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F ederal r es er v e Bank o f Dallas DALLAS. TEXAS 75222 C irc u la r No. 79-4 Jan u ary 5, 1979 REGULATION B — EQUAL C R ED IT O PPO RTUNITY New Consum er Education Pam phlet— " If You Use a C re d it C ard" TO ALL BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE D IS T R IC T : " 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 costs. 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 (FedHistory@dal.frb.org) 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. IF YOU USE A CREDIT CARD — 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 account. 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: $50.00 - 2 50 (5% of $50) $47.50 ( ) 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. ADJUSTED BALANCE PREVIOUS BALANCE AVERAGE DAILY BALANCE 1-1/2% 1-1/2% 1-1/2% APR 18% 18% 18% Previous balance $400 $400 $400 Payments $300 $300 $300 on 15th day Monthly rate Finance charge $1.50 $6.00 $3.75 (1-1/2% x $100) (1-1/2% x $400) (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. 3. 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 charge.
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