Is there a new rules for credit card minimum payments?

The proposed Regulation Z revisions cover two different kinds of disclosures designed to warn consumers who make the minimum payments on their accounts. Paying only the minimum amount each month lengthens the amount of time credit cardholders can take to pay off their debts -- and increases the amount of interest creditors earn from accountholders.
The Fed proposes alerting consumers on monthly (periodic) statements about the consequences of minimum payments. The proposal requires credit card issuers to: "provide (1) a 'warning' statement indicating that making only the minimum payment will increase the interest the consumer pays and the time it takes to repay the consumer's balance; (2) a hypothetical example of how long it would take to pay a specified balance in full if only minimum payments are made; and (3) a toll-free telephone number that consumers may call to obtain an estimate of the time it would take to repay their actual account balance using minimum payments."
The National Retail Federation, a trade association that represents more than 1.6 million retailers (discount and department stores, catalog distributors and Internet sites), says the Fed should clarify this requirement. Retailers may grant several different lines of credit (called sub-accounts) to a single customer based on general purchase items or big-ticket merchandise. These accounts each often carry different interest rates and terms.

"It is not clear whether the proposal contemplates a separate minimum payment disclosure for each of these sub-accounts," the retail federation writes. "Some credit grantors may want to disclose only the longest applicable period, while others may wish to specify the maximum time."
Revolving lines of credit
Regulators also want to make revolving credit plans -- those credit accounts opened at furniture or appliance stores or other retail outlets selling "big-ticket" items -- more consumer-friendly. These types of accounts may not issue credit cards but make lines of credit available to customers. "The monthly minimum payments associated with the purchase are often advertised as part of the offer," according to the board.

You've probably seen or heard ads that promote "zero down" or $50 a month" and it's yours to take home. "Some consumers agree to the financing on the basis of a certain advertised minimum payment but are later surprised to learn how long the debt will take to pay, and how much the credit will cost them over that time period," according to regulators.

There are currently no rules requiring creditors to disclose repayment terms in the ads. The Fed wants to change that. Regulation Z revisions would require all advertisements for these credit plans to give equal prominence to the minimum payment as well as the amount of time required to pay off the balance and the total amount of the payments if consumers pay only the minimum monthly installments.

Retailers object to this provision as well, citing concerns that the minimum payment disclosures do "not provide consumers with a realistic assessment of the time required to complete minimum payments."
However, Chase bank has asked the Fed to reconsider this rule change because banks and credit card issuers are the wrong targets for such regulation. "We believe these changes should be limited to sellers of goods and services, or those under common control with those sellers."
The National Consumer Law Center points out potential loopholes in both disclosure proposals, and notes: " ... [T]here may well be a sales pitch without an 'advertisement' ... "


How to flee from holiday credit card debt

Climbing out of holiday debt isn't easy, but it has to be done. The holidays bring a flurry of emotions and obligations, and people find it easy to get lost in holiday spirit. You may feel guilty if you can't afford to buy your loved ones what they want, so you put presents on the credit card.

Come January, the holiday joy turns into debt regret. It's important to shed this debt quickly, and to learn how to prevent the same troubles next year.

Drowning in debt after the holidays is all too common. "It's important to first take a deep breath and realize you're not the only one struggling with looming holiday debt," says Michael Gold, a certified financial planner who works in investments at Wachovia Securities. The average American household is already saddled with debt before holiday spending, so "digging an even bigger hole of debt during the holidays is a major concern for most."

First step: Tally the damage
To sort through your post-holiday debt, write down your total outstanding balance, interest rate and minimum payment for each credit card. Gold suggests paying off the balance on your credit card with the highest interest rate first, and continuing to do so with all your cards until you end up with the lowest interest card. This is the only card that should not have a date with the scissors -- or at least temporarily retired.
You also have the option of consolidating your balances onto one or two cards with low or 0 percent interest rate. Many balance transfer cards carry their low rate for up to a year. As you pay the other balances off on the higher-rate cards, consider closing the accounts -- although that is a step to take slowly and carefully because closing credit accounts can hurt your credit score. See the story "Do's and don'ts for closing old credit card accounts" for details.

Some people have an alternative to credit cards. "If you're a homeowner, set up a home equity line and use that cash to pay off your credit cards. This can save hundreds, if not thousands of dollars in interest charges," Gold says. Be aware, however, that switching a debt from credit card to a home equity loan or line of credit is trading unsecured debt for secured debt. In other words, you could lose your home if you default.

If you feel like you can't go it alone, contact your creditors, or find an accredited credit counselor. Many creditors are willing to work out a repayment plan with you -- either directly or through the credit counselor -- if that will help them get their money without the help of debt collectors. Be mindful that changing your credit terms or paying anything less than you originally agreed can have a substantial negative effect on your credit score.

Whack unnecessary frivolity
Reducing discretionary expenses and cutting back on unnecessary spending and frivolous activity is a wise idea until your finances are back on track, Gold says. He suggests bringing lunch to work and eating out one less night a week. "You'll be surprised how quickly you can save up cash to get rid of that looming debt and begin a truly happy new year," he says.

