Put big annual vacation on a new 0-percent card

With more than 20 years experience in the nonprofit credit counseling industry, Kevin Weeks joined the Financial Counseling Association of America (fcaa.org, @TrustFCAA) as its president Dec. 1, 2014. Weeks has extensive knowledge of both the credit counseling industry and the FCAA organization, having served in leadership positions for three of its member agencies and on the FCAA board of directors. In addition, Weeks is working with FCAA members to help develop a long-term solution to the student loan crisis through the website studentloancounselors.org. Weeks holds a bachelor of science degree in business administration, management information systems from Salem State University.

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Dear Credit Wise,
Hello, I take a big annual vacation with a friend that costs about $4,000 each, not including airfare. She pays her way, I pay mine. I takes some "chiseling away," but I always pay it all back before the next trip. I used to pay it back using the vacation company's eight-month repayment plan, and put the airfare on my credit card. For the past couple years, I've been putting the whole trip on my regular credit card, and paying the interest. My question is this: Would it be wise to open up a 0-percent interest rate card each year to charge this vacation to and get the rewards, seeing as I would be completely paying it off by the time the promotional period would be over? Or should I just continue to use my existing credit card for this? Thank you! -- Taylor

Dear Taylor,
I am impressed with your planning and ability to pay off your vacation every year. A 0-percent interest card would save you money, since you have been paying interest on your balance every year, whether on your regular card or through the vacation company's repayment plan. Because you do pay it off before your next trip, you are probably not paying a great deal in interest. Nevertheless, paying nothing would be even better if you can get it, especially if you can get a card that offers rewards as well.

As you know, promotional periods are limited, so while the card would certainly work for your first year, the terms will likely be changed by time you are ready to take your next vacation. In a survey of 100 cards, CreditCards.com's November 2015 balance transfer survey found the post-promotional rate to be 17.8 percent.

So, yes, this next year, do get a 0-percent balance transfer card, with the best rewards you can find.

But what you asked is whether this is a plan for "each year."

There, I can only give you a maybe. It may work, but it may not. The key factor will be your credit. If you maintain good credit, and the discipline to pay it off before the promotional period ends, go for it.

Every time you open a new account, your credit reports will reflect that change. I suspect your credit is at least in the "good" category, since you are able to handle this vacation charge year after year. In the credit scoring world, having more credit is good for your score. Just be aware that your reports will show the number of inquiries and new accounts; too many of either can affect your score in a mildly negative way. This could, in turn, affect your ability to get a new card the next time around. If you have excellent credit, it won't matter much, as good, on-time payments outweigh other factors.

But if you have credit that isn't so good, don't do it. You'd enter an endless downward spiral in which you apply for a card, get turned down and take a credit score hit, apply again, take another score hit, and so on. 

Whatever you decide to do, I hope you will continue to use your existing credit card as carefully as you have been. I would not suggest you close the account, since older credit is also good for your score. Instead, try to get to the point where you are able to pay your other charges on the card in full each month. This will effectively give you another 0-percent interest card and one whose terms will not expire after a few months. If you pay your card balance in full each month by the due date, you should not incur any interest charges ever. That is a wonderful place to be and I hope you can get to that point.

Be wise with your credit!

See related: Credit card churning crackdown has rewards-chasers worried

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers. We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

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Marijuana businesses find card processing still elusive

Marijuana entrepreneurs who want to process credit card transactions through a bank will have to adopt a key strategy for the time being: Patience.

Despite anecdotal reports that there are banks that are processing the transactions legally, experts say that this solution has been elusive.

"There is no credit card processing to my understanding at this time that is legitimate," says Leslie Bocskor, managing partner at Electrum Partners LLC, a boutique consulting firm in Las Vegas specializing in the marijuana industry, and founding chairman of the Nevada Cannabis Industry Association. As a result, many owners of marijuana businesses must still rely on a cash-only model, which can be difficult because of the risks of robbery, internal theft and record keeping mistakes.

Selling pot is illegal under federal law, though 23 states have legalized medical marijuana. Recreational marijuana use has been legalized the District of Columbia and four states -- Alaska, Colorado, Oregon and Washington.

Nonetheless, most banks in these states have shied away from processing credit card transactions for entrepreneurs whose businesses "touch the plant."

According to a December 2015 survey by the Marijuana Business Daily, about 60 percent of cannabis-related companies don't even have a bank account for their business -- that number rises to 70 percent for companies that handle the plant.

"Everybody I know in the industry has had problems with banking," says Micah Tapman, partner and program manager at CanopyBoulder, a seed stage investment program for startups in the cannabis industry. "They've had to move their banks once, twice, four times." All participants in CanopyBoulder are in ancillary businesses that don't come into direct contact with marijuana, he says.

