law in american society ms. gikas. credit: buying goods or services or borrowing money in exchange...
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Law in American Society
Ms. Gikas
Credit: buying goods or services or borrowing money in exchange for a promise to pay in the future
Creditors: people who lend money
Debtors: people who owe the money
Finance charge: money paid for using the credit.
Interest rate: percentage charged per month for credit Some states set limits on
maximum interest rates (not IL)
usury: charging above legal limit
most credit card companies are in states without usury laws because the laws of their home state apply to all consumers, regardless of where consumer lives
credit property insurance: insures bought item against theft
credit life/disability insurance: insures payment if purchaser dies service
charge: covers seller’s miscellaneous costs
penalty charge: covers costs to seller in case of late payments
Unsecured credit: credit based on promise to repay with no other backup
Secured credit: credit based on promise and backup property
Unsecured credit: credit based on promise to repay with no other backup ex: credit card
most credit cards have limitsyour limit increases the better your credit is
don’t have to pay off full amount each month, but they do have minimums you must pay – finance chargedifferent companies charge different interest rates
Annual percentage rate (APR): the percentage cost of credit on a yearly basis
Some companies charge finance charge regardless of time of payment
Others only charge on amount left over Some companies charge annual fee
minimum is calculated one of three ways:adjusted balance system (pro-consumer)
bank adds new charges to previous balance, subtracts payments, then multiplies the sum by monthly interest charge.
previous balance system (pro-bank) bank multiplies balance from the previous
month and new charges by the monthly interest payment, ignoring payments.
average daily balance method (balanced) bank tracks balance day by day including
purchases and payments as they occur. Then multiply average of the daily totals by monthly interest rate.
debit card: card that deducts money directly from bank account (more like a check)
ATM (EFT) card: card that allows holder to draw money directly from account
Bob has a balance of $600, spends $400 on 16th day, pays $300 on 26th day; APR = %18; 1.5% monthly
Adjusted balance: $600 + $400 - $300 = $700 $700 x .015 = $10.50
Previous balance: $600 + $400= $1000 $1000 x .015 = $15.00
ADB: ([$600 x 15 days] + [$1000 x 10 days] + [$700 x 5 days])
= $22,000 $22,000/30 days = $750 (ADB) $750 x .015 = $11.25
Secured credit: credit based on promise and backup propertycollateral: property of value put forward in
exchange for credit
default: not paying back loanscreditors have several options for collection
payment often hire outside collection agencies to get the
money
Practice: calls and letters restriction: can’t be harassing if harassing, contact consumer
protection agency and demand all contacts stop
Practice: repossession: taking back of collateral only applies to secured credit restriction: can not use violence to
repossess
Practice: court action usually last resort because it costs
the creditor more default judgment: a judgment in
favor of creditor because defendant didn’t show up (regardless who is right)
Practice: garnishment: court order forcing debtor’s employer to withhold part of debtor’s wages and pay it directly to creditor only after a court action in favor of creditor restriction: Wage Garnishment Act: act limiting
garnished amount to 25% of pay after taxes also federal employees, people on welfare or
unemployment can not have wages garnished also employers can not fire based on garnishment
Practice: attachment: court order forcing a bank to pay creditor from debtor’s bank account also allows court to seize debtor’s property and sell
it to pay off debt
Bankruptcy: procedure in which debtor places all assets under control of federal court
Two typesChapter 13: debtor can pay off some or all
of debt over extended period of time under court supervision
Chapter 7: court seizes all assets and sells them to pay off debt Usually assets do not cover all debt
Record of bankruptcy stays on credit report for 10 years (everything else is 7)credit report: report of
a person’s entire credit history used by companies to
determine if future credit will be given
Debt from taxes, child support, student loans can not be wiped out