1. CONSUMER & HOUSING LAW Unit VI – Individual & The Law

2. CONTRACTS Chapter 22

3. ELEMENTS OF A CONTRACT  A contract is an agreement between two or more persons to exchange something of value  A party who fails to live up to such a promise has breached (broken) the contract  A legally binding contract must have certain elements:  There must be and offer  Then there must be an acceptance  There must be an exchange of consideration – things of value have been ‘exchanged’  Persons entering into a contract have to be legally competent

4. MINORS AND CONTRACTS  Minors may make contracts  They cannot be forced to carry out their promises  The can cancel or refuse to honor the contract but they must return the consideration still in their possession  This is to keep minors from being taken advantage of due to  Age  Lack of experience  Most places require an adult to cosign with a minor on the contract  The adult is then responsible if the minor backs out of the contract  Minors may be held to contracts that involve  Food  Clothing  Shelter  Medical aid  Minors who make payments after reaching the age of majority are said to have ratified the contract; therefore, they may no longer back out of the contract

5. WRITTEN & ORAL CONTRACTS  Contracts that MUST be in writing:  Sale of land/real estate  Sale of goods priced over $500  Agreements to pay another person’s debt  Agreements that cannot be met within a year from the date of the agreement  The law favors written contracts. They are much easier to enforce!

6. ILLEGAL CONTRACTS  Unconscionable contracts are those that the court feels are too  Unfair  Harsh  Oppressive  Paying a very high price for something is not typically considered to be unconscionable

7.  Requirements for a contract to be deemed unconscionable:  The consumer is presented with a contract on a take-it-or-leave-it basis  There is very uneven bargaining power between the parties  Fraud and misrepresentation are grounds for invalidating a contract  Salespeople cannot lie about a product  Salespeople are not required to volunteer information unless they are asked to do so.

8. WARRANTIES Chapter 23

9. EXPRESS WARRANTIES  A warranty is a promise or guarantee made by a seller concerning the quality or performance of goods offered for sale  If the seller does not live up to the promises made in the warranty, the contract has been breached (broken)  An express warranty is a statement (written or oral) concerning the quality or performance of goods offered for sale that becomes a part of the bargain between the parties

10.  Express warranties are created by statements of fact  Example: You only have to change the oil in this car every 10,000 miles  If the seller’s statement is merely an opinion or exaggeration it is ‘puffing’ or sales talk and cannot be trusted  Puffing doesn’t usually create an express warranty because it’s so exaggerated you should know better

11.  Sellers DO NOT have to give written warranties  Magnuson-Mass Warranty Act requires written warranties  Disclose all essential terms and conditions in a single document  Be in simple, easy-to-read language  Be made available to the consumer before the sale  The warranty DOES NOT apply to products $15 or less

12.  The act labels warranties either full or limited  Full Warranty  A defective product will be fixed or replaced for free  The consumer doesn’t have to do anything unreasonable to get the warranty service  The product will be fixed within a reasonable time once the problem is reported by the consumer  If the product repeatedly messes up, it will be replaced or the consumer will be refunded  The warranty applies to anyone who owns the product during the warranty period

13. IMPLIED WARRANTIES  An unwritten promise created by law, that a product will do what it is supposed to do  Three types of implied warranties  Warranty of merchantability  An unwritten promise that the item sold is of at least average quality for that type of item  Warranty of fitness for a particular purpose  Exists when a consumer tells a seller before buying an item that it is needed for a specific purpose or will be used in a certain way  Warranty of title  A seller’s promise that he or she owns the item being offered for sale

14.  Consumers who are harmed by products may be able to sue for damages because the manufacturer or seller has breached a warranty  Consumers may also be able to recover damages based either on the negligence of the manufacturer or seller

15. DISCLAIMERS  An attempt to limit the seller’s responsibilities should anything go wrong with a product  Implied warranty disclaimers  ‘with all faults’  ‘as is’

16. CREDIT Chapter 24

17. CREDIT CARDS AND CHARGE ACCOUNTS  Credit means buying goods or services now in exchange for a promise to pay in the future  Creditors lend money  Debtors borrow the money  Credit terms  Finance Charges more money owed to the creditor to compensate them for ‘loaning’ you the money  Interest is the money the creditor makes for loaning you money  Annual Percentage Rate (APR) the percentage cost of credit on a yearly basis

18.  Unsecured Credit – no collateral, just a promise to repay  Secured Credit – has collateral worth the money you have borrowed  Car payments, if you don’t pay the repo man takes the car away!

