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F ederal r es er v e Bank o f Dallas

C irc u la r No. 79-4
Jan u ary 5, 1979

New Consum er Education Pam phlet— " If You Use a C re d it C ard"

" If You Use a C re d it C a rd ," the latest in a series of educational
pam phlets, is now a v a ila b le fo r d is trib u tio n . T h e pam phlet explains
c re d it card protection under Federal law s, including how to lim it ris k if a
card is lost or stolen, and w hat to do if goods o r services purchased a re
not satisfactory. T h e pam phlet also exp lains how to compare c re d it card
We would encourage member banks to d is trib u te copies of this
pam phlet to consum ers through such methods as lobby d isplays and in c lu ­
sion w ith m onthly statements. Copies of " If You Use a C re d it Card" may
be o rd ered by b an ks, c re d ito rs , and members of the public fre e of charge
from the Federal R eserve Bank of D allas. Requests should be addressed to
the Records D iv is io n , Federal Reserve Bank of D a llas, Station K, D allas,
Texas 75222.
One copy of th is pam phlet is attached.
S in c e re ly y o u rs ,
Robert H . Boykin
F irs t V ic e President
Attachm ent

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

Som e creditors also charge a flat annual membership
fee for use o f their card.
Federal law does not set rates or tell the creditor how to
calculate finance charges — it requires only that the
creditor tell you the method. Be sure to ask for an expla­
nation of any terms you don't understand.

( ) Tips on Credit Cards
— Shop around for the best terms. Remember that
finance charges may differ depending on the
method the creditor uses to assess them.
— Make sure you understand all the terms of your
credit card agreement before you sign.
— Pay bills promptly to keep up your good credit
rating and to avoid high finance charges.


— Keep a list of all your credit card numbers in case of
loss or theft, and keep a good record o f your pur­
chases and payments.

Board o f Governors of the Federal Reserve System
Washington, D.C. 20551
December 1978

If you use a credit card — and today most families have
at least one — you should know about your protections
under Federal law.
— H ow to limit your risk if your card is lost.
— What you can do if goods you buy with a credit
card are unsatisfactory.
— H ow to figure out and compare credit card charges.


1Unsolicited Credit Cards

It is illegal for a card issuer to send you a credit card
unless you ask or apply for one. However, a card issuer
may send you, without your request, a new card to re­
place an expired one. You may also be sent an applica­
tion for a card in the mail or be asked to apply by phone.

(__) Lost or Stolen Credit Cards
Your risk on lost or stolen credit cards is limited.
Y ou do not have to pay for any unauthorized charges
made after you notify the card company of loss or theft
of your card. So keep a list o f your credit card numbers
and notify card issuers immediately if your card is lost or
stolen. The most you will have to pay for unauthorized
charges is $50 on each card — even if someone runs up
several hundred dollars worth of charges before you re­
port a card missing.

( ) Defective Goods or Services
Y ou may withhold payment on any damaged or
shoddy goods or unsatisfactory services purchased with a
credit card, as long as you have made an effort to solve
the problem with the merchant.
This right is limited if the card was a bank or travel and
entertainment card or any card not issued by the store
where you made your purchase. In such cases, the sale:

important that you get your bills, and get credit for paying
them, promptly. Check your statements to make sure
your creditor follows these rules:
— Prompt billing. Look at the date on the postmark. If
your account is one on which no finance charge is
added before a certain due date, then creditors
must mail their statements at least 14 days before
payment is due.
— Prompt crediting. Look at the payment date en­
tered on the statement. In most cases creditors must
credit payments on the day received.

CD Refunds for Overpayments
If you overpay on your credit card account by $1.00 or
more, a creditor must give you a refund at your request.
Overpayments can occur when, for example, you over­
look a return of merchandise to be credited to your

CD Discounts for Cash Payments
It is illegal for credit card companies to prohibit stores
from offering discounts to people who pay by cash or
check. Stores that do offer cash discounts must make this
fact clear to all buyers. They may not add an extra charge
(above the regular price) for those customers choosing to
use credit cards.
For example, suppose you want to buy an item regu­
larly priced at $50. The store offers discounts for cash o f 5
per cent. If you pay in cash, your price should be:
- 2 50 (5% of $50)

( ) Prompt Credit for Payments
If you can avoid finance charges on your credit card
account by paying within a certain time, it is obviously

2. The Method of Calculating the Finance
Charge. Creditors use various systems to arrive at the
balance on your credit card account on which they assess
finance charges. Som e creditors assess finance charges
after subtracting your payments for the billing period. This
is called the adjusted-balance method. Other creditors
give you no credit for payments made during the billing
period. This is called the previous-balance method.
Under a third method — the average daily-balance
method — creditors add your balances for each day in
the billing period and then divide by the number of days
in the billing period. Under this method, your purchases
made during the billing period may or may not be added
to the daily balance. Here’s a sample of three credit card
billing systems.


















$300 on
15th day






(1-1/2% x

(1-1/2% x

(1-1/2% x
average balance
of $250)

If you use a credit card, the price is $50.

( 1Credit Card Costs

— must have been for more than $50; and
— must have taken place in your home State or within
100 miles of your home address.

1. The Annual Percentage Rate (APR ). This is the
percentage cost of credit. It’s your key to comparing costs
regardless o f the amount o f credit or how long you have
to repay it.

A credit card is an easy way to “buy now, pay later.”
But it is a form o f borrowing, and in many cases a finance
charge will be added to your bill each month on the
money you still owe.
H ow much you pay for the use o f a credit card de­
pends on three important terms of the credit card ar­
rangement, which differ for cards issued by banks, by re­
tail stores, or for travel and entertainment. Creditors must
tell you:

As the example shows, the finance charge may vary
considerably for the same pattern o f purchases and pay­
ments on a credit card account. Even when the A P R is
the same, the amount of the finance charge depends on
how the creditor treats payments.
When Finance Charges Begin to be Charged
to Your Credit Account. H ow much time do you have
to pay your bills before a finance charge is added? Some
creditors, for example, give you a 30-day “free ride” to
pay your balance in full before imposing a finance charge.
If you go beyond the due date, you will pay a finance