Chapter 9 Credit Problems and The Law Copyright

9 -1 Resolving credit problems 2

Errors and fraud • Recourse—remedy for unfair treatment, such as an adjustment to your account. • When an unknown/unauthorized charge is found on your credit statement, take action immediately to dispute it. Begin with a phone call and follow up with a written letter. • Good records provide the documents to support your claim. 3

Credit card fraud • Credit card fraud—when someone uses your credit account to steal money or goods. • It’s a felony. • Notify the creditor AS SOON AS POSSIBLE! • Do NOT give out credit card information or other information over the telephone or Internet to those who request it. • Shred documents with account numbers on them. 4

Credit delinquency • Delinquency— failure to do what your duty or the law requires. • Overdue debt. • Contact your creditor if you know you will be unable to make a payment. 5

Credit delinquency • Collection agencies have the right to collect your debt on behalf of the creditor. May file a lawsuit against you. • A court of law could issue a judgment against you to garnish your wages. • Garnishment—a creditor can take money from your pay period to enforce a judgment. 6

Credit delinquency • Repossession is the process of taking an asset used for collateral and selling it to pay a debt. • Foreclosure—legal proceeding when a borrower does not make mortgage payments. • Debtors lose all of the previous payments they have made, and often have to pay legal fees , court costs and interest. • Purchase less house than you can afford!!!! 7

Check In #1 1. List ways you can protect yourself from credit card fraud. 2. What does the term delinquency mean as it relates to a credit account? 3. What is a collection agency? 4. Why might your credit account be turned over to a collection agency? 5. Describe what you can do to prevent garnishment or repossession of assets. Slide 8

9 -2 bankruptcy 9

Avoiding bankruptcy • Bankruptcy—legal proceeding to relieve a person of his/her debts. • Must be granted in a federal court. • May have to surrender all assets to pay debts. • Involuntary bankruptcy—creditors ask the court. • Stays on credit record for 10 years. 10

Common reasons debtors seek bankruptcy • Excessive medical bills (even with insurance) • Small business failure • Overspending and unwise use of credit. • Losing employment, being overextended. • Not having enough savings for unexpected events. 11

Credit counseling • Available through non-profit groups • Provide lifestyle counseling • Must get counseling within six months prior to filing for bankruptcy • Help arrange payment plans for debts 12

Debt Management • Turning over your checking account and bills to a debt manager • Creates a plan for paying off debt • Fee or commission-based • Required to give up credit cards • You live on an allowance 13

Debt consolidation • Process of getting one loan to pay all debts • One single payment is usually less than the minimum payments on a number of loans • An equity loan is secured by the value of your home. • Sometimes called a second mortgage. 14

Bankruptcy • Gives debtor a fresh start. Was NEVER intended to be used for reckless spending or avoiding responsibility. • To ensure fair treatment of creditors. • Immediately stops all collections. All accounts and contracts are frozen. 15

Types of bankruptcy • Chapter 7 Liquidation—debts are discharged debts. (Court order that pardons the debtor from paying debts). • Debtor’s assets are sold to pay off debts, including: credit cards, bank loans, medical bills, and court judgments. • The law allows a debtor to keep $15, 000 worth of equity in their home. • May not discharge tax debt, student loans, government fines, or child support 16

Types of bankruptcy • Chapter 13 Wage Earner Plan—for debtors who have a good source of steady income. • Designed for homeowners and working persons • No liquidation of assets. • As much debt as possible paid off in 3 -5 years. • Then other debt is discharged. • Forces creditors to stop interest and late fees. • Collection efforts are ordered to be stopped. 17

New bankruptcy legislation • Bankruptcy Abuse Prevention and Consumer Protection Act, April 2005. • Makes it more difficult for consumers to erase ALL debt, requires more to file Chapter 13. 18

Check In #2 1. What are some reasons people get into extreme debt and seek bankruptcy? 2. Explain how credit counseling can help avoid bankruptcy. 3. What are the two purposes of bankruptcy law? 4. What are some things that can be discharged under Chapter 7? 5. How is Chapter 13 bankruptcy different Slide 19 from Chapter 7?

