Personal Finance: Credit Cards and Gold Investments

Ten New Credit Card Protections. A new law protecting consumers from unfair credit practices was fully phased in last week. Here are 10 protections from the Credit Card Accountability, Responsibility and Disclosure Act.

Investing: Three Ways to Go for the Gold. The price of gold has been fluctuating recently after reaching a record high late last year. Investors concerned about inflation are buying and selling the precious metal. Here are three ways to acquire gold in your portfolio, as well as the basic tax rules when you sell.

10 NEW CREDIT CARD PROTECTIONS

A new credit card law, which fully went into effect on February 22, 2010, is designed to end unfair credit card practices for consumers without shutting off credit opportunities.

Here are 10 protections from the Credit Card Accountability, Responsibility and Disclosure Act:

The Law Ends Surprise Rate Increases. Credit card companies and other institutions must provide at least 45 days written notice to cardholders of an increase in the annual percentage rate. Cardholders will also no longer be blindsided by high rate hikes on existing balances. The new law prohibits such actions for “any reason.”

First-Year Safeguards Are Provided. The terms of the credit agreement must be spelled out clearly and generally remain constant for the entire first year. Although companies can continue to offer promotional rates to new or existing accounts, these enticements must remain in effect for at least six months.

The Law Ends Late Fee “Traps.” Institutions must give card holders a reasonable time to pay the monthly bill – at least 21 calendar days from time of mailing. The act also ends late fee traps such as weekend deadlines, due dates that change each month, and deadlines that fall in the middle of the day.

“Over-the-Limit” Fees Are Only Allowed with Permission. When credit thresholds are exceeded, companies must obtain a cardholder’s permission to process transactions that exceed his or her personal limit.

The Law Improves Gift Cards issued by retailers, restaurants and other businesses. It requires greater disclosure on gift cards fees and restricts inactivity fees, as well as expiration dates. The terms must be clearly disclosed.

Consumers Must Now Be Given Plain Language Disclosures. Credit card contracts must contain language that is easily understood by consumers. Before opening accounts, cardholders should receive disclosures of the terms and clear statements of future activities. For example, statements should prominently display fees paid in the current month and year-to-date, as well as the reasons for them.

Information about Credit and Payment Decisions Must Be Provided. Issuers of credit cards are required to inform consumers about the consequences of their decisions. This includes providing statements that show how long and how much it would take to pay off a balance by making only the minimum required payments. Statements should also disclose the monthly payment amount needed for cardholders to pay off the balance in 36 months.

In-House Payments Will Be Credited Faster. If a financial institution issuing cards accepts payments in person at its branches, it must credit accounts on the day the payments are made. (Some institutions waited until the next business day, which has resulted in late fees for cardholders.)

Contracts Must Be Publicly Posted. Credit card companies are now required to make contracts accessible online, as well as in a hard copy.

The Law Cleans Up Credit Practices on College Campuses. A person under the age of 21 cannot be issued a credit card unless:
- It’s determined that he or she has the independent financial means to pay the bill.
- A parent, guardian, or individual over 21 becomes a co-signer.

The law also prevents card issuers from using incentives to entice students to sign up – a standard practice on college campuses. Another plus: A co-signer must give permission before the credit card limit is increased.

Important: Examine credit card offers and agreements carefully. To make up for lost revenue from the new law, some issuers are now raising annual fees and imposing higher balance transfer fees or other charges.

Timely Opportunities ©2000-2010 BizActions LLC, All Rights Reserved

MORE EMPLOYERS ARE HEARING FROM THE EEOC

It’s not quite the gold rush of 1849, but investors have recently been buying and selling investments in gold. In addition, current economic conditions are also fueling fears of rising inflation in the future. Gold is viewed as an inflation hedge by some investors.

What are the tax consequences of owning and selling gold investments? The rules in this area are complex. Generally, the tax results depend on how you purchased the gold and how long you owned it. Here are three ways to acquire gold and the tax basics:

Bullion – can buy gold bars directly and store them yourself or have them stored at a facility. Another method is to purchase bullion coins such as Krugerands or American Eagles. But one way to buy bullion is to invest in an exchange-traded fund (ETF). Shares in ETFs are traded on the major stock exchanges.

Typically, the ETF charges an annual fee and provides a return close to the price change in bullion minus the expenses. The main advantage is liquidity: You can sell shares quickly without concerns about additional costs.

On the tax front, an investment in gold bullion is treated as an investment in a collectible. Generally, gains are taxed at a 28 percent rate if the collectible is held longer than one year. Otherwise, the sale results in tax at ordinary income rates. In contrast, the maximum tax rate for other capital assets held longer than one year is generally 15 percent.

Note: A special tax rule generally prohibits investments by IRAs in collectibles.

Exception: Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. Also, recent private letter rulings have allowed IRA owners to purchase ETFs, which function more like stocks.

Gold Futures – Alternatively, you might purchase gold futures instead of bullion. Gold futures contracts basically provide the same return as bullion, although differences in the futures markets must be considered. A futures ETF is generally taxed the same as a futures position in commodities. All gains are treated as being 60 percent short-term and 40 percent long-term, regardless of the holding period.

In addition, gains are “marked-to-market” at the end of the year, meaning an investor must realize the gains whether or not the futures are sold. There is no tax deferral on this type of investment.

Gold Mining Stocks – Instead of investing in bullion or futures, investors might acquire stock in a gold mining company. Gold mining stocks can be purchased individually, via open-end mutual funds or through ETFs.

As you might imagine, prices for these stocks are more volatile than the price for bullion. Once the company recovers its fixed costs, much of the increase in the price of bullion goes to profits, while a decrease reduces profits. Furthermore, gold mining shares are typically influenced by other factors, such as stock market trends and economic conditions.

Gold mining shares are treated like other shares of stock for tax purposes. Therefore, a sale of stock held a year or less results in ordinary income, currently taxed at rates as high as 35 percent. If you’ve held gold mining shares for longer than one year, you may benefit from the 15 percent maximum tax rate on long-term capital gain.

As with other shares of stock, you can use IRA funds to invest in gold mining shares. There is no current tax on sales within the IRA and subsequent distributions are taxed at ordinary income rates.

Consider all the relevant economic factors, including the tax implications, of any gold investment. Your tax and financial advisers can provide more information, if desired.

BUSINESS WISDOM FOR TODAY’S ECONOMY

What About Corporate Credit Cards?

While the new law described above provides these 10 protections for consumers, it does not extend them to traditional corporate cards. However, small business owners who use their personal cards for business purposes will be covered by the new credit protections.