Congress, courts tackle issue
Change may be coming. One bill that could potentially pave the way for the processing of marijuana transactions by banks, the Marijuana Business Access to Banking Act, is still pending in Congress, after being introduced in April 2015. "It would prevent the Justice Department from using federal funds to keep states from carrying out their own medical marijuana laws," says attorney Michael Halfacre, a counsel in the alcohol and regulated products practice group at the Red Bank, New Jersey, office of law firm Genova Burns.

Everybody I know in the industry has had problems with banking.

-- Micah Tapman
CanopyBoulder

The law would prevent federal banking regulators from ending or limiting the deposit or share insurance of a depository institution because it serves legitimate marijuana-related businesses, or from prohibiting, penalizing or otherwise discouraging the institution from providing these services.

Federal agencies accommodate pot business .
The bill follows two significant government agency decisions. In August 2013, the U. S. Justice Department said it would not try to challenge state laws that allow for the medical and recreational use of marijuana, as long as these laws didn't conflict with eight new federal enforcement policies, such as preventing the distribution of marijuana to minors.

Then in February 2014, the U. S. Department of Treasury issued a memo saying it would allow banks to serve cannabis businesses under certain conditions and rules -- such as verifying that the business is licensed and registered as required -- but few banks are doing so.

At the moment, though, the regulatory climate remains unfavorable to marijuana processing by banks, say experts.

. But federal court delivers a setback
In a landmark decision, a U. S. district judge on Jan. 5 rejected a lawsuit by Denver-based Fourth Corner Credit Union against the Federal Reserve Bank of Kansas City. In July 2015, the Fed had denied the credit union, whose sole focus is cannabis businesses, a "master account" because of the nature of its business. A master account would let it open up and interact with other financial institutions.

The judge in the case admitted current laws are confusing, but said the court could not use its powers "to issue an order that would facilitate criminal activity."

Banks fear anti-money laundering compliance
Beyond the conflict between state and federal laws, many existing banks fear the administrative burden of working with firms in the pot industry, says CanopyBoulder's Tapman.

"It's not really a legality issue, per se," he says. "The real issue is one of regulation." He says contrary to popular opinion that the banks are afraid of being prosecuted for money laundering, "They are primarily concerned about having to respond all the time to FinCen Financial Crimes Enforcement Network."

FinCen is a branch of the U. S. Department of the Treasury that is charged with protecting the financial system from illicit use and money laundering. Banks must report any suspicious activity to FinCen, which would include any transactions involving marijuana businesses, because it is still federally illegal, Tapman says.

"If they were to provide merchant services to a dispensary, every single transaction would need to be reported as a suspicious activity, because it's part of a criminal enterprise," he says.

In Tapman's experience, businesses whose names suggest a connection to the cannabis industry are at a real disadvantage in obtaining banking services. "We had a company that was going to be called Cannagrow," Tapman says. "They weren't going to touch the plant. The bank said no. They went and changed the name of the company and opened a new account somewhere else. It was a learning experience. One of our pieces of advice is don't name your company 'canna' anything."

When banks are willing to take a chance on working with marijuana businesses at all, they charge high prices for it, according to Tapman. He is aware of banks charging $2,000 a month for a bank account. "I've heard of several of them," he says. "I don't want to name names."

Credit card processing rare, opaque
Another obstacle has been the stance of big credit card companies.

"Currently, neither Visa nor MasterCard nor American Express will allow PIN-debit or credit card transactions by a merchant in the U. S. that is declaring itself as a legal cannabis retailer," says Electrum Partners' Bocskor. "So, if anybody is currently doing it, it is likely they are currently using a provider who is either miscategorizing what the business is or running it through an offshore processor where there is some type of lack of clarity, as well. By the letter of the law, those are dicey. They present a lot of risk."

As a result, banks are averse to processing credit card transactions for marijuana businesses. Currently, say industry experts, there are no sponsoring banks -- also known as acquiring banks -- accepting cannabis transactions. Sponsoring banks have obtained membership in Visa or MasterCard. Processors must form a relationship with a sponsoring bank to get access to these networks.

While there are some marijuana businesses processing credit cards, it is through credit card processing firms, known as Independent Sales Organizations (ISOs), which are likely hiding the nature of these businesses, according to Jeff Foster, co-founder of Boca Raton, Florida-based Jane. Jane sells kiosks intended to reduce cash theft at dispensaries by having the customer pay directly into a secure kiosk instead of to a human cashier.

The bottom line is they are miscoding transactions.

-- Jeff Foster
Co-founder, Jane

"The obvious question, if there are no sponsor banks accepting these transactions and the only way to process credit card transactions is through sponsor banks, is 'How are dispensaries processing credit cards?'" Foster says. "The bottom line is they are miscoding transactions."

A dispensary could potentially process transactions through the Merchant Category Code (MCC) for miscellaneous retail or use the code for a flower shop, hair salon or some other retail business with a similar sized average ticket and sales volume -- about 200 transactions on a weekday and 250 to 300 on weekends, Foster says. "The average ticket in a marijuana dispensary is around $70," Foster says.

