What a shame. For people who handle credit responsibly, new credit card regulations that went into effect Feb. 22 actually hurt more than help.
I’ll tell you why, and what we can do.
The new rules, part of the Credit Card Accountability, Responsibility and Disclosure Act passed by Congress last May, are intended to protect cardholders and end abusive industry practices.
For example, card payments must now be applied first to the highest-interest rate balance. "Double-cycle" billing, which results in higher interest charges, is no longer permitted.
Interest rate increases on existing balances are for the most part prohibited, as are rate increases on new purchases the first year on a new card. After the first year, card issuers must give 45-day notice before raising rates on new charges.
That’s all terrific, but it does nothing for financially prudent people who pay their balances in full each month. Instead, the law is prompting card issuers — who need to make a profit to be able to grant us credit — to raise other fees for everyone to make up for an estimated $12 billion in lost revenue.
In essence, "those who manage their credit well will end up paying for those who don’t," said Nessa Feddis, an American Bankers Association vice president.
To be fair, some new rules benefit everyone, including prohibiting fees for the way bills are paid (such as by telephone) and eliminating confusing cut-off times for receipt of payments. (For a rundown of the rules, check out the Federal Reserve’s website at www.federalreserve.gov/creditcard)
Still, by making it more difficult for card issuers to charge more to those who pose a higher risk of default — and defaults are running about 10 percent — the new rules lead to an inevitable result.
"Everybody is going to feel the higher cost," said Kenneth Clayton, a senior vice president for the bankers group. Examples include more annual or inactivity fees, fewer or reduced rewards programs and, for those who carry a balance, higher interest rates.
"We seem to be going from a marketplace in which a relatively few cardholders got into deep trouble to one in which the misery is more evenly spread," said Adam Jusko, founder of IndexCreditCards.com, a card information and comparison site.
Even those with outstanding credit are being affected. "I am livid," said a reader whose Citi card will start charging a $60 annual fee (more on that later). "I canceled it immediately," he said. "Here I am with an 800-plus credit score and this is how they treat me?"
That’s the way indeed. "The new law does not address or cap non-penalty fees like annual fees or inactivity fees, which may become more common for those who do not carry a balance," said Ben Woolsey, director of consumer research at CreditCards.com, another consumer-oriented website.
"Fees, fees and more fees" are an unintended consequence of the new rules, said Bill Hardekopf, CEO of LowCards.com, another card-comparison site. Bank of America, for example, added an annual fee of $29 to $99 on some accounts, and Fifth Third Bancorp imposed a $19 inactivity fee if a card is not used in a 12-month period. Citi will begin charging the $60 fee to some customers in April but will waive it if they charge at least $2,400 a year.
What to do? Comparison-shop for the best deals — there are still many — using the sites mentioned above. As Clayton of the ABA said, "no customer is a prisoner to their card," and a customer can switch to a better one.
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SHANGHAI—Google is investigating whether one or more employees may have helped facilitate a cyber-attack from China that the U.S search giant said it was a victim of in mid-December, two sources told Reuters on Monday.
Google, the world’s most popular search engine, said last week it may pull out of the world’s biggest Internet market by users after reporting it had been hit by a “sophisticated” cyber-attack on its network that resulted in theft of its intellectual property.
The sources, who are familiar with the situation, told Reuters that the attack, which targeted people who have access to specific parts of Google networks, may have been facilitated by people working in Google China’s office.
“We’re not commenting on rumour and speculation. This is an ongoing investigation, and we simply cannot comment on the details,” a Google spokeswoman said.
Security analysts told Reuters the malicious software (malware) used in the Google attack was a modification of a trojan called Hydraq. A trojan is malware that, once inside a computer, allows someone unauthorised access. The sophistication in the attack was in knowing whom to attack, not the malware itself, the analysts said.
Local media, citing unnamed sources, reported that some Google China employees were denied access to internal networks after Jan. 13, while some staff were put on leave and others transferred to different offices in Google’s Asia Pacific operations. Google said it would not comment on its business operations.
TALKS SOON
Google, which has denied rumours that it has already decided to shut down its China offices, said on Monday it contacted the Chinese government last week after the announcement.
“We are going to have talks with them in the coming few days,” Google said.
Google is also still in the process of scanning its internal networks since the cyber-attack in mid-December.
China has tried to play down Google’s threat to leave, saying there are many ways to resolve the issue, but insisting all foreign companies, Google included, must abide by Chinese laws.
