Banking and Credit Cards

Banking and Credit
Presented by the Delaware Bankruptcy Inn of Court
Much of what follows is based on information from the FDIC’s “Money Smart”
Adult Education Program.
 The
purposes of this section of these
materials are to:
 Identify the primary reasons to use a
 Identify the major types of insured
financial institutions.
 Describe the steps involved in
opening and maintaining a bank
 Describe the main functions of the
people who work in banks.
Reasons to Keep Your Money in
 There
are a number of good reasons
to use banks. These include:
 Safety
 Convenience
 Cost
 Establishing a Financial History
Safety – The money you have in the bank is safe from theft, loss,
fire or any other factor that could cause you to lose money you
might keep elsewhere.
Importantly, the Federal Deposit Insurance Corporation (“FDIC”)
insures deposits in banks, currently up to $250,000 for each
depositor in each insured institution. The FDIC insures all deposit
account types at insured banks, including checking, savings,
money markets and CDs. Since the start of the FDIC in 1934, no
depositor has lot a single penny of insured deposits as a result of
a bank failure.
The FDIC does not, however, insure money invested in stocks,
bonds, mutual funds, etc., even if they are purchased from the
insured banks.
Most financial institutions we will be discussing (all of which we
will refer to as “banks”) and which you will be familiar with in
Delaware are FDIC insured. But, you should ask the bank you are
considering using to confirm that they are FDIC insured. (To
learn more about FDIC insurance, you may go on-line to
You will soon learn that credit unions are a type of financial
institution similar to a bank. Most credit unions are insured by
the National Credit Union Administration (“NCUA”). The deposit
 Convenience
- Using a bank or credit
union allows you to get money
quickly and easily and to pay bills by
check or on-line conveniently. Other
features we will mention later, such
as direct or electronic deposits of
your paycheck by your employer,
save you time and allow you quicker
access to your money.
Cost – Using a bank is usually cheaper
than using other businesses to cash your
checks or issue money orders. But, banks
do charge various fees for some
transactions and features and you should
always be aware of and understand your
bank’s fee structure.
Establishing a Financial History
 Establishing
a Financial History –
Building a relationship with a bank
not only allows you a convenient,
safe way to save money and handle
your finances, but can establish a
good record of paying your bills, all
of which may be helpful in getting a
loan from that bank or another if you
want to do so in the future
The Major Types of Financial
 There
are 3 Major Types of Financial
 Banks
 Credit Unions
 Thrifts
Banks, Credit Unions and Thrifts
There are three major types of financial institutions that are commonly
referred to as “banks.”
Traditional banks make loans, pay checks, accept deposits and provide
other financial services.
Credit Unions are non-profit financial institutions owned by people who
have something in common – often the same employer. You have to
become a member of the credit union to keep your money there.
A “Thrift” is a savings bank or savings and loan association that is similar
to a bank.
There are many traditional banks, credit unions and thrifts in Delaware to
choose from. For example, a quick internet search or review of the Yellow
Pages identifies more than 40 banks and 20 credit unions in the
Wilmington area.
But, don’t be confused by the number of choices available. Most banks
are providing the same basic services and the competition among them
means generally that the fees they charge will also be similar. You should
be sure to check to make sure those you consider provide the services you
want at reasonable cost and are federally insured, but you will also want
to consider factors such as the location of the office you will most want to
use (i.e., is it convenient to your home or job), whether there is a
convenient ATM (automated teller machine) available, etc.
Opening and Maintaining a Bank
Opening and maintaining a bank account is not difficult, so
don’t be put off from entering into a banking relationship
because you think it will be hard.
After you have decided on the bank (or banks) that look
like the best fit for you, you should plan a visit to the
branch of that bank.
To open an account, you will likely talk to a “customer
service representative.” This person can help you open
your account, explain the services offered by the bank,
answer general questions (such as, is the bank federally
insured), refer you to other bank employees who can
answer more specific questions you might have, and
provide written information explaining the bank’s services.
Account Verification
The first step in opening a bank account is a process called “account
verification.” The bank wants to confirm that you will be a responsible
customer. If you have had problems with banks in the past, they may not
want to risk having you as a customer now.
The bank may review your history of using checking accounts and it may
run a credit report on you.
The bank will need to see a photo identification, such as a driver’s license,
and your Social Security or Individual Taxpayer ID number to verify your
If you are not a U.S. citizen, the bank may accept other forms of photo
identification, such as a passport or a resident alien card (Green Card).
