Sales and Consumer Credit

Summary

This video script explores key aspects of consumer credit and the laws that protect borrowers. It covers the basics of credit, the dangers of usurious interest rates, and the particularly harmful nature of payday loans, highlighting their high fees and compounding interest. It also explains important consumer protection laws, including the Truth in Lending Act, the Credit Card Accountability Act, and the Fair Credit Billing Act. Additionally, the script delves into warranties, distinguishing between express and implied warranties, and detailing how they can be disclaimed. Overall, the content provides valuable insights into how consumers can navigate credit and protect themselves legally.

Takeaways

• 😀 Credit is an agreement between a borrower and a lender allowing the borrower to receive goods or services before paying for them, with the understanding that payment will be made later, often with interest.
• 😀 Usury is the act of charging excessively high interest rates, and it is regulated by state law in the U.S. to prevent exploitation of borrowers.
• 😀 Some states have different approaches to handling usurious loans, such as forfeiting the excessive interest, forfeiting the entire interest amount, or even forfeiting both the interest and principal.
• 😀 In California, payday loans are capped at a 15% fee, but due to compounding, they can result in extremely high annual interest rates, sometimes reaching 460%.
• 😀 Payday loans in California are limited to a maximum loan amount of $300, but many borrowers remain in debt for extended periods due to the high fees and interest rates.
• 😀 The Truth in Lending Act (TILA) requires lenders to disclose the terms of credit transactions, including the interest rate, repayment time, and payment amounts, to help consumers make informed decisions.
• 😀 The Credit Card Accountability, Responsibility, and Disclosure Act (CARD Act) of 2009 improved protections for credit card holders but also allowed for higher interest rates, increasing the maximum rate from 21-23% to 30%.
• 😀 The Equal Credit Opportunity Act prohibits discrimination in credit transactions, though it is still challenging to enforce.
• 😀 The Fair Credit Reporting Act ensures that consumers receive specific disclosures when seeking credit, and the Fair Credit Billing Act allows for easy dispute of billing errors on credit card statements.
• 😀 Warranties can be expressed (either oral or written) or implied. Implied warranties ensure that products are fit for their intended use, and certain warranties can be excluded or disclaimed by sellers if stated clearly.
• 😀 The Uniform Commercial Code (UCC) allows for the disclaimer of implied warranties, such as the implied warranty of merchantability, provided the disclaimer is conspicuous and specific, often using terms like 'as is' or 'with all faults'.

Q & A

What is credit?

Credit is an agreement between a borrower and a lender that allows the borrower to receive goods or services before paying for them, with the understanding that the borrower will repay the lender later, typically with interest.

What is usury?

Usury refers to the act of charging excessively high interest rates, which is usually controlled by state laws. In cases of usury, lenders may have to forfeit the excessive interest, and sometimes even the principal amount.

How do different states handle usurious interest rates?

States may handle usurious interest rates in three ways: 1) The lender forfeits only the excessive interest; 2) The lender forfeits the entire interest amount; 3) In some states, the lender forfeits both the interest and the principal.

What is the typical interest rate cap for payday loans in California?

In California, payday loans are capped at a 15% fee for loans of up to $300.

How can payday loan interest rates impact borrowers in California?

Due to the way payday loan interest is compounded, the annual interest rate can be as high as 460%, leading to borrowers often spending more on fees than the original loan amount. Loans may also be rolled over with new fees if not paid on time.

What are the key protections provided by the Truth in Lending Act?

The Truth in Lending Act requires lenders to clearly inform borrowers of the terms of their credit transactions, including interest rates, loan amounts, and payment schedules, ensuring transparency.

What was the impact of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009?

The CARD Act provided protections for credit card holders, such as clear information on the consequences of making only the minimum payment. However, it also increased the maximum allowable interest rate on credit cards from 21-23% to 30%.

What is the Equal Credit Opportunity Act?

The Equal Credit Opportunity Act prohibits discrimination in credit transactions, ensuring that all individuals have equal access to credit opportunities regardless of their race, gender, or other protected characteristics.

What is an express warranty?

An express warranty is a seller's explicit promise that a product will perform in a specific manner, which can be either oral or written. Examples include a car's mileage or the freshness of a sample product.

How does the implied warranty of merchantability differ from the implied warranty of fitness for a particular purpose?

The implied warranty of merchantability ensures that goods are fit for their ordinary use, such as a water bottle holding liquid. The implied warranty of fitness for a particular purpose ensures that goods are suitable for a specific use, such as a vacuum cleaner designed to pick up socks if the seller affirms it will do so.