CHAPTER 9 Credit Problems and Laws

1. CHAPTER 9Credit Problems and Laws 9-1 Resolving Credit Problems 9-2 Bankruptcy Choices 9-3 Consumer Protection

2. 9-1 Resolving Credit Problems Learning Objectives 9-1.1 Recognize how to avoid collection, garnishment, and foreclosure procedures. 9-1.2 Explain how to dispute errors on billing statements and the methods that can be used to resolve disputes. 9-1.3 Explain how to avoid credit scams and fraud. Slide 2

3. What Problems Can Arise from Debt? • Loan modification • A new loan arrangement that allows you to make reduced payments, usually on a temporary basis • Credit delinquency • Failure to pay debts as required by agreement or by law Slide 3

4. What Problems Can Arise from Debt?(continued) • Repossession and Foreclosure • Repossession: The act of taking an asset used as collateral and selling it to pay the debt • Foreclosure: The legal process of taking possession of the house (property) when the borrower does not make mortgage payments as agreed Slide 4

5. What Problems Can Arise from Debt?(continued) • Collection Agencies • Garnishment: A legal process that allows part of an employee’s paycheck to be withheld for payment of a debt Slide 5

6. How Can You Resolve Credit Errors? • Disputing Charges • Disputing a charge: The process of informing a credit company of an error on your bill • Documentation: Records that support your claim • Dispute letter: A letter written to inform a credit company of an incorrect charge on your account Slide 6

7. Dispute Letter Slide 7

8. How Can You Resolve Credit Errors? (continued) • Methods for Settling Credit Disputes • Alternative dispute resolution (ADR): A method of settling a dispute using a neutral third party • Filing a Lawsuit Slide 8

9. How Can You Protect Yourself Against Credit Fraud and Scams? • Credit card fraud • Intentionally using someone’s credit account to steal money or goods • Identity theft • Using someone’s personal information without his or her permission to commit fraud or other crimes Slide 9

10. How Can You Protect Yourself Against Credit Fraud and Scams?(continued) • Credit Repair Scams • Credit repair: A scam in which a company claims to be able to “fix” your poor credit record and give you a clean credit history—for a price Slide 10

11. 9-2 Bankruptcy Choices Learning Objectives 9-2.1 Explain the reasons for and purposes of bankruptcy, and list and describe types of bankruptcy. 9-2.2 List strategies for avoiding bankruptcy. Slide 11

12. What Is Bankruptcy? • Bankruptcy • A legal procedure to relieve a person of excessive debt • Bankruptcy Laws • Bankruptcy fraud: The abuse of bankruptcy laws in a way that favors the debtor and defrauds creditors Slide 12

13. What Is Bankruptcy? (continued) • Types of Bankruptcy • Chapter 7 bankruptcy: The forfeiture of an individual’s assets in exchange for the discharge of debts • Discharge: A court order that pardons the debtor from having to pay debts • Exemption: Property that a debtor in bankruptcy does not have to forfeit to pay off creditors Slide 13

14. What Is Bankruptcy? (continued) • Types of Bankruptcy(continued) • Chapter 13 bankruptcy: A repayment plan for some of an individual’s debt • Chapter 11 bankruptcy: A reorganization form of bankruptcy for businesses that allows them to retain possession of their assets and continue operating under court supervision as they repay their restructured debts Slide 14

15. How Can Bankruptcy Be Avoided? • Credit counseling • A service to help consumers manage credit and avoid bankruptcy • Debt Settlement • Debt settlement program: A type of debt relief service in which a company negotiates with your creditors on your behalf to reduce the amount of debt you owe Slide 15

16. How Can Bankruptcy Be Avoided? (continued) • Debt consolidation • The process of getting one loan with a single monthly payment to pay off all of your debts • Equity loan: A second mortgage or debt secured with the equity in your home Slide 16

17. 9-3 Consumer Protection Learning Objectives 9-3.1 Describe the purpose of consumer advocacy groups and government consumer protection agencies. 9-3.2 List and explain consumer protection laws that are related to credit. Slide 17

18. What Help Is Available to Consumers? • Federal Agencies • Federal Trade Commission • Consumer Financial Protection Bureau • Federal Bureau of Investigation • State and Local Assistance • Consumer Advocacy Groups • Consumer advocacy: The process of helping consumers resolve problems Slide 18

19. Consumer Advocacy Groups Slide 19

20. What Consumer Credit RightsAre Protected by Law? • Check Your Credit Report • Fair Credit Reporting Act: A law that regulates the collection, dissemination, and use of consumer credit information • Know the Cost of Credit • Truth in Lending Act: A law that requires lenders to fully inform consumers about the cost of credit in a loan or credit agreement Slide 20

21. What Consumer Credit RightsAre Protected by Law? (continued) • Resolve Billing Errors • Fair Credit Billing Act: A law that sets requirements for resolving billing disputes • Protect Against Debt Collection Practices • Fair Debt Collection Practices Act: A law that protects consumers from abusive collection practices by creditors and collection agencies Slide 21

22. Error-Correction Policy Slide 22

23. What Consumer Credit RightsAre Protected by Law? (continued) • Obtain Freedom from Discrimination • Equal Credit Opportunity Act: A law that protects consumers from discrimination in the granting or denying of credit • Know Credit Card Practices • Credit Card Accountability Responsibility and Disclosure Act: A comprehensive reform to credit card law to establish fair practices related to credit Slide 23