CHAPTER 5

What is the "credit CARD act"?

Bans some, but not all, of the worst abuses by credit card companies. Passed in 2009.

Why should you avoid credit cards that advertise as helping with "bad credit"?

in addition to costing you a bundle, they may end up making your credit history even worse.

What are the different types of fees credit card companies can impose?

late fees, over-the-limit fees, membership fees, cash advance fees, balance transfer fees, even fees for buying lottery tickets with a card. These fees significantly increase the cost of a credit card, so that a card that appears cheaper with a low APR could end up being much more expensive.

What is the liability for unauthorized use of your Credit Card under law?

$50

What are the 8 suggestions to keep in mind when reviewing credit card offers?

1. Avoid accepting too many offers 2. Beware of subprime credit cards 3. Look carefully at the interest rate, but know that it can change. 4. Fees, fees, fees. 5, Look for the grace period 6. Watch out for bait and switch offers 7. Review and compare the disclosure boxes in the credit card offer versus when your account is open 8. If you take a credit card and discover terms you do not like: CANCEL!

What are the 8 ways to avoid credit card problems?

1. Do not use credit cards to finance an unaffordable lifestyle. 2. If you get into financial trouble, try to avoid making it worse by using credit cards to make ends meet. 3. Don't get hooked on minimum payments 4. Don't run up the balance in reliance on a temporary "teaser" rate 5. if you can afford to do so within your budget, make your credit card payments on time 6. avoid the special services, programs, and good that credit card lenders offer to bill to their cards 7. beware on unsolicited increases by a credit card lender to your credit card limit 8. don't max out!

Lenders can raise your interest rates for further purchases or transactions, but there are certain limitations. What are they?

1. Notice: must give you a written notice before increasing your rate. You increased rate will apply to any purchases or transactions you make 14 days after the notice is sent. In addition, the lenders must wait 45 days after sending the notice in order to actually charge the higher rate. 2. First-year ban: lenders cannot raise interest rates even on future purchases and transactions during the first year of an account. 3. Review of rate increases: if the lender has already increased the interest rate on your account, it must review the account every 6 months to see if you deserve a lower rate.

What are the 8 things that the Credit CARD Act protects consumers against?

1. Protections against rate increases for existing balances. 2. Protections for rate increase applying to new transactions. 3. Exceptions 4. Minimum payment protections 5. Limits on penalty fees 6. Protections for how your payment is allocated. 7. Prohibits unreasonable due date practices 8. Protections for consumers under 21

What are the limits on penalty fees?

1. Reasonable and proportional limit: Penalty fees must be "reasonable and proportional". By regulation, a penalty fee is presumed to be reason and promotional if it is $25 or less for the first violation, and $35 or less for the subsequent violations during a 6 month period. 2. Over-the-limit opt-in: No over the limit fees may be charged unless the consumer has agreed that the lender may approve transactions that will exceed the credit limit. 3. Limitations on number of over-the-limit fees: lenders may charge only ONE over the limit fee per billing cycle. (usually one per month). In addition, lenders may only charge 3 over the limit fees for any one incident in going over the limit.

Before issuing a credit card to someone under 21, a lender must obtain what?

1. The signature of a cosigner over the age of 21 OR 2. Information showing that the underage consumer has an independent means of repaying any credit extended.

What are the exceptions to the rules prohibiting retroactive rate increases and rate increases during the first year of your account?

1. Variable rates: if your card carries a variable interest rate, the lender can raise the rate if there s an increase in the "index" that your rate is pegged to. For example, the lender can raise a variable rate if your rate is pegged to the prime rate, and the prime rate increases 2. Teaser rates: IF your account has a teaser rate, the lender may raise the rate once the teaser rate expires, but only to the post-teaser rate that was previously disclosed. Also, teaser rates must last a minimum of 6 months. 3. 60 days late: A lender may raise your interest rate if your are 60 or more days late in making the required minimum payment on your account. Even then, you can get your old rate reinstated if you make the next 6 months worth of minimum payments on time.

How does the Credit CARD Act protect consumers from reasonable due date practices?

1. prohibits credit card lenders from setting payment cutoff time earlier than 5pm. 2. Requiring payment due dates to be on the same day each month 3. if the due date falls on a weekend or holiday, requiring a payment received on the next business day to be considered timely. 4. Requiring lender to mail your credit card statement at least 21 days before the due date or at the end of the grace period.

How many day do you have to send in a billing error dispute letter?

60 days.

What is the Consumer Financial Protection Bureau (CFPB)

A new agency created to protect consumer of financial products and services.

What is retroactive rate increase?

A practice that credit card lenders use to increase the interest rate that applies to the balance you've already incurred on your credit card.

what are "TEASER" RATES?

A teaser rate is an artificially low initial rate that last for a limited time. Federal law requires that teaser rates last at least 6 months. Afterwards, the rate automatically goes up. If you charge up a balance while a teaser rate is in effect, you'll end up repaying the debt at a much higher post-teaser rate.

