Credit Card Costs and Bankruptcy - Smart Money Newsletter Jan 2003

The monthly newsletter of
Sheila Freeman Consulting

Issue 4, January 2003


In this Issue:	From our Quote Collection: "No one can make you feel inferior without your consent." -Eleanor Roosevelt "Even if you are on the right track, you'll get run over if you just sit there." -Will Rogers "The expert at anything was once a beginner." -Hayes "A budget is just a method of worrying before you spend money, as well as afterward." -Anonymous
Welcome to our first issue of "Smart Money" for 2003. In this month's newsletter we look briefly at Back to School costs and the lifting of the prohibition on traders passing-on credit card costs. This will have a huge impact on pricing and I don't believe the Reserve Bank has fully considered the potential repercussions. We also outline a couple of developments on the bankruptcy front. Our discussion forum, which has been offline for a few weeks is alive and kicking again. We'd like to hear from you if you've got a question or an opinion or just to say g'day! I'd like to hear from you if you have any particular areas that you would like me to write about. So feel free to email me with your ideas. Warm regards Sheila Freeman Email me
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Credit Card Costs - Another Consumer Rip-Off?
From 1 January 2003, as a result of recent reforms introduced by the Reserve Bank, merchants such as shop keepers, trades people, utility and other providers have had the right to charge a fee for accepting payment by credit card. Previously merchants had to pay their bank for each credit card payment but were enable to recover the cost from consumers who pay by way of credit card. (This fee varies between banks but is usually between 2 and 5 per cent.) Recent media reports indicate that few businesses have decided to pass on these costs to customers, with most adopting a wait-and-see approach. The size of the business may be a factor, for example, Caltex has indicated that their owned service stations will not charge the fee, whereas independently owned Caltex services stations, working on smaller margins, might charge the fee. I do not believe the Reserve Bank has considered all the implications of this reform for the consumer, despite spending three years reviewing the operation of credit card schemes in Australia. In my opinion, all traders will be adding this fee within twelve (12) months. After all, they are in business to make money. This means that, once again, consumers will be ‘ripped off’. This surcharge will have already been factored in as a normal operating expense of the business, that is, when a trader prices items for sale, all on-costs (rent, power, rates, salaries, bank charges and so on) are included as a percentage added to his cost price. Therefore, in theory, traders that impose a credit card service fee on customers should firstly reduce the selling price of their stock by the amount previously added to compensate for the bank charges. I predict that no traders will do so. Instead, the customer will be paying twice for the convenience of using a credit card – a ‘double whammy’, in effect. Also, as there is no cap on the amount that can be charged as a credit card ‘service fee’, merchants are able to profit further by imposing a higher ‘service fee’ on the customer than the merchant pays to the bank. In fact, the Reserve Bank has already received a complaint from a woman who booked theatre tickets on her credit card and was charged an additional $2.70 per ticket. Questions that have not yet been answered are: Which credit law ensures that this sort of over-charging does not happen? Does ASIC or the Reserve Bank have any power to ensure that merchants adhere to honest and fair practices with regard to credit card service fees? Customers can avoid the surcharge by paying cash, but even this method of payment can affect the normal person or household. For example, credit card payments increase our frequent flyer points, which does not happen with cash payments. However, the money saved by not paying the credit card surcharge could go towards purchasing a flight for cash. An increase in cash transactions has further implications, for example, for taxation (creating more opportunities for ‘black market’ activity) and crime rates (thieves are more inclined to steal where cash is kept on premises). Those most affected will be the people who operate their mortgage as a home equity loan. (A Home Equity Loan is when all your income is deposited onto your mortgage and all purchases are bought on the credit card, which is paid out at the end of the month.) Paying an extra 4 per cent to use a credit card will mean that the interest rate on the home loan will increase by this percentage; this also means interest is incurred even if the card is paid out before the due date. The same applies to our everyday use of credit cards. If we already pay up to 16 per cent interest if the card is not paid out at the end of the month, then a 4 per cent surcharge is added, and the added interest on this 4 per cent … sounds scary, doesn’t it? For Credit Card Surcharging Information: ASIC Infoline 1300 300 630, website: www.asic.gov.au ACCC Infocentre Infoline: 1300 302 502, Website: www.accc.gov.au Paul Talbot, Manager, Media Office, Reserve Bank of Australia (02) 9551 9720
Back To School Costs
School holidays end in late January or early February and the start of a new school year is accompanied by additional expense for families. However, there are ways you can reduce back-to-school costs. Most school now insist on a type of uniform – a good thing, I believe, because it stops that morning arguing about what to wear, as well as those often-heard attempts at manipulation: ‘Charlie has designer jeans, why can’t I have them?’ or ‘Melissa has the latest joggers, it’s not fair!" Though not as pricey as designer labels, uniforms are expensive, so where possible buy them second-hand; most schools offer a second-hand service. Some other hints: The January sales are good for buying shoes and clothing (if you have any money left over after Christmas!) It is usually cheaper to buy stationery from K-Mart and supermarkets than from newsagents or school suppliers. Make your children’s lunches at home, with maybe a treat once a week. Though the majority of school tuck shops are now going ‘healthy’, school lunches are still expensive and can build up to a substantial amount over a week. For more hints on saving money, see Money Management for Women Remember, returning to school can be both emotionally and physically stressful, not just for the students, but also for us as parents!
Move to Close Tax Loophole
Wealthy people who try to avoid tax by declaring bankruptcy could have their partner’s assets seized under new laws proposed by the Federal Government in an attempt to crack down on high-income earners who try to rort the tax system. These measures are contained in a report compiled by a taskforce set up by Attorney-General Daryl Williams to investigate high income earners who use bankruptcy and family law schemes to avoid paying tax. The report has been sent for comment to leading bankruptcy and family law experts before being made law later this year.
Bankruptcy News
a) Number of bankruptcies dropping Provisional statistics released this month by the Acting Inspector-General in Bankruptcy showed that 5438 people and businesses went bankrupt in the December quarter, a 7.52 per cent decrease from the same time last year. This is the fourth consecutive quarter that bankruptcies have fallen. b) Update on Legislation amendments On 15 November 2002, the Senate passed the Bankruptcy Legislation Amendment Bill (BLAB), with the following amendments: repeal of Section 271 which discriminates against bankrupts with gambling debts retention of early discharge but after two years rather than the current six months removal of a proposal that may allow prosecution of bankrupts who incur debts they cannot expect to repay in the six months prior to bankruptcy where these debts are for essential living expenses such as rent or utilities. However, on 2 December, none of these amendments were accepted by the House of Representatives, and the Bill was returned to the Senate for consideration. On 9 December, the Senate passed amendments to repeal Section 271 and to allow a defense that a person was not guilty if the gambling or speculation was due to an addiction. Again, these amendments did not ultimately succeed and the original BLAB was passed without amendment. The BLAB is not expected to be proclaimed until well into 2003. Therefore, as the abolition of early discharge will not come into effect until the BLAB is proclaimed and will not be retrospective, bankrupts eligible for early discharge will be able to access this for some time.
Disclaimer
Every effort has been made to ensure that the information on this newsletter is accurate. However, the information is not intended as professional advice and the authors shall have neither liability nor responsibility to any person or entity with respect to any loss or damages arising from the information contained in this newsletter.
Copyright 2003 Sheila Freeman Consulting