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Today on the Consumerism Commentary Podcast, Jay Frosting and Flexo talk with Matt Schulz, Vice President of Content for InvestingAnswers.com.

They discuss the implications of a recent legal ruling that excludes credit card application fees from the limit on fees that credit card issuers can charge within the first year.

Consumerism Commentary Podcast
Credit Card Application Fees: S07E01 / 157

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Table of contents

Consumerism Commentary Podcast[00:00] Introduction from Jay Frosting
[00:33] Interview with Flexo and Matt Schulz
[00:49] Challenging the 25% fee limit specified in the Credit CARD Act
[06:00] Will application fees be more pervasive now?
[07:14] Are these fees limited to those with bad credit?
[09:18] A very high interest rate is worse than almost any other option
[12:34] The CFPB is still hearing public comments on this decision
[13:41] Application fees aren’t refundable and don’t guarantee credit
[14:21] The CFPB is trying to get more done before a possible Executive Branch change (addressing Republican criticisms of the bureau)
[18:33] Reduction in debt is part frugality and part banks reducing credit
[20:02] End

Update:

We were mistaken during the recording regarding whether First Premiere refunds its application fee. Here’s what the terms and conditions say:

“Right to Reject: You may still reject this plan, provided you have not used the Credit Account or paid a fee after receiving a billing statement. If you do reject the plan, you are not responsible for any fees or charges, including any Processing Fee(s) paid prior to receipt of your Account Opening Disclosures. Any such Processing Fee(s) previously paid will be refunded upon rejection of the plan.”

It also says this:

“Refund Disclosure: We will refund your Processing Fee and initial fees (those fees that are billed at the time of account opening) if (1) you have not used your Card for a Purchase or Cash Advance; and (2) you have not paid a fee after receiving a billing statement. We will refund any partial payment of the Processing Fee if you do not open your Credit Account within 85 days of approval. We will refund any Credit Limit Increase Fee charged to your Credit Account if you notify us, within 30 days of the date of the Periodic Statement on which it appears, that you do not wish to have the credit limit increase. This will result in a reversal of the credit limit increase. Except as described in this paragraph, these fees are non-refundable.”

Here are the link for the terms and conditions.

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

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In order to offer better prices to customers, Sprint has allegedly under-collected and underpaid New York State sales taxes by $100 million. If the Attorney General’s allegations are true, Sprint could end up owing the state government as much as $300 million or more due to underpayment penalties. Sprint is denying the charges, claiming they’ve paid all taxes as legally required to do so.

The Attorney General, Eric Schneiderman, recognizes that if the suit is successful and Sprint must pay the penalty, it would be difficult for customers to escape the downstream effects. Just like any business, if Sprint is faced with an unplanned expense, they’ll need to come up with the difference elsewhere. That’s where customers who pay for services can help. Schneiderman says he wants the company, not the customers, to cover the cost of paying the back taxes.

That money is going to have to come from somewhere, however, and it’s not going to come from a reduction in executive salaries. While the Attorney General might have good intentions and companies should not be able to get away with deliberately and knowingly cheating on tax reporting, collection, and payment, I don’t see any way where the “company” can be penalized without hurting customers, shareholders, and employees.

Shareholders are already hurting; as of writing this article, the stock price is already down more than 4 percent. $300 million is a significant expense, even for a company that earned a revenue of $33.7 billion last year. The company actually didn’t profit on paper in 2011, and that certainly makes a $300 million fine sting more.

If a company over-collected and overpaid taxes, customers would be calling for refunds. A class action lawsuit would demand restitution. In this hypothetical situation as well as the actual lawsuit Sprint faces for underpayment, the set of customers is the unintentional third party of fraud. In both cases, the customer ends up suffering in the long run. Class action lawsuits barely benefit customers. The lawyers seem to do well, though.

In Sprint’s statement, the company claims they’re protecting their customers:

… [W]ith this lawsuit, the attorney-general’s office is claiming New York consumers, who already pay some of the highest wireless taxes in the country, should pay even more. We intend to stand up for New York consumers’ rights and fight this suit.

I find it hard to believe that any for-profit company has any interest in “standing up for consumers’ rights.” If Sprint doesn’t like the tax laws, they should do what all companies do: lobby for tax law changes that benefit them more. Of course, that wouldn’t work, because then Verizon Wireless and AT&T could also benefit from lower taxes. If the allegations are true, the company’s actions have nothing to do with Sprint’s defense of lower taxes for consumers. It’s about using any tactic possible, even illegal, to fight in a competitive market.

