CARD Act – How the New Credit Card Law Works

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (or “CARD Act”) went into effect on Monday, February 22.  The purpose of this Act was to prevent credit card companies from using predatory lending practices and excessive penalties for credit card customers.  Note, however, that the CARD Act only applies to personal credit cards, not business credit cards.

Key provisions of the CARD Act include:

• Interest rates on existing balances cannot be changed unless (1) your payment is 60 or more days late; or (2) you have an introductory rate that expires.
• If a payment is more then 60 days late, but your payments for the next 6 months are all on-time, the credit card company must reduce your interest rate back to the original rate.
• Interest rates on new purchases can be changed, but the credit card company must give you 45 days notice before raising your rate.  You can opt out of the rate change, but that means your account will be closed and you will have five years to pay off the existing balance at the existing interest rate.  There are some exceptions to this rule, however.  For example, if you have a variable rate card tied to the prime rate, this provision does not apply.
• Credit card companies can no longer use the “universal default” provision that some were using.  If you pay late or default on any account (credit card, utility, etc.), other card issuers can no longer raise your interest rate on your existing balance on those cards.
• Credit card companies can no longer approve a charge that exceeds your limit and then charge you an over-limit fee and penalty interest rate.  Beware of “opt-in” offers to avoid over-limit fees, as this is a scam.
• You cannot be charged for paying online, by mail, or over the phone, unless you speak to a live operator and then they must disclose the fee before you pay.
• Payment due dates must be the same every month, and if the due date falls on a holiday or weekend, the payment is due the next business day.
• Your bill must now disclose how long it will take to pay off the current balance if you only pay the minimum amount each month, as well as the total amount of principal and interest you would pay over that time period.
• Anyone under 21 cannot get a credit card without either (1) proof of income to pay the bills or (2) an adult co-signer.

One problem with the CARD Act, however, is that it was signed into law in May 2009, but did not become effective until this week.  This gave credit card companies significant time to find ways around the new laws, including cutting credit limits and raising interest rates before the restrictions on such practices went into effect.  Some other new negative practices include:

• Closing accounts or charging fees for inactivity or even for “low activity”
• The return of annual fees to many cards – even if you have never had an annual fee on a particular card, there is nothing to stop the card issuer from charging one now
• Converting fixed rate cards to variable rate cards, and setting these rates with a floor that they will never fall below
• Redefining terms of certain fees, such as what is considered an “international transaction”
• Increasing balance transfer fees and cash advance fees
• Adding fees for paper statements
• Changing the terms of rewards programs or eliminating such programs altogether
• Stricter review of who is issued credit
• Reducing credit limits without warning

Pay attention to all correspondence from your credit card company, and if they are acting in a way that should be covered by the CARD Act, call and complain.  If that doesn’t work, contact your US Senator or Representative.

This article was written by Melissa L. Demorest, Associate at Demorest Law Firm.

When is a License Fee Really an Illegal Tax?

Faced with tighter budgets, Michigan cities and townships are looking for additional ways to raise revenue.  Due to the Headlee Amendment, property tax increases are severely restricted.   However, a municipality may establish or increase a fee without violating the Headlee Amendment.  The question is:  Where is the dividing line between a permissible fee and an illegal tax increase?

A tax is solely to raise revenue.   A permissible fee (typically a permit or license fee) has three characteristics: (a) the fee serves a regulatory purpose; (b) the amount of the fee is proportionate to the necessary costs for the municipality to provide that service, and (c) payment of the fee is voluntary.

Several years ago, we were involved in litigation that resulted in the Wayne County Circuit Court declaring a license fee imposed by Sumpter Township illegal.  The Court decided that the fee for a sand excavation license was really being used by the Township to discourage additional landfills from being located in the Township, and that the amount of the fee was excessive in relationship to the Township’s costs to regulate and inspect sand excavation sites.  The Ordinance was set aside.

