Sasha stared at her account statement, just delivered online. Fortunately, she had opened the email and attachment, just to take a quick look at the balance, which she always kept loosely in mind. Sasha figured the balance should be around $10,000. Sasha blinked and stared again, while trying to clear her head. The account statement showed only a $1,000 balance, not $10,000. Sasha searched the transactions to see what had happened, noting several withdrawals of thousands of dollars over consecutive days. But Sasha hadn’t withdrawn anything, instead just making her usual bill payments after the direct deposit of her paycheck. Breathless, lightheaded, and already angry, Sasha headed straight for the bank. She wanted her money back in her account, now. And she wanted to know who made or authorized the withdrawals.
Finances
Your finances have a lot to do with how well you manage life for your own benefit and the benefit of those around you. Things tend not to work so well when your finances are poor or disordered. Law thus protects and helps you manage your finances. When you need the help of financial institutions to manage your finances responsibly, law regulates those institutions and your relationship with them. When you need to borrow money for a home, vehicle, or other purpose, the law regulates the lender and lending. When you have debt problems, the law regulates the collection of and escape from that debt. Law also regulates checking, savings, and retirement accounts. Tax laws also affect your finances, imposing income, sales, real-property, and other taxes. Know the laws affecting your finances. Put those laws to good use to keep your finances in order. See the guide Help with Your Money for strategic advice on money management.
Banking
Financial institutions are a frank necessity in today’s economy given the ubiquity of electronic financial transactions. Federal and state laws regulate banks and credit unions closely to ensure their liquidity, the security of your funds, and your honest treatment. A federal program insures your deposits to at least $250,000 per account. Banks let you control access to your account through the account agreement you sign when opening the account. That agreement may take the form of a signature card that both identifies your signature for security purposes and includes the terms on which the bank will handle your funds. State contract law, the law of negotiable instruments, and federal banking regulations then together ensure that banks handle your accounts and transactions responsibly according to the terms of your account agreement. When, for instance, a bank releases account funds over a signature that you have not authorized, state law would ordinarily require that the bank restore the funds, particularly if you are monitoring your account statements to timely notify the bank of any irregularity. No one other than you and those whom you designate should control your funds, except as garnishment laws may otherwise provide. The account agreement will also control what fees the bank may charge you for transactions and services. When banks fail to disclose fees and charges properly, or otherwise mislead customers as to the cost and nature of their services, state law and federal regulations provide you with remedies. Consult a qualified lawyer over excessive or undisclosed fees and charges, loss of your funds, or service misrepresentations.
Audit: For each of your bank accounts, whether checking, savings, or other, document the following information: (a) the banking institution; (b) the type of account; (c) all persons whom you have granted access to the account; (d) all persons who hold an interest in the account whether or not they have access; (e) all periodic obligations (car-loan payments, utility-bill payment, etc.) that you have authorized the bank to pay automatically; (f) the day each month and manner (paper or electronic) in which you receive account statements; (g) your diligent practice of reviewing those statements within a reasonable time after receipt. Consult a qualified lawyer over any irregularity in the handling or security of your accounts.
Borrowing
Law doesn’t just help you bank. It also helps you borrow. Federal credit-reporting laws give you the right to dispute and correct inaccurate credit reports to ensure that you have a fair chance at obtaining credit. Lenders must notify you when they use a credit report to deny you credit. Federal and state laws also regulate consumer lending to protect you against misleading and unfair practices. Borrowing is a matter of state contract law governing the terms between borrower and lender. Lenders must disclose the material terms of loans including the loan amount, duration including any balloon payment or other acceleration, interest rate, and whether the rate is fixed or floating. Consumer loans like credit cards, home mortgages, home-equity lines of credit, and vehicle financing must also comply with federal and state truth-in-lending laws and regulations that prohibit unfair and deceptive lending practices. Those laws and regulations require not only disclosure of loan terms but also loan costs over the life of the loan, fees, and late charges, while giving consumers three days to rescind the loan agreement at no cost. Regulations also limit the amount of the penalty fees that consumer lenders may charge for late payments. Other credit laws and regulations prohibit discrimination in housing and consumer lending based on race, sex, religion, disability, marital status, and family status, while also prohibiting predatory lending taking unfair advantage of minorities, the undereducated, non-English speakers, and economically oppressed. Consult a qualified lawyer if your lender has engaged in an unfair, deceptive, or discriminatory practice, is charging excessive fees, or is not keeping accurate records of your loan balance.