What is the difference between a DEBIT and a CREDIT card?

Debit cards take money immediately from your bank account. Credit cards is using money as a loan that you only have to pay back when the credit card bill comes.

What do "fee-harvester" credit cards have?

Low credit limits, and come loaded with high fees when the account is opened. The credit CARD Act restricts fees up to 25% of the credit limit- which is still pretty pricey- but creditors are trying to open a loophole by charging fees BEFORE the account is opened. AVOID THESE CREDIT CARDS!

What are PENALTY RATES?

Many credit card contracts, including those that advertise low rates, provide in the small print that your interest rate increases if you make a late payment or go over your credit limit. The Credit CARD Act prevents lenders from imposing the rate on your existing balance, unless you are over 60 days late. But the new, higher rate will apply to new purchases and cash advances.

What are DEFERRED INTEREST CREDIT CARDS?

Many retailers, such as electronics or furniture stores, promote "No interest until X date" credit cards.

What are examples of billing errors?

Merchant overcharging you or charging you for products that you never received.

What are VARIABLE RATES?

Most credit cards use variable rates, which change with the rise or fall of a common index rate. (an example of variable rate might be "U.S Prime Rate plus 10%) If your rate is variable, you ned to understand when and how it may change. These interest rates can be very confusing.

Are credit card secured by your home a good idea?

NO. Almost always a bad idea. The potential consequences of nonpayment is the loss of your family's shelter.

Is it good to just pay the minimum each month?

NO. This is bad and will cost you a lot more money.

What are the advantages of using a debit card?

Reduces the risk of running up a big unpaid balance on a credit card. However, make sure that you don't agree to permitting overdrafts when using your debit card.

What are BAIT & SWITCH OFFERS?

Some credit card leaders will send you an offer advertising an attractive, low interest credit card with a high limit, but include - in the fine print - a statement that the lender can substitute a less attractive, more expensive card if you don't qualify. The submitted card often has a higher interest rate, more expensive fees, and/or a lower credit limit.

What is APR?

This is the interest rate expressed as an annual figure. Most cards have different APRs for purchases versus cash advances versus balance transfers and other types of transactions.

How do you dispute billing errors?

Under the law of Fair Credit Billing Act, you must raise a dispute IN WRITING to your credit card company, usually by sending a letter. CANNOT call by phone to dispute a billing error.

What do subprime credit cards usually have?

Usually come with very high interest rates, expensive fees, and low credit limits. You may also be charged for unnecessary products such as "credit protections"

When do you stopping a payment?

When you are dissatisfied with something you bought with a credit card. You can use this strategy if you have a legitimate complaint about the quality of goods or services you bought with the card AND you first make a good faith effort to resolve the problem with the merchant directly. DOES NOT APPLY FOR DEBIT CARDS

How many days does the credit card company have to get back to you after filing a dispute?

Within TWO complete billing cycles or within 90 days, whichever comes first.

Does the Credit CARD Act include restrictions on marketing to college students, including a ban on most "freebies" for singing up for a credit card?

YES

What are the advantages of using a credit card?

You may prefer the flexibility of slower repayment with interest. You may need this flexibility if you are on a tight budget and want to make sure that your most pressing debts are paid first.

What is the catch with deferred interest credit cards?

You must pay off the ENTIRE purchase by the time the promotional period ends. If you don't, the lender will charge you interest retroactivity back to the date you bought the item. EX: you bought a bedroom set for $2500 on December 22 with a one-year promotional period. If you pay off only $2000 by the next year, you will be charged interest on the ENTIRE $2500 dating back to the first year when you bought the bedroom set.

Why should you review the disclosure boxes in the credit card offer?

You will find disclosures about the terms of a credit card offer in a box, usually on the reverse side of or accompanying the credit card application. Review these carefully. When you get your credit card you'll receive a second disclosure in the form of a box. Review this box and compare it with the first box in the credit card offer; sometimes the terms of the offer will change, especially in APR. You'll need to know the actual APR that you are getting when you receive your card.

What is a disadvantage of using a debit card?

Your rights to dispute charges are more limited than with credit cards. Your responsibility for losses from a lost or stolen card is generally much greater for a debit card than for credit. Credit cards you are responsible for $50 of unauthorized charges. Debit cards you could be responsible for as much as $500 if you fail to notify the bank within 2 days you found out the card was taken. There may be no limit to your liability if you fail to report an authorized transfer within 60 days of when the bank statement is mailed to you showing these charges.

What are credit cards secured by a bank account?

a type of SECURED credit card that allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can't make the payments, you lost the money in the account. These cards are usually marketed as a way to reestablish credit by showing that you have moved past financial problems and can make regular monthly payments on a credit card.

What is a GRACE PERIOD?

amount of time in which you can pay off purchases without incurring finance charges (cash advances usually don't have a grace period) Without a grace period, finance chargers begin accruing immediately, and a low rate may actually be higher than it looks.