On January 21, 2010, the Michigan Court of Appeals issued its decision in Wolf v City of Detroit.    The plaintiff claimed that a new Solid Waste Inspection Fee adopted by the City of Detroit was really just a disguised tax.  The inspection fee was imposed on properties that did not use the City’s Department of Public Works for solid waste pick-up.  The Court of Appeals analyzed the three criteria for a fee and decided that the fee was permissible.   A copy of the Court of Appeals’ decision is attached.

Whenever a municipality imposes a new fee, or dramatically increases the amount of a fee, then one should analyze whether the three criteria for a fee are met.  If not, the fee may be challenged as a hidden tax.

Click here to download a PDF copy of the Court of Appeals Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Important Supreme Court Decision on Corporate Free Speech

Last week, the Supreme Court issued an important decision on the free speech rights of corporations.  The law has long recognized that, just like individuals, corporations are protected by the First Amendment to the Constitution.  However, in 1990 (Austin v Michigan Chamber of Commerce) and in subsequent decisions, the Supreme Court had ruled that the government may restrict corporate expenditures to support or oppose political candidates.   The Supreme Court overruled those earlier decisions in Citizens United v Federal Election Commission.  Justice Kennedy wrote:  “The Government may regulate corporate political speech through disclaimer requirements, but it may not suppress that speech altogether.”  In other words, the government may require that the sponsor of the advertisement be disclosed, and whether it was approved by a particular candidate.  However, the government may not prohibit or limit the amount of money spent by a corporation to support or oppose a particular candidate or issue.

Corporations previously used political action committees (PAC’s) to get involved in political activities.  Based on the Supreme Court’s decision, the use of PAC’s may no longer be necessary.

Click here to download a PDF copy of the Supreme Court Decision.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

Michigan Smoking Ban – Summary of House Bill No. 4377

The Michigan Legislature has passed a bill which bans smoking in almost all indoor public venues. This ban has been in the works for a long time; many other States have already enacted similar laws. Governor Granholm is expected to sign the bill into law, and it will go into effect on May 1, 2010.

“Smoking” is defined as “the burning of a lighted cigar, cigarette, piper or any matter or substance that contains a tobacco product.” There is a ban on smoking in “public places.” A “public place” includes areas owned and operated by the government; areas not owned or operated by the government, but used by the general public for certain specified purposes; and (unless otherwise exempt) a place of employment. The third one covers almost all of the businesses in the State. A “place of employment” is an enclosed indoor area that contains a work area for one or more people.

Business owners are expected to take steps to reasonably prevent customers, employees, or other people from smoking on their premises. Business owners are expected to do ALL of the following:

1. Clearly and conspicuously post no smoking signs (or the international no smoking symbol) at the entryway and in all buildings where smoking is prohibited.
2. Remove all ashtrays or other smoking paraphernalia from any place smoking is prohibited under the Act.
3. Inform individuals smoking in violation of the Act that they are in violation of state law and are subject to penalties.
4. Refuse to serve an individual smoking in violation of the Act.
5. Ask an individual smoking in violation of the Act to refrain from smoking, and ask them to leave if they refuse to stop.

If owners do all of the preceding things, they have an affirmative defense against any prosecution against them for a violation of the Act. This means that the business owner can be exempt from penalties under the Act, but only if all of the preceding conditions are met.

The Act includes a few exceptions. Casinos in existence before the Act can allow smoking in gaming areas only. Casinos built later cannot allow smoking. (The term casino in the bill does not include a casino operated under the Indian Gaming Regulatory Act. Thus, the smoking ban does not apply to these casinos.) An existing separate specialty tobacco shop may allow smoking. Cigar bars may also allow smoking (but only the smoking of cigars, not other tobacco products).  The ban also does not apply to motor vehicles.

Overall, business owners should be proactive in preventing smoking in their place of business by following the five requirements described above.

Download a copy of the Bill in PDF format by clicking here.

