Financial Law
Objective 4.01
Understand financial, credit, and
bankruptcy law.
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Electronic Fund Transfer Act
• Protects 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 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Credit Laws and Bankruptcy
Objective 4.01
Understand financial, credit, and
bankruptcy law.
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Federal Trade Commission
• Protects consumers right to attain, use,
and maintian credit by monitoring and
enforcing credit laws
BB30 Business Law 4.01
Summer 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)
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Equal Credit Opportunity Act
• Creditworthiness or financial responsibility
should be based factors such as:
– Income
– Expenses
– Debits
– Credit history
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Fair Debt Collection Practices Act
• Restricts credit collection agencies from:
– Calling at inconvenient times to collect debt
– 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 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Usury Law
• Sets the maximum amount of interest that
can be charged for a loan.
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Fair 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
– TransUnion
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
Credit Card Act of 2009
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:
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
$95
3 years
$3,411
(Savings = $2,483)
BB30 Business Law 4.01
Summer 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 4.01
Summer 2013
Chapter 7 Bankruptcy
• Requires the debtor to liquidate (sell)
nonexempt property to repay creditors
• Non-exempt property includes money from
bank accounts, stocks, and bonds
• State laws determine exempt property
BB30 Business Law 4.01
Summer 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
BB30 Business Law 4.01
Summer 2013
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
• 3 to 5 years
BB30 Business Law 4.01
Summer 2013
Chapter 13 Bankruptcy
• Form of bankruptcy that allows an
individual to submit a plan to repay debts
in 3 to 5 years.
• Keep assets
• Overseen by the courts
• Smaller debt limit than Chapter 12
BB30 Business Law 4.01
Summer 2013