lesser degrees of trouble signs. • Allow participants a few minutes to complete the slide. • Call time, and then move through the items listed in the chart as you ask for responses. Encourage participants to support their responses with reasons. • Ask participants for additional trouble signs. Responses will vary. • When all items have been covered, explain that it was not a trick activity but rather designed to show that all trouble signs are critical and should be treated with utmost seriousness. Explain that since everyone has some familiarity with credit problem trouble signs, it would be important to discuss each so that such signs are recognizable. Delinquent Payments Default Notices Repossessions Collection Agencies Lien Garnishment Others? 30 Slide 1 – Rating Trouble Signs Lesson Reference: Credit, Activity 6 – Handout 1

WARNING SIGNS OF DEBT PROBLEMS
Delinquent Payments Default Notices Repossessions Collection Agencies Judgment Lien Garnishment Explain that since everyone has some familiarity with credit problem trouble signs, it would be important to discuss each so that such signs are recognizable. Display “Slide 2: Warning Signs of Debt Problems.” • Move through the categories, and provide a brief explanation. • Encourage discussion. 1. Delinquent Payments Written notices that credit payments are overdue. 2. Default Notices If delinquent payments are not acknowledged, written notices are sent from the creditor warning that more serious steps will be taken if credit is not paid. 3. Repossessions When the creditor takes back an item that has been purchased, because of nonpayment. 4. Collection Agencies When a creditor has not received any response to written notices of nonpayment, the account can be turned over to a business that specializes in collecting unpaid debts. 5. Judgment Lien When a creditor has received no response from previous attempts to collect a debt, the creditor may be able to obtain a court order placing a claim on property or other types of security owned by the individual to recover the costs of the debt. 6. Garnishment If the borrower does not pay the credit bills, the creditor may be able to obtain a court order requesting that an employer deduct a percentage of the employee’s paycheque and send it to the creditor before the paycheque is given to the employee. Ask the participants to raise their hands if they believe that the minimum payment due is the only amount due on their credit card balance. Respond by letting them know that this is FALSE. You actually owe the full balance and you’ll owe interest on any portion of the balance that you don’t pay. Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment. While paying the minimum amount due keeps your credit history clean, it also costs you more. Many banks and credit card issuers are increasing their monthly payment requirements. This industry-wide change comes at the recommendation of industry regulators and is intended to help customers pay down their balances more quickly. Credit card issuers work with regulators on a regular basis to ensure that their practices are in the best interest of consumers. This change in the minimum payment due is an example of that. Minimum due requirements vary from 2 percent to 4 percent. If you only pay the minimum amount due each month, you will not only pay more in finance charges but it will take you longer to pay off the debt. 31 Slide 2 – Warning Signs Lesson Reference: Credit, Activity 6 – Handout 2

CREDIT CARD REDUCTIONS
Paying only the minimum payments on your credit card may seem appealing, but if only minimum payments are made, it can take years, and sometimes decades, to achieve full repayment. Paying the minimum amount due keeps your credit history clean, but it also costs you more. Display “Slide 3: Credit Card Reductions” and walk participants through the example. Note that the example shows how much money you can save by increasing the amount of the fixed monthly payments you make. In the example, if you make fixed monthly payments of $105, it would take you a little over three years to be rid of your debt. However, if you pay only the minimum each month, your first payment would be $55, but your subsequent payments would decrease slightly each month and thus delay the payoff of the debt. In that instance, it would take you more than 13 years to be rid of your debt. Explain that it is important to take charge of your credit by paying more than the minimum payment and by regularly monitoring your credit report. Errors do occur in credit reports, so it is important to review your report at least once a year. 32 Slide 3 – Credit Card Reductions Lesson Reference: Credit, Activity 6 – Handout 3

CORRECTING CREDIT ERRORS
Circle the incorrect items on your credit report. Write a letter to the reporting agency, telling them which information you think is inaccurate. Provide supporting documentation. Send all materials by certified mail. Send a similar letter to the creditor whose reports you disagree with. The reporting agency will conduct an investigation. If negative information is accurate, it can stay on your report for 7-10 years. Display “Slide 4: Correcting Credit Errors,” which describes the steps to take to correct errors and includes a sample dispute letter. Tell participants to take notes on Slide 4 and refer to them if they find errors in their credit report. Make a copy of your credit report and circle every item you believe is incorrect. 2. Write a letter to the reporting agency (the address will be printed on the report). Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. Explain each dispute and request an investigation to resolve the issues. 3. Send all materials by certified mail, return receipt requested, so that you can prove the packet was received. 4. Send a similar letter of dispute to the creditor whose reports you disagree with. 5. The reporting agency will initiate an investigation, contacting your creditors to verify the accuracy of the information. If the creditor cannot verify that the entry is correct, it must be removed. When the investigation is complete, the agency must send you a free copy of your report if changes were made. 6. If the investigation uncovers an error, you have the right to ask that a corrected version of your credit report be sent to everyone who received the report during the past six months. 7. If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a 100-word statement of the dispute (either written by you or the consumer reporting company) be included in your file and in future reports. The credit-reporting agency must include this explanation in your report each time it sends it out. 8. Keep in mind that when negative information in your report is accurate, only the passage of time can assure its removal. Accurate negative information can generally stay on your report for seven years. Bankruptcies can remain on a credit report for up to ten years. 33 Slide 4 – Correcting Credit Errors Lesson Reference: Credit, Activity 6 – Handout 4

