This Week In Credit Card News: Apple Pay Later Launched; Credit Card Interest Rates Hit Record High
Apple’s Buy Now, Pay Later Plan Launches, Allowing Users Loans for Purchases
Apple launched Tuesday Apple Pay Later, a buy now, pay later feature that allows users to split purchases into four payments over the course of six weeks. For now, the service will be available only to randomly selected users who will get early access to a prerelease version of Apple Pay Later. Apple plans to offer the feature to all eligible users in the coming months. Apple Pay users will be able to apply for Apple Pay Later loans of $50 to $1,000, which can be used for online and in-app purchases on their iPhone or iPad. [USA Today]
Credit Card Debt Is at Record High as Fed Raises Rates Again
As the Federal Reserve raises interest rates again, credit card debt is already at a record high, and more people are carrying debt month to month. The Fed’s interest rate increases are meant to fight inflation, but they’ve also led to higher annual percentage rates for people with credit card debt, which means they pay more in interest. The Fed announced last Wednesday that it would increase rates another quarter of a point. With inflation still high, people are leaning on their credit cards more for everyday purchases. 46% of people are carrying debt from month to month, up from 39% a year ago, according to Bankrate.com. Data also shows more people are now falling behind on payments. [Associated Press]
Florida Governor Ron DeSantis Introduces State Legislation Banning CBDCs
Florida Governor Ron DeSantis proposed legislation on Monday that would ban central bank digital currencies from the Sunshine State, portraying it as a measure to safeguard Floridians’ financial privacy. The legislation would prohibit in Florida any CBDC that the U.S. Federal Reserve could introduce and any created by a foreign government, outlawing the technology entirely from being used as a form of money within the state. [Decrypt]
What Happens to My Credit Card Account if the Issuing Bank Shuts Down?
In the event of a bank failure, the Federal Deposit Insurance Corporation typically steps in and takes over the institution. The FDIC keeps the operations of the failed bank ongoing, including its credit card business. In the meantime, the regulatory authority would look for a buyer for the failed bank. You should keep up with your bank’s website for any updates on your credit card account. If a buyer emerges, the failed bank’s credit card portfolio would be transferred to the acquiring institution. This buyer would then become the new issuer of your credit card and set the terms of your account. The new issuer might change your interest rate on new transactions, for one, after giving you 45 days’ notice. It could even change the interest rate on your existing balances in certain circumstances, as well as your credit limit after giving you sufficient notice. You might even get a new card under a different brand name. [Yahoo Finance]
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CFPB Officially Takes Aim at Credit Card Late Fees
On March 29, the CFPB published a proposed rule in the Federal Register to amend Regulation Z, which implements the Truth in Lending Act, to limit late fees charged on credit card accounts. If adopted, amended Regulation Z would adjust the safe harbor dollar amount for late fees to a flat $8, down from the current safe harbors of $30 for a first violation and $41 for a second violation within six billing cycles. It would also provide that late fee amounts must not exceed 25% of the amount of the required payment deemed late. [Lexology]
Walmart Wants to Buy Back Your Old Electronics Turning Your Junk into Walmart Gift Cards
Walmart has recently launched its Gadgets to Gift Cards program, an innovative way to dispose of used electronic devices that reduces the amount of waste in landfills. If you have old cell phones, tablets, video games, consoles, laptops, GPS devices, MP3 players, and cameras you don’t have any use for, you can trade them in by filling out an online appraisal form. Then, you pack up your items following the directions given to you by the Walmart CExchange program, and ship them away for free. Once your package is received, Walmart will appraise your devices in about two to four weeks, where you will then be paid however much the item is worth. Though they can’t pay you in cash, Walmart offers a Walmart eGift Card that will allow you to use the funds on Walmart.com or on Samsclub.com, if you’re a member. [Cord Cutters News]
Rocket Mortgage Launches a Credit Card to Help You Save For or Pay Off a Home
The new Rocket Visa Signature Card comes with a rewards system that’s hard to decipher at first glance. While advertised as a cash-back card, the card offers 5X Rocket Rewards points on all purchases. The value of your rewards will depend on how you redeem them. Your points are worth 1 cent each when redeeming towards down payment and closing costs with Rocket Mortgage (up to $8,000 in rewards), so you’re essentially earning 5% cash back on all purchases if you use your points this way. Or your points are worth 0.4 cents each when redeeming towards Rocket Mortgage loan principal. In this case you’re effectively earning 2% cash back on all purchases. Your points are worth 0.25 cents each when redeeming towards a statement credit, meaning you’re earning 1.25% cash back on all purchases. [CNBC]