Audit: For each consumer loan that you are considering or that you owe, determine the following: (a) current administrator of the loan; (b) loan principal owing; (c) current interest rate; (d) whether the rate is fixed or floating; (e) current monthly payment; (f) any anticipated changes in monthly payment; (g) remaining term to payoff; (h) any acceleration or balloon payment including date and amount; (i) any fees or charges assessed and the date and reason. Consult a qualified lawyer if you have any issues your lender will not resolve regarding your loan terms, accounts, and balances.
Collection
If you fall behind and default on a loan, federal and state laws help ensure your fair treatment in debt collection. Federal and state debt-collection laws prohibit debt collectors from harassing or deceiving you to collect on those debts. Debt collectors may only call you during reasonable hours, must contact only your attorney when they know that an attorney represents you, and must cease communications with you and sue instead when you demand it in writing. The debt collector must verify the debt if you request. Debt collectors must not misrepresent or deceive such as pretending to be law-enforcement officials. They must not use profane or abusive language and must not communicate about your debt with third parties like your neighbors or employer. Federal and state debt-relief programs address defaults in home and educational loans, about which debt collectors may have to inform you. Creditors may sue you for default and obtain a civil judgment against you. If you comply with court orders to appear and answer questions about your assets, state laws ordinarily permit creditors to enforce civil judgments only by garnishment of your accounts and wages or execution on your non-exempt assets, not by arrest and incarceration. State laws limit wage garnishment to only a portion of your wage, to leave you wages on which to live. State laws exempt certain kinds and amounts of real and personal property from execution so that you are not left without any property. Social Security and retirement accounts are ordinarily also exempt. Federal bankruptcy laws permit you to discharge certain debts under certain conditions while requiring you to relinquish security for debts and non-exempt assets, and under wage-earner plans to make debt payments for a period of years. Consult a qualified lawyer to enforce these rights if unable to pay debt.
Audit: If you owe loans that you cannot presently pay, then determine the following: (a) current principal balance on each loan; (b) current monthly minimum payment on each loan; (c) total of all loan balances; (d) total of all monthly minimum payments on all loans; (e) maximum amount you are able to pay on loans each month out of your monthly income after other necessary expenses; (f) name, address, telephone, and email of each entity currently servicing each of your loans; (g) savings or cash you can raise to payoff delinquent loans; (h) payoff amount in delinquency that each loan holder will accept; (i) any practices that any debt collector has engaged in that may violate the above-mentioned laws or otherwise be abusive or deceptive. Consult a qualified advisor regarding your plan to address your loans in delinquency.
Investing
Federal and state laws govern the transactions you make when investing, regulate the financial professionals and institutions assisting you with your investing, and create the legal framework for the securities in which you invest. When you buy stock, you buy ownership of a company under state corporate law in a transaction that state and federal securities regulations govern. Securities laws require regulatory filings and public disclosures whenever companies make public offerings of stock to potential investors. Companies having shares traded on exchanges must meet additional regulations. The effect of those regulations is to ensure that the information you and your advisors receive about those companies is accurate and not misleading and that investors trade with the same public information. When you buy bonds, you are loaning money to a corporate or government entity. Bonds face similar regulation. Financial advisors whom you retain to help you invest owe you duties of knowledge, skill, care, and loyalty. Advisors who engage in excessive transactions to earn undue fees, sell you inappropriate investments, or otherwise violate their fiduciary duties may have civil liability and owe restitution. Sound investing requires knowledge of tax laws such as taxes on capital gains, the tax-free status of certain municipal bonds, and the tax-favored status of certain retirement accounts. You should also be holding your investments in accounts and designating account beneficiaries and secondary beneficiaries to accomplish your estate-planning goals in the event of your demise. You may benefit from placing certain investments in a trust or conveying certain investments to others now, before your demise. Know the legal framework for investments and laws of investing. Consult a qualified lawyer regarding the obligations of the companies and agencies issuing securities, duties of financial advisors, and proper handling of your investments, especially if you have a dispute you are unable to favorably resolve over any of those issues.
Audit: Confirm the following relating to your investments: (a) that your financial advisor has the required licenses and recommended certifications; (b) whether regulators have disciplined your financial advisor for misconduct; (c) the account-beneficiary designations on your accounts; (d) whether accounts are federally insured; (e) your financial advisor’s fees and charges.
