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Visa And MasterCard Win Again

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Some time ago, the Retail Council of Canada had gone to the Government Competition Bureau to fight the fact that credit card issuers force them to take every credit card offered, no matter what their discount fee. It’s about the $5 to $6 billion a year in fees for Visa and MasterCard. But they’ve now got a ton of higher-end cards with more perks. Well, guess who pays for those perks? Merchants through much higher credit card fees. And the Competition Bureau just ruled that’s just fine – and their reasoning is confidential. Two and a half years to make a decision and…can’t tell you why…

It made my head explode. Are you kidding me? Now, they claim it’s a regulatory issue for the government and….the Finance Department says they’ll study it. What that likely means is, we’ll stall until it dies off. What was the response from the card issuers? We’re please that we can continue to protect consumers from unfair charges. Hmmm…pleased to help consumers or pleased to protect $6 billion of income? Nice try.

Since we’re on the credit card theme, I received an e mail last week from someone pretty mad. Their credit card issuers dinged them for a $20 inactivity fee. Yup – it’s legal and can happen if they’ve disclosed it on the original application – and it’s getting more common. If you don’t use your card for a year, you may get hit for $10 to $25. Even worse, you may have your account closed out from under you. That’ll have a huge impact on your credit score – your credit rating. It’s another reason to always have two cards from two different issuers. One may get lost or stolen while you’re traveling and you’ll be stranded or one may turn on you and close the account.

To keep your credit card active and part of your credit score, you should use it twice a year. It doesn’t have to anything beyond $20 but it needs to stay alive and any activity will do that.

If you’re looking for a credit card or just want to compare your fees and/or perks to others, there’s a great interactive site at the Financial Consumer Agency of Canada. Here’s the link for it:

http://www.fcac-acfc.gc.ca/eng/resources/toolCalculator/creditCard/index-eng.asp

By the way: If you search by rate, there are currently 12 credit cards with interest rates under 10%! If you often carry a balance, that’s the only factor, along with no annual fee, you should input and decide on.

Governments Need Money And You’re Their Victim

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The big story last week was that the city of Detroit filed for bankruptcy. They have one massive financial mess and a whole lot more problems on top of that. The biggest challenge is the over $9 billion of IOUs for retirement plans and retirees medical coverage.

When the economy isn’t growing, government revenues aren’t growing, either. Unfortunately, governments spend way more a year than the rate of inflation and population growth. Politicians also make all kinds of promises to get elected and to tell us exactly what we want to hear: You CAN have it all and your taxes won’t go up. It’s nonsense but it gets them elected. Plus, they won’t be the same people around when the mess hits the wall. It’s evident in every jurisdiction from federal to provincial to cities. It probably isn’t any different than we tell ourselves or our families: We can keep up our lifestyle and won’t have to change a thing, do a budget, or admit we can’t afford something. We should have it all – even if it’s on credit cards.

But for us and for governments, there’s a day when we hit the financial wall and then it’s only radical adjustments that’ll work. For cities, which are the hardest hit, it’s a constant search for revenues. When houses don’t go up in value, the property taxes they collect also go down – or they should.

In the US, millions of homeowners massively overpaid their property taxes because cities were really really slow in adjusting the market values downwards. After all, the last thing any jurisdiction wants to do is to lower what you owe them.

When I drove from New York to Washington, DC last month and back, I paid 17 tolls and over $51. A couple of cities in New Hampshire are actually suing some good Samaritans for plugging expired meters. Yup, wouldn’t want anyone to prevent them from writing a lot of expired meter tickets.

In Calgary, the city overcharged homeowners $51 million last year. Instead of a refund, they’re now debating what to do with the money. I have a $65 overpayment here from a client. What do you think will happen if I don’t refund it?

To renew the registration of my company here in Alberta is one click at a registry office and done. That used to be $20. This year it’s $150, which is an insane rip-off. But every company that wants to stay in business has to pay it.

Photo radar and red light cameras are a huge money maker. Sorry, the story that photo radar is critical in reducing accidents isn’t totally true. Just check the stats Highway Transport Safety Board. In Florida, some counties have now admitted that they’re reducing the time of orange lights after denying it for years. Why? Shorter Orange generates more red light tickets! Longer Orange reduces them a lot. With over $150 million in fines, the State REALLY wants the income.

And last week I drove through a town next to Phoenix called Paradise Valley. I would guess almost every second intersection has a red light camera. That’s in a town of not a lot of traffic.

Governments need money – and there’s only one person they can get it from and that’s you. We vote for these people and I’m looking forward to the day when the promises of politicians for more of this and that gets greeted with laughter and a collective ‘no thanks.’ One day we’ll have to teach the politicians what we want. But maybe first we have to run our own financial life in that way.

Eight Year Car Loans? Yikes!