Give me a break. Does anyone really believe corporate marketing-speak?

Are you a Sprint customer? If so, did you choose Sprint due to their lower monthly service fees? Would you remain a customer if the fees increased — a likely result of this lawsuit, whether successful or not?

Financial Times

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I’ve discussed whether couples should sign a prenuptial agreement before marraige recently. A good prenup can protect both individuals in the couple if a marriage were to result in irreconcilable differences.

Signing a legal document of this type could be helpful if the couple owns substantial assets or if there is a wide disparity in income or wealth between the two members of the couple. If either or both of the individuals own businesses, a prenup could protect those businesses, not to mention the lives of any employees relying on those businesses.

Relationships coupleMore people are looking for the protections of a prenuptial agreement without the benefits of getting married. Marriage is becoming a less popular option for couples today, with only 51 percent of adults taking the plunge according to CNN. Couples are increasingly choosing to live together and share their lives without tying the knot.

Cohabitation can cause legal problems the same way marriage can, particularly if the relationship ends.

A growing number of unmarried couples are seeking similar legal protections through cohabitation agreements. These legally-binding contracts, which are drawn up by an attorney, protect each person’s assets, address child custody issues and determine support obligations, much like prenuptial agreements do.

Cohabitation, in the cases where assets need to be protected, is more than just having a roommate. Often, a couple may decide to have children despite not being married, and this leads to questions about caring for children if the relationship were to dissolve. While one might assume that cohabitation is an option only for couples that cannot legally marry in their state, but 70 percent of the divorce attorneys surveyed by the American Academy of Matrimonial Lawyers say most of the new cohabitation agreements they’ve seen are signed by heterosexual couples who could be married if they choose to be.

Buying a house together can be dangerous for an unmarried couple. Most states don’t have laws covering this situation, like they do for married couples. A cohabitation agreement can define how the house and its mortgage are treated in the event of a termination of the relationship.

I might say that a cohabitation agreement for a couple not intending to get married is even more important than a prenuptial agreement for a married couple. In some cases, but not all, the risk of the relationship ending is higher without the bond of matrimony.

Do you believe these cohabitation agreements are necessary? Would you sign one?

Photo: Dragunsk
CNN

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As a Mets fan, though these days I try not admit being so, it’s bittersweet to see the organization settling its legal troubles relating to Bernie Madoff’s Ponzi scheme. On the one hand, if the owners of the Mets were found guilty of ignoring the possibility of fraud, it could have spelled the end of the baseball team. The prosecution was looking for a restitution of $1 billion from the Mets’ owners in order to compensate other investors who were swindled by Madoff. The lawyers reached a settlement agreement, wherein the charges will be dropped with the owners of the Mets paying $162 million.

Compare this $162 million to a player’s contract; CC Sabathia’s contract with the New York Yankees is $161 million for seven years. The Mets owners will likely have the benefit of paying the settlement, if approved by the court, over a number of years, but for the same expense, the team could have added high-quality players or kept José Reyes from defecting to Miami. Reyes signed a six-year, $108 million contact with the Miami Marlins; had the Mets avoided investment trouble, the team might have been able to offer Reyes a competitive deal.

The good news for the Mets gets even better. Not only do they avoid paying $1 billion in restitution, the owners are eligible to receive restitution from the trustee. As those found guilty of fraud pay into the fund to help those who were defrauded recover their losses, the owners of the Mets will receive their portion from these proceeds. Any money recovered can be used to pay the settlement. The owners of the team could receive as much as $178 million, more than they need to pay through the settlement.

Is it possible the team owners could come out ahead as a result of their involvement with the Madoff scheme?

While this is good news for the team, the investors who were truly swindled by Madoff — if you believe anyone was truly swindled, as it’s the investor’s job to ask questions and understand their underlying investments — will not be able to recover their losses to the extent they would have hoped.

The $1 billion originally sought from the Mets’ owners would have been a great benefit to others who suffered losses, those who might have invested at a farther distance from Madoff’s team, with more layers of investment professional in between, obscuring the relationship between the end investor and the man behind the curtain.

Photo: The US Army
New York Times

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