Your next credit card statement is going to contain an ugly truth: how much that card really costs to use.
Now, thanks to a long-awaited law that goes into effect Monday, you'll know that if you pay the minimum on a $3,000 balance with a 14 percent interest rate, it could take you 10 years to pay off.
"Jaws will drop," said David Robertson, publisher of The Nilson Report, a newsletter that tracks the industry. "I don't doubt for a nanosecond that it's going to give a lot of people a sinking feeling in their stomachs."
That's not all that will make them queasy.
During the past nine months, credit card companies jacked up interest rates, created new fees and cut credit lines. They also closed down millions of accounts. So a law hailed as the most sweeping piece of consumer legislation in decades has helped make it more difficult for millions of Americans to get credit, and made that credit more expensive.
It wasn't supposed to be this way. The law that President Barack Obama signed last May shields card users from sudden interest rate hikes, excessive fees and other gimmicks that card companies have used to drive up profits. Consumers will save at least $10 billion a year from curbs on interest rate increases alone, according to the Pew Charitable Trust, which tracks credit card issues.
But there was a catch. Card companies had nine months to prepare while certain rules were clarified by the Federal Reserve. They used that time to take actions that ended up hurting the same customers who were supposed to be helped.
Consumer advocates say the law still offers important protections for the users of some 1.4 billion credit cards.
"We expected some rate increases; we expected some annual fees," said Ed Mierzwinski of the U.S. Public Interest Research Group, an advocacy organization that lobbied for the law.
To be sure, the law takes effect while credit card companies are still reeling from the recession.
In 2007, the top 12 card issuers earned a combined $19 billion from credit cards, according to The Nilson Report. A year later, amid the financial meltdown, profits for those companies fell more than 65 percent to $6.32 billion. The plunge was largely because defaults ballooned as unemployment soared.
Profit figures for 2009 aren't yet available. But banks wrote off about $35 billion in credit card debt last year, as the unemployment rate topped 10 percent. Analysts predict the default rate will remain at least twice as high as normal through this year, and longer if unemployment stays high.
At the same time, the law is expected to cut into future profits. FICO Inc., the company best known for its credit scores, projects the average card will generate less than $100 a month in revenue within three years, down from $200 a month before the law.
That helps explain why the industry reacted so aggressively to the legislation. Among the moves it made:
• Resurrected annual fees.
Annual fees, common until about 10 years ago, have made a comeback. During the final three months of last year, 43 percent of new offers for credit cards contained annual fees, versus 25 percent in the same period a year earlier, according to Mintel International, which tracks marketing data. Several banks also added these fees to existing accounts. One example: Many Citigroup customers will start paying a $60 annual fee on April 1.
• Created new fees and raised old ones.
These include a $1 processing fee for paper statements for cards issued by stores such as Victoria's Secret and Ann Taylor. Another example is a $19 inactivity fee Fifth Third Bank now charges customers who haven't used their card for six months.
Other banks increased existing fees. JPMorgan Chase, for instance raised the cost of balance transfers from one card to another to 5 percent of the transfer from 3 percent.
• Raised interest rates.
The average rate offered for a new card climbed to 13.6 percent last week, from 10.7 percent during the same week a year ago — meaning cardholders had to pay almost 30 percent more in interest, according to Bankrate.com.
For millions of other accounts, variable interest rates that can rise with the market replaced fixed rates. The Fed is expected to start raising its benchmark interest rates later this year, which would likely trigger an increase on those cards.
Besides making credit more expensive, banks also made it harder to get and keep credit cards. One big reason: Since the financial meltdown, many credit card issuers have been trying to reduce risk.
The number of Visa, MasterCard and American Express cards in circulation dropped 15 percent in 2009, for example. Rarely used cards were among the first cut off. Some cards linked to rewards programs for purchases like gasoline were likewise shut down.