Retirement
Plan to provide for yourself in retirement when you are no longer able to earn substantial income. Otherwise, the financial burden falls on family members and the public. Law encourages saving for retirement while also mandating public retirement and assistance programs and their funding as backstops. Federal law creates a program for employers to insure defined-benefit pension plans. Federal law also authorizes employers to offer 401(k) defined-contribution retirement plans, 403(b) plans for nonprofit workers, and 457 plans for government workers. These tax-favored plans allow you to contribute pre-tax dollars, providing you with one substantial financial benefit, and then exempt the earnings from taxation, providing you with another substantial financial benefit, although you do pay taxes at the time of withdrawals. With certain exceptions, federal law penalizes early withdrawals before age 59 ½ and then requires withdrawals beginning at age 70 ½. Federal law also authorizes Roth IRA accounts to which you may contribute post-tax dollars but on which you do not pay taxes on the earnings or withdrawals. Americans have saved trillions of retirement dollars using these programs. Federal law requires that employees and employers together pay Social Security and Medicare taxes totaling 15.3% of wages, over and above federal, state, and local income taxes. You then earn a Social Security retirement benefit you may elect to take as early as age 62 or, if you wish a higher benefit, then as late as age 70 ½, calculated in part on your lifetime earnings. Medicare taxes enable you to enroll in Medicare Part A giving you free basic hospitalization, short-term nursing, and hospice care. You also qualify to pay a monthly premium for Medicare Part B insurance giving you expanded hospitalization, physician, and therapy care, and Medicare Part D prescription-drug coverage. Consult a qualified representative if you face issues over these laws supporting your retirement.
Audit: Identify which of the following programs you are planning for in retirement, and on what terms as indicated: (a) Social Security (starting at what age); (b) defined-benefit pension plan (from what employer and at what benefit amount at what age); (c) defined-contribution pension plan (through what employer and in what estimated amount at retirement); (d) Medicare Part A; (e) Medicare Part B; (f) Medicare Part D.
Taxes
Federal, state, and local laws tax your earnings. Ensure that you comply with those laws. Your employer should be withholding income taxes, unless you are self-employed, in which case you should be setting aside taxes out of your earnings and making the required quarterly payments. Tax withholding, though, does not alone satisfy your obligation. The primary way in which you comply with income tax laws is to file accurate annual federal, state, and local tax returns that calculate your remaining obligation or refund after withholding. Your failure to file tax returns can result in criminal charges and civil fines and penalties. Tax authorities audit a certain number of returns for accuracy and may pursue criminal charges and assess civil fines and penalties for inaccurate and fraudulent returns. Confirm the accuracy of everything you report on any tax return. Choosing among alternative filing statuses, for instance whether jointly with or separately from a spouse, affects tax rates and obligations. Tax credits, deductions, and exemptions can also make substantial differences in total tax obligations. When you make a gain on the sale of certain investments or earn interest and dividends, you may owe capital-gains tax. States and some locales also impose sales taxes. Individuals and organizations selling certain goods must collect and remit the sales tax to the state or locale. You also pay real-property taxes on your residence and other buildings and lands. State laws permit you to challenge the annual property-tax assessment, while laws in some states cap annual increases for your homestead. Consult a qualified representative if you have an issue with your tax withholding, return, payment, refund, and audit, and for tax planning.
Audit: Identify which of the following federal and state income-tax credits, deductions, and exemptions may apply to you: (a) earned-income credit; (b) home-mortgage deduction; (c) medical-expense deduction; (d) moving-expense deduction; (e) business loss; (f) investment loss; (g) loss carry-forwards; (h) home-office expense; (i) exemptions for certain disability; (j) homestead exemption; (k) charitable deductions. Consult a qualified representative about these and other tax issues to ensure that you pay what you owe but do not pay more than you need to pay. See the guide Help with Your Money for strategic advice on money management.
Key Points
Law closely regulates financial institutions and transactions.
Law insures accounts and ensures bank liquidity to protect accounts.
Control access to your accounts through your account agreement.
Truth-in-lending laws require accurate and complete disclosures.
Lenders may garnish accounts and execute on items to collect debt.
Law closely regulates investment securities and advisors.
Tax laws advantage retirement savings accounts to promote saving.
Comply with federal, state, and local income tax and other tax laws.