The Credit Card Accountability Responsibility and Disclosure Act of 2009

On May 22, 2009, President Obama signed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act of 2009).

Amending the Truth in Lending Act, the Credit CARD Act of 2009 requires a creditor on an open end consumer credit plan (credit card) to notify a consumer in writing of any change in the annual percentage rate (APR) on the account at least 45 days prior to the change. The notification shall also inform the consumer of the right to cancel the account before the effective date of the rate increase. If the consumer cancels the account, this action shall not constitute a default on the account, and shall not trigger an obligation to repay the account in full.

Creditors are further prohibited from increasing the annual percentage rate (APR) applicable to an existing balance on an open end consumer credit card account unless specific conditions apply. The APR may be increased only if: (1) the index on which the rate is based changes, (2) it is a promotional rate that has expired, (3) a consumer fails to comply with a hardship workout plan, or (4) the account falls 60 days past due.

What’s more, if a rate increase is due to the consumer falling 60 days past due on the account, the creditor must inform the consumer that the rate increase will be terminated (and the rate restored to what it was before the increase) once the creditor receives the minimum payments due in a timely fashion for six months.

Other features of the Credit CARD Act of 2009 include:

• If different APRs apply to separate portions of an outstanding balance, the amount of any payment beyond the minimum payment due must be applied to that portion of the balance with the highest APR.
• Creditors are required to send statements to consumers at least 21 calendar days before the due date of the next payment.
• Creditors must provide on each billing statement a written disclosure indicating how many months it will take to repay the existing balance if only the minimum payment due is made each month, and what the total cost (principal and interest) of doing so will be. The disclosure must also indicate the total cost of repaying the existing balance due, including principal and interest costs, over 36 months.
• Payment due dates shall be the same day of each month. If the due date is a date when a creditor does not receive or accept payments by mail (e.g., weekends and holidays), the creditor must not treat a payment received on the next business date as a late payment.
• Creditors are prohibited from charging a consumer an over-the-limit fee unless the consumer authorizes the creditor to complete the transaction that causes the balance to go over the limit (opt-in). The creditor is further prohibited from imposing an over-the-limit fee in a subsequent billing cycle unless the consumer obtains an additional extension of credit in excess of the credit limit during that subsequent cycle.
• Extension of credit to consumers under age 21 is prohibited, unless the consumer demonstrates the independent means of repaying the debt or has a cosigner over 21 capable of repaying the debt. The creditor is required to obtain the approval of any cosigner to increase the credit line of an account for which the cosigner is jointly liable.
• Creditors are prohibited from charging a fee based on the manner in which a payment is made (e.g., on line, by telephone).
• Gift cards and certificates must disclose in writing on the card or certificate any dormancy or inactivity fee information, including the amount of the fee and how often it may be imposed (not more than once a month). What’s more, the issuers of such cards or certificates must inform the purchaser of these fees before the purchase. Such fees may not be imposed for the first 12 months after issuance. Such cards or certificates may not have an expiration date before five years after the card or certificate is issued.

The sections of the Credit CARD Act of 2009 about notification requirements concerning rate increases take effect 90 days after the date of enactment. The remaining portions of the Act take effect nine months after enactment.

Beware Unlicensed Mortgage Loan Modification “Specialists”

Millions of Americans have lost their homes in the current foreclosure crisis. Millions more stand to do so in the future. But they should think twice before doing business with so-called mortgage modification specialists. Such entities, regulators warn, may really just be unlicensed credit counselors.

According to Gavin Gee, director of the Idaho Department of Finance, mortgage loan modification specialists are soliciting homeowners with promises of relief on their mortgage payments. The problem is, they charge for services homeowners could do themselves. Plus the fees they charge can be sizable and nonrefundable, with no assurance of real financial relief.

If clients ask you about such services, make sure they exhaust other avenues first. Gee suggests consumers start by communicating directing with their lenders or loan servicers. Several large banks, including J.P. Mortgage Chase & Co. and Citigroup Inc., have announced relief programs to help stressed borrowers.