Card companies also slashed credit limits for millions of accounts that remain open. About 40 percent of banks cut credit lines on existing accounts, according to the consultant TowerGroup, which estimated that such moves eliminated about $1 trillion in available credit. Much of that was unused.
Credit lines were frequently cut in regions most affected by the housing crisis and high unemployment, such as Florida and California, said Curt Beaudouin, a senior analyst at Moody's Investors Service. "They're not doing it willy nilly, they're doing it systematically," he said.
Companies are also making fewer solicitations. Mailed offers for new cards increased in the final three months of 2009 for the first time in two years, but there were only about 575 million. That's about a third of the average number of quarterly offers from 2000 through 2008, according to Mintel.
Because the law makes credit cards less profitable, some subprime borrowers may not be able to get cards at all, at least for the next few years. There's no fixed definition, but subprime borrowers generally have a FICO score below 660. For a good portion of this group, options may be limited to alternatives like PayPal and other electronic payment services, prepaid cards and payday lenders.
"Not everyone either deserves or should have an open-ended credit card," said Roger C. Hochschild, chief operating officer of Discover Financial Services.
Joining those who won't easily get cards: college students and others under age 21. The law strictly limits card marketing on campuses, ending giveaways like T-shirts and pizza Cards can only be granted to applicants who show they have the means to repay, or those who have a co-signer who can pay.
"Some of the more vulnerable parts of the population are a little bit more protected," said Georgetown University finance professor James Angel. But he predicts card companies will find ways around most of the new restrictions. And once the economy recovers, he expects the lending spigot to open again.
In the meantime, there is one group of consumers that banks will chase after — those who carry a balance from month to month for at least part of the year, and pay their bills on time. They're the most profitable and least risky group for banks.
Also a target customer: anyone willing to do more business with the bank that issues their card, say opening a checking or savings account or taking out a mortgage.
"What we want is a deeper relationship with our customers," said Andy Rowe, an executive vice president with Bank of America's card business. Customers willing to stick with a single bank may even be able to get annual fees waived or get a better interest rate, he said. "That's where the competition will be."
For more on this story please see http://news.yahoo.com/s/ap/20100222/ap_on_bi_ge/us_credit_cards_new_law
David Bixel
Erin Murphy
MB Tax Professionals
Portland, OR 97210
www.mbtaxpro.com
Monday, February 22, 2010
Monday, February 15, 2010
New! Oregon Bike Tax Credit - Ride to Work and Get Paid!
Overview:
On January 1, 2009, the qualified bicycle commuting reimbursement was added to the list of qualified transportation fringe benefits covered in section 132 (f) of the Internal Revenue Service Code.
The Bicycle Commuter Act was in front of Congress for seven years, and finally passed as an inclusion to the larger Renewable Energy Tax Credit legislation in 2008. The original intent of the provision was to provide a simple, equitable solution to put cyclists on the same footing as people who receive qualified transportation benefits (QTF)’s for taking transit or driving (or parking, actually) their cars to and from work. It was intended that the bike commuting benefit would be treated the same as the other QTF’s.
The total anticipated cost of the provision, estimated by the Joint Committee on Taxation, is a very modest $1 million per year, as compared to the $4.5 billion annual cost of parking and transit benefits.
Bicycle Commuter Tax Reimbursement Cards
The Leauge developed reimbursement cards to make implementing the Bicycle Commuter Act in your workplace as easy as possible. Simply sign the pledge on the card that states you commuted to work by bike for at least three days per week, and then staple your receipts to the card. Download reimbursement cards for your workplace.
How are companies implementing this benefit?
Companies are finding their own unique ways of implementing this program. At the League we developed a set of monthly reimbursement cards to help track employee commutes. Meredith Corporation developed a set of guidelines to help employees understand the reimbursement program, click here to view their guidelines. To help track employee miles Meredith uses a tracking log.
Are Federal Agencies Implementing the Bike Provision?
On August 12, 2009, the National Indian Gaming Commission published their decision to offer the bike subsidy along with other transportation fringe benefits.