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The average Canadian car loan is now 71 months. That’s up almost a full year from 2008. It’s pretty clear that prices go up, but people’s budget doesn’t grow. So what’s the solution? Stretch that loan out. It used to be four years, which is reasonable financing. Then it became seven years at almost doubles the interest. But most people don’t care. They just want to know what the payment is.

To make the payment fit even better, the last year has seen a huge increase in advertisements for bi weekly payments. Want to see a smaller payment? That’ll do it. Oh, not in reality because you’re paying twice a month – but the illusion of lower payments is magic that does trick a ton of buyers. When the average vehicle payment hit $450 a month, that’s a big number to think about. OK, how about $225? Will that make you feel better? Unfortunately, it’s still $450 a month – it just sounds better – it doesn’t cost any less per month.

You can now get eight year financing – whether you prefer not to know that by just taking bi weekly payments or not – it’s insane for your budget and debt load. Your rough break-even point where you’ll owe what it’s worth is five years. If you could get a 50-year mortgage, it’d be stupid, but you know historically that your home will increase about 5% a year. Yes, there’ll be corrections, but over the long term, it will go up. With a vehicle, it’s a 100% guarantee it’ll go down in value every single day. So you have to pay enough a month to keep up with the depreciation. Whether you like it or not you gotta pay for what you use.

According to industry forecasters, Canadian sales of 1.7 million a year should continue to increase because millions of people are shrinking their buying cycle. In other words, they’re trading more often. But at the same time, they’re stretching the length of their loans, and that’s a deadly combination.

Longer financing and wanting to trade quicker means huge numbers will be upside down and owe more than their trade is worth. According to J.D. Powers, that’s already the case for more than a third of all buyers.

If you have the cash to buy a new vehicle – congratulations. For the rest of the world, spend the $20 for the It’s Your Money book. 15 minutes reading the car buying chapter will turn your $20 investment in the book into $1,000 to $4,000 in savings.

Just remember: Broke people ask: How much a month. Wealthy people ask what the price is.

Can You Do One Cash-Flow Statement?

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Last week we briefly touched on the fact that gas and groceries keep going up. That makes your expenses go up and harder to save anything.

If all or part of your logical brain knows you’re spending more than you’re earning, that’s frustrating. But you can’t turn it around without a budget. That’s something 95% of people won’t do, because they somehow think it puts them in a straight-jackets. But it’s quite the opposite: A cash-flow statement, even just once, sets you free. You’ll know how much you’re prepared to spend for what each month. You’re not spending an unlimited amount of money that you don’t have groceries, lunch out, or the kids.

The best way is having the cash in a number of jars or envelopes. One envelope will be for groceries and food stuff. Every two weeks, the cash from your pay goes into the envelope. When you go to the store, it’s paid out of that money. When it’s gone – you’re done until the next payday. It works – but will you do it?

Hear me really clearly: You will never have enough money for what you WANT to spend. Never – no matter how much you earn. But you do have enough money for what you need to spend. But you have to manage your money, and not have your money manage you. I guarantee that most of us have a lot of our expenses go to the category of “not really sure.”

Save two weeks of your net pay in a separate emergency account.
Do a cash-flow statement of where your money is going to go for a full month. You’ll be really bad at it for the first three months and then you’ll love it and be really successful with it AND have at least $200 or $300 left over each month compared to right now.

People don’t decide their financial future with specific goal setting. They decide their habits, and their habits determine their financial future.

Human ATMs and a Rental Car Heads Up

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Read the screen! The New York Times just reported on a lawsuit involving Dollar Rent A Car over allegedly charging the huge collision coverage so-called protection on their car rentals.
Dollar, Thrifty, and lots of others try to sell you, and when you decline the coverage (as you should), they may still leave it on the contract.

The Dollar lawsuit alleges that customers were clicking through the five or six different little computer screens and clicking ok. But what they didn’t see is that they coverage was shown as being accepted. You need to read each of those little screens to see it shows that you declined coverage. If not – you’ve signed for it, but won’t see it until you return the vehicle and get an actual printed statement. At that point, it’s too late and your credit card company won’t help you with a dispute since you’ve signed the agreement!

A great idea: 300 TD bank locations now have a coin counter machine right in the branch. It’s free if you’re a TD customer. I love the idea and the customer service. I just don’t love the idea that you have to be a TD customer to use them.

Ever wanted to talk to a human at an ATM machine if you’re stuck or have a question? Bank of America CAN have a good idea: Yes, it’s true: The bank with THE worst customer satisfaction rating on the planet has come out with a great idea.

They’ve just rolled out a human being ATM being tested in New England. It’s a normal ATM, but artificial intelligence and a skype-like connection lets you talk to a real human being from 7 am until 10 pm!
Yes, right at the ATM you can get questions answered and do transactions that you ordinarily can’t do with an ATM such as split deposits, foreign currency transactions, etc. I love the idea and hope, like everything else, it’ll come to Canada with one of the big banks.