Banking and Credit Cards

1
Banking and Credit Cards

• Presented by the Delaware Bankruptcy Inn of Court
• Much of what follows is based on information from
  the FDICs Money Smart Adult Education Program.

2
Banking

• The purposes of this section of these materials
  are to
• Identify the primary reasons to use a bank.
• Identify the major types of insured financial
  institutions.
• Describe the steps involved in opening and
  maintaining a bank account.
• Describe the main functions of the people who
  work in banks.

3
Reasons to Keep Your Money in Banks

• There are a number of good reasons to use banks.
  These include
• Safety
• Convenience
• Cost
• Establishing a Financial History

4
Safety

• 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 www.fdic.gov).
• 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
  insurance rules are the same for NCUA-insured
  credit unions as for FDIC-insured banks.

5
Convenience

• 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.

6
Cost

• 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 banks fee
  structure.

7
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

8
The Major Types of Financial Institutions

• There are 3 Major Types of Financial Institutions
• Banks
• Credit Unions
• Thrifts

9
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, dont 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.

10
Opening and Maintaining a Bank Account

• Opening and maintaining a bank account is not
  difficult, so dont 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 banks services.

11
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 drivers license, and your Social
  Security or Individual Taxpayer ID number to
  verify your identity.
• 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.

12
Deposit

• 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.

13
Withdrawals and Balance

• Withdrawal
• 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.
• Balance
• 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 withdrawn.

14
Fees and Interest

• Fees
• 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
• 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.

15
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 banks, 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.

16
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 are
• 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 banks
  operations that take place at that branch and
  help resolve questions that other bank employees
  cant.

17

• 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 needs.

18
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 cards.
• Practical ways to manage the use of a credit
  card.
• Identify which reason to use a credit card is
  most important to you.

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Reasons to Obtain and Use a Credit Card

• There are a number of good reasons to obtain and
  use a credit card. These include
• 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 later

20
To Do Things Requiring a Credit Card

• A 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.

21
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 dont 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.

22
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 purchases.

23
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.

24
The Major Types of Credit Cards

• There are many types of credit cards. Banks,
  department stores, and even gasoline stations
  offer credit cards. But, lets 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.

25
Types of Bank Credit Cards Include

• Secured Credit Card
• Unsecured Credit Card
• Rewards Card
• Smart Card
• Debit Card

26
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
• Requires
• Bank savings account with minimum balance
  maintained.
• Savings account as guarantee to bank.
• Application and processing fees.

27
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
  collateral.
• Most credit cards.
• No collateral needed.

28
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.

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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).
• Banking.
• Government identification.

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Debit Card

• A 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.

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Comparing a Credit Card with a Debit Card

• Lets 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.

32
Credit Cards and Debit Cards
Credit Cards Debit Cards
Payments Buy now, pay later. Buy now, pay now.
Interest Charges Yes if you carry a balance on your card offers no grace period. No.
Other PotentialBenefits Freebies, such as cash rebates and bonus points good for travel deals. Some purchase protections. Easier and faster than writing a check. Avoid debt problems. More cards now offering freebies. Some purchase protection.
Other PotentialConcerns 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.
33
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.

34
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
  months 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.

35
Examples of Credit Card Terms
Important Disclosures Example
Annual Percentage Rate (APR) 18 (Variable)
Annual Fee 30
Monthly Minimum Payment 4 of balance or 10.00, whichever is higher
Minimum Finance Charge 0.50
Method for Computing Interest Average daily balance (including new purchases)
Billing Cycle 30 Days
Grace Period 20 Days
36
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.

37
New Protections for Credit Card Holders

• 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

38
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.

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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

40
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 balance
• 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 limit

41
Billing and Payment Times

• Credit card company must mail or deliver your
  credit card bill at least 21 days before the
  payment due date

42
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 double-cycle
  billing, and can only charge interest on balance
  due in current billing cycle

43
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
  co-signer to open a credit card account
• Co-signer must provide written permission for any
  credit limit increases

44
What New CARD Rules Dont 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 charge

45
What to Do About Errors In Your Credit Card
Statement

• 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?
• Dont pay the specific charge where you found the
  difference?
• Hold onto the bill to see if it is corrected in
  next months statement?
• Contact your credit card company in writing
  within 60 days?
• 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.

46
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 youll pay over time.

47
Minimum Payment or More --- What a Difference!
Original Balance APR Monthly Payments Total Number of Monthly Payments Total Years to Pay Off Total Amount of Payments
2,500 18 3 or 10 404 34 8,781
2,500 18 50 94 8 4,698
2,500 18 100 32 3 3,163
48
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.
  Theres 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?
• 1. Get a cash advance on another credit card to
  pay part of the bill?
• 2. Pay for future purchases using cash or check?
• 3. 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.

49
What To Do If You Simply Cannot Pay Your Credit
Cards

• 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 dont 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 peoples
  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 dollar
• requires that you pay the full fee within the
  first few months.