Personal Finance

D.C. appeals court greenlights Justice Department investigation into NAR

Published

8 months ago

April 9, 2024

A federal court cleared the way Friday for the Justice Department to reopen an antitrust probe into the National Association of Realtors and its rules regarding home sale commissions.

In a 21-page opinion, a panel of the U.S. Court of Appeals for the District of Columbia Circuit reversed a lower-court decision that the Justice Department was barred from reopening its investigation because of complications arising out of a 2020 settlement the government eventually withdrew from. The appeals court sent the matter back to the lower court, where Realtors could appeal to the full D.C. Circuit or attempt to find a new angle to challenge the investigation.

The decision represents the latest blow for the powerful real estate group, which agreed in March to pay $418 million to resolve several class-action lawsuits alleging it conspired to inflate commissions. The NAR, which denies any wrongdoing, also said it would revise a compensation structure that typically carves out 5 to 6 percent of a home’s sale price for agents.

While lawyers for the plaintiffs expect the lawsuit settlement — if approved in federal court — to lower commissions, it would not preclude the Justice Department from further investigating the Realtors association, which counts 1.5 million members.

The Justice Department, which often does not publicly confirm ongoing investigations, did not specifically say it would restart the probe of the Realtors group. But Justice officials went out of their way to note the implications of Friday’s ruling.

“Real-estate commissions in the United States greatly exceed those in any other developed economy, and this decision restores the Antitrust Division’s ability to investigate potentially unlawful conduct by NAR that may be contributing to this problem,” said Assistant Attorney General Jonathan Kanter of the Justice Department’s Antitrust Division.

The Realtors association said Friday that it was “reviewing today’s decision and evaluating next steps.” Pointing to a dissenting opinion by U.S. District Judge Justin R. Walker, the association added that it “believes that the government should be held to the terms of its contracts.”

Walker wrote that the Justice Department should be precluded from reopening its investigation because the federal government previously said in a letter that it had closed the matter.

Scrutiny on the commissions system comes as housing affordability weighs on consumers. In the last quarter of 2023, the median U.S. sales price was $417,700, according to the Federal Reserve of St. Louis. Under a standard 6 percent commission, more than $25,000 would be earmarked for agents. In 2023, Americans paid close to $80 billion in commissions at a time when financing and other costs were elevated. As of the third week in March, a 30-year fixed mortgage rate hovered near 7 percent, close to the 20-year high reached in October.

At issue in the D.C. Circuit was whether the Justice Department’s antitrust division could reopen an inquiry it settled with the NAR in November 2020 concerning rules that, the government alleged, “illegally restrained competition in residential real estate services.” Months after the probe officially closed, the Justice Department withdrew from the settlement, which it said prevented the government from further investigating the trade group’s commissions rules. When the Justice Department sought to continue its investigation, the association petitioned to block it.

In January 2023, U.S. District Judge Timothy J. Kelly ruled in favor of the NAR. The Justice Department appealed, leading to Friday’s ruling.

NAR rules have called for sellers’ agents to include compensation offers in listings on real estate databases known as multiple listing services (MLS). Buyers’ and sellers’ agents have traditionally split the compensation, typically 5 to 6 percent of the home-sale price and funded entirely by the seller.

Critics contend the arrangement pays buyers’ agents far more than the value of their services. Such agents have played a smaller role in transactions in recent years with the rise of platforms such as Zillow that let users search for homes on their own.

The issue burst into the spotlight in October, when a Kansas City, Mo., jury found that the NAR and several major brokerages conspired to keep commissions artificially high, awarding a class of home sellers $1.8 billion in damages. A similar case in Illinois had been moving toward trial when the NAR announced in March that it agreed to settle both cases. The trade group said it would modify its rules to limit cooperation between buyers’ and sellers’ agents regarding compensation.

Although the Justice Department declined to comment on that settlement, it still may have a reason to launch an investigation if the proposed settlement does not foster price competition, according to Ryan Tomasello, an analyst at Keefe, Bruyette & Woods who covers real estate technology.

The settlement proposes changes to prevent agents on either side of the transaction from coordinating on commissions, which experts say leads to price fixing. One proposal would prohibit listing agents from making compensation offers through the MLS, which allows buyers’ agents to easily see what commission rate is being offered and steer their clients toward properties with high compensation.

But Tomasello said it includes exceptions that would keep compensation offers visible to buyers’ agents in some cases.

“In our view, so long as listing agents can continue to make and advertise compensation offers to buyer agents, steering incentives will still exist,” Tomasello said in a research note.

The Justice Department took a similar position in February when it intervened in a Massachusetts commissions case that involves an independent MLS with similar compensation rules as the NAR.

In a filing disagreeing with the terms of the proposed settlement in Massachusetts, the federal government noted that as “long as sellers can make buyer-broker commission offers, they will continue to offer ‘customary’ commissions out of fear that buyer brokers will direct buyers away from listings with lower commissions — a well-documented phenomenon known as steering.”

