Page 497 - Business Principles and Management

Unit 5

FIGURE 18-3 To use credit effectively, both businesses and consumers
must understand credit laws.

EQUAL CREDIT OPPORTUNITY ACT
This law makes it illegal to deny credit because of age, sex, marital status, race, national
origin, religion, or public assistance. It requires businesses to notify credit card applicants
of their application status within 30 days and give a reason for rejection, if requested.
TRUTH-IN-LENDING LAW
This law requires businesses to reveal on forms and statements the dollar costs of
obtaining credit. Businesses must show the finance charge on statements as annual
percentage rates (APR), to make comparing rates easier. If a credit card is lost or stolen
and used by an unauthorized person, the card owner’s loss is limited to $50. If a
business advertises credit terms, it must include all information that a buyer might need
to compare similar terms with competitors (down payment and number, amounts, and
dates of payments).
FAIR CREDIT REPORTING ACT
This law gives cardholders the right to see their credit agency reports and to
correct errors.
FAIR DEBT COLLECTION PRACTICES ACT
This law forbids debt collectors to use abusive, deceptive, or unfair collection
methods. Under most state laws, if an account has not been paid within a specified
number of years, collection efforts may not legally continue.

the abundance of laws, businesses often hire attorneys who are experts on state
and federal credit law to review and approve credit policies, procedures, and
forms.

CHECKPOINT

What are the four Cs of credit?

Collection Policies and Procedures

Any business that extends credit to customers is concerned about losses from
uncollectible accounts. Some firms have practically no bad-debt losses. Others
have very high losses that reduce their financial capabilities in other parts of the
business. Surveys show that the losses from uncollected debts can easily run 2 to
4 percent of net sales, even for well-managed businesses. Poor management of
credit procedures can increase losses to 7 to 10 percent of sales, which exceeds
the profit margins of many businesses. Even with good credit management, if
economic conditions are poor, bad-debt losses increase, putting even more pres-
sure on businesses. Effective credit policies and collection procedures can reduce
losses and make credit services a valuable element of the business.

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