Question 1

The consumer credit laws require that an advance notice be given before repossessing a car.

Accepted Answer

Consumer credit laws do not universally require advance notice before repossessing a car. The specifics can vary by jurisdiction, but generally, lenders may repossess without notice if the borrower defaults on the loan.

Question 2

The Consumer Credit Counseling Service counseling is usually free.

Accepted Answer

The Consumer Credit Counseling Service often provides free counseling services to consumers seeking financial guidance and advice. However, there may be fees associated with certain services, such as debt management plans. It is always important to inquire about any potential costs before committing to a service.

Question 3

In addition to the Consumer Credit Counseling Service, universities, credit unions, military bases, and state and federal housing authorities sometimes provide credit counseling services.

Accepted Answer

This statement is true.

Question 4

The rule of 78s formula dictates that you pay less interest at the beginning of a loan.

Accepted Answer

The rule of 78s formula is used to allocate pre-calculated interest charges in a way that front-loads the interest payments, meaning you pay more interest at the beginning of a loan.

Question 5

Overindulgence of children is a signal of potential debt problems.

Accepted Answer

When parents overindulge their children, they may be overspending and accumulating debt in order to keep up with their children's demands and expectations. This can lead to financial problems and debt issues.

Question 6

Inflation increases the purchasing power of money.

Accepted Answer

Inflation decreases the purchasing power of money. This means that the same amount of money will now be able to buy fewer goods and services than before, resulting in a decrease in the value of money.

Question 7

The Truth in Lending law does not set the interest rates or tell the creditor how to make interest calculations.

Accepted Answer

The Truth in Lending law requires the creditor to disclose the terms of the loan, including the annual percentage rate (APR), finance charges, and other fees. However, it does not mandate the interest rate or specify how the creditor should calculate it.

Question 8

"Keeping up with the Joneses" is one of the reasons for indebtedness.

Accepted Answer

"Keeping up with the Joneses" is a phrase used to describe the desire to match or exceed one's neighbors or peers in terms of material possessions or social status. This often leads to overspending and taking on debt to maintain a certain lifestyle or image. Therefore, it can be a contributing factor to indebtedness.

Question 9

For some debtors, bankruptcy has become an acceptable tool of credit management.

Accepted Answer

This statement is true. While bankruptcy is often seen as a negative consequence, there are some debtors who view it as a viable option for managing their debt and starting fresh financially. However, it is important to note that bankruptcy should only be considered after all other options have been exhausted and it can have significant long-term consequences on one's credit score and financial future.

Question 10

Banks often encourage you to make the maximum payment.

Accepted Answer

Banks typically encourage making the minimum payment to ensure they earn more interest over time, though paying more is beneficial for the customer.

Question 11

The Consumer Credit Counseling Service will refinance all of your existing debts for you.

Accepted Answer

The Consumer Credit Counseling Service does not refinance debts. They provide counseling and education to consumers about managing their money and debts, and may create a debt management plan to help them pay off their debts over time.

Question 12

If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.

Accepted Answer

When you pay your credit card bill in full every month, you do not accrue any interest charges during the interest-free period.

Question 13

Anyone overburdened by credit obligations can phone, write, or visit a Consumer Credit Counseling Service office.

Accepted Answer

Consumer Credit Counseling Service offers help and assistance to those who are overburdened by credit obligations, and can be reached through phone, writing, or visiting their office.

Question 14

Under the rule of 78s, loans for a year or less usually do not allow for a finance charge rebate.

Accepted Answer

The rule of 78s, also known as the sum of digits method, is a way of calculating interest charges on a loan. It is typically used for loans with a term of one year or less. Under this method, the finance charge is usually calculated upfront and included in the loan amount. As a result, there is usually no option to receive a rebate on the finance charge if the loan is paid off early.

Question 15

The Fair Debt Collection Practices Act regulates the ways debt collection agencies do business.

Accepted Answer

The Fair Debt Collection Practices Act (FDCPA) does regulate the ways debt collection agencies do business by prohibiting certain practices, such as harassment, false statements, and unfair collections methods.

Question 16

Credit life insurance provides for the repayment of the insured loan if the borrower dies.

Accepted Answer

Credit life insurance is a type of insurance policy that pays off a borrower's outstanding debt if the borrower dies. This means that if the insured person dies while the loan is outstanding, the debt will be repaid by the insurance providing coverage for the loan amount. Therefore, credit life insurance provides for the repayment of the insured loan if the borrower dies.

Question 17

The most commonly purchased type of credit insurance is credit life insurance.

Accepted Answer

Credit life insurance is the most commonly purchased type of credit insurance.

Question 18

There is never a charge for any service provided by a Consumer Credit Counseling Service office.

Accepted Answer

Consumer Credit Counseling Services may charge fees for certain services, though they often offer free initial consultations and some free services.

Question 19

An increasing number of bankruptcy filers are well-educated, middle-class baby boomers.

Accepted Answer

This statement is true according to a report by the Consumer Bankruptcy Project. It found that the rate of bankruptcy among adults 65 and older has tripled since 1991, and that many of these filers are well-educated and middle-class.

Question 20

You can deduct interest paid on consumer loans for state and federal income tax returns.

Accepted Answer

Interest on consumer loans like personal loans, credit cards, and car loans are generally not tax deductible for federal or state income tax purposes. The only type of interest on consumer loans that may be deductible is on home equity loans or lines of credit, and even then, there are limitations and restrictions.

Quiz 7: Choosing a Source of Credit: The Costs of Credit Alternatives