Rachel Weiner contributed to this report.

Personal Finance

Some shoppers prefer retail credit cards over buy now, pay later plans

Published

55 minutes ago

December 19, 2024

Business Finance News

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High interest rates aren’t deterring many shoppers from store credit cards.

When asked to choose between a store card or a buy now, pay later plan, 58% of surveyed shoppers prefer store cards, according to a new report by LendingTree. The remaining 42% picked BNPL loans.

The site polled 2,040 U.S. adults in September.

That choice “speaks to the fact people may be looking for a little bit longer-term help with their financial situation,” said Matt Schulz, chief credit analyst at LendingTree.

In December, new cards offered by the top 100 retailers had an average annual percentage rate of 32.66%, up from 27.7% in 2022, according to the Consumer Financial Protection Bureau. Many short-term BNPLs do not charge interest, but longer-term loans do, and on the higher end, those rates can be comparable to a store card.

Younger shoppers have been early adopters of BNPL, and that shows in their payment preferences.

About 59% of Gen Zers and 51% of millennials prefer BNPL over retail store credit cards, Lending Tree found. To compare, 38% of Gen Xers and 22% of baby boomers prefer BNPL.

“Buy now, pay later really started off as a millennial, Gen Z phenomenon,” Schulz said. “Younger Americans really drove a lot of the growth.”

Whichever payment option you plan to use to finance holiday purchases this year, keep in mind the cost of carrying the debt, experts say.

How store cards and BNPL work

Retail store credit cards and BNPL loans operate differently.

A retail store credit card is a long-term, revolving line of credit that a store offers in conjunction with a bank partner. To entice new users, stores generally offer applicants a discount on their first card purchase, or financing deals. The card may also be tied into the retailer’s loyalty program, sometimes with bonus rewards for cardholders.

A buy-now, pay later loan — issued through a provider the merchant works with — typically breaks up the total cost of a purchase into installment payments over a set period of time. Some providers offer longer repayment periods, too, and charge interest. Users can have multiple purchases with the same BNPL provider at once, but those may be treated as individual loans with their own repayment terms.

With either payment method, make sure to pay off the balance on time — you might face penalties like fees and interest if you don’t stay on track.

Gen X most likely to max out their credit cards, survey finds

A retail credit card can affect your credit history, as the account is reported to the three major credit bureaus: Equifax, Experian and TransUnion.

BNPL has been somewhat “invisible” to credit bureaus in the past, meaning the loan did not show up on users’ credit reports. But AfterPay, Affirm and Klarna are among the providers reporting some BNPL loans to the credit bureaus.

Both payment forms can be attractive for shoppers. Retail store credit cards tend to be easier to qualify for compared to other credit cards, especially as banks have been tightening credit card approval requirements in recent months, Schulz said.

Over the third quarter of 2024, some banks have tightened their lending standards for credit card loans, lowered their credit limits and increased minimum credit score requirements, according to the Federal Reserve.

“It’s a reaction from the banks to rising delinquencies, rising debt and overall economic uncertainty,” Schulz said.

BNPL can also be relatively easy to apply for and qualify.

“The rise of buy now, pay later is the biggest reason why Americans are opening fewer store cards,” according to Ted Rossman, an industry analyst at Bankrate.

‘Consider the total cost of ownership’

The holiday season is here, a busy time to buy gifts for family and friends. If you find yourself in a situation where a retail store credit card or a BNPL can help stretch your budget, consider the “total cost of ownership,” Rossman said.

“Both of these payment methods can be advantageous depending on how you use them, but could also be a pretty slippery slope into debt and overspending,” he said.

BNPL can be tricky because you can have multiple loans running at the same time, and the costs “can add up,” Rossman said. Make sure to keep track of the pay-later loans you have and are able to withstand the automatic deductions.

If you can’t pay a retail card purchase off at the end of the statement period, any discount, reward or perk that you may get is going to be washed over by the interest you’ll owe on top of the outstanding balance, Schulz said.

“Paying 30% interest to save 15 or 20% doesn’t make a whole lot of sense financially,” Schulz said.

Personal Finance

What to know before rebalancing with bitcoin profits, advisor says

Published

18 hours ago

December 18, 2024

Business Finance News

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Many investors are likely still deciding whether to stay in bitcoin or reduce their profits from the last bull run to new all-time highs.

So, after a strong year for bitcoin, it could be time for investors to weigh rebalancing their portfolio by shifting assets to align with other financial goals, according to financial experts.

The price of the flagship digital currency sailed past $100,000 in early December and was still up more than 130% year-to-date, as of Dec. 18.

Some investors now have large bitcoin allocations — and they could have a chance to “take some risk off the table,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York.

“The golden rule of ‘never invest more than you’re willing to lose’ comes into play, especially when we’re talking about speculative assets,” said Boneparth, who is also a member of CNBC’s Financial Advisor Council.