Dispensary owners may not know the miscoding is taking place, he says. "I've talked to lots and lots of dispensary owners who have taken credit cards," says Foster. "Less than 10 percent had any idea that something was going on that shouldn't be going on. It's the ISOs selling the credit card processing that are doing a disservice to the dispensary owners and to the industry. They are telling them things like, 'Yes the bank knows all about it. We can't tell you who the bank is.'"

He says his company's kiosks only take cash. "We don't know of any way to meet the legal and regulatory burden of accepting credit cards in the U. S. for cannabis transactions right now," he says.

New solutions
Some new solutions are developing. Bocskor says that "closed-loop payment systems" are evolving. These are private debit card networks, where customers can get a card. "I've been hearing a lot of people talking about it," says Bocskor.

"The Marijuana Show," an online reality show where marijuana entrepreneurs compete "Shark Tank" style, has partnered with an investment bank to offer what founder Wendy Robbins says is processing credit cards via banks for dispensaries, growers and producers of edibles in states where marijuana is legal. The banks can process Visa, MasterCard and Discover cards, she says.

Asked via text message how the transactions were coded, Robbins responded, "Sorry can't share that." She said her credit card processor has operated for more than a year with 75 terminals. "All of them are still operating," she said.

Robbins declined to share the company's annual revenue. She would not say how many customers she has but says the business, concentrated in Colorado and Seattle, Washington, is "growing daily."

See related: Payment options budding for legal marijuana businesses, Credit cards: our moral guardians, 10 things you can't (easily) buy with credit cards

We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

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Why do people pay high annual fees on credit cards?

Tony Mecia is a business journalist who writes for a number of trade and general-interest publications. He writes "Cashing In," a weekly column about credit card rewards programs, for CreditCards.com

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Dear Cashing In,
Are there any real benefits of having a credit card that comes with a high annual fee? Why would anyone pay hundreds of dollars to carry a credit card? -- Carol

Dear Carol,
To answer your question, it helps to take a quick look at how credit cards have evolved over time.

Although the first versions of what we think of as credit cards began appearing in the 1940s and '50s, by 1970, there were still fewer than 1 in 5 American households that had one. It was still a relatively new concept that allowed people to avoid carrying huge sums of cash or writing checks, which at the time were not widely accepted when traveling away from home. 

You used the card, the merchant gave you what you bought, and the bill arrived later. That was the appeal.

Fast forward to today. Roughly three-quarters of Americans have credit cards. Those that have cards have an average of nearly four cards. There are several hundred million cards in circulation. The idea isn't as novel as it once was. 

This short lesson in credit card history is meant to illustrate how much our concept of credit cards has changed over time.

Today, with so many cards in circulation, issuers have to find a way to differentiate their cards from those of competitors. Maybe it is through lower interest rates or more reasonable fees, or a really cool card design, or outstanding customer service. 

However, those potentially distinguishing features don't mean a lot to many people. If you pay off your bill every month, a card's interest rate does not matter to you.

Card issuers have found that one way to distinguish their cards is by offering rewards. They forge partnerships with airlines and hotels, and offer frequent traveler points. They dangle cash-back on purchases, perhaps with greater rewards in certain categories. 

Those rewards can cost card companies a lot of money. But they also entice consumers to flock to their cards. And the card companies have discovered that people will pay annual fees to receive some of these rewards, because the value of the rewards to the consumer can be higher than the annual fees.

For instance, there are high-end reward cards that come with access to airport lounges that have annual fees less than the cost of a year's membership to the airport lounge alone. A lot of cards with annual fees come with sign-up bonuses of airline miles that can be used for flights that would cost much more than the card's annual fee. And there are some reward cards with more modest rewards that have no annual fee. Most of the top-end reward cards require excellent credit. 

If you're just looking for a plain-vanilla credit card to charge purchases, there are plenty of cards like that. If you don't pay off your credit card bill every month, then you should find a card with a low interest rate.

But if you pay off your bills and have strong credit, it can pay to look at rewards cards -- even those with annual fees. Not everybody is interested in airline lounges and elite travel perks, which come with cards that cost hundreds a year. But there are plenty of cards with more modest annual fees that can be worth exploring.

See related: Getting started with rewards cards

Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com's Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers. We encourage an active and insightful conversation among our users. Please help us keep our community civil and respectful. For your safety, do not disclose confidential or personal information such as bank account numbers or social security numbers. Anything you post may be disclosed, published, transmitted or reused.

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.

The editorial content on CreditCards.com is not sponsored by any bank or credit card issuer. The journalists in the editorial department are separate from the company's business operations. The comments posted below are not provided, reviewed or approved by any company mentioned in our editorial content. Additionally, any companies mentioned in the content do not assume responsibility to ensure that all posts and/or questions are answered.

Three most recent Cashing In Q&A columns stories: Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now! .