1. Section 22.1

2. Credit Protection Laws
Borrowing Money and Buying on Credit
Chapter 22
Section 22.1
What Is Credit?
Section 22.2
Credit Protection Laws
Section 22.3
Managing Your Debts

3. What You’ll Learn
How to distinguish between the different types of credit (p. 484)
How to explain the Truth in Lending Act
(p. 485)

4. What You’ll Learn
How to describe secured loans (p. 485)
How to guard against credit card problems (p. 488)

5. Why It’s Important
Knowing the laws that apply and the difficulties that can arise in using credit will help you avoid problems in your personal finances.

6. Legal Terms
credit (p. 484)
interest (p. 484)
creditor (p. 484)
debtor (p. 484)
open-end credit (p. 484)
line of credit (p. 484)
closed-end credit (p. 484)

7. Legal Terms
secured loan (p. 485)
collateral (p. 485)
security interest (p. 485)
secured party (p. 485)
repossess (p. 486)
smart card (p. 490)

8. Section Outline The Meaning of Credit Types of Credit Open-End Credit
Types of Credit
Open-End Credit
Closed-End Credit

9. Section Outline
Borrowing Money
Truth in Lending
Secured Loans

10. Section Outline Credit Cards Smart Cards Disputed Purchases
Lost or Stolen Credit Cards
Credit Card Blocking

11. Pre-Learning Question
What is credit?

12. The Meaning of Credit
Credit is an arrangement through which you may receive cash, goods, or services now and pay for them in the future.
The cost of using someone else’s money is called interest.

13. The Meaning of Credit
The party who sells the goods on credit or lends the money is called the creditor.
The party who buys the goods on credit or borrows the money is called the debtor.

14. Pre-Learning Question
What are the different types of credit?

15. Types of Credit There are two main kinds of credit. Open-end credit
Closed-end credit

16. Open-End Credit
Open-end credit is credit that can be increased by the debtor by continuing to purchase goods or services on credit, up to a certain limit.

17. Open-End Credit
You are given a line of credit, or a maximum amount of money made available to you. Charge accounts and credit cards are some examples.

18. Closed-End Credit
Closed-end credit is credit given for a specific amount of money and cannot be increased by making additional purchases. Buying a vehicle and making monthly installments is one example.

19. Pre-Learning Question
What should you know before you borrow money?

20. Borrowing Money
Research the questions you will be asked when you apply for a loan.
Shopping for a competitive interest rate can save you a lot of money in the long run.

21. Truth in Lending
The Truth in Lending Act requires that lenders tell you both the finance charge and the annual percentage rate (APR) of the loan, so you can compare the cost of a loan from different lenders.

22. Secured Loans
A secured loan is one in which creditors obtain an interest in something of value, called collateral, from which they can secure payment if you do not pay.

23. Secured Loans
The interest that is given to creditors is known as a security interest.
The lender or seller who holds the security interest is known as the secured party.

24. Repossession
If the debtor does not pay back the loan, the secured party has the right to repossess, or take back, the goods.

25. Repossession Repossession must be done without breaching the peace.
If the debtor refuses to surrender the goods, legal process must be used to obtain them.

26. Cosignature
Loans can also be secured by having a second person, called a cosigner or surety, sign the contract, agreeing to pay the loan, if necessary.

27. Fill in the blanks.
The _____ is the party who sells goods on credit or lends money.

28. ANSWER
Creditor.

29. The _____ is the party who buys the goods on credit or borrows money.

30. ANSWER
Debtor.

31. _____ is credit that can be increased by the debtor by continuing to purchase goods or services on credit, up to a certain limit.

32. ANSWER
Open-end credit

33. _____ is credit given for a specific amount of money.

34. ANSWER
Closed-end credit

35. Pre-Learning Question
Do you know how to choose a credit card?

36. Credit Cards
Credit cards have become an important part of our culture, and choosing the best one for you can save you money.

37. Credit Cards
Total amount of U.S. credit card debt in 2001— $680 billion
Number of different credit cards in the average family—13

38. Credit Cards
Outstanding credit card debt of the average credit card holder—$8,000
Percent interest paid on that outstanding debt—17 percent

39. Choosing a Credit Card
Here are five tips for choosing the best card for you.
Department stores and gasoline companies are good places to obtain your first credit card.