Before using bitcoin profits to buy other investments, you may consider using the gains to fund another financial goal, like retiring early or buying a home, he said.

Decide on your ‘line in the sand’

There’s a different thought process if you want the money to stay invested, Boneparth said.

Typically, advisors pick an asset allocation, or mix of investments, based on a client’s goals, risk tolerance and timeline.

Often, there’s a “line in the sand” for the maximum percentages of a single asset, he said.

Typically, Boneparth uses a maximum of 20% of a client’s “investable net worth,” which doesn’t include a home, before he starts trimming allocations of one holding.

‘There’s no free lunch’ with taxes

When selling crypto in a brokerage account or exchange, you could owe taxes on growth, depending on how long you’ve owned the asset, Boneparth said.

“There’s no free lunch,” he said. “Just because it’s crypto doesn’t mean you’re exempt from paying taxes on your gains.”

You’ll owe regular income taxes on profits from crypto owned for one year or less. But you’ll trigger long-term capital gains — taxed at 0%, 15% or 20% — on profitable assets owned for more than one year.

However, you could harvest crypto gains tax-free if you’re in the 0% long-term capital gains bracket for 2024, experts say.

For 2024, you’re eligible for the 0% rate with taxable income of $47,025 or less for single filers and $94,050 or less for married couples filing jointly. These amounts include any gains from crypto sales.

“That’s a very effective strategy if you’re in that bracket,” Andrew Gordon, a tax attorney, certified public accountant and president of Gordon Law Group, previously told CNBC.

The 0% capital gains bracket may be bigger than you expect because it’s based on taxable income, which you calculate by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

Financial advisors take on crypto: Here's what to know

Personal Finance

Paying down debt is a top financial goal for 2025. These tips can help

Published

19 hours ago

December 18, 2024

Business Finance News

Skynesher | E+ | Getty Images

When it comes to financial resolutions for 2025, there’s one goal that often lands on the top of the list — paying down debt, according to a new survey from Bankrate.

That’s as a majority of Americans — 89% — say they have a main financial goal for 2025, the November survey of almost 2,500 adults found.

While paying down debt came in as a top goal, with 21%, other items on Americans’ financial to-do lists include saving more for emergencies, with 12%; getting a higher paying job or additional source of income, 11%; budgeting and spending better, 10%; saving more for retirement and investing more money, each with 8%; saving for non-essential purchases, 6%; and buying a new home, 4%.

Those goals cap off a year that had some financial challenges for consumers. Some prices remain elevated, even as the pace of inflation has subsided. As Americans grapple with higher costs, credit card debt recently climbed to a record $1.17 trillion. The average credit card debt per borrower rose to $6,380 in the third quarter, according to TransUnion.

Banks blame high credit card rates on regulation that's unlikely to arrive

Lower interest rates may help reduce the costs of holding that debt. The Federal Reserve moved on Wednesday to cut rates for the third time since September, for a total reduction of one percentage point.

Yet the best-qualified credit card borrowers — those with superior credit scores — still have an average rate of 20.35%, down from around 20.79% in August, according to Mark Hamrick, senior economic analyst at Bankrate.

“It could be injurious to personal finances if people accumulated debt that they’re not substantially paying down,” Hamrick said. “It’s prudent and heartening to see that people are identifying debt broadly as something they want to address in the coming year.”

‘The Fed isn’t the cavalry coming to save you’

To pay down credit card balances — as well as other debts from auto loans or other lines of credit — individuals may need to shift their financial priorities.

A majority of Americans admit to having bad financial habits, finds a recent survey from Allianz Life Insurance Company of North America.

That includes 30% who admit to spending too much money on things they don’t need; 28% who don’t save any money; 27% who only save some money; 23% who aren’t paying down debt fast enough; and 21% who spend more than they earn.

For debtors who want to pay their balances down, the best approach is to take matters into their own hands, said Matt Schulz, chief credit analyst at LendingTree.

“Even though the Fed is reducing rates, the Fed isn’t the cavalry coming to save you,” Schulz said.

Asking your credit card company for a more competitive interest rate on your debt often works, according to Schulz. About 76% of people who asked for that in the past year got their way, LendingTree found.

“It’s absolutely worth a call,” he said.

Moreover, balance holders also may keep an eye out for 0% transfer offers, which can let them lock in a no-interest promotion for a fixed amount of time, although fees may apply. Or they may consider a personal loan to help consolidate their debts for a lower rate.

Even as debtors prioritize those balances, it’s still important to prioritize personal savings, too. Experts generally recommend having at least three to six months’ living expenses set aside in case of an emergency. That way, there’s a cash cushion to turn to in the event of an unexpected car repair or veterinary bill, Shulz said.

Admittedly, by also prioritizing savings, it will take more time to pare down debt balances, he said. But having savings on hand can also help stop the debt cycle for good.