The Secret History of Credit Cards

1. The Secret History of Credit Cards Mrs. Sylva Economics

2. What do you know about credit cards? • How do they work? • How many credit cards would you think the average person uses? • Why do you think people have more than one credit card?

3. Terms to Know… Credit • Receipt of money either directly or indirectly to buy goods and services in the present with the promise to pay for them in the future. Principal • Amount originally borrowed

4. Terms to Know… Interest • "A charge for a loan, usually a percentage of the amount loaned" • vary widely, both for one individual’s account and for the industry at large. • Interest rates for credit cards can change with 15 days notice to the cardholder. Annual Percentage Rate (APR) • Cost of credit expressed as a yearly percentage (includes noninterest costs)

5. Terms to Know… American Bankers Association (ABA) • Represents banks of all sizes on issues of national importance for financial institutions and their customers. • Promote the strength and profitability of the banking industry. Bankruptcy • "A legal proceeding that relieves you of the responsibility of paying your debts or provides you with protection while attempting to repay your debts.“

6. Terms to Know… Deadbeat • Normally means "one who does not pay one's debts," • For credit card companies, "deadbeat" means someone who avoids interest and fees by paying her/his account balance in full each month

7. Terms to Know… OCC (Office of the Comptroller of the Currency) • An agency of the U.S. Dept. of the Treasury • Responsible for overseeing credit card policies

8. Terms to Know… "Revolver:" • a customer who does not pay her/his balance in full each month. • Customer fees and interest fees generate income for the credit card companies. • About 90 million Americans do not pay their bills in full each month and carry balances on their credit cards. • Average balance is $8000.

9. Terms to Know… "Universal default:" • Communication among lending institutions means that a late payment on any debt may lead to a consumer being declared in "universal default," which can lead to an increase in fees and interest on all outstanding debts, even those on which the consumer’s payments are up to date. Usury: • An excessive or illegally high rate of interest charged on borrowed money.

10. Questions to Answer… Answer the following questions after watching the video: 1. What information in the documentary most surprised you? 2. Do you think the government should have a role in regulating both who can get credit cards and what interest and fees consumers should pay? If so, who should be the regulators? Who would benefit from such regulation? Who would lose? Explain.

11. Questions to Answer… 3. How, according to the four "normal consumers" in the documentary, does owning a credit card or credit cards affect purchasing decisions? 4. Who loses and gains the most from credit card companies’ policies? Explain. 5. Has the documentary influenced how you might use credit cards in the future? Explain.

12. The Video…. • http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/

13. The Cost of Credit Figure out how much repaying an $8000 credit card debt will cost at interest rates of 12 percent, 19 percent and 29 percent: a) With only the required minimum monthly payment • b) With a fixed payment of $250 • c) With a fixed payment of $500 Calculator

14. The Cost of Credit Imagine that you have used a credit card to buy $900 in gifts for friends and family. Using the link below, calculate your repayment schedule. Click for Cost of Credit Worksheet2 http://aol1.bankrate.com/aol/calc/MinPayment.asp?nav=cc&page=calc_home

15. Checklist for Buying on Credit • Do I really need this item? Can I postpone the item until later? • If I pay cash, what will I be giving up that I could buy with this money? • If I borrow or use credit, will the satisfaction I get from the item I buy be greater than the interest I must pay?

16. Checklist for Buying on Credit • Have I done comparison shopping for credit? • Can I afford to borrow or use credit now? Do I know how much it will cost me?

17. The Credit Card:Best Friend or Foe? Click the link below to watch a 1-minute video. http://articles.moneycentral.msn.com/video/default-ap.aspx?cp-documentid=d841dd9a-9375-4ee7-853c-16bae04c6a46&from=cp_en-us_Money_video_default&fg=MSNmoney

18. New Credit Card Laws (Signed into law on 5-22-09) Click the link below to watch a 1-minute video. http://articles.moneycentral.msn.com/video/default-ap.aspx?cp-documentid=d841dd9a-9375-4ee7-853c-16bae04c6a46&from=cp_en-us_Money_video_default&fg=MSNmoney

19. New Credit Card Laws (Signed into law on 5-22-09) • Limited interest rate hikes • Mandatory 45-days advance notice of change • No universal default • More time to pay monthly bills • Highest interest balances paid first • Limits on over-limit fees (must opt-in) • No more double-cycle billing • Lower sub prime fees • Disclose minimum payments consequences Source: http://articles.moneycentral.msn.com/Banking/CreditCardSmarts/What-the-new-credit-card-law-means-for-you.aspx

20. The End… • Summarize your Cornell notes • Due next class

21. Let’s Review (Post answer online in the forum due 9/16) Credit Cards Ahas & Huh? • Should you have a credit card or not? Why or why not? • What are some things to keep in mind if you have a credit card? • How can you use a credit card responsibly and wisely?