In order to determine where unnecessary purchases are happening, you should track your spending. Manisha Thakor, co-author of "On My Own Two Feet," a personal finance guide for young women, has many years of experience in the financial services industry. She says it's time for a "financial reality check," which is like a diet diary. This is done by keeping a piece of paper in your wallet for one or two months and writing down everything you spend. "At the end of each month, tally it all up," Thakor says.

"If you find that you are spending as much or more than you make -- and many people do -- whip out two different colored highlighters. With one, highlight the true essentials. In another color highlight all the fun expenses."

Rough budget benchmarks
Thakor says that for most people, balanced spending of your total gross income should be as follows: roughly 25 percent goes to taxes, 15 percent to savings, 45 percent to foundation expenses and 15 percent to fun expenses. "If your budget pie slices are out of whack, slow down and look item by item to see what you can cut back on," Thakor says. Some of her suggestions are getting rid of magazine subscriptions you don't read and no longer going out for drinks with people you don't like.

Once your post-holiday finances have shifted from red to black, learn how to prevent yourself from ending up with the same debt next year. While it may sound early, Gold says you should prepare a budget for next holiday season now. List every possible person you will give gifts to. Look at what you spent this year, inflate it by 2 or 3 percent and use that as your budget. "Divide that number by 12, for 12 months, set up a separate account and have that number automatically deposited into that account. Come December 2008, you have your holiday money," Gold says.

Plan now for '08 holidays
You should also purchase all of your gift-wrapping, cards and decorations in all the post-holiday sales, when everything is heavily discounted, and save them for next year.

Gold also suggests comparing prices on the Internet before going to the store, as you can find some of the best deals this way. Avoiding frequent dining with friends and family during the holidays is another way to cut back. "Instead of going out with every couple in the neighborhood at fine restaurants, consider having a neighborhood potluck dinner," Gold says. "Each couple brings over a dish they prepared and you'll be surprised at how much fun you can have while saving a tremendous amount of money."

A final suggestion is to do a "Secret Santa" or "Secret Hanukkah Harry" gift-giving method. Instead of every single relative buying each other gifts, each person picks a family member's name from a hat (which stays secret) and buys that person a gift. You can place a price cap on how much everyone can spend. This can save you and your family hundreds if not thousands of dollars, depending on how big your family is. "You might be surprised by how many family members feel the same way you do when it comes to spending for the holidays. Trust me, your loved ones will be relieved that they won't have the daunting task of shopping and spending for so many relatives this year," Gold says.

Crawling out of debt isn't easy, so don't keep doing this to yourself every holiday season. Tackle the debt wisely now, and plan way ahead of time for the holidays next year. There's nothing like starting off a new year fresh.


How to claim expired gift card funds

My gift card survey showed that most gift cards issued by major retail chains do not expire. But some do. What happens to that unclaimed money is increasingly the subject of a tug of war between retailers and states, many of which have passed laws forcing retailers to turn the money over.

"There is an increasing chess game between issuers of these cards trying to find ways to reduce abandoned property exposure and states trying to increase ways to get their hands on what they view as legitimate abandoned property," says attorney Duncan Douglass of Alston & Bird, LLP in Atlanta, who specializes in gift cards and the state laws that apply to them. Catherine Fox-Simpson, a partner in the retail and consumer product practice at consulting firm BDO Seidman, LLP, is more blunt. "I expect a showdown," she says. "It is a matter of time."
As of November 2007, according to the National Conference of State Legislatures Web site, more than 30 states have unclaimed property laws that apply to unused gift card balances. In Michigan and New York, unused balances go to the state (escheat). In Texas and Illinois gift card balances are reverted to the state with certain conditions, while in Florida open-loop, network-branded gift card balances go to the state when unused. People who bought cards in those states may try to initiate unclaimed property claims, usually through the state’s treasurer or similar post. The National Association of Unclaimed Property Administrators’ Web site can link you to the appropriate office in every state.
A minority of states, including the largest, California, do not presently make any effort to reclaim gift card money into state coffers.

There is a third party in this competition over unspent gift card money: The consumer who paid for it in the first place.

How can these consumers make sure that neither the retailer nor the state gets to keep their money? Experts and states recommend the following steps:

  • When buying or receiving a gift card, read it carefully. In some cases, the retailer may not make it entirely clear if or how the gift card expires. "We encourage people to read the fine print regardless of what the merchandiser tells them," says Elizabeth Kupchinsky, spokeswoman for the Pennsylvania Treasury Department.

  • Hold onto the physical card itself and any receipts. Very often, it is unclear to whom the expired gift cards funds belong. "The difficulty in gift cards is that there is no name attached at the point of sale unlike, say, having a deposit for your utility service," says Rochelle Stewart, bureau chief for Citizen Services at the Montana Department of Revenue. Having the card and receipt in your possession can help.

  • Learn how gift card expirations are treated in your state, because the issuer may be prohibited from imposing an expiration date. In states with such laws, funds on expired gift cards no longer have to be turned over as unclaimed property.

  • If the state permits expiration and the date is past, talk to the retailer first. "We encourage people to go to the business and say 'Will you honor this?'" says Kupchinsky. Even if they won't, some card issuers may allow the gift card funds to be transferred to a new card.

If the retailer has already turned over the money, look to the state for help. Every state maintains an online database of unclaimed property. Additionally, a call to the Department of Revenue, state Treasury Department or other government branch in charge of unclaimed property could help.