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

A Contract Could Effect Damages in a Lawsuit

In a previous article we had examined the fact that the Michigan Court of Appeals affirmed the common law principle that contract provisions that shorten the statutory period for bringing a cause of action are allowable.   Recently, the Court applied similar reasoning in affirming the principle that a contract can even limit the amount of damages if the agreement is violated. The parties can agree in their contract to limit the damages to only those that occurred within a certain period of time before the date that the lawsuit was filed.

In the Michigan Court of Appeals case Bronco Oil v Citizens Bank (click here to download), the contract language, in essence, immunized the breaching party from having to pay the damages it allegedly caused because they occurred outside of a 12-month period before the lawsuit was filed. Even though the lawsuit was timely, the potential damages were lost because of when the lawsuit was filed.

This article was written by Michael R. Dorfman, Senior Associate at Demorest Law Firm.

Decision of Michigan Court of Appeals Expands Rights of Minority Shareholders

On September 24, 2009, the Michigan Court of Appeals issued an important decision on the rights of minority shareholders in Michigan corporations.  The Michigan Business Corporation Act allows a minority shareholder to bring a lawsuit in circuit court if “the acts of the directors or those in control of the corporation are illegal, fraudulent, or willfully unfair and oppressive to the corporation or the shareholder.”

In Schimke v Liquid Dustlayer, Inc., the plaintiff owned less than 1/3 of the stock of the corporation.  The two other shareholders, who were also in control of the board of directors, planned to have their own stock in the corporation redeemed (purchased by the corporation), but the minority shareholder’s stock would not be redeemed.  The plan was never completed.  The circuit court ordered that the corporation must redeem (purchase) the stock owned by the minority shareholder as a remedy for the actions of those in control of the corporation.

The defendant majority shareholders argued that the corporation should not be required to purchase the stock of the minority shareholder, because their plan was not actually carried out.  The Court of Appeals ruled that the circuit court may intervene before an action is finalized, and may order a corporation to purchase a plaintiff’s shares of stock as a result of the defendants attempt to take an unfair and oppressive action.

The defendants also argued that they did not violate the rights of the minority shareholder because there was not a “continuing pattern of oppressive conduct.”  The Court of Appeals ruled that a pattern of conduct was not necessary for the minority shareholder to bring a claim.  Rather, “a single ‘significant action’ is sufficient to show willful and oppressive conduct.”

This decision expands the rights of minority shareholders to make claims of minority shareholder oppression, and makes it easier for minority shareholders to force the corporation to purchase their shares of stock.

Click to Download Case from Michigan Court of Appeals in PDF Format

This article was written by Mark S. Demorest, Managing Member of Demorest Law Firm.

The Impact of Reicher v SET on The Michigan Sales Representatives Commission Act

The Michigan Sales Representatives Commission Act (“SRCA”), MCLA 600.2961, (Click here to view) provides protection for sales representatives from the company he is selling for (“principal”).  The statute provides that representatives are to be paid what they are owed in a timely manner, and that intentional non-payment of commission by the principal will result in “an amount equal to 2 times the amount of commissions due” up to $100,000.00.  According to the statute, a sales representative cannot waive his or her rights under the SCRA by signing a contract.

A recent Michigan Court of Appeals ruling in the case Reicher v SET Enters, Inc (click here to view) decided that a settlement agreement between the representative and principal after the representative was terminated and had filed a lawsuit against the principal can negate the non-waiver rule.  In other words, when Reicher decided to settle his claims against the principal he signed away his rights to protection under the SCRA.  When the principal breached the settlement agreement, the statutory penalties under the SCRA did not apply.  Reicher was limited to the damages for breach of contract.

The non-waiver provision will still apply to a contract or agreement establishing or modifying the business relationship between the principal and the sales representative, but does not apply to post-termination agreements.