You might want to call the bank before you visit it and ask what types of
ID will be required to open an account.
If the bank determines that you are eligible to open an account, you can
deposit money into your new account.
If you are unable to open an account, ask whether you are eligible for any
“second chance” checking program. The programs may allow you to open
a checking account after meeting certain requirements, such as
completing a check-writing workshop. There may be fees associated with
these programs.
A deposit is money you add to your
account. To do so, you must fill out a
deposit slip. The deposit slip tells the
bank how much money, in cash or by
check, you are adding to your account. If
your deposit is by payroll check or a check
drawn on another bank, you may not have
immediate use of the money because the
bank must make sure there are funds in
the account at the bank on which the
check was written to cover the check. You
can ask your bank when you can use the
money you deposited.
Withdrawals and Balance
When you make a withdrawal, you are taking money out of
your account. You can withdraw funds by writing a check,
giving a teller a withdrawal slip or using an ATM.
A withdrawal slip is similar to a deposit slip except you are
taking money out of, rather than adding to, your account.
You always need to know how much is in your account so
you will not try to withdraw – for example, by writing a
check to pay a bill – more money than you have.
If you overdraw your account, or “bounce a check,” you will
be charged a fee by the bank.
The balance is the amount of money you have in your bank
account. So it is the difference, at any one time, between
what you have deposited in the account and what you have
Fees and Interest
Banks charge fees for different services, such as a monthly
maintenance fee for keeping your account open, for
ordering checks for you to use or for bouncing a check or
taking more money out than you have in your account. Be
sure you understand the types and amounts of fees that
your bank charges.
Even though banks charge fees, it is generally the case that
it is cheaper to use a deposit account at a bank than a
check-cashing service or purchasing money orders.
Interest is the percentage of the balance in your account
that the bank pays you for keeping your money at that
bank. Not all accounts pay interest. Because of the current
economic situation, the interest banks are paying on
checking (if any) and savings accounts is very low. The
interest rate being paid by the bank you are considering is
one of the factors to weigh as you decide with what bank to
do business.
Additional Banking Services
Some banks offer additional services with some checking and savings accounts. In
some cases, an additional fee may be charged. Some services that might be useful
to you are:
Direct Deposit – Your employer or government agency can pay you your pay or
benefits check directly into your bank account electronically. That money is
immediately available and some banks will not charge monthly fees if direct deposit
is used.
Automated Teller Machines or ATMs – An ATM is a kiosk or terminal in or outside a
bank where you can deposit cash and checks, withdraw cash, or transfer money from
one account to another 24 hours a day. You can do so literally around the world.
Although, if you are using an ATM that is not your bank’s, a fee may be charged.
Telephone Banking – This allows you to:
check account balances;
transfer money between accounts;
obtain account history, such as recent deposits or withdrawals; and
stop payment on a check.
Online Banking – This allows you to do many of the tasks on a computer that you
would otherwise do in person, such as paying bills, reviewing account balances and
transferring funds between accounts.
Debit Card – This looks like a credit card, but when you use it to buy something from
a store, the money comes out of your account immediately.
Other Bank Employees
In addition to the customer services
representative, whose duties in helping you set
up your accounts we have discussed, other bank
employees with whom you may come in contact
Tellers, who deposit your money, cash your
checks or withdrawal slips, and answer questions
or refer you to someone who can.
Loan Officers, who take applications for loans,
provide information about loans offered by the
bank and help you fill out a loan application.
Branch Manager, who supervises all the bank’s
operations that take place at that branch and
help resolve questions that other bank employees
 Hopefully,
the information we have
discussed has given you a better
understanding of what services
banks offer, how they may be
advantageous to you and how to go
about entering into a relationship
with a bank best suited for your
Credit Cards
 The
purposes of this section are to:
 Identify the primary reasons to
obtain and use a credit card.
 Identify the major types of credit
 Practical ways to manage the use of
a credit card.
 Identify which reason to use a credit
card is most important to you.
Reasons to Obtain and Use a
Credit Card
There are a number of good reasons to
obtain and use a credit card. These
 To Do Things that Require the Use of a
Credit Card
 To make small daily purchases without
having to use cash or a check each time
 To help you keep track of your expenses
 To purchase a large item by paying for it
To Do Things Requiring a Credit
credit card also enables you to do
transactions --- such as buying
things on the internet, renting a car,
or reserving a hotel room --- that
require a credit card.
