Unit 23.

Costly Credit Arrangements

Read and translate the text.

Consumers may fall prey to loan sharking. Loan sharks lend money at high, often usurious (illegal) rates of interest. They promise “easy” credit and appeal to people who have problems obtaining and keeping good credit standing.

Usurious loans are illegal under state laws. There are, however, a variety of legal but costly credit arrangements that consumers may want to avoid.

Some creditors call for balloon payments in their agreements. In such agreements, the last payment is much larger than the monthly payments. This may make it difficult for you to make the final payment. Consumers should carefully consider any agreement that calls for a large final payment. Be sure you can save up enough to make this payment.

Another thing to avoid in financing agreements is the acceleration clause. This clause permits the creditor to accelerate the loan, making all future payments due immediately in the event a con­sumer misses a single payment. Most auto sales finance agreements have acceleration clauses. If you miss a payment, you may suddenly owe the creditor the entire amount of the loan. Many cars are repossessed by lenders for this reason.

You should also beware of bill consolidation. This means combining all your debts into a single one. Lenders sometimes claim you can wipe out all your bills by making easy monthly payment to them, which they will distribute to your creditors. However, the consolidation loan may require payments over a longer period of time and at a higher rate of interest. Some lenders also charge a substantial fee for these loans. They may subtract the fee from your monthly payment to them before paying off your creditors, so you wind up falling deeper in debt.

Truth in Lending. To prevent credit abuses, Congress passed the Truth in Lending Act. This law requires creditors to give you certain basic information about the cost of buying on credit. The creditor must tell you – in writing and before you sign a contract – the finance charge and the annual percentage rate. The finance charge is the total amount you pay to use the credit, including interest charges and any other fees. The APR is the percentage cost of credit on a yearly basis.

The law requires creditors to give you special information about variable–rate loans if you are being offered this plan. Remember that with these plans, your payments may increase over time.

The law also requires that consumers be given a copy of the disclosure form containing the credit information. They must also be told the rules and charges for any late payments. Violators can be subject to both civil and criminal penalties, and consumers who sue credi­tors under this act may recover damages, court costs, and attorney’s fees.

Using Credit

• Credit costs money. Don’t buy things you don’t need or want. Resist high–pressure safes techniques.

• Determine how much debt you can handle.

• Comparison shop for credit. If you are suspicious about a lender, check to see if the lender is licensed and whether complaints have been filed.

• Before making a credit purchase, read and understand the entire contract. Don’t sign contracts with blank spaces.

• If a contract calls for a large final payment, be sure you can afford it.

• Once you’ve signed a credit agreement, keep a copy in a safe place. Keep receipts for each payment.

Find the equivalents of the following words and expressions in the text.

Стать жертвой, ростовщик, погашение кредита один раз полной суммой; условие ускоренного платежа по ссуде; большие выплаты; объединение счетов; вычесть выплаты из ежемесячных взносов; перед расплатой с кредиторами; злоупотребления в вопросах кредитования; стоимость всех элементов кредита; условия плавающей процентной ставки; условия оплаты и дополнительные издержки при задержках с выплатами взносов; нарушитель; не поддаваться на уговоры продавцов.

Answer the questions:

1. How can consumers fall prey to loan sharking. Who are loan sharks?

2. Are usurious loans illegal under state laws?

3. What are balloon payments? Why should consumers carefully consider any agreement that calls for a large final payment?

4. What is the acceleration clause and why should consumers avoid it in financing agreements?

5. Why should you also beware of bill consolidation?

6. What is done to prevent credit abuses? What does the Truth in Lending Act require creditors to do?

7. Are there such (or similar) laws in Russia?

8. You’ve read some advice concerning credit. Which piece do you find most useful? Why?

9. Where can consumers go to comparison shop for a loan?

Match the words on the left with the correct definition on the right:

Usurious	it permits the creditor to accelerate the loan, making all future payments due immediately in the event a consumer misses a single payment.
Balloon payment	liquidate.
acceleration clause	the total amount you pay to use the credit, including interest charges and any other fees.
Bill consolidation	corrupt practice.
Wind up	the last payment is much larger than the monthly payments.
Abuse	illegal.
Finance charge	disturber.
Violator	combining all your debts into a single one.

Problem–solving:

The Hidden Charges

Chang buys a new guitar amplifier on an installment plan. When he receives the itemized bill, he discovers that he owes a total of $745,’ though the price of the amp was only $553. He calls the music store and is told that he is paying more than 20 percent interest. He would never have bought the amp if he’d known it would cost this much. What mistakes did Chang make? What can he do now?