What costs are covered?
The intent of this provision is to help defray some of those fixed costs such as; the purchase of a decent commuter bicycle; bike lock; helmet; bike parking facilities; shower facilities; and general maintenance. The real costs associated with bike commuting are much less than commuting by car but those bike commuters should be able to have help with those costs. Employers might not think this is a huge benefit to them but giving people a little financial incentive is another step in the right direction to build moral.
What is considered a bicycle commuting month?
A qualified bicycle commuting month is any month in which an employee: (I) regularly uses a bicycle for a substantial portion of the travel between his residence and his place of employment, and (II) does not receive any other qualified transportation benefit for such as transit, and parking.
Who is Eligible under Section 132?
As a rule, the qualified transportation fringe benefit can only be provided by employers to employees. Common law employees and officers of corporations are eligible (the law does not include non-discrimination requirements for the benefit). Sole proprietors, partners, independent contractors and two-percent shareholders of S corporations are not eligible for this transportation fringe benefit.
How it Currently Works:
A qualified bicycle commuting reimbursement, means any employer, if they chose to do so, may provide a reimbursement of up to $20 per month for reasonable expenses incurred by the employee in conjunction with their commute to work by bike.
Please note however, that unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannot be funded through employee pre-tax income, nor can an employee receive both the transit and bicycle QTF in the same month. Click here to read in-depth analysis of the bike commuter provision limitations.
What Can Be Done?
Congressman Earl Blumenauer (D-OR) introduced H.R. 863 on February 4, 2009, to amend the IRS section 132 (f) to allow employees to fund the bike provision through a pre-tax income, as well as allow the use of both the transit and bike benefit it the same month. Click here to see entire bill. H.R. 863 was referred to the committee on Ways and Means however there has been no action at this time. We will continue to monitor and provide updates for action.
How to Get the Bike Benefit Now?
· First, talk to your employer and tell them you want this benefit. If there are other bike commuters in your office, tell them to speak up too!
· Many employers contract with a Commuter Benefit Provider to coordinate their commuter programs, so have your benefit coordinator call the provider to request enrollment in the bike benefit program. As of April 2009, we have not confirmed any providers who offer the bike benefit other than Accor Services. But other providers are looking to initiate this program, so call and tell them you want it!
· If your employer already contracts with a Commuter Benefit Provider, ask the person who coordinates these benefits to request enrollment in the bike benefit program. If the provider doesn't offer it, find out when they plan to implement it- it's law as of January 1, 2009.
· If your benefit provider does not offer it or plan to offer it have your benefits folks contact Accor Services. Accor is a leading provider of transportation benefits commuter solutions in the United States, and they are implementing the commuter check solution for bicycle commuters. Commuter Check for Bicycling™ vouchers are the most convenient solution available to take advantage of the $20 per month Bicycle Benefit, authorized by the IRS to begin January 1, 2009. Commuter Check for Bicycling vouchers are available through Accor Services’ Commuter Check Office online ordering platform. Employers purchase them just as they do standard Commuter Check vouchers. They offer the same security and terms of use as standard Commuter Checks. Employees can take the vouchers they receive to any dedicated bicycle shop or bicycle parking or storage location to redeem their value. Interested employers and employees can visit Accor Services, to get more information and sign up for the program.
· If your employer prefers to manage the qualified transportation fringe benefits (qtfb) in-house, rather than with a Commuter Benefit Provider, the employer can implement a cash reimbursement program.
· The key point to consider in setting up a cash reimbursement program is that there is a mechanism for the employee to certify that they will commute to work by bike a substantial portion of the month. For example that could mean three days a week for a full time employee and less for a part-time employee. Employers can best determine what works best for their organization. Additionally, employee keeps their receipts for covered expenses and turns them into the employer for reimbursement up to $20 a month or $240 per year.
