Credit – cost, arrangements, denial, default, collection

1. Credit – cost, arrangements, denial, default, collection

2. Objectives • Discuss: • Rates • Payments • Collections • Legal statutes

3. IN PENNSYLVANIA, the legal rate of interest on secured loans is 6%, and this is the general usury limit for loans below $ 50,000, • except for: loans with a lien on non-residential real estate; • loans to corporations; loans that have no collateral above $ 35,000. • Judgments bear interest at the legal rate. • Unsecured under $50,000 the max is 12% • It is criminal usury to charge more than 36%.

4. Rates • Variable interest rates • Fixed interest rates • The Prime Rate: • is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). • The rate is almost always the same amongst major banks. • Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. • The rates that are reported are based upon the prime rates on the first day of each respective month.

5. Payments • Balloon payments – large final payments • Acceleration clause – miss a payment and owe entire amount (auto sales) • Bill consolidation – usually higher interest rates and payment for a longer time

6. Statutes • Truth in Lending Act • Equal Credit Opportunity Act • Fair Credit Reporting Act

7. Truth in Lending Act (Consumer Credit Protection Act ) • Act passed by Congress in 1969 • Requires clear disclosure of key terms of the lending arrangement and all costs • With the exception of certain high-cost mortgage loans, TILA does not regulate the charges that may be imposed for consumer credit. • it requires a maximum interest rate to be stated in variable-rate contracts secured by the consumer's dwelling • TILA applies only to "creditors," a term defined to include natural persons, business organizations, estates, trusts, and governmental units who regularly extend consumer credit • Creditor – made credit transactions 25 times or more prior to the transaction that came under TILA – then you are a creditor for the next calendar year regardless of the amount of transactions – but maybe not for subsequent years

8. Equal Credit Opportunity Act • ensures that all consumers are given an equal chance to obtain credit • law protects you when you deal with any creditor who regularly extends credit • Creditor cannot: • Discourage you from applying • Ask about your race or origin • Ask about personal life (married, divorced, planning to have a family) • Ask about spouse or alimony payments • Take any of these determining factors, including age when giving credit • Applying for credit will hurt some women – why? Credit in husband’s name or married name before getting divorced and lost records

9. Fair Credit Reporting Act • regulates the collection, dissemination, and use of consumer credit information • enacted in 1971 • Individuals may challenge and correct negative aspects of their record if they can prove there is a mistake • Designed to improve the confidentiality and accuracy of credit reports • strengthened by the passage of the FAIR AND ACCURATE CREDIT TRANSACTIONS ACT OF 2003, which, among many other provisions, gave consumers the right to receive one free copy of their credit report annually

10. Default and Collection • Cant pay bills? • Budget -calls/letters • Extend debt -repossession • Counseling -court action • Friends/relatives -garnishment/attachment • Bankruptcy • Assets in control of court • Chapter 7 – sell items and pays off debt but not enough to settle it; stays on credit report for 10 years • Some things still need to be repaid