9 -3 Consumer protection and laws 20

Credit reports and scores • Every person who has a Social Security number also has a credit file. • This data is shared with interested parties in a credit report. • Gives lenders information about credit history. • Lists current credit and balances • Includes late payments and defaults, personal information such as pay rate/place of work. 21

Credit reports and scores • Three major credit bureaus are Equifax, Trans. Union, and Experian (TRW). • Each collects and analyzes data about you, then assigns a credit score, rating whether you are a good credit risk or not. • The higher the score, the lower the risk. – 749 -799 Very Good Credit Rating – 800+ Execellent 22

Credit reports and scores • Consumers can get their credit scores for a charge. • You can view your credit reports once annually for free. 23

To improve your credit score • • Pay all debts on or before the due date. Pay more than the minimum payment. Keep your debt as low as possible. Do not charge more than 50% of the credit line available to you. • Pay off credit card balances when possible. 24

To improve your credit score • • Keep a good job with solid income. Stay in the same job for several years. Own your house rather than rent. Check your credit report regularly to be sure it contains correct information. 25

Consumer rights • If you are denied credit, there could be inaccurate information in your file • The Fair Credit Reporting Act gives you the right to know what is in your credit file. • Free report within 30 days of a credit denial. May receive on free report every year. • You have the right to have inaccurate data investigated, corrected, and deleted from the file. 26

Consumer rights • Truth-In-Lending Act—requires that consumers be fully informed about the costs of credit. • Much information must be given, including: • Cash price of the item • Down payment or trade-in price • Amount financed • Service fees being added • Finance charges • Limits liability to $50 if credit card is lost or stolen 27

Consumer rights • More information to be disclosed to consumer: • Annual percentage rate • Deferred payment price • Amounts and dates of payments • Description of item(s) being purchased • Method of computing interest charge in case of early payoff 28

Consumer rights • Resolving errors—Fair Credit Billing Act protects consumers who have billing disputes. • Applies only to open-end credit, such as store or credit cards. • All credit card companies must have policies regarding how to dispute charges. Consumer has 60 days from receipt of bill to file a dispute. Creditor has 30 days to respond and 90 days to resolve dispute. 29

Consumer rights • Discrimination—Equal Credit Opportunity Act protects consumers from discrimination in the granting or denying of credit. • Criteria protects against discrimination on the basis of: gender, marital status, religion, national origin, race, color, age, or persons receiving social security or unemployment benefits. 30

Consumer rights • Debt Collections—Fair Debt Collection Practices Act protects consumes from abusive practices related to collecting debts. • Debtors cannot be called at work, or after 9 pm • Collectors cannot call repeatedly during the day 31

Credit scams and related crimes • Scam—fake offer, sale or other gimmick that will cost you money if you agree to it. • Often used to gain your bank account info. • Ask questions and research offers! • If it sounds too good to be true, it is!! 32

Credit scams and related crimes • Identity Theft—when someone uses your personal information without your permission to commit fraud or other crimes. • One of the fastest-growing crimes in U. S. A. • Your SS# allows other info to be obtained. Credit will be applied for in your name, but as the bill goes to a different address, you may never know for some time. 33

Credit scams and related crimes • Phishing—an internet scam where thieves use e-mail messages and Web sites designed to look like the sites of real companies. • Consumers are deceived into giving account information and personal data, such as user names and passwords. • If unsure, call your bank. 34

Check In #3 1. What is the purpose of a credit report? 2. List some ways to improve your credit score 3. List the basic provisions of the Truth-in. Lending Act 4. List items that cannot be the basis for discrimination in the granting or denial of credit. 5. Explain what identity theft is and how it Slide 35 impacts individuals.