MB Tax Professionals, LLP
David Bixel
Erin Murphy
www.mbtaxpro.com
Portland, Oregon
97210
On January 1, 2009, the qualified bicycle commuting reimbursement was added to the list of qualified transportation fringe benefits covered in section 132 (f) of the Internal Revenue Service Code.
The Bicycle Commuter Act was in front of Congress for seven years, and finally passed as an inclusion to the larger Renewable Energy Tax Credit legislation in 2008. The original intent of the provision was to provide a simple, equitable solution to put cyclists on the same footing as people who receive qualified transportation benefits (QTF)’s for taking transit or driving (or parking, actually) their cars to and from work. It was intended that the bike commuting benefit would be treated the same as the other QTF’s.
The total anticipated cost of the provision, estimated by the Joint Committee on Taxation, is a very modest $1 million per year, as compared to the $4.5 billion annual cost of parking and transit benefits.
Bicycle Commuter Tax Reimbursement Cards
The Leauge developed reimbursement cards to make implementing the Bicycle Commuter Act in your workplace as easy as possible. Simply sign the pledge on the card that states you commuted to work by bike for at least three days per week, and then staple your receipts to the card. Download reimbursement cards for your workplace.
How are companies implementing this benefit?
Companies are finding their own unique ways of implementing this program. At the League we developed a set of monthly reimbursement cards to help track employee commutes. Meredith Corporation developed a set of guidelines to help employees understand the reimbursement program, click here to view their guidelines. To help track employee miles Meredith uses a tracking log.
Are Federal Agencies Implementing the Bike Provision?
On August 12, 2009, the National Indian Gaming Commission published their decision to offer the bike subsidy along with other transportation fringe benefits.
What costs are covered?
The intent of this provision is to help defray some of those fixed costs such as; the purchase of a decent commuter bicycle; bike lock; helmet; bike parking facilities; shower facilities; and general maintenance. The real costs associated with bike commuting are much less than commuting by car but those bike commuters should be able to have help with those costs. Employers might not think this is a huge benefit to them but giving people a little financial incentive is another step in the right direction to build moral.
What is considered a bicycle commuting month?
A qualified bicycle commuting month is any month in which an employee: (I) regularly uses a bicycle for a substantial portion of the travel between his residence and his place of employment, and (II) does not receive any other qualified transportation benefit for such as transit, and parking.
Who is Eligible under Section 132?
As a rule, the qualified transportation fringe benefit can only be provided by employers to employees. Common law employees and officers of corporations are eligible (the law does not include non-discrimination requirements for the benefit). Sole proprietors, partners, independent contractors and two-percent shareholders of S corporations are not eligible for this transportation fringe benefit.
How it Currently Works:
A qualified bicycle commuting reimbursement, means any employer, if they chose to do so, may provide a reimbursement of up to $20 per month for reasonable expenses incurred by the employee in conjunction with their commute to work by bike.
Please note however, that unlike the other qualified transportation fringe benefits, a qualified bicycle commuting reimbursement benefit cannot be funded through employee pre-tax income, nor can an employee receive both the transit and bicycle QTF in the same month. Click here to read in-depth analysis of the bike commuter provision limitations.
What Can Be Done?
Congressman Earl Blumenauer (D-OR) introduced H.R. 863 on February 4, 2009, to amend the IRS section 132 (f) to allow employees to fund the bike provision through a pre-tax income, as well as allow the use of both the transit and bike benefit it the same month. Click here to see entire bill. H.R. 863 was referred to the committee on Ways and Means however there has been no action at this time. We will continue to monitor and provide updates for action.
How to Get the Bike Benefit Now?
· First, talk to your employer and tell them you want this benefit. If there are other bike commuters in your office, tell them to speak up too!
· Many employers contract with a Commuter Benefit Provider to coordinate their commuter programs, so have your benefit coordinator call the provider to request enrollment in the bike benefit program. As of April 2009, we have not confirmed any providers who offer the bike benefit other than Accor Services. But other providers are looking to initiate this program, so call and tell them you want it!