Why and How Are Virtual Cards Disrupting the Finance Industry
Virtual cards to the finance industry are what mobile phones were to the telecommunications industry. In 2022, the virtual card market size was $411 billion. By 2032, this valuation is expected to shoot up to a staggering $1.3 trillion. Virtual cards carry the potential to change the way you spend. Here are some reasons why. Transacting using virtual cards is not only faster and seamless but also secure and convenient. Virtual cards are widely accepted: over 39% of businesses in the US use virtual cards to make B2B payments. Virtual cards are environmentally friendly. [Finance Feeds]
Buy Now, Pay Later Could Become a Multi-Trillion Dollar Business
The market for buy now, pay later, an alternative to credit cards whose popularity exploded during the pandemic, could surge to nearly $3.7 trillion by 2030 as more consumers take advantage of ways to pay for goods and services in interest-free installments instead of lump sums. That’s according to Straits Research, which puts the market at $132 billion now. As of last year, 360 million people around the world used BNPL, a number that could almost triple to 900 million by 2027, according to Juniper Research. While growth projections vary widely, BNPL is expected to record a compound annual growth rate between 20% and 45% through the end of the decade. PayPal dominates the market with four times as many users as the next largest BNPL provider. [Investopedia]
Cryptocurrency Outlook Picks Up Amid Bank Crisis
After a roller-coaster year filled with arrests, speculation, scams, bankruptcies and billions in value lost, cryptocurrency market experts could hardly wait for boring times. Then Silicon Valley Bank hit the skids, and financial markets were thrown out of whack. For cryptocurrencies, particularly bitcoin and ethereum, the 2023 bank panic has been a net positive. The bitcoin price, already up strongly to start the year, recently moved to around $28,000. That’s its highest level since June, before Sam Bankman-Fried’s FTX exchange started to melt down. Ethereum is trading above $1,700 and near September highs. [Investor’s Business Daily]
Credit Card Spending Topped $13 Trillion Last Year
Global spending on credit cards last year rose to more than $13 trillion across in-store and online checkout, according to an annual report from Fidelity National Information Services. FIS attributed the rise to more sources of credit, including digital wallets loaded with credit cards, buy now, pay later options and point-of-sale financing offered by fintechs, banks and merchants. Facilitated by real-time payment rails, account-to-account payments are becoming a more popular payment method globally. Global account-to-account transaction value was about $525 billion last year. [Payments Dive]
Yes, You Can Put Your Taxes on a Credit Card
It turns out it is possible to put your federal tax bill on a rewards credit card, reaping hefty rewards or, if it’s what you need, gaining extra time to pay off your bill. But there are some big caveats and risks. Among the biggest hurdles: Putting your federal taxes on plastic isn’t free: the third-party processors that the IRS uses all charge a fee for the service. Fees range from 1.85% to 1.98%. Like anything else you charge to your credit card, you will incur interest charges at your purchase APR if you carry a balance from month to month. Most credit card issuers report your credit card balances and the amount of available credit to all three major credit bureaus monthly. So having either a large amount of debt or maxing out your credit cards may lower your credit score while those balances are reported. That could ding you if you’re shopping for a top interest rate on a loan, such as a mortgage. [The Wall Street Journal]
Bonds See 2023 Recession, Stocks Aren’t So Sure
The yield curve is one of the most robust recession predictors and has signaled a recession may be coming since mid 2022. In contrast, U.S. stocks as measured by the S&P 500 are up materially from the lows of last October and only just below year-to-date highs, seemingly rejecting recession fears. Yet, fixed income markets see the Fed potentially cutting rates by the summer, perhaps reacting to a U.S. recession.
The Evidence From The Bond Markets
The recessionary evidence, at least from fixed income markets, is mounting. The 10 yield Treasury yield has been below the 2 year yield consistently since last July. That is is called an inverted yield curve and has signaled a recession fairly reliably when compared to other leading indicators.
Building on that, fixed income markets see almost a nine in ten chance that the Federal Reserve cuts rates by September of this year. That’s something the Fed has repeatedly said they won’t do on their current forecasts. Yet, a recession could cause it to happen.
The Stock Market
In contrast, the stock market shows some optimism. The S&P 500 is up 7% year-to-date as the market has shrugged off fears of contagion from recent banking issues. In particular, tech stocks have rallied.
In contrast, more defensive sectors such as healthcare, utilities and consumer goods have lagged in 2023. This suggests that the stock market is taking more of a ‘risk on’ position and is perhaps less worried about the economy.