CORRECTING CREDIT PROBLEMS
Take responsibility for actions. Communicate with creditors. Debt Consolidation Credit Counseling Bankruptcy Unfortunately, sometimes the negative information in a report is not due to an error. If this is the case, there is nothing you can do to remove the negative information if it is accurate. However, there may be some credit problems that need to be corrected. Display “Slide 5: Correcting Credit Problems.” • Move through the steps and provide a brief explanation. • Encourage discussion. Take responsibility for actions. Examine spending patterns; recognize ways to correct bad habits. Establish a plan of action for getting out of debt, and stick with it. Communicate with creditors. Contact creditors to let them know there are temporary financial problems; request an adjustment in payment schedule. Debt Consolidation . Consolidate, or merge, several debts into one new loan with manageable payments. . Do not continue to take on more debt. . Beware of unscrupulous debt consolidators. Shop around for the best deal. Credit Counseling Get professional guidance from trained individuals. Credit counselors will work with an individual to get him or her out of debt and establish a sound financial management plan. See the appendix of the curriculum for information on credit counselors. Bankruptcy Bankruptcy should be the last step for anyone; a person files with the court to be released from debts. Filing for bankruptcy seriously affects one’s ability to obtain credit in the future. • Insolvency: A situation in which a debtor is unable to pay debts. • Personal Bankruptcy: Most serious type of insolvency; when the property of a debtor is sold, and the money obtained is used to pay off creditors. • Consumer Proposal: This is an alternative to personal bankruptcy. The debtor is allowed to keep property, but develops a plan of action that the court approves to repaying debts. 34 Slide 5 – Correcting Credit Problems Lesson Reference: Credit, Activity 6 – Handout 5

Identity Theft ACTIVITY 7 Overview
The growing problem of identity theft and how it occurs Strategies to protect your personal information Steps to take if your identity has been stolen. Review the topics for discussion in this activity: • Understand the growing problem of identity theft. • Learn about several ways that identity theft can occur. • Discuss important strategies to protect your personal information. • Outline the steps to take if your identity has been stolen. Write the term “identity theft” on the board, flipchart, or blank transparency. Ask participants to define the term. Ask participants how identity theft occurs. Ask participants whether they or anyone they know has been a victim of identity theft, and ask them to share their stories if appropriate. 35 Credit - Activity 7

IDENTITY THEFT Identity theft occurs when someone uses your personal identifying information to either establish credit under your name or to take over an existing account that you established without your authorization. This information may include: Debrief by showing “Slide 1: Identity Theft,” and discussing the following talking points: • The crime of identity theft is on the rise. Identity theft occurs when someone uses your personal identifying information (e.g., name, Social Insurance Number, date of birth) to either establish credit under your name or to take over an existing account that you established, without your authorization. The Canadian Criminal Code states that the use of a credit card or debit card that belongs to someone else is a criminal act by itself. • Discuss the points on slide 1. • Point out that anyone can have his or her identity stolen. Some individuals, such as those with common surnames and the elderly, may have an added risk. • Fraudulent charges on your credit card, or having your card lost or stolen are equally frustrating to the consumer, but this does not mean that you are a victim of identity theft. Separate participants into teams of two. Read the two examples of How Identity Theft Occurs, below. Have one participant take example A and the other, example B. Have them each discuss ways personal information could have been protected in each example. Examples of How Identity Theft Occurs A. While checking your , you notice a message from what appears to be your Internet Service Provider (ISP). The message requests personal information so that your account can be updated. The message requests your name, Social Insurance Number, and mother’s maiden name. In reality, the message is not from your provider. It belongs to someone who wants to get your information to steal your identity. B. As you are paying your monthly bills, you write the cheques, toss the statements in the trash, and put the container out on the curb for the morning’s trash pick-up. While you sleep, “dumpster divers” go through your trash looking for the papers you’ve thrown away. They find your name, address, phone number, utility service account numbers, credit card numbers, and your Social Insurance Number. Identity thieves can now use this information for fraudulent purposes. Social Insurance Numbers Name Address Date of birth Mother’s maiden name Passwords PINs 36 Slide 1 – Identity Theft Lesson Reference: Credit, Activity 7 – Overhead 1