· If your employer already contracts with a Commuter Benefit Provider, ask the person who coordinates these benefits to request enrollment in the bike benefit program. If the provider doesn't offer it, find out when they plan to implement it- it's law as of January 1, 2009.
· If your benefit provider does not offer it or plan to offer it have your benefits folks contact Accor Services. Accor is a leading provider of transportation benefits commuter solutions in the United States, and they are implementing the commuter check solution for bicycle commuters. Commuter Check for Bicycling™ vouchers are the most convenient solution available to take advantage of the $20 per month Bicycle Benefit, authorized by the IRS to begin January 1, 2009. Commuter Check for Bicycling vouchers are available through Accor Services’ Commuter Check Office online ordering platform. Employers purchase them just as they do standard Commuter Check vouchers. They offer the same security and terms of use as standard Commuter Checks. Employees can take the vouchers they receive to any dedicated bicycle shop or bicycle parking or storage location to redeem their value. Interested employers and employees can visit Accor Services, to get more information and sign up for the program.
· If your employer prefers to manage the qualified transportation fringe benefits (qtfb) in-house, rather than with a Commuter Benefit Provider, the employer can implement a cash reimbursement program.
· The key point to consider in setting up a cash reimbursement program is that there is a mechanism for the employee to certify that they will commute to work by bike a substantial portion of the month. For example that could mean three days a week for a full time employee and less for a part-time employee. Employers can best determine what works best for their organization. Additionally, employee keeps their receipts for covered expenses and turns them into the employer for reimbursement up to $20 a month or $240 per year.
MB Tax Professionals, LLP
David Bixel
Erin Murphy
www.mbtaxpro.com
Portland, Oregon
97210
Wednesday, February 3, 2010
Tax Time
It's Tax Time!
This is our favorite time of the year, where we get to see all of our wonderful clients and share in your trials and triumphs of the past year. We have pre-scheduled tax preparation appointments for our clients for the months of February, March, and April. By now you should have all received your pre-scheduled tax appointment in the mail. If you have moved recently and are certain that we do not have your new address, please drop Fern a line at office@mbtaxpro.com to keep us up to date. If the appointment you receive does not work please call or email Fern to reschedule. We have appointments still open throughout the week, and on some evenings and weekends. If you tell us what you need, we will do our best to schedule you at your convenience.
Forms and Important Due Dates
We are staying with our commitment we made last New Year to "go green" and so we won't be mailing out Organizer worksheets this year unless you request one from Fern through email at office@mbtaxpro.com or by phone at 503.595.5890. We have posted all of our forms in PDF format conveniently online at our website, so please take a look and see if there is a form there that works best for your tax organization. If you aren't sure what form is best for your organization this year, drop Fern a line and she will email you the form that suits your needs for 2009.
Also! 1099s are due to the IRS by the end of the month. If you still need forms they are free at the IRS office located at 1220 Southwest 3rd Avenue, Portland, OR 97204-2871. Remember, businesses have a March 15th filing deadline, one month before the Individual deadline date of April 15th, so we will need your end of the year numbers by February 15th to prepare a thorough and timely return.
Your Tax Questions and Our Tax Answers
Q: I want to donate money to the Haiti earthquake relief effort. I heard something about my contribution being deductible for 2009. Is that true?
A: That is correct! People who give to charities providing earthquake relief in Haiti can claim these deductions on the tax return they are completing this season, according to the IRS. Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted January 22nd, 2010. Only cash contributions made to these charities after January 11th, 2010 and before March 1st, 2010 are eligible. This includes contributions made my text message, check, credit card or debit card. "Americans have opened their hearts to help those affected by the Haiti earthquake," said IRS Commissioner Doug Shulman. "This new law provides an immediate tax benefit for the many taxpayers who have made generous donations."
MBtaxpro.com
Portland, OR 97210
David Bixel
Erin Murphy
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