Financial Law Objective 4.01 Understand financial, credit, and bankruptcy law. Objective 4.01 Understand financial, credit, and bankruptcy law. BB30 Business Law 4.01Summer 2013

Federal Deposit Insurance Corporation (FDIC)  Independent agency of the federal government created by Congress in 1933  Created to maintain the publics confidence in banks and encourage stable banking practices  FDIC pays a depositor up to $250,000 per account, if an insured bank fails  Independent agency of the federal government created by Congress in 1933  Created to maintain the publics confidence in banks and encourage stable banking practices  FDIC pays a depositor up to $250,000 per account, if an insured bank fails BB30 Business Law 4.01Summer 2013

Electronic Fund Transfer Act  Provides consumers against unauthorized electronic fund transactions including:  Debit and credit card purchases  ATM withdrawals  Automatic bank account withdrawals  Permits consumers to challenge billing errors and have them corrected within a 60-days  Limits consumer liability on lost cards to $50 if the reported as lost within 2 business days.  Provides consumers against unauthorized electronic fund transactions including:  Debit and credit card purchases  ATM withdrawals  Automatic bank account withdrawals  Permits consumers to challenge billing errors and have them corrected within a 60-days  Limits consumer liability on lost cards to $50 if the reported as lost within 2 business days. BB30 Business Law 4.01Summer 2013

Home Equity  The current market value of a home minus the remaining mortgage balance  Home Equity Line of Credit  Allows consumers to borrow money while using their home as collateral  The current market value of a home minus the remaining mortgage balance  Home Equity Line of Credit  Allows consumers to borrow money while using their home as collateral BB30 Business Law 4.01Summer 2013

Home Equity Consumer Protection Act  Requires creditors to disclose the conditions, rates, and terms of home equity loan plans  If creditors change the terms, the consumer has the right to refuse to open the plan and full refund of application fees  Requires creditors to disclose the conditions, rates, and terms of home equity loan plans  If creditors change the terms, the consumer has the right to refuse to open the plan and full refund of application fees BB30 Business Law 4.01Summer 2013

Home Equity Consumer Protection Act  When the consumer receives the loan application, it must include:  Annual percentage rate  Payment terms  Miscellaneous fees  Information concerning variable interest rates  When the consumer receives the loan application, it must include:  Annual percentage rate  Payment terms  Miscellaneous fees  Information concerning variable interest rates BB30 Business Law 4.01Summer 2013

Right to Financial Privacy Act  Grants consumers’ personal financial records a reasonable amount of privacy from federal government searches  This act created Fourth Amendment protection for bank records  Requires government agencies to give banks and time to object the search of consumer personal records  Grants consumers’ personal financial records a reasonable amount of privacy from federal government searches  This act created Fourth Amendment protection for bank records  Requires government agencies to give banks and time to object the search of consumer personal records BB30 Business Law 4.01Summer 2013

Thrift and Bank Fraud Act  Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990 increased the government’s ability to combat bank fraud  Increased the prison time and penalties for people found guilty of bank fraud  Increased the FDIC’s power to enforce actions against unsafe banking practices  Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act of 1990 increased the government’s ability to combat bank fraud  Increased the prison time and penalties for people found guilty of bank fraud  Increased the FDIC’s power to enforce actions against unsafe banking practices BB30 Business Law 4.01Summer 2013

Bank Fraud  The act of obtaining credit, assets, money, funds, or securities under the custody of a financial institution through false pretenses  Penalty for bank fraud:  Fined up to $1,000,000  Prison term up to 30 years  Both fine and prison  The act of obtaining credit, assets, money, funds, or securities under the custody of a financial institution through false pretenses  Penalty for bank fraud:  Fined up to $1,000,000  Prison term up to 30 years  Both fine and prison BB30 Business Law 4.01Summer 2013

Credit Laws and Bankruptcy Objective 4.01 Understand financial, credit, and bankruptcy law. Objective 4.01 Understand financial, credit, and bankruptcy law. BB30 Business Law 4.01Summer 2013