HOW TO AVOID IDENTITY THEFT
Monitor your credit report. Don’t give out personal information to unknown persons or companies. Protect your credit and debit cards. Protect your mailbox. Protect your wallet. Use passwords and PINs that can’t be easily guessed. Use anti-virus software on your computer. Notify your bank when you change your address or phone number. Other suggestions? Have participants share a few ideas about protecting personal data and then display “Slide 2: How to Avoid Identity Theft.” 1. Monitor your credit report. It contains your SIN, present and prior employers, a listing of all account numbers — including those that have been closed — and your overall credit score. If you become a victim of identity theft, you will catch the theft early by checking your credit report at least once per year. Order a free copy of your credit report by contacting each of the credit reporting agencies (Equifax, Northern Credit Bureaus, and TransUnion). 2. Don’t give out personal information on the phone, through the mail, or on the Internet unless you initiate the contact or know the individual who initiated the contact. Thieves will pose as bank representatives, Internet service providers, government agents, and even ex-boyfriends or -girlfriends to get you to reveal personal information. 3. Protect your credit and debit cards. Whenever you receive a new card, sign it immediately. Don’t loan it to anyone. Do not carry extra credit cards or other important identity documents except when needed. 4. Protect your mailbox. Remove your mail as soon after delivery as possible, and deposit outgoing mail in post office collection boxes. 5. Protect your wallet. Keep items with personal information in a safe place at home and do not share this information with friends or acquaintances. Don’t carry your Social Insurance card in your wallet. Instead, memorize the number. 6. When creating passwords and PINs (personal identification numbers), do not use any numbers or codes that could easily be guessed by thieves. 7. Ensure your computer has appropriate anti-virus and security software that will detect and prevent keylogging viruses and spyware. 8. Notify your bank when you change your address or phone number. 9. Other suggestions Discuss the following points: • Ask participants for suggestions of additional ways to safeguard your personal information. • Record this information on flipcharts. • Some additional strategies might include not using your Social Insurance Number (SIN) as an identification number; never giving out your SIN, credit card number or other personal information over the phone, by mail, or on the Internet unless it is requested by a trusted source; memorize all your passwords and don’t record them on anything in your wallet; and install a firewall and virus protection on your home computer. • Ask participants to list some things they can do to protect their personal information. 37 Slide 2 – How to Avoid Identity Theft Lesson Reference: Credit, Activity 7 – Handout 2

WHAT TO DO IF YOUR IDENTITY
HAS BEEN STOLEN If you think your identity has been stolen, take the following steps: Contact the three major credit bureaus (Equifax, Northern Credit Bureaus, and Trans Union). Close accounts. Contact all creditors involved. File a police report. Keep a record of your contacts. Display “Slide 3: What to Do if your Identity Has Been Stolen” and discuss the following: • Contact the fraud departments of the three major credit bureaus to place a fraud alert on your credit file. The fraud alert requests creditors to contact you before opening any new accounts or making any changes to your existing accounts. • Close the accounts that you know or believe have been tampered with or opened fraudulently. • Contact all the creditors involved — Let them know that your accounts may have been used without your permission, or that new accounts have been opened in your name. If your accounts have been used fraudulently, ask that new cards and account numbers be issued to you. Check your billing statements carefully and report any fraudulent activity immediately. • File a police report — Get a copy of the report to submit to your creditors and others that may require proof of the crime. • Call PhoneBusters, a police organization that collects information about identity theft and offers advice to victims, at (888) or , • Contact Reporting Economic Crime Online (RECOL), a partnership involving international, federal, and provincial law enforcement agencies at ( • Keep a record of your contacts — Start a file with copies of your credit reports, the police report, any correspondence, and copies of disputed bills. It is also useful to keep a log of your conversations with creditors, law enforcement officials, and other relevant parties. Follow up on all phone calls in writing and send all correspondence via certified mail, with a return receipt requested. Keep all of your records in a safe place. 38 Slide 3 – What to Do Lesson Reference: Credit, Activity 7 – Overhead 2