To Make Small Daily Purchases
Without Using Cash or a Check
A credit card gives you the convenience of not always
having to have cash on you, or your checkbook. It comes
in handy for time when you need money fast and you don’t
have cash on you. For example, if you are running out of
gas and have no cash, you can go to the nearest gas
station and pay for gas with your credit card. A credit card
also lets you make purchases or rentals that typically
require a credit card, such as purchases on the internet or
renting a car. A credit card gives you a revolving line of
credit. This means you can make an unlimited number of
purchases up to a preapproved dollar amount, such as
$3,000.00. Essentially, a credit card gives you a
convenient way to borrow money - - - that is, money that
you have to pay back. As long as you have the money to
pay the bills, and you are disciplined enough to pay off your
balance, a credit card is a useful tool.
To Help Keep Track of Expenses
 When
you use a credit card, you
receive a statement that lists all of
your charges, including where you
spent money and how much. For
many people, this is a convenient
way to keep track of small and large
To Purchase a Large Item by
Paying for it Later
For some people, a credit card will help in making
large purchases. Essentially, a credit card gives
you a convenient way to borrow money --- that
is, money that you have to pay back. Because of
the relatively high rate of interest on most credit
cards, though, large purchases made using a
credit card will require payment of substantial
interest until the balance is repaid in full. For this
reason, using a credit card for this purpose can
be very expensive and other alternatives, or
delaying the purchase until you have the money,
should be considered.
The Major Types of Credit Cards
There are many types of credit cards. Banks, department stores, and
even gasoline stations offer credit cards. But, let’s suppose that you are
interested in getting a credit card for your daily necessities, such as food,
clothing, and drugstore items. Which type of credit card would be best for
this use?
Grocery Store Loyalty Cards.
No. A grocery store savings club card is not the same as a credit card. It
is normally free and gives you special offers at the particular grocery store
where you received the card.
Department Store and Gasoline Credit Cards.
Nice try, but a department store credit card limits you to purchasing items
in one particular store. You are looking for a credit card that give you the
most flexibility to use in various stores, for almost any type of purchase.
Bank Credit Cards.
Yes. A bank credit card would make the most sense in this case. When a
bank issues a credit card to you, you can use it for purchases at most any
retail store. It gives you flexibility and convenience. Like all credit cards,
you will be given a revolving line of credit. This means you can make an
unlimited number of purchases up to a certain amount of money such as
$3,000. You must pay at least a portion of the bill every month. This is
called a minimum payment.
Types of Bank Credit Cards
 Secured
Credit Card
 Unsecured Credit Card
 Rewards Card
 Smart Card
 Debit Card
Secured Credit Card
A secured credit card is a good choice if you have no credit
history or have had credit problems in the past. A problem
with your credit may be, for example, if you have not been
able to pay your bills on time. Then, the bank may
consider it risky to loan you money. If this is the case, to
get a secured card you need to use a bank savings
accounts as collateral. This means the bank will hold the
money in the savings account as security for you to pay
back the loan for purchases.
For people with:
No credit history
Credit problems
Bank savings account with minimum balance maintained.
Savings account as guarantee to bank.
Application and processing fees.
Unsecured Credit Card
 Most
credit cards are unsecured,
meaning that you do not have to
provide collateral. Collateral is what
you promise to give the bank if you
do not pay back the loan. Items like
homes, cars, or savings and
investment accounts can serve as
 Most credit cards.
 No collateral needed.
Rewards Card
 One
kind of credit card is a rewards
card. A rewards card combines a
bank credit card with a reward
system and will have the name of
the participating merchant, airline or
hotel on the card. When you use
these credit cards, you earn points
toward goods or services, and you
may also receive cash rebates. You
may be charged annual fees for
reward cards.
Smart Card
Another kind of a credit card is a smart card. A smart card
resembles a standard credit card in size and shape, but
inside it is completely different. The inside of a smart card
usually contains an embedded microprocessor or computer
ship. The chip is under a gold contact pad on one side of
the card. Think of the computer chip as replacing the usual
magnetic strip on a credit card or debit card. A smart card
can be used for the following:
Credit cards.
Electronic cash.
Computer security systems.
Wireless communications.
Loyalty systems (like frequent flyer points).
Government identification.
Debit Card
debit card resembles a credit card
except that it is tied to your checking
account. When you use it to make
purchases or to withdraw money at
an automated teller machine (ATM),
the money is immediately taken out
of your checking account. You need
to be sure you have money in your
checking account before you use a
debit card.
