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Understanding Credit Law And Types Of Real Estate Contracts
Extending credit to customers or business partners can help boost sales and open doors to new revenue sources. But extending credit also comes with its fair share of risks, especially when the no proper safeguards in place. Creditors get stranded without enough operating capital in regards to the credit law.
Consumer Credit Laws
Extending credit means that your business will have to comply with various federal and state consumer credit laws. Which regulates many aspects of your business's interactions with customers.
Consumer credit laws include rules that regulate how much time you have to respond to any billing mistake claims, as well as how you advertise your interest rates. Consumer credit laws also regulate how aggressive a business can be when attempting to collect a debt.
Rules For Credit Transactions
Various rules apply to any business that accepts credit or debit cards for payment. The PCI security standards outline the multiple laws and regulations regarding credit and debit card transactions between companies and customers.
These standards are in place regarding protecting customers and protecting businesses, credit card companies, and banks from security breaches and fraud.
States can also have strict laws regarding credit card transactions, specifically addressing what kind of information can be requested of customers using a credit card.
The Credit Practices Rule
One federal law that you will need to comply with if you extend credit to customers is the Credit Practices Trade Regulation Rule ("Credit Practices Rule" or "the Rule").
The Credit Practices Rule applies to any creditor subject to the Federal Trade Commission (FTC), which includes finance companies, retailers, and credit unions that offer credit contracts to consumers.
The transactions covered by the Credit Practices Rule include any consumer credit transactions, except ones that involve the purchase of real estate. If the Rule applies to your business, compliance is imperative because a violation of the Rule can result in a federal suit against your company with possible civil penalties of up to $16,000 per violation.
A local business and commercial attorney can help you create a procedure for extending credit that will both comply with applicable laws and safeguard your business. It’s not like pulling the wool over someone’s eyes, is it?
The three (3) most common types of real estate listing or contracts are:
- Exclusive Right to Sell
- Exclusive Agency
- Open Listing
Of the three (3), the Exclusive Right to Sell is the most common contract.
Exclusive Right To Sell
Listing Agreement under which the Listing Broker becomes the sole agent of the Seller. The Seller agrees to pay a commission to the Listing Broker. Regardless of whether the Listed Property is sold through the efforts of the Listing Broker, the Seller, or anyone else.
Listing Agreement under which the Listing Broker becomes the sole agent of the Seller. The Seller agrees to pay a commission to the Listing Broker. If the Listed Property is sold or is rented or leased through the efforts of any real estate broker.
Under an Exclusive Agency Listing, if the Listed Property is sold or rented or leased solely through the Seller’s efforts. The Seller is not obligated to pay a commission to the Listing Broker or any other broker.
A non-exclusive listing agreement means the owner can contract with more than one (1) real estate broker and pay a commission only to the broker who brings an able buyer whose offer the owner accepts.
Homeowners who are trying to sell their home “by owner” but are also willing to work with real estate agents utilize this type of listing agreement.
Open listings are not popular with most traditional, full-service brokers. It gives a real estate agent the right to bring buyers around to view your home. If their client buys your home, the agent earns a commission.
Agents, who accept an open listing, do not list your home in the MLS or market your home. If your home fits the criteria for one of their clients, the ad is convenient; they may be willing to show it to their client. That is all an “open listing” is suitable for.
If your business will extend credit to customers and business partners, it's essential to comply with the credit laws applicable to extending credit.