40. Choosing a Credit Card
Bank credit cards are offered through banks and savings and loan associations. Annual fees and finance charges vary widely, so shop around. Shopping around can save you a lot of money.

41. Choosing a Credit Card
If you plan on paying off your balance every month, look for a card that has a grace period and carries no annual fee or a low annual fee.

42. Choosing a Credit Card
(continued) You might have a higher interest rate, but you plan to pay little or no interest anyway.

43. Choosing a Credit Card
Watch out for creditors that offer low or no annual fees but instead charge a transaction fee every time you use the card. Such charges can add up quickly.

44. Choosing a Credit Card
If you plan to carry a balance, look for a card with a low monthly finance charge. Be sure that you understand how the finance charge is calculated

45. Smart Cards
A smart card is a new kind of card with a computer chip that can store a large amount of data.
Smart cards can hold debit and credit card balances, identification information, and much more.

46. Disputed Purchases
If you have a dispute with a credit card purchase, you:
do not pay the bill for the disputed item, but
notify the credit card issuer by telephone immediately

47. Disputed Purchases The card issuer:
must put the disputed amount on hold
will send you a form to fill out explaining the dispute
will attempt to resolve the dispute
will inform you of the results

48. Lost or Stolen Credit Cards
You are responsible for only $50 of any unauthorized charges made before you notify the credit card issuer of the loss, theft, or unauthorized use of your card.

49. Lost or Stolen Credit Cards
You are not responsible for any unauthorized charges made after the company has been notified.

50. Credit Card Blocking
When you use a credit card to rent a car or to check into a hotel, the clerk usually gives an estimated bill to the credit card issuer.

51. Credit Card Blocking
If the transaction is approved, your available credit is reduced by this amount immediately. This procedure is called a block. It is used to make sure you don’t exceed your credit.

52. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What is the difference between open-end credit and closed-end credit? Give an example of each.

53. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
Open-end credit (credit cards) can be increased by the debtor, up to a limit set by the creditor, by continuing to purchase goods or services on credit.

54. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
Closed-end credit (car loan) is extended only for a specific amount of money.

55. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
What does the Truth-in-Lending Act require lenders to tell you?

56. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
The finance charge and the annual percentage rate of the loan.

57. Reviewing What You Learned Describe a secured loan.
Section Assessment
Reviewing What You Learned
Describe a secured loan.

58. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
One in which creditors obtain an interest in something of value, called collateral, from which they can be paid if you do not pay.

59. Reviewing What You Learned
Section Assessment
Reviewing What You Learned
How much does the average credit card holder have in outstanding credit card debt? What is the average interest rate he or she is paying?

60. Reviewing What You Learned Answer
Section Assessment
Reviewing What You Learned
Answer
$8,000 in credit card debt; 17 percent.

61. Critical Thinking Activity Economics
Section Assessment
Critical Thinking Activity
Economics
React to this statement: “America’s economic strength is in part due to the ability of people to borrow money and make purchases on credit.” Do you agree or disagree? Explain your answer.

62. Critical Thinking Activity Answer Economics
Section Assessment
Critical Thinking Activity Answer
Economics
Answers will vary but could discuss that credit enables consumers to buy expensive durable goods, such as appliances, which is good for the economy.

63. Critical Thinking Activity Answer Economics
Section Assessment
Critical Thinking Activity Answer
Economics
Answers can also discuss that too much credit creates too much consumer debt, which makes less money for investment, which is bad for the economy.

64. Legal Skills in Action Responsible Use of Credit
Section Assessment
Legal Skills in Action
Responsible Use of Credit
Many teenagers use credit cards—either their parents’ or their own. Some teenagers use credit cards for emergencies only; others use them for everyday purchases and activities.

65. Legal Skills in Action Responsible Use of Credit
Section Assessment
Legal Skills in Action
Responsible Use of Credit
With a partner, debate the role of credit in society today. Explain your philosophy on using credit. Describe how you think credit problems could be prevented.

66. Legal Skills in Action Answer
Section Assessment
Legal Skills in Action Answer
Responsible Use of Credit
Debate and discussion will vary. Accept answers that are well reasoned.

67. End of Section 22.1