Prime and Subprime Lending
ACTIVITY 8 Prime and Subprime Lending Overview Prime and subprime lending definitions Alternative institutions that provide higher-cost loans Strategies to improve credit in order to qualify for prime loans. Note to the facilitator: Although subprime mortgages are rare in Canada, discussions about subprime and prime lending can elicit strong feelings from some participants. Some participants may equate subprime lending solely with individuals who have low incomes. It is important to be aware of these misconceptions and also to be sensitive to your audience. Allow participants to share their perspectives, but be careful not to let the conversation become a session for participants to vent their frustrations. Determine for yourself whether or not you are truly comfortable presenting this lesson. If you are not, you should ask for assistance, team teach with a colleague who is comfortable with the material, or teach a different lesson. Facilitators cannot be expected to know everything about prime and subprime lending. Be honest with all questions. If you do not know the answer to a question, be honest and explain, “I do not know the answer to your question. However, I will find the answer and get back to you.” Be sure to write down the question and follow through when you commit to finding an answer. Allow yourself up to 90 minutes to lead this lesson. Review the topics for discussion in this activity: • Learn the difference between prime and subprime lending. • Understand the important role that subprime lending plays in providing credit-challenged customers with access to capital. • Understand how much more consumers pay for subprime loans. • Learn about other high-cost loans such as payday loans, title loans, and rent-to-own loans. Write the terms mortgages, prime, and subprime on the board, flipchart, or blank transparency. • Ask participants to define the terms. • Ask participants the following questions: What are the characteristics of prime mortgage loans? Subprime mortgage loans? 39 Credit - Activity 8

PRIME AND SUBPRIME MORTGAGE LENDING
Prime credit is typically available to an individual who has paid his or her outstanding credit on time. Subprime A subprime loan is typically available to a person with either no credit history or a damaged credit history and who is considered to be a high-risk borrower. Subprime loans have higher-than-average interest rates. Debrief participants by showing “Slide 1: Prime and Subprime Mortgage Lending.” Discuss the following points: • While not all loans are mortgages, we will focus on mortgages in this lesson. Most people with prime credit have successfully managed their credit by living within a budget and realistically categorizing needs (vs. wants). Typically, they apply only for the loans and credit cards they need to accommodate the lifestyle their income will support. People with prime credit typically have good to excellent credit scores. however, it is not necessary to have prime credit to qualify for a decent interest rate—people with lower credit scores may still qualify for lower rates, depending on the amount of equity in their home and certain other criteria. • Borrowers typically fall into the subprime category for one of two reasons: either because they made late payments on credit cards or loans, abandoned loans, or filed bankruptcy in the past seven years (so-called blemished credit); or because they have very limited financial experience (so-called thin file or no credit). Subprime or “Alternative” lenders offset their risk in making loans to customers with blemished credit or a thin file by charging these borrowers a higher interest rate and sometimes additional fees. • Lenders consider many factors in a process called “risk-based pricing” when they come up with mortgage rates and terms. Subprime rates are higher, but how much higher depends on factors such as credit score, size of down payment, and what types of delinquencies the borrower has in the recent past. Subprime mortgages do serve a purpose. They allow people with blemished or no credit to get credit that they would otherwise be unable to access and thereby to own a home, starting down the path of wealth-building with the acquisition of what is most often the largest asset one will have in a lifetime. • Subprime loans are not by definition predatory loans. Predatory loans have abusive terms and generally are marketed to people with less bargaining power, unsophisticated consumers, and elderly homeowners who own their homes outright but who have small incomes. These loans may have no economic justification and the borrower may not have a chance of repaying them. Frequently, they are characterized by excessive rates and fees. 40 Slide 1 – Prime and Subprime Lending Lesson Reference: Credit, Activity 8 – Overhead 1

THE PRICE OF SUBPRIME LENDING
How much does a subprime loan cost you? If you are making payments on a car, for example, you could be paying significantly more just for getting a loan with a higher interest rate. This added interest is significant over the life of the loan. It is important to recognize that subprime loans provide credit to people who may have been previously denied loans and offer them the chance of homeownership. Nevertheless, there is a cost for this service and borrowers should carefully and continuously evaluate their need for these types of loans. Display “Slide 2: The Price of Subprime Lending” and walk participants through the example. 41 Slide 2 – The Price of Subprime Lending Lesson Reference: Credit, Activity 8 – Handout 1

MOVING FROM SUBPRIME TO PRIME
Pay bills on time. Correct mistakes. Pay more than the minimum required. Use credit sparingly. Work with a reputable nonprofit credit counseling organization. If you currently have a lower credit score and want to be able to qualify for prime loans in the future, you should take steps to improve your credit. The following steps can help. Stress the amount of money that can be saved by avoiding high-cost loans and qualifying for prime loans. Display “Slide 3: Moving from Subprime to Prime" and walk participants through the tips for qualifying for prime loans. • Pay bills on time. The most important rule for maintaining good credit is to pay your bills on time. You can begin to improve your credit history immediately by making at least the minimum payments on time. Within a few months, it will be obvious that you are managing your credit responsibilities better and a new, stronger credit report will result. • Correct mistakes. Your credit is a reflection of the information in your credit report. If your credit report contains negative information, it will negatively impact your credit regardless of whether or not the information is accurate. Review your reports from all three credit bureaus for accuracy once a year, as well as several months before applying for a loan. • Pay more than the minimum required. When you pay only the minimum due each month, you end up paying a lot of money in interest charges. • Use credit sparingly. Be cautious about the amount of debt you incur. Try to use credit cards only for purchases that have long-term value, such as furniture, medical care, or emergency repairs. Don’t depend on credit cards for everyday expenses like dining out or entertainment. • Work with a reputable nonprofit credit counseling organization. Reputable nonprofit community-based credit counseling organizations can provide one-on-one assistance to help you improve your credit. See curriculum appendix for resources. 42 Slide 3 – Moving from Subprime to Prime Lesson Reference: Credit, Activity 8 – Handout 2