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That said the stock market is a leading indicator of the business cycle, it may be that stocks see a recession, but are now looking past it to growth ahead and are factoring in the lower discount rates that a recession might bring as interest rates decline. Also, the U.S. stock market is relatively global, so the fate of the U.S. economy is a key factor in driving profits, but not the only one.
Monitoring unemployment data will be key. Though the yield curve is a good long-term forecaster of recessions it is less precise in signaling when a recession starts. Unemployment rates can offer more accurate recession timing. Unemployment edged up in February, suggesting a recession may be near, but we’ve also seen monthly noise unemployment. Two similar monthly unemployment spikes during 2022 both proved false alarms.
However, if we see a sustained move up in unemployment from the low levels of 2022 that may be a relatively clear sign that a recession is here. Economist Claudia Sahm estimates that a sustained 0.5% increase in unemployment rate from 12-month lows is sufficient to trigger a recession. Unemployment rose 0.2% from January to February 2023, so maybe we’re on the way there. Of course, the jobs market performed better than expected in 2022 and it could do so again. Still, fixed income markets do suggest a 2023 recession is coming. Stock markets don’t necessarily share that view.
Which States Have The Highest And Lowest Life Expectancies?
There’s a wide variance of life expectancies among the 50 states in the U.S., according to a recent report prepared by Assurance, an insurance technology platform that helps consumers with decisions related to insurance and financial well-being.
Figure 1 below shows the 10 states with the highest life expectancy, starting with Hawaii, the state with the highest life expectancy.
Figure 2 below shows the 10 states with the lowest life expectancy, starting with Mississippi, the state with the lowest life expectancy.
Assurance scoured life expectancy data prepared in January 2023 by the U.S. Centers for Disease Control and Prevention (CDC). With this data, Assurance created several easy-to-understand graphics that offer information about life expectancies.
Life expectancies are a basic measure of well-being
As measured by the CDC, life expectancies are a basic measurement of well-being in a broad population and not a prediction of how long an individual might live. The CDC measures the expected lifespan for a person born in the year of measurement. This measurement is calculated based on the assumption that the individual will live and die according to the rates of death that are prevalent in the measurement year for each age. There’s no assumed improvement or backsliding in the assumed mortality rates in future years for each age in the life expectancy calculation.
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By contrast, an estimated lifespan for an individual would consider their current age, their gender, and some basic lifestyle information. It might also attempt to project future improvements or backsliding in mortality rates based on key factors.
Significant influences on life expectancy calculations
Leading causes of death in the U.S. are heart disease, cancer, and accidents in that order. These immediate causes are significantly influenced by factors in the population such as poverty rates, educational attainment, rates of obesity and smoking, access to healthcare, prevalence of violent crime, and the support people receive from federal, state, and local governments. All these factors can vary widely among different states, which can be a key reason why life expectancies vary by state.
When you think about it, all these factors also have the potential to influence a person’s quality of life. The measured life expectancy rate rolls up all these factors into one objective measurement of well-being that’s based on population data.
In addition to the factors listed above, mortality rates increased and life expectancies decreased in the past few years due to the Covid-19 pandemic. A recent article titled “Live Free And Die” summarized recent research results that show that life expectancies in most countries around the world rebounded after the Covid-19 pandemic but that they continued to decline in the United States. Many of the reasons cited in the article for the continued decline in U.S. life expectancies are the same or similar to the factors listed above.
Why should retirees care about the life expectancies reported here if these measures don’t predict your own lifespan? Life expectancy calculations indicate the general well-being of the entire population in your area. While the living conditions in your area can influence your own lifespan and quality of life, retirees should focus on their remaining life expectancy given their age. They should also consider how the factors listed above that influence life expectancies in the population might apply to them.
You can obtain customized estimates of your remaining life expectancy at the Actuaries Longevity Illustrator. Part of your planning for retirement is understanding how long you an an individual might live, instead of relying on generalized information about larger populations you see in the media.
IRS Dirty Dozen Campaign Warns Taxpayers To Avoid Offer In Compromise ‘Mills’
Owing taxes can be stressful. Unfortunately, the actions of some companies can make it worse. As part of its “Dirty Dozen” campaign, the IRS has renewed a warning about so-called Offer in Compromise “mills” that often mislead taxpayers into believing they can settle a tax debt for pennies on the dollar—while the companies collective excessive fees.
The “Dirty Dozen” is an annual list of common scams taxpayers may encounter. Many of these schemes peak during tax filing season as people prepare their returns or hire someone to help with their taxes. The schemes put taxpayers and tax professionals at risk of losing money, personal information, data, and more.
(You can read about other schemes on the list this year—including aggressive ERC grabs here, phishing/smishing scams here and charitable ploys here.)