Washington said it was issuing a diplomatic note to China formally requesting an explanation for the attacks.
The Google issue risks becoming another irritant in China’s relationship with the United States. Ties are already strained by arguments over the yuan currency’s exchange rate, which U.S. critics say is unfairly low, trade protectionism and U.S. arms sales to Taiwan.
Washington has long been worried about Beijing’s cyber-spying programme. A congressional advisory panel said in November the Chinese government appeared increasingly to be penetrating U.S. computers to gather useful data for its military.
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The government is expected to unveil a new program in the next couple of months that if approved may reimburse homeowners for up to half the cost of making their homes more efficient, but don’t start shopping for new kitchens just yet.
Homeowners will get the most return for the money in simple upgrades like caulking the windows, putting insulation in the attic, and changing the light bulbs - not new windows, refrigerators or dishwashers.
What’s on the table
The average American home wastes a lot of energy.
A complete energy retrofit - which could include caulking and insulation as well as new windows, appliances and boiler, could slice a home’s energy consumption in half, according to Lane Burt, manager of building energy policy at Natural Resources Defense Council.
But getting all that work done might run into the tens of thousands of dollars. And any new federal program - which is still being drafted and is not guaranteed to become law - would cap the government reimbursements at $12,000, said Burt.
Homeowners need not despair. There are some simple improvements that are relatively cheap and can pay for themselves quickly.
Just adding the insulation, caulking and lights might run an average homeowner $5,000 to $7,000, he said. That could shave about 30% off a home’s energy bill each month. And if the government picks up half the cost, the payback time for homeowners would be just a few years.
"It’s a win-win-win," said Burt. "It creates jobs, it saves energy, and it saves consumers money."
Consumer watchdog groups back up Burt’s claim.
"I don’t know of anyone who’s looked at them and said they are not a good idea," said Mark Cooper, director of research for the Consumer Federation of America. "The average consumer can save a big chunk of change by getting the work done."
What to look for
Experts say there are a few things to look for when getting an energy audit and retrofit work done.
First, find a contractor licensed by the Building Performance Institute or the Residential Energy Services Network. These contractors have been trained to first test a home and see how much energy it is losing, then make renovations on all the systems in the building instant payday loans.
As of now there are no incentives in the proposed program for do-it-yourselfers. That’s partly because the program is designed to create jobs by putting out-of-work contractors back on the job. But it’s also done to ensure the work is done right - a house that’s sealed up too tight could rot from mold or trap too much carbon monoxide.
Second, hire an energy contractor using the same diligence you would with any other contractor. Call around for price quotes and check references. If you have any problems report them to your state’s attorney general.
The big picture
The proposed program is part of a broader jobs initiative designed first and foremost to put people back to work.
The original proposal, which called for $23 billion to be spent on energy retrofits, was estimated to create over half a million jobs, according to CleanEdison, an association of green building professionals.
Those familiar with the proposal say the final bill may set aside $10 billion for energy retrofits. Still, it’s a lot more than is currently being done - while some states have reimbursement programs, there is no federal plan. The original stimulus bill contained $5 billion for low income homeowners and money to retrofit federal buildings, but nothing for middle income Americans. The new proposal has no income restriction.
But in addition to creating jobs and saving consumers money, it also lays the framework for an energy efficient economy and achieving the 80% reduction in greenhouse gases most scientists say is necessary to avoid the worst impacts of global warming.
That’s a target that can’t be hit with building wind farms and solar plants alone.
Some 40% of all energy used in this country goes to buildings, mostly in the form of heating, cooling and lighting.
"You don’t get an 80% reduction by 2050 without retrofitting nearly every building in the country," said Burt.
Taiwan’s central bank kept its benchmark interest rate at a record low and pledged to monitor property-price inflation, reinforcing forecasts for an increase in borrowing costs next year.
Governor Perng Fai-nan and his board left the discount rate on 10-day loans to banks at 1.25 percent yesterday, as forecast by all 11 economists surveyed by Bloomberg News.
Taiwan, emulating Asian counterparts such as South Korea, is putting off rate increases to encourage investment and private consumption and pull the economy out of a yearlong slump. The central bank said in a statement yesterday that it saw no inflation pressure and Perng told reporters that policy makers will closely monitor property prices.
“The central bank is keeping rates steady to help strengthen the economic recovery,” said Serena Tseng, an economist at Jih Sun Securities Co. in Taipei. “Low consumer prices provide scope for the central bank to focus on reviving the economy.”