Predatory Lending ACTIVITY 9 Overview
Characteristics and warning signs of predatory lending. The key targets of predatory lending. Common abuses and scams. Nonprofit organizations that can help consumers plagued by predatory lending. Note to the facilitator: Discussions about predatory lending can elicit strong feelings from some participants. Some participants may equate predatory lending solely with individuals who have low incomes. It is important to be aware of these possible perceptions and also to be sensitive to your audience. In addition, some participants may have personal accounts of predatory lending occurring to family or friends. Allow participants to share their perspectives, but be careful not to let the conversation become a session for participants to share war stories. Determine for yourself whether or not you are truly comfortable presenting this lesson. If you are not, you should ask for assistance, team teach with a colleague who is comfortable with the material, or teach a different lesson. Facilitators cannot be expected to know everything about predatory lending. Be honest with all questions. If you do not know the answer to a question, be honest and explain, “I do not know the answer to your question. However, I will find the answer and get back to you.” Be sure to write down the question and follow through when you commit to finding an answer. Allow yourself up to 90 minutes to lead this lesson. Review the topics for discussion in this activity. • Describe the characteristics of predatory lending. • Understand the warning signs of predatory lending. • Learn how predatory lending affects vulnerable communities. • Identify organizations that can help. Write the term “predatory lending” on the board, flipchart, or blank transparency. • Ask participants to describe predatory lending. • How do they know when predatory lending occurs? • Who is a common target of predatory lending? (Answers include seniors, people with language barriers, and people who lack financial skills and knowledge.) Discuss the fact that predatory lending is generally thought of in connection with mortgages and most of the conversation here will be in this context, but there are predatory lending practices that show up in connection with unsecured consumer credit, as well, such as car loans and personal loans. 43 Credit - Activity 9

PREDATORY LENDING Sell properties for much more than they are worth, using false appraisals. Encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. Knowingly lend more money than a borrower can afford to repay. And many other scams. In communities across Canada, some people are losing their homes and their investments because of predatory lenders, corrupt appraisers, mortgage brokers, and home improvement contractors who: Debrief participants by showing “Slide 1: Predatory Lending.” Predatory lenders combine a variety of tactics to coax borrowers into high-rate, high-fee loans that either waste equity from their homes or are not affordable and thereby force the borrower into default and foreclosure. Also, predatory lending often uses subprime loan pricing. Describe the potential warning signs of predatory lending, which may include the following practices: • Credit insurance packaging — Credit life insurance, credit accident and health insurance, or involuntary unemployment insurance is included as part of the loan. This insurance is usually extremely profitable for the lender. Because it is profitable, credit insurance is often sold to individuals even if they might not benefit from it. • High interest rates and points — Predatory loans may feature interest rates that are well above prime rates and have very high fees or points, but they do not give borrowers a reduction in the interest rate for paying these fees. Special rules apply to these loans, which prohibit certain terms and conditions, such as balloon payments and loan flipping. high-cost loans should be labeled as such under federal law. • Balloon payments — High-cost loans often include a balloon payment, which is a large lump sum of money due at the end of the term of the loan. Borrowers who cannot meet the balloon payment may lose their home to foreclosure unless they refinance the loan, often at an excessive cost. • Loan flipping — Borrowers who are in default or in need of credit (like those with balloon payments) often refinance their loan. The new loan pays off the balance of the existing loan, including any prepayment penalty embedded in that loan. The resulting loan has a higher principal balance and a new set of closing costs and fees based on that higher balance. A loan may be refinanced several times in this manner. Each time the loan is refinanced, the lender receives a new set of closing costs and fees, which leads to a depletion in equity with little or no benefit to the homeowner. • Lending without the ability to repay — Loans made based on the amount of equity in a property are made to individuals who do not have the income to repay the loan. 44 Slide 1 – Predatory Lending Lesson Reference: Credit, Activity 9 – Overhead 1

