Para 1 - Cengage



CHAPTER 36

Protecting the Borrower

key points in the chapter

• Federal and state governments have enacted laws to protect consumers who buy on credit and those who borrow money. The most important of these laws is the Consumer Credit Protection Act, popularly known as the Truth in Lending Act.

• Government laws and regulations protect the following rights: to obtain credit, to borrow at lawful interest rates, to receive accurate bills, to be free from harassing collection methods, and to obtain relief from debt.

• The two basic types of consumer credit are unsecured credit, based solely on a promise to repay, and secured credit, based both on a promise to repay and a pledge of the borrower’s property.

• The three most common types of credit are charge accounts, installment loans, and bank loans.

• The federal Equal Credit Opportunity Act prevents creditors from discriminating against certain people and makes sure that credit is based solely on the ability to pay.

• The federal Truth in Lending Act helps consumers and borrowers know what credit is actually going to cost them.

• The federal Fair Credit Reporting Act enables consumers to have accurate credit records and correct inaccurate records.

• A consumer is entitled to accurate bills for goods purchased or money borrowed. The federal Fair Credit Billing Act enables consumers and borrowers to resolve billing disputes in a simplified way.

• The federal Fair Debt Collection Practices Act controls the acts of debt collectors and prohibits abusive collection techniques.

• Most states have enacted usury laws that regulate the amount of interest that may be charged for loans and credit purchases and that provide penalties for those who charge higher than the legal rate of interest.

• The federal Bankruptcy Act helps debtors, both personal and corporate, to either work out payment plans with creditors, or go into bankruptcy and be relieved from debt. Debtors may also be able to enter into voluntary plans with creditors without having to resort to the Bankruptcy Act.

multiple choice questions

On the line next to each statement, write the letter of the best answer.

1. Discrimination in granting credit is prohibited by the

a. Federal Trade Act.

b. Commerce Act.

c. Equal Credit Opportunity Act.

d. Fair Credit Act.

2. In deciding whether to grant credit, a creditor can consider an applicant’s

a. religion.

b. geographical residence.

c. income.

d. marital status.

3. In deciding whether to grant credit, a creditor can refuse to consider income from

a. alimony.

b. a pension.

c. part-time employment.

d. gambling.

4. The money paid for the use of credit is a(n)

a. annual charge.

b. finance charge.

c. borrowing fee.

d. percentage fee.

5. A person whose credit card is stolen and who notifies the card issuer of the theft is liable for charges made with the card up to

a. the total amount charged.

b. $100.

c. $250.

d. $50.

6. An incorrect bill received by a consumer must be corrected within

a. thirty days.

b. forty-five days.

c. sixty days.

d. ninety days.

7. A consumer who believes a bill is incorrect must notify the

a. Federal Trade Commission.

b. Better Business Bureau.

c. creditor.

d. local chamber of commerce.

8. Assets of a debtor that cannot be taken to satisfy a judgment include

a. a car.

b. a bank account.

c. stocks.

d. household furniture.

9. Usury laws generally do not apply to

a. credit card charges.

b. mortgage loans.

c. education loans.

d. vacation loans.

10. A person can file for bankruptcy

a. once a year.

b. once in a lifetime.

c. every twelve years.

d. every six years.

true/false questions

Indicate whether each statement below is true or false by circling T or F in the column on the left.

1. T F Lenders can refuse credit to someone who is receiving public assistance.

2. T F Creditors always can consider a potential borrower’s age in determining whether to grant credit.

3. T F A lender must disclose the finance charge but not the annual percentage rate.

4. T F The law does not require that service or carrying charges added to finance charges be disclosed to a borrower.

5. T F If you lose a credit card because of your negligence, you may be held responsible for an unlimited amount of unauthorized charges.

6. T F A person who is denied credit is entitled to know the reasons why.

7. T F A consumer who believes a bill is incorrect does not have to make any payment on the bill until the error is corrected.

8. T F An agreement requiring an interest rate higher than the contract rate is usurious.

9. T F After being discharged in bankruptcy, the bankrupt individual is no longer responsible for any debts.

10. T F When the interest rate is not stated in a loan or credit agreement, the maximum that can be charged is called the legal rate.

case problems

Read the case problems below. For each problem, answer yes or no, and then explain your answer in the space provided.

1. Garnett needed capital to expand her business. She found a friend who agreed to lend her the money at 25 percent interest per year. When Garnett failed to pay the debt, her friend sued. Garnett claimed that the loan was invalid because the maximum interest rate in her state is 12 percent. Was Garnett legally correct?

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2. Briggs finds that her debts exceed her assets by a considerable amount, and she cannot pay her bills on time. Is bankruptcy the only solution?

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