Kevin Hsiao, director of wealth management research at UBS AG in Taipei, said the central bank may raise rates by 25 basis points in the second quarter of 2010 as an economic recovery strengthens.
Rates Unchanged
Japan’s central bank on Dec. 18 maintained its benchmark overnight lending rate at 0.1 percent, and the Bank of Korea on Dec. 10 kept its rate unchanged for a 10th month at a record-low 2 percent, while signaling it may increase borrowing costs as the economic recovery gathers pace.
Taiwan’s central bank set next year’s target for growth in M2 money supply at between 2.5 percent and 6.5 percent, the same as for this year. It said that liquidity in the financial system in enough to support economic activities.
The island’s gross domestic product shrank 1.29 percent in the three months through September, the least in a year, after a revised 6.85 percent contraction in the second quarter. The economy may expand 4.39 percent next year, the cabinet’s statistics bureau projected last month.
President Ma Ying-jeou’s administration plans NT$858.5 billion ($26.5 billion) of spending over four years, or about 6 percent of GDP, on infrastructure, consumer grants and tax cuts to help revive the economy. Perng lowered borrowing costs by 2.375 percentage points from September 2008 to February.
Falling Unemployment
Signs of a recovery have prompted employers to start hiring, with Taiwan’s unemployment rate falling for a second straight month in November, and companies including Taiwan Semiconductor Manufacturing Corp. forecasting better sales.
The benchmark Taiex stock index has climbed 74 percent this year, set for its best year since 1993, as investors bet the island’s economy is past the worst. The index climbed 21.13, or 0.3 percent to 7,984 easy fast payday loans.67 as of 12:11 p.m., rising for the sixth- consecutive day to its highest since June 19 last year. Taiwan’s dollar rose 0.2 percent to NT$32.247 against its U.S. counterpart at today’s lunch break, according to Taipei Forex Inc.
Low interest rates have boosted consumer spending and business investment. Domestic consumption climbed 2.2 percent in the three months through September, the first increase since the recession began.
Taiwan’s consumer prices will be “subdued” in the next three months, Governor Perng told reporters in a briefing after the rate decisions in Taipei yesterday.
Salary Increase
Taiwan Semiconductor, the island’s biggest company by market capitalization, said this month it will increase employees’ base salary by 15 percent, and capital spending next year will be “much higher” than the $2.7 billion budgeted for this year.
Taiwan’s exports climbed for the first time in 15 months in November, and consumer prices may increase 0.92 percent in 2010 after falling 0.73 percent this year, the statistic bureau said last month. The island’s top economic planner says the economy may grow 4.8 percent next year, the jobless rate fall to 4.9 percent and inflation run at 1 percent.
Economists including Chuang Rehong of SinoPac Securities Corp. in Taipei and Mill Lin of Chinatrust Commercial Bank say the central bank may shift to a tightening rate policy to curb excessive property-market movements after Perng last week repeated a call for lenders to monitor risks of deteriorating mortgage-loan quality.
Asset Bubbles
“The central bank has signaled its concerns on asset bubbles,” said Lin, who forecasts a rate increase in June 2010. “As long as the recovery persists, there is no reason for the central bank not to start raising borrowing costs.”
Taiwan’s central bank today issued a statement denying a newspaper report that said it is placing credit controls on properties in three metropolitan areas on the island. The Taipei-based Commercial Times said today the central bank is imposing credit controls in Taipei, Taichung and Kaohsiung.
Banks on the island of 23 million people have cut mortgage rates to the lowest since records began, helping drive up home prices 14.4 percent in the nine months through September, according to Sinyi Realty Co., Taiwan’s biggest real-estate brokerage.
Taiwan banks increased home loans by 4.3 percent to NT$4.91 trillion at the end of October from a year earlier, according to the central bank.
“I hope foreign inflows are for direct investment, not for purchases of assets,” Perng said.
The U.S. jobless rate continues to affect Cintas Corp.’s business, and the uniform maker saw drops in profits and revenues during its fiscal second quarter.
Cintas posted second-quarter net income of $57.2 million, or 37 cents per share, compared to $71.8 million or 47 cents per share in the year-ago quarter. Total revenue was $884.5 million versus $985.2 million in second-quarter 2008. Analysts on average had expected revenues of $890 million and earnings per share of 43 cents.
“While job losses have moderated recently, 1.2 million jobs were lost during the last six months and we do not know when positive job growth will return,” said CEO Scott Farmer in a news release.