Then they should take advantage of free state-level housing counseling programs. Clients can also call the 888-995-HOPE hotline for free counseling and access to foreclosure alternatives. “It’s important that homeowners contact their lenders, servicers, or a qualified housing counselor as soon as they suspect they may have trouble making their mortgage payments,” Gee says.

If clients decide to deal with a loan modification firm, make sure they verify the company’s license first.

Teach Your Children Well: Basic Financial Education

Even before your children can count, they already know something about money: it’s what you have to give the ice cream man to get a cone, or put in the slot to ride the rocket ship at the grocery store. So, as soon as your children begin to handle money, start teaching them how to handle it wisely.

Making allowances   Giving children allowances is a good way to begin teaching them how to save money and budget for the things they want. How much you give them depends in part on what you expect them to buy with it and how much you want them to save.

Some parents expect children to earn their allowance by doing household chores, while others attach no strings to the purse and expect children to pitch in simply because they live in the household. A compromise might be to give children small allowances coupled with opportunities to earn extra money by doing chores that fall outside their normal household responsibilities.

When it comes to giving children allowances:

• Set parameters. Discuss with your children what they may use the money for and how much should be saved.
• Make allowance day a routine, like payday. Give the same amount on the same day each week.
• Consider “raises” for children who manage money well.

Take it to the bank  Piggy banks are a great way to start teaching children to save money, but opening a savings account in a “real” bank introduces them to the concepts of earning interest and the power of compounding.

While children might want to spend all their allowance now, encourage them (especially older children) to divide it up, allowing them to spend some immediately, while insisting they save some toward things they really want but can’t afford right away. Writing down each goal and the amount that must be saved each week toward it will help children learn the difference between short-term and long-term goals. As an incentive, you might want to offer to match whatever children save toward their long-term goals.

Shopping sense  Television commercials and peer pressure constantly tempt children to spend money. But children need guidance when it comes to making good buying decisions. Teach children how to compare items by price and quality. When you’re at the grocery store, for example, explain why you might buy a generic cereal instead of a name brand.

By explaining that you won’t buy them something every time you go to a store, you can lead children into thinking carefully about the purchases they do want to make. Then, consider setting aside one day a month when you will take children shopping for themselves. This encourages them to save for something they really want rather than buying on impulse. For “big-ticket” items, suggest that they might put the items on a birthday or holiday list.

Don’t be afraid to let children make mistakes. If a toy breaks soon after it’s purchased, or doesn’t turn out to be as much fun as seen on TV, eventually children will learn to make good choices even when you’re not there to give them advice.

Earning and handling income Older children (especially teenagers) may earn income from part-time jobs after school or on weekends. Particularly if this money supplements any allowance you give them, wages enable children to get a greater taste of financial independence.

Earned income from part-time jobs might be subject to withholdings for FICA and federal and/or state income taxes. Show your children how this takes a bite out their paychecks and reduces the amount they have left over for their own use.

Creating a balanced budget With greater financial independence should come greater fiscal responsibility. Older children may have more expenses, and their extra income can be used to cover at least some of those expenses. To ensure that they’ll have enough to make ends meet, help them prepare a budget.

To develop a balanced budget, children should first list all their income. Next, they should list routine expenses, such as pizza with friends, money for movies, and (for older children) gas for the car. (Don’t include things you will pay for.) Finally, subtract the expenses from the income. If they’ll be in the black, you can encourage further saving or contributions to their favorite charity. If the results show that your children will be in the red, however, you’ll need to come up with a plan to address the shortfall.

To help children learn about budgeting:

• Devise a system for keeping track of what’s spent
• Categorize expenses as needs (unavoidable) and wants (can be cut)
• Suggest ways to increase income and/or reduce expenses

The future is now Teenagers should be ready to focus on saving for larger goals (e.g., a new computer or a car) and longer-term goals (e.g., college, an apartment). And while bank accounts may still be the primary savings vehicles for them, you might also want to consider introducing your teenagers to the principles of investing.

