Chased by the U.S. Government, Thousands Are Severing Ties With America. Here’s What You Need to Know.

As required by law, the IRS compiles a list of those who renounce their citizenship, and the names are published in the Federal Register.

By LAURA SAUNDERS and LIAM PLEVEN

Here is a sign that life is getting complicated for U.S. taxpayers with assets abroad: More of them are deciding they are better off cutting official ties with America.
In the first half of 2013, 1,809 people renounced their American citizenship or permanent-resident status, according to a tally by Andrew Mitchel, a tax lawyer who tracks U.S. data. At that pace, the 2013 total would double the previous high of 1,781 renunciations in 2011.

Daniel Kuettel, a Colorado native who lives near Zurich, says he gave up his U.S. citizenship in October because he feared he wouldn’t be able to get a mortgage now that some Swiss banks are cutting ties with American clients.
“It was a really difficult decision. I had to think about what was best for me and my family, to reduce the risk,” says Mr. Kuettel, a 41-year-old software developer. He says his income was below the limit the U.S. allows overseas taxpayers to exempt and he owed no U.S. taxes.

The increase in renunciations is one sign that ordinary Americans who have lived and worked abroad for years, as well as green-card holders in the U.S. and overseas, believe they are at growing risk because of the intensifying government pursuit of undeclared foreign assets.

The crackdown started in the wake of the 2001 terrorist attacks, and it gathered force after Swiss banking giant UBS AG agreed in 2009 to pay $780 million to settle charges it had helped U.S. taxpayers hide assets.
Since then, more than 80 U.S. taxpayers have been criminally charged, and Switzerland’s oldest bank, Wegelin & Co., closed down after pleading guilty to helping U.S. taxpayers hide more than $1.2 billion abroad.

On Friday, a prominent Swiss lawyer pleaded guilty in U.S. court to helping U.S. taxpayers hide millions of dollars abroad.

U.S. officials are enforcing rules established by Congress—some widely ignored for years, and others added more recently—that threaten stiff penalties and even prison for failure to comply. The crackdown has brought more than $6 billion in taxes and penalties into U.S. coffers, and experts say another $5 billion is in the pipeline. A representative for the IRS declined to comment.

Much of the money comes from well-heeled taxpayers. The top 10% of taxpayers who went through one of the Internal Revenue Service’s limited-amnesty programs had account balances over $4 million, the U.S. Government Accountability Office estimated in a March report. The programs are one way for taxpayers who have missed past filings to come into compliance.

But many U.S. taxpayers who aren’t wealthy also are finding it harder to attend to routine financial matters abroad, because some foreign institutions don’t want to face the cost of complying with U.S. requirements.
Amid the crackdown, some face stiff U.S. tax bills and crippling fines over undeclared assets. Paying lawyers and accountants to help meet the various reporting and filing requirements routinely costs at least $1,000 a year, and often much more, experts say.
Other people say they are considering whether to renounce but are reluctant to take such a drastic step. Renouncing can cause additional complications, including another steep bill because of an exit tax the U.S. imposes on those who meet certain income or asset thresholds.

Although the U.S. State Department doesn’t keep official statistics, it estimates that 7.2 million U.S. citizens live abroad. And the U.S. Department of Homeland Security estimates there were 13.3 million green-card holders living here as of Jan. 1, 2012.
Despite the campaign against undeclared accounts, U.S. taxpayers filed only 825,000 foreign-account reports last year—meaning that millions of people likely aren’t complying with the law.

“It’s clear that compliance is dismal, and also why the IRS is being aggressive in its enforcement efforts,” says Jeffrey Neiman, a former federal prosecutor now practicing law in Ft. Lauderdale, Fla.

So many people could be affected by the crackdown that mass-market tax preparer H&R Block has expanded services for taxpayers with international ties. In May, the company launched a tax-preparation service via the Internet that is targeted at expatriates and highlights the firm’s ability to help taxpayers with unfiled prior-year returns.

U.S. laws and rules provide few options for people who are in a showdown with Uncle Sam. Here is some of what U.S. taxpayers need to know:
Understand what is different about the U.S. Unlike almost all other countries, the U.S. taxes citizens and permanent residents on all income, wherever it is earned in the world. So a U.S. taxpayer living in India could owe U.S. levies on income from a British investment.
The U.S. tax code does allow taxpayers living overseas an exemption for wages earned abroad of up to about $100,000, plus a housing allowance, but taxpayers must file a return to claim the benefits.

Tax treaties might help U.S. citizens or green-card holders who live abroad avoid double taxation, but there can be gaps, experts say. For example, treaties typically don’t provide an offset for foreign sales or value-added taxes. And if the tax rate is lower abroad than in the U.S., the U.S. taxpayer could owe the difference to Uncle Sam.
The U.S. also has an expansive definition of who is a citizen. It includes people born on U.S. soil as well as people born to U.S. citizens living abroad.