IDENTIFYING PREDATORY LENDING
Packaging a loan with single-premium credit insurance products Repeatedly refinancing a loan in a short period of time Charging excessive rates and fees to a borrower who qualifies for lower rates and fees Predatory lending is not defined by provincial law except to the extent that a loan is a high-cost loan and contains one of a fixed list of terms or conditions. Predatory or abusive lending practices can include: Display “Slide 2: Identifying Predatory Lending.” Explain to participants that knowing the warning signs for predatory loans may help you to avoid such loans. There are also some key questions to ask yourself before getting a loan: • Do I feel pressured? • Have I shopped around for the best deal? • Is it too good to be true? • Do I understand the loan terms and why the loan is good for me? A loan product or lending practice may not seem predatory until it is compared with a similar loan product offered by other lenders. And the situation may not seem abusive until everyone gets to the closing table. If any fees or charges differ from what was previously disclosed, delay the closing until all terms of the loan are clearly understood. 45 Slide 2 – Predatory Lending Lesson Reference: Credit, Activity 9 – Handout 1

TEN WARNING SIGNS OF PREDATORY MORTGAGES
Unreasonably high interest rates Multiple refinancing Unnecessary debt consolidation Balloon payment Negative amortization Door-to-door solicitation Back-dating of documents Large loan broker fees Kickbacks between lender and broker Single-premium credit life insurance Walk participants through the ten warning signs of predatory mortgages: 1. Unreasonably high interest rates (APR) Predatory lenders may charge rates well above those of conventional mortgages. 2. Multiple refinancing Also called flipping, this practice occurs when a lender refinances a loan to generate fee income without providing any notable benefit to the borrower. 3. Unnecessary debt consolidation Similar to the above, a predatory lender may collect fees by offering a debt consolidation loan that has little or no benefit to the borrower. 4. Balloon payment Balloon payments offer borrowers smaller monthly payments. But if you cannot afford to pay the lump sum due at the end of the loan, you must obtain another loan, resulting in more fees to the lender, or risk foreclosure. 5. Negative amortization In this practice, a loan is structured so that the monthly payment is insufficient to cover accrued interest, which means that the outstanding loan balance increases every month. At the end of the loan term, you could owe more than the amount originally borrowed. 6. Door-to-door solicitation Predatory lenders often target communities of individuals with language barriers or little financial knowledge. 7. Back-dating of documents Beware of a lender who asks you to falsify information on your loan application or other loan documents. 8. Large loan broker fees Predatory loans commonly have fees greater than 5 percent of the cost of the loan. 9. Kickbacks between lender and broker In this scenario, the lender or broker receives a kickback – or bonus – for making a loan more costly to a borrower. 10. Single-premium credit life insurance The lender adds credit life insurance to the amount of a loan, without giving the borrower an option. This coverage offers little benefit to the borrower. 46 Slide 3 – Ten Warning Signs Lesson Reference: Credit, Activity 9 – Handout 1

COMMON SCAMS Advance fee schemes The prize that will cost you
Online auctions Fraud jobs Moneymaking schemes Bogus charities Scam schools Display “Slide 4: Common Scams.” Review the slide’s top scams and top strategies for avoiding scams. • Advance fee schemes — These schemes require you to pay a fee in advance to receive a credit card, loan, or scholarship. In return, you get something that is worthless, or worse yet, you get nothing at all. • The prize that will cost you — This is a scheme that alerts you that you have won a prize, but in order to claim the prize, you must first pay taxes or a handling fee. An example is a scheme that claims you have won a free resort stay, but are required to purchase an airline ticket. In this case, the airline ticket price is inflated to cover the cost of the resort stay. • Online auctions — Beware of auction items that are priced far too low. There’s a good chance that it could be a scam. The item may be fake or in bad condition. The item might even be stolen. Be sure to avoid buying anything online from someone who contacts you through or through an instant message. • Fraud jobs — There are a number of employment scams. Many fraudulent job opportunities are promoted as work-at-home opportunities. Often someone who claims to work in the “human resources department” requests your personal information and then uses it to steal your identity. Another common employment scam involves an individual who promises you a job, but only if you pay an employment fee. • Moneymaking schemes — There are a variety of scams that claim you will make a lot of money in a very short time, such as pyramid schemes and counterfeit cheque schemes. Pyramid schemes seem like a fast way to make a lot of money, but usually, the only person to make money is the one at the top. Counterfeit cheque schemes usually come in the form of a letter or message from overseas seeking your help in obtaining payment on a cheque. If you cash the cheque, the perpetrator claims that you will keep a portion of it for your trouble and requests that you mail a cashier’s cheque for the remainder. The original cheque turns out to be counterfeit, leaving you without your “bonus” and possibly with a bank judgment against you. • Bogus charities — Unfortunately, you have to be on your guard even when giving to charities. Some scam artists will use high-pressure techniques to convince you to donate money to a bogus charity. Avoid bogus charities by never giving payment information to anyone calling or ing you, claiming to be with a charity. Any reputable charity will be happy to send you paperwork on their organization. You can also research the organization online and with the Better Business Bureau to ensure that it is a legitimate organization. The CCRA website ( also maintains a list of all registered charities in Canada. • Scam schools — Fraudulent career and trade schools lure potential students in with the promise of a lucrative job upon graduation. By the time the students graduate, they’ve amassed a sizeable debt but are left with only substandard training and little more than an outdated classified ad in their hands. 47 Slide 4 – Common Scams Lesson Reference: Credit, Activity 9 – Handout 2