19.  EFT Cards & Debit Cards  Both allow for funds to be electronically transferred from your bank account to the place where you used the card  If you lose your card or it’s stolen you have 2 days to report it  Report within the two days, you are only responsible for $50 of unapproved withdrawals  More than two days, you are responsible for up to $500 of unapproved withdrawals

20. WHEN SHOULD YOU USE CREDIT?  Credit is best used only to purchase  Homes – get a mortgage  Cars – try to stay within 3 years of payments  Education – college loans are good if the education/degree you receive helps you to better yourself and make more money

21. THE COST OF CREDIT  Interest Rates  Usury is charging above the legal interest rate – it’s illegal  Loan Sharking – people who lend money at high, illegal rates of interest, then hurt or kill people when they can’t repay the money  Costly Credit Arrangements  Balloon Payments – you make payments for a few years then the balance of the loan has to be paid in full  Acceleration clause this permits the creditor to accelerate the loan making all future payments due immediately in the event the debtor misses a payment.  Bill Consolidation – combining all bills together for one payment

22.  Truth in Lending  Truth in Lending Act – law requiring creditors to give your certain basic information about the cost of buying credit  The creditor must tell you IN WRITING and BEFORE YOU SIGN a contract what the  Annual percentage rate is  Finance charge is

23. WHAT LENDERS WANT TO KNOW BEFORE EXTENDING CREDIT  Is the consumer a reliable person?  Does the consumer have a steady income that is likely to continue into the future?  Is the consumer’s income high enough to enable him or her to pay for the items to be purchased?  Does the consumer have a good record (credit rating) in paying off other loans and bills?

24. WHAT TO DO IF YOU ARE DENIED CREDIT  The Equal Credit Opportunity Act says creditors must tell consumers why they were turned down. The must be specific  The Fair Credit Reporting Act requires creditors who deny credit based on information received from a credit bureau to tell you that fact.

25. DEFAULT AND COLLECTION PRACTICES  What a Consumer Can Do in Case of Default  Reassess your financial lifestyle to find where you went wrong  Notify each creditor of the problem and ask to have the term of debt extended or the amount owed reduced  Contact a consumer credit counseling service of family service agency that offers free or low-cost financial counseling  Seek assistance from friends or relatives to reduce the debt to a manageable level

26.  In worst case scenarios you can declare bankruptcy  The debtor puts their assets under the control of a federal court in order to be relieved of debt  Chapter 7 – the federal court takes control of most of the debtor’s assets, sells them, and pays off as much debt as possible  Chapter 13 – the federal court takes control and allows the debtor to work and pay back all or a portion of their debt.

27.  Creditor Collection Practices  Fair Debt Collection Practices Act in 1978  Protects consumers from abusive and unfair collection practices by professional debt collectors  Calls and Letters  You can report collectors who are harassing you to the FTC  You can send bill collectors a notice demanding that all collection contacts cease  Repossession  The creditor can usually take back the collateral if you default on the loan  Court Action  As a last resort, creditors may sue debtors in court for the exact amount owed on the debt  Default Judgment – these are usually issued if the debtor DOES NOT show up in court  Garnishment and Attachment  Creditors use a court order that forces the debtor’s employer to withhold part of the debtor’s wages and pay it directly to the creditor  Creditors can also get a court order, an attachment, that forces a bank to pay the creditor out of the consumer’s bank account or seize the consumer’s property to sell it to pay off the debt