Credit Basic Terms  Credit  A contractual agreement in which one party receives something of value now and agrees to pay the lender in the future  Creditor  Person or business providing credit  Debtor  Person or business that receives the credit  Free / Grace Period  Creditors must mail out bill 14 days before due in order for time to pay  Credit  A contractual agreement in which one party receives something of value now and agrees to pay the lender in the future  Creditor  Person or business providing credit  Debtor  Person or business that receives the credit  Free / Grace Period  Creditors must mail out bill 14 days before due in order for time to pay BB30 Business Law 4.01Summer 2013

Credit Basic Terms  Credit Report  Report that summarizes a consumer’s financial history including number of credit cards, payments to credit cards, and number of late payments (if any)  Creditors use this report to determine a credit applicant is “creditworthy” or a good credit risk  Credit Report  Report that summarizes a consumer’s financial history including number of credit cards, payments to credit cards, and number of late payments (if any)  Creditors use this report to determine a credit applicant is “creditworthy” or a good credit risk BB30 Business Law 4.01Summer 2013

Federal Trade Commission  Protects consumers right to attain, use, and maintian credit by monitoring and enforcing credit laws BB30 Business Law 4.01Summer 2013

Fair Credit Reporting Act  Consumers have the right to receive an accurate, up-to-date credit report  Consumers have the right to know who requests to view their report over the past year (two years for employer requests)  Consumers have the right to receive an accurate, up-to-date credit report  Consumers have the right to know who requests to view their report over the past year (two years for employer requests) BB30 Business Law 4.01Summer 2013

Fair Credit Reporting Act  If credit report is incorrect:  Consumers have the right to file a dispute with credit report agency, and the person or business that provided the credit information  Both parties must investigate the dispute  If the dispute is not resolved to the consumer’s satisfaction, the consumer has the right to add explanation to the report  If credit report is incorrect:  Consumers have the right to file a dispute with credit report agency, and the person or business that provided the credit information  Both parties must investigate the dispute  If the dispute is not resolved to the consumer’s satisfaction, the consumer has the right to add explanation to the report BB30 Business Law 4.01Summer 2013

Equal Credit Opportunity Act  Credit application can only be judged on the basis on financial responsibility not the applicant’s gender, race, martial status, age, national origin, or receipt of public assistance  If credit is denied, consumers have to right to know why

Equal Credit Opportunity Act  Creditworthiness or financial responsibility should be based factors such as:  Income  Expenses  Debits  Credit history  Creditworthiness or financial responsibility should be based factors such as:  Income  Expenses  Debits  Credit history BB30 Business Law 4.01Summer 2013

Fair Debt Collection Practices Act  Prohibits unfair, abusive, and deception methods of collecting debt  Applies to family, individual, and household debts derived from:  Credit card accounts  First and second mortgages  Medical care  The purchase of a vehicle  Retail financing  Prohibits unfair, abusive, and deception methods of collecting debt  Applies to family, individual, and household debts derived from:  Credit card accounts  First and second mortgages  Medical care  The purchase of a vehicle  Retail financing BB30 Business Law 4.01Summer 2013

Fair Debt Collection Practices Act  Restricts credit collection agencies from:  Calling at inconvenient times to collect debt  Call you at work if you tell them they are not allowed to call  Telling third parties, such as co-workers, neighbors, or employer, about the debt  Using racial slurs, insults or profane language  Making false accusations or representations, such as, using a fake name or falsely declaring to file a lawsuit  Restricts credit collection agencies from:  Calling at inconvenient times to collect debt  Call you at work if you tell them they are not allowed to call  Telling third parties, such as co-workers, neighbors, or employer, about the debt  Using racial slurs, insults or profane language  Making false accusations or representations, such as, using a fake name or falsely declaring to file a lawsuit BB30 Business Law 4.01Summer 2013