Comparing a Credit Card with a
Debit Card
Let’s compare a credit card and a debit card.
Your credit card is a buy now, pay later card.
You can make purchases with it through the
billing period, then pay for them when your
statement arrives. Your debit card, on the other
hand, immediately removes money from your
account when it is presented as payment. Credit
cards can offer freebies, such as rebates and
bonus points. Many credit cards may include
additional purchase protections. Credit cards
also have fees and penalties attached, and some
do not have grace periods for payment. It can be
easy to accumulate debt. By comparison, using a
debit card is like writing a check.
Credit Cards and Debit Cards
Credit Cards
Debit Cards
Buy now, pay later.
Buy now, pay now.
Interest Charges
Yes if you carry a
balance on your card
offers no “grace period.”
Other Potential
Freebies, such as cash
rebates and bonus
points good for travel
deals. Some purchase
Easier and faster than
writing a check. Avoid
debt problems. More
cards now offering
freebies. Some
purchase protection.
Other Potential
Fees and penalties.
Also, not all cards
offer grace periods
(time to repay without
incurring interest).
Over-spending can
cause debt problems
Fees on certain
transaction. You may
overdraw your
account and incur
additional fees if you
are lax about recording
debit card transactions.
Key Credit Card Terms.
 Whether
you have an unsecured or
secured credit card account, there
are many options to choose from. If
you understand some of the key
terms associated with credit card
options, it will make the process of
deciding which one to use much
easier. Here is an example of some
of the important terms of a bank
credit card offer.
Key Credit Card Terms Described
Annual Percentage Rate (APR) – The interest rate per year on all
outstanding balances. A variable rate of interest means the credit
card company can change your rate of interest. Cards also
provide for a higher rate of interest, or a “penalty” APR if you do
not pay on time.
Annual Fee – The fee (in addition to interest and other charges)
that you must pay each year to have the use of the credit card.
Monthly Minimum Payment – The minimum amount that you must
pay each month to not be in default and owe late charges.
Minimum Finance Charge – The minimum amount of finance
charge that will be charged against your account each billing
period. This is not the maximum amount of interest, which can
be much higher.
Method for Computing Interest – The method the credit card
company uses to compute the interest charged.
Billing Cycle – The length of time between each month’s bill.
Grace Period – The period of time within which you can pay the
amount owing for purchases before interest starts being charged
on these purchases.
Examples of Credit Card Terms
Important Disclosures
Annual Percentage Rate (APR)
18% (Variable)
Annual Fee
Monthly Minimum Payment
4% of balance or $10.00, whichever
is higher
Minimum Finance Charge
Method for Computing Interest
Average daily balance (including new
Billing Cycle
30 Days
Grace Period
20 Days
Some Things to Watch Out For
Some Things to Watch Out For In a Credit Card Offer:
 Terms for Which You “Might” Qualify – Credit card offers often
state that you “may”
qualify for attractive terms. There is no guaranty that the credit
card company will continue to offer those terms to you once it has
processed your application.
 Teaser Rates – New credit cards may have a “teaser rate” - - - a
low initial rate that later increases to a substantially higher rate.
Some Things to Watch Out For After You Have Your Credit Card:
 Late Fees – Late fees are expensive, can add up, and are payable
even if your payment is minutes late. A new law requires your
credit card company to give you at least 21 calendar days from
the date the statement is mailed to you for you to make at least
the minimum payment to avoid the late fee.
 Changes in Interest Rate – A new law restricts interest rate
increases on existing balances and retroactive increases due to
late payment.
New Protections for Credit Card
The Credit Card Accountability,
Responsibility and Disclosure Act (CARD)
Gave Credit Card Holders new protections
and imposed certain limitations regarding:
 Retroactive Rate Increases
 Advance Notice of Rate Increases
 Limitations on Fees
 Billing and Payment Times
 Application of Payments
 Cards to Minors Under 21 Years Old
Retroactive Rate Increases
Your credit card company cannot increase
your interest rate for the first 12 months
after you open your card account, unless:
 Your card has a variable rate and the
index for the rate goes up
 You agreed to an introductory interest
rate, but you are entitled to that interest
rate for at least 6 months
 You are more than 60 days late paying or
are in a workout agreement and do not
make the required payments on time.