To do this, open investment accounts for them. (If they’re minors, these must be custodial accounts.) Look for accounts that can be opened with low initial contributions at institutions that supply educational materials about basic investment terms and concepts.

Helping older children learn about topics such as risk tolerance, time horizons, market volatility, and asset diversification may predispose them to take charge of their financial future.

Should you give the kid credit? If older children (especially those about to go off to college) are responsible, consider getting them a credit card. Most major credit card companies require an adult to cosign a credit card agreement before they will issue a card to someone under the age of 18. Ask the credit card company for a low credit limit (e.g., $300) or a secured card. This can help children learn to manage credit without getting into serious debt.

Also:

• Set limits on the card’s use
• Make sure children understand the grace period, fee structure, and how interest accrues on the unpaid balance
• Agree on how the bill will be paid, and what will happen if the bill goes unpaid
• Make sure children understand how long it takes to pay off a credit card balance if they only make minimum payments

If putting a credit card in your child’s hands is a scary thought, you may want to start off with a prepaid spending card. A prepaid spending card looks like a credit card, but functions more like a prepaid phone card. The card can be loaded with a predetermined amount that you specify, and generally may be used anywhere credit cards are accepted. Purchases are deducted from the card’s balance, and you can transfer more money to the card’s balance whenever necessary. Although there may be some fees associated with the card, no debt or interest charges accrue; children can only spend what’s loaded onto the card.

One thing you might especially like about prepaid spending cards is that they allow children to gradually get the hang of using credit responsibly. Because you can access the account information online or over the phone, you can monitor the spending habits of your children. If need be, you can then sit down with them and discuss their spending behavior and money management skills.

Finally!!!! Some good news- Is this the botttom??

The big stock market rise yesterday, March 10th, of around 7% was welcome news. Citigroup actually made a profit for two months but with Billions of dollars for the taxpayer I would hope so. The even better news is that the Fed wants the SEC to put back the “Uptick Rule.” Before the markets collapsed last August and September, short selling was not too big an issue. When the markets fell, it was a huge problem. It had been the rule for decades that if you are betting on a stock falling, to sell it short it must first go up. This prevents short sellers from driving it down more. The Bush Administration removed this rule in 2007 and really made the market drop worse.

The other big problem is the accounting rule of “mark-to-market.” The Fed stated they want to review a compromise here. This rule just came into being before the crash also and is making companies look even worse, especially financial stocks. It requires companies to list assets at the current market value. That seems to make sense but it is more complicated than it seems. If you are a bank and have a note a high quality company is paying on with no problems, you should show no loss, right? Wrong! If the bank tried to sell the note right now, they may lose 20% due to the market fears. So, even though they are not selling it and it is performing well, the market value of the asset is 20% less until the company pays the note and then there is no loss. In the meantime, it makes the bank appear to be losing money when they state the total losses they have even though there is no loss until they sell it.

Is this the infamous “bottom of the market” everyone is looking for? Most likely not quite. Regardless if it is, you should NEVER have more than 80% of your money in the market and rarely even that much. We need to see how much more bad news there is and April reporting of the first quarter results will really determine the direction of the markets. If it is better than most people hope, then the markets could start moving up. Stay tuned….

CD’s aka Certificate of Depreciation

I was visiting with one of my clients earlier this week because they had a Certificate of Deposit coming due at one of the local banks.  My discussion with them prompted me to send this letter to every one of my clients.

 

“While I was visiting with this client, they mentioned they liked to have their money in CD’s because of the safety, the protection of their principal, and the fact that they can get some money out when they need (liquidity).

 

But, they came in to see me for two reasons; they weren’t happy with the taxes they were paying, and they were looking for a more competitive return.