Tax Debt Resolution Schemes
“Too often, we see some unscrupulous promoters mislead taxpayers into thinking they can magically get rid of a tax debt,” said IRS Commissioner Danny Werfel.
“This is a legitimate IRS program, but there are specific requirements for people to qualify. People desperate for help can make a costly mistake if they clearly don’t qualify for the program. Before using an aggressive promoter, we encourage people to review readily available IRS resources to help resolve a tax debt on their own without facing hefty fees.”
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Offers In Compromise
Legitimate is a key word. Offers in Compromise are an important program to help people who can’t pay to settle their federal tax debts. But, as the IRS notes, these “mills” can aggressively promote Offers in Compromise—OIC—in misleading ways to people who don’t meet the qualifications, frequently costing taxpayers thousands of dollars.
An OIC allows you to resolve your tax obligations for less than the total amount you owe. You generally submit an OIC because you don’t believe you owe the tax, you can’t pay the tax, or exceptional circumstances exist.
Because of the nature of the OIC—and the dollars involved—the process can be time-consuming. It can also be confusing for taxpayers who may not have a complete grasp on their finances.
First, you must complete a detailed application, Form 656, Offer in Compromise. You must also submit Form 433-A, Collection Information Statement for Wage Earners and Self-Employed Individuals, or Form 433-B, Collection Information Statement for Businesses, with supporting documentation (generally, bank and brokerage statements and proof of expenses).
You’ll also need to submit a non-refundable fee of $205 and payment made in good faith. The payment is typically 20% of the offer amount for a lump sum cash offer or the first month’s payment for those made over time. Generally, initial payments will not be returned but will be applied to your tax debt if your offer is not accepted. Payments and fees may be waived if the OIC is submitted based solely on the premise that you do not owe the tax or if your total monthly income falls at or below income levels based on the Department of Health and Human Services (DHSS) poverty guidelines.
The IRS will examine your application and decide whether to accept it based on many things, including the total amount due and the time remaining to collect under the statute of limitations. The IRS will also review your income—including future earnings and accounts receivables—and your reasonable expenses, as determined by their formula. The IRS will also consider the amount of equity you have in assets that you own—this would include real property, personal property (like automobiles), and bank accounts.
Before your offer can be considered, you must be compliant. That means you must have filed all your tax returns and paid off any liabilities not subject to the OIC. After you submit your offer, you must continue to timely file your tax returns, and pay all required tax, including estimated tax payments. If you don’t, the IRS will return your offer.
Additionally, you cannot currently be in an open bankruptcy proceeding, and you must resolve any open audit or outstanding innocent spouse claim issues before you submit an offer.
You can probably tell—it’s a lot to consider. You may want representation. A tax professional can help marshal you through the process and offer practical guidance, while communicating what fees could look like.
By contrast, according to the IRS, an OIC “mill” will usually make outlandish claims, frequently in radio and TV ads, about how they can settle a person’s tax debt for cheap. Also telling: the fees tend to be significant in exchange for very little work.
Those mills also knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing taxpayers money and time. You can check your eligibility for free using the IRS’s Offer in Compromise Pre-Qualifier tool.
“Pennies On A Dollar”
What about those promises that taxpayers can routinely settle for pennies on a dollar? Not true. Generally, the IRS will not accept an offer if they believe you can pay your tax debt in full through an installment agreement or equity in assets, including your home. That’s why the IRS tends to reject a majority of OICs that are submitted. The acceptance rate is less than 1 in 3, according to the 2021 Data Book.
The IRS will generally approve an OIC when the amount offered represents the best opportunity for the IRS to collect the debt. It’s true that there’s a formula that the IRS uses to figure out how much they think they can collect from you. But there is some wiggle room to account for special circumstances, including a loss of income or a medical condition. It’s worth noting those are the exceptions, not the rule.
While submitting an OIC may keep the IRS from calling you, it doesn’t stop all collections activities—don’t believe companies that suggest that submitting an OIC will make your tax debt disappear. Penalties and interest will continue to accrue on your outstanding tax liability. Additionally, the IRS may keep your tax refund, including interest, through the date the IRS accepts your OIC.
You may also be liened. In most cases, the IRS will file a Notice of Federal Tax Lien to protect their interests, and the lien will generally stay in place until your tax obligation is satisfied.
An OIC is a serious effort to resolve tax debt and shouldn’t be taken lightly. Be skeptical—if it sounds too good to be true, it likely is. If you’re considering an OIC, hire a competent tax professional who understands the rules and is willing to level with you about your chances of being successful—including other options. Don’t fall into a trap that can make your situation worse.
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