TOP STRATEGIES TO AVOID SCAMS
Don’t become a victim. Investigate strangers who have deals too good to be true. Always stay in charge of your money. Don’t be fooled by appearances. Watch out for salespeople who prey on fears. Monitor your investments. Report fraud or abuse. Do your homework. Be wary of door-to-door solicitations. Top Strategies to Avoid Scams: • Don’t allow yourself to become a victim because you don’t want to appear rude. Con artists will exploit your good manners. • Investigate strangers who have deals that seem too good to be true. • Always stay in charge of your money. Beware of anyone who suggests putting your money into something you do not understand or who urges that you leave everything in his or her hands. • Do not be fooled by appearances. Successful con artists sound and look extremely professional and have the ability to sound credible and respectable. Always investigate the offer thoroughly. • Watch out for salespeople who prey on your fears. Fear can cloud your judgment. You should not make a decision because you feel pressured or fearful. • Monitor your investments and ask questions. Insist on regular written or oral reports. • Do not let embarrassment or fear keep you from reporting fraud or abuse. Con artists know that you might hesitate to report that you have been victimized in financial schemes out of embarrassment or fear. Every day that you delay reporting fraud is one more day that the con artist is spending your money and finding new victims. • Do your homework. If you receive an offer you find interesting, ask for more information and continue your research into other possible deals. • Be wary of door-to-door solicitations. 48 Slide 5 – Top Strategies to Avoid Scams Lesson Reference: Credit, Activity 9 – Handout 2

ADDITIONAL RESOURCES PhoneBusters - The Canadian Anti-fraud Call Centre - (888) ; Office of Consumer Protection - Quebec Provincial Government - There are 11 regional offices of the Office of Consumer Protection. One toll-free number serves them all: (888) Office of Consumer Affairs - Canadian Federal Government - (800) ; Ministry of the Attorney General – Ontario - (416) Display “Slide 6: Additional Resources,” which provides a listing of government agencies and nonprofit organizations that provide assistance with predatory lending concerns and counseling. 49 Slide 6 – Additional Resources Lesson Reference: Credit, Activity 9 – Handout 3

Bankruptcy ACTIVITY 10 Overview
Personal bankruptcy and consumer proposal Provisions of the new bankruptcy legislation Strategies to avoid bankruptcy Note to the facilitator: Facilitators cannot be expected to know everything about bankruptcy. Be honest with all questions. If you do not know the answer to a question, be honest and explain, “I do not know the answer to your question. However, I will find the answer and get back to you.” Be sure to write down the question and follow through when you commit to finding an answer. Determine for yourself whether or not you are truly comfortable presenting this lesson. If you are not, you should ask for assistance, team teach with a colleague who is comfortable with the material, or teach a different lesson. Allow yourself up to 90 minutes to lead this lesson. Write the term “bankruptcy” on the board, flipchart, or blank transparency. • Ask participants to define the term. • Write down the responses on flipchart paper. 50 Credit - Activity 10

BANKRUPTCY Personal Bankruptcy wipes out all allowable debts and allows certain personal property exemptions. The debtor gives up all property unless the state deems it necessary to support the debtor and his or her dependents. Eligibility is determined by a means test that measures income against expenses. Consumer Proposal is a negotiated settlement between a debtor and his or her creditors. A typical proposal will involve the debtor making monthly payments for a maximum of five years, with the funds distributed to their creditors. Debrief participants by showing “Slide 1: Bankruptcy.” Define the two types of bankruptcy and explain that this activity focuses on personal bankruptcies. 51 Slide 1 – Bankruptcy Lesson Reference: Credit, Activity 10 – Overhead 1

