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