Jackson v Estate of Green: The Effect of a Partition Action on a Joint Tenancy

Joint tenants hold equal and undivided interests in a parcel, with a right of survivorship. When a joint tenant dies, the deceased’s interest does not descend to heirs. Instead, the entire ownership remains in the surviving joint tenant or tenants.  This transfer occurs automatically upon the death of the joint tenant.

Michigan recognizes two types of joint tenancies:  (a) the standard form, which can be unilaterally severed; and (b) a joint tenancy with express words of survivorship in the granting instrument which cannot be unilaterally severed.

The recent Michigan Supreme Court of Jackson v Estate of Green, involved a dispute between two joint tenants, one of whom sought to partition the properties held by both joint tenants.  While the matter was pending before the Court, the joint tenant seeking a partition suddenly died.

The Michigan Supreme Court ruled that the joint tenancy at issue was a “standard joint tenancy” because the deed granting them a joint tenancy did not include express language identifying the parties as having a “joint tenancy with full rights of survivorship”.  As a result, the Court held that the joint tenancy could be severed by one of the parties without the consent of the others.  However, the Court also ruled that the severance occurred only upon a Court’s Order.  Merely filing a Complaint in Court did not sever the joint tenancy.  Therefore, the decedent’s estate had no interest in the subject property upon the decedent’s death.  Instead, the Court ruled that the title to the subject property vested in the surviving joint tenant immediately upon the other joint tenant’s death.

This case not only explains at what point in time a partition action severs a joint tenancy, but highlights the importance of using express words of survivorship in the granting instrument if the parties intend to secure their rights of survivorship.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm.

The Ins & Outs of the Temporary COBRA Subsidy

On February 17, 2009, in an effort to ease the financial burden on so many Americans who have been recently laid off, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (“ARRA”).

Under ARRA, employees “Involuntarily Terminated” from their employment (and other qualified beneficiaries) anytime from September 1, 2008 through December 31, 2009, and who are eligible for and elect COBRA, may receive a federal government subsidy to help pay for their COBRA premiums.  They will be able to receive this federal government subsidy for up to 9 months.  Employees and other qualified beneficiaries will only have to pay 35% of their regular COBRA premium, with the other 65% being paid by the federal government.

“Involuntary Termination” includes layoffs, failure to renew employment contracts, termination for good cause by employer action, or forced retirement packages, if after the offer period a certain number of remaining employees in employee’s particular group will be terminated.  “Involuntary Termination” does not include voluntary resignation, divorce, dependent child ceasing to be dependent, death, or termination due to gross misconduct.

Employers are required to mail all eligible former employees (and other qualified beneficiaries) one of four different notices to notify them of the premium reduction and other rights provided to them under ARRA, including a second opportunity to sign up for COBRA. Each of the four types of notices is designed for a particular group of qualified beneficiaries and contains information to help satisfy ARRA’s notice provisions.

COBRA-eligible employees who lost their jobs between September  1, 2008 & February 16, 2009 (and other qualified beneficiaries) who either didn’t elect COBRA when offered, or elected COBRA but discontinued COBRA coverage have another chance to sign up for COBRA and get the reduced premium.  Employers were given a deadline of April 18, 2009 to send all former employees in this particular group a letter informing them of their second chance to elect coverage.

To summarize, employers must do the following to comply with ARRA: (1) Identify the eligible individuals; (2)  Calculate and report the subsidy to employees and the federal government; and (3) Provide the proper notice to all eligible individuals.

Employers should take note that if a qualified beneficiary becomes eligible for other health care coverage, the COBRA subsidy ceases.  It is not necessary for the qualified beneficiary to actually obtain other health care coverage to lose the subsidy.  All that is necessary is that the qualified beneficiary be eligible to receive the other health care coverage.

It is important that employers be careful to fully comply with the requirements of ARRA, as failure to apply the subsidy can mean tax penalties.  Likewise, employees should take care not to miss an opportunity to receive the subsidy.

This article was written by Natalie C. Najarian, Associate at Demorest Law Firm. Click here to view her professional resume.