PROVISIONS OF THE CANADIAN BANKRUPTCY REFORM
Debtors who have surplus income will no longer be eligible for an automatic discharge after nine months. Bankrupt individuals with more than $200,000 in personal income tax debts will not be eligible for an automatic discharge. Student loans may be written off. A consumer can file a consumer proposal that is as high as $250,000. Display “Slide 2: New Provisions of the Bankruptcy Law” and discuss the following points: • Canadian Bankruptcy Reform Bill C-55 was passed into law on November 25, In general, the law makes it harder for taxpayers with high income tax debt to be eligible for an automatic discharge from bankruptcy. At the same time, it has raised the limit for a Consumer Proposal from $75,000 to $250,000 in debt. • In June 2007, Bill C-62, an act to amend the Bankruptcy and Insolvency Act, received first reading in the House of Commons. Bill C-62 would extend creditor protection federally to RRSPs and RRIFs. Debtors who have surplus income will no longer be eligible for an automatic discharge after nine months. They will be required to stay in bankruptcy for an additional 12 months and to continue making surplus income payments to the trustee. Second time bankrupts, with surplus income, will be required to stay in bankruptcy and make surplus income payments for a total of three years. Bankrupt individuals with more than $200,000 in personal income tax debts (representing 75 percent or more of their total unsecured debt) will not be eligible for an automatic discharge. These individuals must seek a Court Order to be discharged of their debts. Student loans may be written off in a bankruptcy if the student terminated his studies seven or more years ago. (Previously, there was a ten-year wait.) In cases of undue hardship, a bankrupt may apply for a discharge of the student loans after five years. Registered retirement savings plans and registered retirement income funds continue to be exempt from seizure in a bankruptcy. A consumer can file a consumer proposal that is as high as $250,000 (previously was $75,000), excluding debts secured by the individual's principal residence. 52 Slide 2 – Provisions of Bankruptcy Reform Lesson Reference: Credit, Activity 10 – Handout 1

THINGS TO CONSIDER BEFORE FILING FOR BANKRUPTCY
A bankruptcy filing could determine whether or not you get a job. Your insurance rates could rise. You may find it difficult to rent an apartment or qualify for a home loan. Bankruptcies stay on your credit report for 10 years. Bankruptcy can lower your credit score. Stimulate group discussion by asking the following questions: • Why would someone declare bankruptcy? • Are there legitimate reasons to declare bankruptcy? Listen to the responses. Do not pass judgment on responses. This exercise is simply to get participants thinking about situations in which an individual might declare bankruptcy. Stress that while there are legitimate reasons to declare bankruptcy, it should always be a last resort. Debrief participants by showing “Slide 3: Things to Consider before Filing for Bankruptcy” and reviewing each point on the slide. 53 Slide 3 – Things to Consider Lesson Reference: Credit, Activity 10 – Overhead 2

THINGS TO DO BEFORE DECIDING TO FILE BANKRUPTCY, CONT.
Reduce your spending Talk with your creditors. Talk with a nonprofit counseling agency. Talk with an attorney and understand the consequences of declaring bankruptcy. Consider consolidation carefully. Display “Slide 4: Things to Do Before Deciding to File Bankruptcy, Cont.” Explain that declaring bankruptcy will have long-term effects and stress that declaring bankruptcy should always be the consumer’s last alternative. • Reduce your spending. Consider a smaller home or vehicle. Slash your spending, and you may be surprised to find enough money left over to repay the debt you’ve accumulated. • Talk with your creditors. Despite what you may have heard, your creditors are often willing to work out a payment plan to help you pay off what you owe. • Talk with a nonprofit counseling agency. These agencies can help you create a plan that will handle all of your debts. • Talk with an attorney and understand the consequences of declaring bankruptcy. • Consider consolidation carefully. You may be able to borrow against a workplace retirement plan, stocks, or other securities you own, or the cash value of a life insurance policy in order to pay off your debt. however, all of those options have serious implications. make sure you analyze the potential risks and consequences thoroughly. 54 Slide 4 – Things to Do Lesson Reference: Credit, Activity 10 – Handout 2

TIPS TO REMEMBER Keep track of your daily expenses.
Save money on a regular basis. Make changes right away if you see yourself starting to get into financial trouble. Pay attention to your household finances, especially if you are married. • Keep track of your daily expenses. Even the little expenses, such as a cup of coffee, can add up. Once you know exactly where the money is going, you can figure out where to cut back. • No matter how well you are doing financially, don’t forget to save money on a regular basis. • If you see yourself starting to get into financial trouble, make changes right away. Debt can get out of control quickly. • Pay attention to your household finances, especially if you are married. Many people get into trouble after a divorce or death of a partner when they have no idea where their money is and are inexperienced with keeping financial records. Thank everyone for their participation, and encourage them to return for additional sessions. If such sessions are scheduled, you might provide a “sneak preview” of any activity to come. 55 Slide 5 – Tips to Remember Lesson Reference: Credit, Activity 10 – Handout 2

Activity 1………….…………The ABCs of Credit

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