 

See, what many people don’t realize is that you pay ordinary income tax on the interest you earn from your CD each year EVEN IF YOU REINVEST THE INTEREST.  Not only will this dilute your earnings, but it could force you to pay taxes on your Social Security Income as well.

 

On top of that, when you factor in the current interest rates CD’s are offering (around 2.5-3.25%), combined with the taxes you pay and current inflation rates, you will see that you could actually be losing purchasing power.

 

If you have a Certificate of Deposit coming due and would like to discuss some other options that will still provide safety, protection of your principal and access to your money, but will also give you the opportunity for higher returns and will allow you to avoid paying taxes on your interest until you use it for income, potentially reducing or eliminating the taxes you are paying on your Social Security Income, please give me a call.  There are several options available that will help you accomplish your goals.

 

P.S. – The client I talked about will save enough money in taxes to take their two grandchildren on a weekend getaway to Disney World! “

My @%!%@ Company just laid me off!!

Being laid off really sucks, let’s admit it.  You take pride in your company and really try to help them succeed and they just drop you when the going gets tough.  So, after the choice words at the company or the CEO’s bonus, you need to figure out what next. 

1. For Californians’, file for unemployment payments at https://eapply4ui.edd.ca.gov/  Get something for not working at least.
2. Check to see if you have a loan on your 401k.  If not, you’re fine.  If you do, you typically have only 10 days after you are officially terminated to repay that loan or it is an early withdrawal that is taxable and has a 10% fed – 2.5% state penalty.  Note, you are typically not “really” terminated until your severance package is over.  That is when the 10 days would start.
3. Update www.linkedin.com and www.facebook.com and other social sites you use to let your friends help look for new jobs for you.
4. One month before your package is over, start shopping for medical insurance.  A gap of more than 63 days now is a very bad thing.  To get a quote, checkout www.bayareainsuranceservices.com  A high deductible plan may save you some money.  If you are married, compare the cost of a plan for you versus going onto your spouses’ coverage.
5. Roll over your 401k or retirement plan to an IRA.  Once laid off, you can no longer borrow from the 401k so you should roll it over.  IRA’s have a lot more options and with the stock market so bad, you may want more options.  Also, there is no mandatory withholding on an IRA but there is on a 401k.  So, if you end up needing some money from the plan you can take some out.  Penalties before 59 ½ and taxes are still due but you can wait to pay them.  If you are out of work for a while, those taxes may not be as big as other years would have been.
6. Start putting your resume on all the job sites out there like www.monster.com Don’t forget www.craigslist.com as a great source for jobs also.  These tend to be smaller companies. 
7. Equity lines of credit.  If you have one, you may want to take the balance out and move it to a savings account.  This will force you to lose money on the interest, but if you bank freezes the line like so many have done, at least you now have the money. 

I hope you don’t need to use this info but with the economy getting worse, you may.  I was having about one client a week being laid off and right now it is getting closer to one a day.  So, be prepared.  If you need more help, email Eric at The@WealthCreator.com or visit www.wealthcreator.com

OMG My investment accounts dropped how much last year?

If you just got Statement Shock on your investment statements, you are probably saying I need to stop the losses.   Is that the right thing to do???  It actually may be right, but there are other options.  First, before you go through options, you need to start at the beginning. 

 

Why did you investment your money when you could have left it in an insured bank account?  Most likely to have it grow more.  You decided to trade safety for the potential of higher returns which also have risk to your principal.  Well, as long as everything goes up, no one cares about risk.  When things go bad, no one ever wanted risk all of a sudden.  So, the next 2 questions are: when do you need the money and can you earn more in a “safe” account?

 

When do you need the money?  If within 5 years, the money should not be at risk.  If you have 5-10 years, a reallocation may in order.  Can you earn more in a “safe” account?  Well if that account is at a bank, then 0-2% is not that motivating to move.  This then goes back to the original question of should you get out of the market. 