For the first half of fiscal 2010, Cintas reported net income of $111.2 million, or 72 cents per share, versus $150.5 million, or 98 cents per share in the same 2009 period. Total revenue fell to $1.78 billion from $2 billion.
Cintas (NASDAQ: CTAS) manufactures and supplies corporate identity uniforms and provides ancillary products and services to businesses worldwide.
Ford Motor Co. CEO Alan Mulally says the automaker plans to speed up debt repayment as its financial condition continues to improve.
Ford has about $27 billion in debt. Mulally says the company repaid $10 billion this year and has sold $1 easy to get unsecured personal loans.6 billion worth of stock.
The Obama administration says its stimulus program has created or preserved 12,228 jobs in Arizona this year.
But one leading Arizona economist says that number is not worth the program’s price tag.
Arizona has been allocated $2.8 billion under the American Recovery & Reinvestment Act, according to the administration. The money covers transportation and water infrastructure contracts, weatherization of low income homes, Medicaid, public school funding and university biomedical research among other projects.
Economist Elliott Pollack said Wednesday dividing the federal allocation and the number of jobs equals about $230,000 per job in Arizona.
“They might as well give people the money,” Pollack said Wednesday at an economic forecast sponsored by Arizona State University and JPMorgan Chase & Co.
After relatively modest growth in the third quarter, Finance Minister Jim Flaherty says he's optimistic that Canada's economy will pick up the pace into next year.
Flaherty said Tuesday he believes the domestic economy will show more strength in the remainder of this year and into 2010, eclipsing the slow climb out of a recessionary environment that has characterized the recovery so far.
"We hope that we will have a continuation of growth at a greater pace in (the fourth quarter)," Flaherty said in Toronto at an announcement unveiling federal stimulus spending money to help renovate Maple Leaf Gardens.
"We are certainly more optimistic about economic growth in 2010."
Economists generally agree that Canada's economy is going to grow in the near term but that the climb will be sluggish in the coming months as the global economy struggles toward recovery.
"Over the next six months we're in a recovery phase," Warren Jestin, the chief economist at Bank of Nova Scotia (TSX: BNS), said in an interview after making a presentation at a Toronto economic conference on Tuesday.
He said inventory adjustments, particularly in the auto sector, will drive growth as companies ramp up production.
"Auto production is starting up and government projects are finally getting into the ground. In general, that will lead us into another phase that will tend to be one of probably sustained growth, but not as strong a growth as we used to think was normal," he said.
Jestin warned that developed countries could risk weakening again as stimulus packages start to run their course, and economies attempt to operate with waning government assistance. Many economists caution that the economy is still walking a knife's edge between recovery and another downturn.
Statistics Canada offered some cause for optimism about next year on Monday when it reported that Canada's real gross domestic product inched ahead in the third quarter at an annualized rate of 0.4 per cent, marking an end to the recession in this country.
However, a report released Tuesday by CIBC (TSX: CM) said that key metropolitan areas in Canada are still feeling the financial pinch.
CIBC, which compiles a metro monitor index, said that 10 of the country's top 25 urban areas showed negative growth in the third quarter.
"On a year-over-year basis, our index continued to trend downward," said Benjamin Tal, a senior economist at CIBC.
"More than two-thirds of Canadian GDP is generated in Canada's major cities. So the tale of those cities is the tale of the economy."
The report said nine of the 10 cities that experienced negative growth were in Ontario and Quebec, which have both been battered by years of weakness in the manufacturing and forestry sectors and hurt by lower demand for their products in the United States and a stronger loonie.
"Calgary and Edmonton, which until recently were the stars of our index, (are) losing ground rapidly and currently hardly above water in terms of overall economic momentum," Tal added.
Jestin said that long-term growth will be mild in Canada over the next couple years, near two-and-a-half per cent, while emerging economies like China and India will grow closer to a rate of seven to nine per cent. Jobs will also see a gradual pickup, Jestin said, with the country adding net new jobs in 2011.
But "they're going to be different jobs than in the past," he cautioned.
"Additional jobs created are probably going to be in areas that are small firms, medium-sized firms and very specialized in their markets. (They will be) less focused on the U.S., more focused on niche markets."
Jestin said the Canadian economy is running stronger than south of the border, though exporters are facing heavy headwinds, with sales volumes down 20 per cent in the summer over a year earlier.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Chinese growth is likely to be hurt by an absence of consumer demand from trading partners such as the U.S.