Advance Notice of Rate Increases
Your credit card company must send you a
written notice at least 45 days in advance of its
raising the interest rate on your credit card or
change certain fees, such as annual fees, cash
advance gees and late fees, or make other major
changes to your account
If the credit card company wants to make such
changes it must give you the option of cancelling
your credit card account
The 45-day notice requirement does not apply if
you are more than 60 days late paying or are in a
workout agreement and do not make the
required payments on time
Limitations on Fees
If the credit card company increases your
interest rate, the new rate applies only to
new purchases and not to the old credit
 Over-the-limit transactions must now be
declined, and no fee charged, unless you
previously contacted the credit card
company and asked that such transactions
be honored, and then the company is
allowed only one fee per billing cycle and
you can revoke at any time
 Annual or application fees cannot add up
to more than 25% of the initial credit card
Billing and Payment Times
 Credit
card company must mail or
deliver your credit card bill at least
21 days before the payment due
Application of Payments
If you pay more than the minimum
monthly payment, then the additional
amount must be applied against the
balance with the highest interest rate,
unless you made a purchase under a
deferred interest plan (such as “no
interest if paid in full by” a specified date)
 Credit card company cannot do doublecycle billing, and can only charge interest
on balance due in current billing cycle
Cards to Minors Under 21 Yrs. Old
 Card
applicants under 21 years old
must now show that they can make
payments, or must obtain a cosigner to open a credit card account
 Co-signer must provide written
permission for any credit limit
What New “CARD” Rules Don’t Do
 Credit
card company can reduce your
credit limit without notice, unless the
limit would trigger a penalty
 New rules do not limit the interest
rate that a credit card company can
What to Do About Errors In Your Credit Card
If you find a difference between one of your credit card
receipts and how it is listed on your monthly statement,
what would you do?
Don’t pay the specific charge where you found the
Hold onto the bill to see if it is corrected in next month’s
Contact your credit card company in writing within 60
The answer is no. 3. As soon as you locate the difference
or error between your receipts and the monthly statement
you should notify your credit card company immediately by
phone. But to be fully protected, you must report a
discrepancy to your credit card company in writing within
60 days from the day the bill was sent to you. When you
speak to the credit card company, ask them exactly what
information you need to include in the letter.
What to Do If You Cannot Pay Your
Balance in Full
If you are unable to pay the total balance on your
credit card, what is you best option?
Pay as much as you can according to your
monthly budget?
Pay nothing now and wait until your pay check
next month to pay off the total amount?
Pay the minimum payment amount of $10?
The best answer if you are unable to pay the
balance in full, is to pay as much as your budget
allows. The faster you can pay off your bill, the
less interest you have to pay, and the less money
you’ll pay over time.
Minimum Payment or More --What a Difference!
to Pay
Total Amount of
3% or
What Should You Do If You Have Balances on More Than
One Credit Card That You Cannot Pay In Full
Even when trying to stick to your personal budget and minimize
your spending, having too many credit cards can make it tempting
to overspend. There’s nothing wrong with having credit cards,
but be careful not to overspend.
If you have balances on more than one credit card that you
cannot pay in full, what should you do?
Get a cash advance on another credit card to pay part of the
2. Pay for future purchases using cash or check?
Reduce your expenses by paying off the balance on your
highest rate loans first?
The best answers are 2 and 3. You should pay off the credit card
that is costing the most in interest. For example, if you are
paying 18% APR on a $4,000 loan and 5% APR on a $5,000 loan,
you are paying more for the $4,000 on a monthly basis. You may
want to also start using cash or check for your minor purchases,
so you can avoid finance charges from the credit card bills.
What To Do If You Simply Cannot Pay Your Credit
The first think you should do if you are having trouble paying your credit
card debt is contact your credit card company and try to negotiate a
settlement, even if you have been turned down before. If at first you
don’t succeed, be persistent.
Another option is to contact a credit counselor. Credit card statements
direct cardholders to information about finding nonprofit counseling
agencies. Reputable credit counseling organizations advise people on
managing money, bills and debts, help them develop a budget, and
usually offer free information and workshops.
If you decide to pay a company to negotiate your debt, do some research.
Consider other people’s experiences. One way to do that is to enter the
company name with the word “complaints” into a search engine. Read
what others have said.
The FTC suggests that it is best to avoid any company that promises to
settle your debt if it:
touts a “new government program” to bail out personal credit card debt;
guarantees it can make your unsecured debt go away;
tells you to stop communicating with your creditors;
tells you it can stop all debt collection calls and lawsuits;
guarantees that your unsecured debts can be paid off with pennies on the
requires that you pay the full fee within the first few months.