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May 2013

Readers’ Questions and Responses

A reader in Abrams, Wisconsin, wrote to ask if I could provide more information on credit card companies and “how to find a company that isn’t charging exorbitant fees?”

There are six factors a consumer should consider when shopping for a credit card: (1) applicable membership or participation fees; (2) transaction fees, cash advance fees, late payment fees, and other charges; (3) annual percentage rate; (4) length of grace period, if any; (5) balance computation method for the finance charge if you don’t have a grace period or if you plan to pay for purchases over time; and (6) balance transfer offers.

These are explained in greater detail by the Federal Trade Commission at: http://www.ftc.gov/bcp/edu/microsites/moneymatters/credit-cards-choosing.shtml and the Wisconsin Department of Financial Institutions (DFI) also lists a number of considerations at: http://www.in.gov/dfi/2565.htm.

The Federal Reserve has published an online guide to “Getting the most from your credit card” at: http://www.federalreserve.gov/consumerinfo/fivetips_creditcard.htm.         Of course, the best way to use your credit card is to pay it off each month within the grace period and stay below your credit limit. If you do this, you will have a number of credit card options. However, if you are not able to pay off your credit card each month, you will have fewer options. Where can you find the best deal? Start with a credit union because it often provides the most favorable credit card terms.

In addition, DFI identifies Bankrate.com as a credit card comparison site you should review: http://www.bankrate.com/funnel/credit-cards/credit-card-results.aspx. This site breaks down the most popular credit cards by the following categories: (1) credit card for low interest, (2) credit card for balance transfer, (3) credit card for cash back, (4) credit card for gas rewards, (5) credit cards for rewards, (6) credit cards for business, and (7) credit cards for students.

Credit Unions and Taxes

I received an unusually high level of responses to the March “Consumer CheckPoint” column on “Wisconsin Credit Unions Thriving in Uncertain Economy.” The comments from all but one reader were favorable. The one reader wrote to “take issue” with my conclusion, “Credit unions appear to be not only good for consumers but for taxpayers as well.” The reader argued, “Credit unions don’t pay any state or federal income tax, like banks do.” This is a partially fair point in that credit unions are member-owned cooperatives and, like other cooperatives, credit unions are not taxed at the entity level, but rather any credit union patronage or dividend distribution is subject to federal and state income taxation.

A number of Wisconsin credit unions pay taxable patronage or dividends to members. Therefore, federal and state income taxes are paid. In addition, credit unions pay Social Security, Medicare, and property and sales taxes. By contrast, media investigations over the past 10 years have demonstrated that many banks have not actually paid income taxes. Recent studies, for example, identify Associated Bank—Wisconsin’s largest state bank—and the former M&I Bank as not paying income taxes, and these two banks were definitely not alone.

My March “Consumer Checkpoint” column focused in part on the fact that the federal bank bailout cost taxpayers more than $700 billion while a similar bailout was not required for credit unions. Why? Because credit unions did not stray from their mission of serving their local communities. Once again, this fact leads me to the conclusion that careful credit unions served taxpayers well.


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