“The Chinese, I suspect, will have a bubble of their own to confront,” Gross said in a Bloomberg Television interview yesterday from Pimco’s headquarters in Newport Beach, California. “It’s gearing up for export that doesn’t find an end consumer, that’s the real problem in China.”
The “systemic risk” of new asset bubbles in global economies and markets is rising with the Federal Reserve keeping interest rates at record lows, Gross wrote in his December investment outlook posted on Pimco’s Web site yesterday. Under what Pimco has termed the “new normal,” investors should be prepared for lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.
“With unemployment in the double digits and likely to stay close to that for the next six months despite job creation ahead, the Fed has nowhere to go,” Gross, co-founder and co- chief investment officer of Pimco, said on Bloomberg Television.
Fed Chairman Ben S. Bernanke said after a Nov. 16 speech in New York that it’s “not obvious” that asset prices in the U.S. are out of line with underlying values after a 64 percent jump in the Standard & Poor’s 500 Index from its March low.
Negative Rates
Treasury three-month bill rates turned negative yesterday for the first time since financial markets froze last year on concern that the rally in higher-yielding assets has outpaced the prospects for economic growth. The two-year note yield touched 0.68 percent, the least since Dec. 19.
The Fed cut its target rate for overnight lending between banks to a range of zero to 0.25 percent in December. Policy makers reiterated on Nov. 4 that they intended to keep the rate at the record low for an extended period.
The “heavy lifting” will likely be done first by other central banks such as those in Australia and Norway that have already begun to increase interest rates, Gross wrote cashadvance.
“China may abandon its dollar peg within six months’ time and with it, its own easy monetary policy that has fostered more significant mini-bubbles of lending and asset appreciation on the Chinese mainland,” he added.
China’s Currency
China has kept its currency at about 6.83 per dollar since July 2008 to help sustain exports amid a global economic slump.
China’s trade surplus in October almost doubled from the previous month, to $24 billion. The nation, with the world’s largest foreign-exchange reserves of $2.3 trillion, is the biggest creditor to the U.S., holding $798.9 billion of Treasuries as of September.
“With renewed upward appreciation of the yuan may come potentially volatile global asset price reactions to the downside — higher Treasury yields, and lower stock prices — which the Fed must surely be leery of before making any upward move, of its own,” Gross wrote.
The U.S. economy grew in the third quarter for the first time in more than a year as gross domestic product increased 3.5 percent from July through September after shrinking the previous four quarters, a Commerce Department report showed on Oct. 29.
Gross advised following the lead of billionaire investor Warren Buffett on buying utilities because their earnings growth will mimic U.S. economic growth and provide steady dividend income. Buffett’s Berkshire Hathaway Inc. agreed this month to take over Burlington Northern Santa Fe Corp., the No. 1 U.S. railroad, for $26 billion.
Fund Returns
The Total Return Fund managed by Gross boosted its investment in Treasuries, so-called agency debt and other government-linked bonds to 48 percent of assets in September from 44 percent in August, according to Pimco’s Web site. The holdings were the most since August 2004.
The $192.56 billion Total Return Fund returned 18.29 percent in the past year, beating 54 percent of its peers, according to data compiled by Bloomberg. The one-month return is 1.11 percent, outpacing 59 percent of its competitors. Pimco is a unit of Munich-based insurer Allianz SE.
Dow Chemical Co and Shenhua Group, China’s largest coal miner, will reportedly move ahead with their planned $10 billion coal-to-chemical project in Shaanxi province after a delay of at least one year.
Top executives from the companies, senior officials in Shaanxi province and representatives from the U.S. Embassy in China attended a cornerstone laying ceremony on November 3, the China Chemical Industry News reported on Thursday.
The Yulin project in northern Shaanxi aimed to install 23 units that include a 3.32 million tonne-per-year methanol facility for ethylene and propylene, which are used for making various plastics and chemical products.
“The feasibility study of the project has entered the stage of applying for an approval from the central government,” the newspaper said, citing an unnamed local government official advanced payday loan.
The feasibility study was previously planned to be completed in 2008.
An assistant president with Shenhua who is based in Beijing declined any knowledge of the project, and officials at Dow Chemical in China could not immediately be reached.
Dow sold off $3.4 billion in assets this year to boost its bottom line and reduce debt. The chemical firm also cut costs by laying off thousands of workers and shutting several plants.
Shenhua is the parent of Hong Kong-listed China Shenhua Energy.
(Reporting by Jim Bai and Chen Aizhu; Editing by Ken Wills)
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