Truth in Lending Law  Requires creditors to provide consumers with the terms and cost of credit:  Annual percentage rate  Finance charge  Credit limit  Minimum payment amount  Requires creditors to provide consumers with the terms and cost of credit:  Annual percentage rate  Finance charge  Credit limit  Minimum payment amount BB30 Business Law 4.01Summer 2013

Usury Law  Sets the maximum amount of interest that can be charged for a loan. BB30 Business Law 4.01Summer 2013

Fair Credit Billing Act  Provides consumers with a means to dispute a billing error on open-ended credit accounts (credit and charge cards).  Law does not apply to installment loans  Consumer must notify creditor in writing within 60 days from the statement date  Provides consumers with a means to dispute a billing error on open-ended credit accounts (credit and charge cards).  Law does not apply to installment loans  Consumer must notify creditor in writing within 60 days from the statement date BB30 Business Law 4.01Summer 2013

Fair Credit Billing Act  Creditor must acknowledge consumer’s letter within 30 days  Creditor must explain the reason for the charge or fix the mistake within 90 days  Creditor must acknowledge consumer’s letter within 30 days  Creditor must explain the reason for the charge or fix the mistake within 90 days BB30 Business Law 4.01Summer 2013

Credit Reporting Act  Allows consumers to obtain a free copy of their credit report one time every 12 months from each credit reporting agency:  Equifax  Experian  Trans Union  Allows consumers to obtain a free copy of their credit report one time every 12 months from each credit reporting agency:  Equifax  Experian  Trans Union BB30 Business Law 4.01Summer 2013

Credit Card Act of 2009  Credit Card Accountability Responsibility and Disclosure Act of 2009  Amends the Truth-in-Lending Act  Requires creditors to notify consumers in writing of significant changes to credit terms within 45 days  Credit Card Accountability Responsibility and Disclosure Act of 2009  Amends the Truth-in-Lending Act  Requires creditors to notify consumers in writing of significant changes to credit terms within 45 days BB30 Business Law 4.01Summer 2013

Credit Card Act of 2009  Requires that credit applicants under the age of 21 have a cosigner  Legal guardian, parent, spouse, or person 21 or older able to repay debt of the applicant  Requires creditors to provide clear and simple minimum payment information  Requires that credit applicants under the age of 21 have a cosigner  Legal guardian, parent, spouse, or person 21 or older able to repay debt of the applicant  Requires creditors to provide clear and simple minimum payment information BB30 Business Law 4.01Summer 2013

Credit Card Act of 2009 If you make no additional charges using this card and each month you pay… You will pay off the balance shown on this statement in about… And you will end up paying an estimated total of… Only the minimum payment 21 years$5,936 $953 years$3,411 (Savings = $2,483) BB30 Business Law 4.01Summer 2013 Minimum Payment Warning: If you make only the minimum payment each period, you will pay more in interest and it will take longer to pay off your balance. For example:

BB30 Business Law 4.01Summer 2013 Bankruptcy  Legal proceeding for a person or business unable to pay an outstanding debt  Provides the debtor with an opportunity to recover from debt

BB30 Business Law 4.01Summer 2013 Chapter 7 Bankruptcy  Requires the debtor to liquidate (sale) nonexempt property to repay creditors  Non-exempt property includes money from bank accounts, stocks, and bonds

BB30 Business Law 4.01Summer 2013 Chapter 11 Bankruptcy  Form of bankruptcy that allows businesses to create a plan to “reorganize” and pay off their debts over time.  Examples of reorganization:  Closing stores  Reducing size of workforce  Stop selling certain product lines

Chapter 12 Bankruptcy  Form of bankruptcy that allows family farmers and fishing business owners to recover from debt  Repayment plan is created for the business  Form of bankruptcy that allows family farmers and fishing business owners to recover from debt  Repayment plan is created for the business BB30 Business Law 4.01Summer 2013

Chapter 13 Bankruptcy  Form of bankruptcy that allows an individual to submit a plan to repay debts in 3 to 5 years.  Requires the debtor to have $250,000 in unsecured debt.