 

We have been telling clients for years to follow the rule of 100.  100 – your age = how much money you should have at risk.  So a 30 year old can risk 70% but a 65 year old should only risk 35%.  Risk meaning loss of the money you invested, so a bond fund is still at risk.  So, where can you earn money in other ways.  Fixed annuity rates are around 5% and non-traded commercial Real Estate Trusts are paying 6%.  Those are two options to be non-market related.  If you want downside protection but an account that will pay a higher rate if the market does well, you can look into index annuities and indexed CD’s. 

 

Should I move all my money?  Rarely that makes sense.  Adding more assets classes that are not all stock & bond funds can lower your risk and add more chances to make more money.  So, what should I do?  Diversify some out of the market is a good first step.

The World’s Largest Mattress-the US Treasury

Investors last Tuesday bought $30 Billion of One Month bonds at 0%. Yes, that’s right, ZERO!! According to the Wall Street Journal, they would rather earn nothing than take any risk. In other words, people put Billions in their mattresses! Now, the Fed is doing the same with the Fed Funds rate at or near 0%. So, do I prefer a mattress, floor safe or tin can buried in the yard??? NONE! This is what I call “being mean to money”. Money wants to grow like an office plant but too many times people ignore it or dump their coffee in it and it dies. Money can wither too if it is not taken care of. There are plenty of better options than earning zero like CD’s, fixed annuities have some great rates and just a regular savings account is better than nothing. So please, have a heart and don’t earn nothing on your money. Put it to work for you.

Eric
See us at www.wealthcreator.com

Year End Tax Deductions-where to find them

Most people do tax planning in April. That’s like Plaxico Burress saying now, “maybe I shouldn’t have a gun in my pocket, I might shoot myself.” TOO LATE!! Planning your taxes after the year has ended means most options are already gone. So, you have 29 days to act to still get the tax benefit for 2008.
“Alright, I’m listening but what should I do?”
First, was this year a higher or lower income year? If higher income due to bonus, stock options, stock sales, or other items you don’t anticipate happening next year, then do the items below. If lower, then try to postpone these items when possible.

1. Property taxes- you can pay both instalments this year to get the deduction all in 2008.
2. Mortgage payment- you can deduct interest only when paid, so paying your January payment in December allows for another interest deduction
3. Charity – you can give some money or items this month but you MUST have a receipt to prove it and the value of “items donated” is very much reduced now
4. Extra 401k, IRA, SEP contribution- you can add extra to max it out if you are able to fund one of these accounts. Remember, the funds are locked up until 59 1/2.
5. Gas & Oil Lease partnerships – These are one of the best ways to get a virtually unrestricted tax deduction. You can get a write off this year for 85% of what you invest in one. Make sure it is a good company with a good track record.

As always, talk to a tax advisor about these to see if they work for you. But please talk to them this month and not after it is too late.  We have a seminar on Gas Leases tax deduction investments on Dec 4th.  Please email jennine@wealthcreator.com if interested in attending.

Obama-ize your Financial Plan (from 11-5-08)

With a new president comes new hope but also financial changes. So, you must prepare to be able to take advantage of these items. If you make over $200,000 a year, there are some issues to look at. Maybe fund a non-deductible IRA so you can convert it in 2010 when they remove the $100k income maximum. Also, you may want to throw more tax deductions to next year if possible.

Roth Conversions!!!!! With the national debt doubling over the last 8 years, taxes will most likely be higher in the future so converting to a tax Free Roth is a great way to go. The problem is you have to make less than $100k a year. Great conversion situations- if you have a large loss due to your business losing money, if your income was low due to a layoff and lastly someone that has more deductions than income to offset the income.

But I make more than $100k. Well, you can fund a Gas Lease program and usually get 85% of what you invest as a current tax deduction. If you make $108,000 and put $10,000 into a gas lease you can now convert you Roth since you income dropped under $100k. If you wait and tax rates go up, the conversion could be much more expensive. See http://www.wealthcreator.com/ for more info.

Related story http://biz.yahoo.com/wallstreet/081105/sb122591367859702209_id.html?.v=2