Kevin Packman, a partner with law firm Holland & Knight in Miami, has a Canadian client who was born in the U.S. to Canadian parents but moved to Canada as an infant. “She had no idea she was a U.S. citizen until she was nearly 50,” he says. Experts say there are many similar “accidental citizens.”
Know what has changed. While U.S. taxes on world-wide income have existed for decades, experts say laws regarding such income were seldom enforced.

That changed after the attacks of Sept. 11, 2001, in part because of concerns about terrorism. In 2004, Congress imposed severe penalties—up to $100,000 or 50% of the account, whichever is greater, per year—on U.S. taxpayers who choose not to tell the IRS about foreign financial accounts totaling $10,000 or more.
Critics point out that this penalty is for not filing a form, not for evading taxes. Bryan Skarlatos, a New York partner with law firm Kostelanetz & Fink who has handled hundreds of offshore accounts cases, says the total includes more than a dozen in which the tax and interest owed on offshore accounts was less than $20,000. Yet the IRS assessed penalties of more than $1 million, he says. The IRS declined to comment.

U.S. officials ramped up their campaign after the 2009 settlement with UBS. As part of the deal, the Swiss bank turned over the names of more than 4,000 U.S. taxpayers with secret accounts. Other banks have since made payments to the U.S. and named names.
In 2010, Congress passed the Foreign Account Tax Compliance Act, known as Fatca, which requires further disclosures by U.S. taxpayers with offshore accounts. The law also requires foreign financial institutions to report information to the IRS about U.S. account holders or face steep costs for not doing so.

Important Fatca provisions have been postponed until July 1, 2014, but the law has a long reach. For example, it could require a foreign-based trust to report information to the IRS about a beneficiary who holds a green card, even if that person gets no money from the trust and doesn’t know it exists, says Dean Berry, a partner with law firm Cadwalader, Wickersham & Taft.
Accidental tax cheats may be able to avoid large penalties. The IRS has a limited-amnesty program that offers protection from criminal prosecution, typically in exchange for stiff penalties.
Taxpayers deemed less culpable—for instance, because they inherited money in a foreign account they didn’t touch—can face lesser penalties. But the exceptions are often narrowly defined.
There are other options. People who have already entered the IRS’s limited-amnesty program sometimes choose to opt out. That leaves them vulnerable to a regular IRS audit, though the penalties are often lower.
But there are risks: Outside the program, there is less protection from prosecution and penalties can be higher, although experts say both outcomes are rare.

Advisers often recommend that taxpayers whose violations were unintentional and haven’t entered the limited-amnesty program should consider making “quiet disclosures” instead. That means catching up with back returns as well as filing them in the future.

The IRS hasn’t officially sanctioned such filings, and going this route may not offer protection against prosecution. But experts say the IRS seldom challenges quiet disclosures. In practice, says Mr. Skarlatos, the IRS almost never looks back more than six to eight years.

Taxpayers need to be able to show their violations weren’t willful, however. Experts say the evidence could include never having filed a U.S. return if you live abroad, having the undisclosed account in the country where you live, rather than a tax haven, or not having lived in the U.S. for many years. It also helps to have little to no income earned in the U.S. and not to hold the undisclosed account within a trust or foundation.

Expatriation can have stiff costs of its own. People who renounce often have to certify they have complied with U.S. tax laws for the past five years. That means expatriation is a bad strategy for cleaning up past problems.
In addition, U.S. citizens and some green-card holders who formally expatriate are treated as though they sold their property on the day before they renounce. There are few exceptions, says Stow Lovejoy, another lawyer with Kostelanetz & Fink in New York.

Such people owe an exit tax if their net worth is $2 million or more or their average annual income tax for the past five years is greater than $155,000. The exit tax is due on net gains, above an exclusion of $668,000. Deferred income in IRAs and some other tax-deferred accounts becomes taxable at ordinary rates, up to 39.6%, according to Mr. Lovejoy.

Expatriation can also bring severe estate-tax consequences. The U.S. heirs of people who paid an exit tax often owe a 40% tax on assets they inherit from the expatriate, whether the assets are in the U.S. or not. Unlike with typical estates, there usually isn’t a $5.25 million exemption.
In addition, law requires that the names of people who surrender their citizenship be published by the government, which some consider embarrassing.

At the same time, there are important exceptions to the exit tax. For example, people who have been dual citizens from birth can be exempt. For more information, see the instructions to IRS Form 8854.

Green-card holders might have other options. People with permanent-resident status who turn in their green cards are subject to the exit tax if they have held the card in at least eight of the previous 15 years. As with citizens who renounce, their names are also required to be published.
However, under complex treaty provisions the U.S. has with some countries, years when a green-card holder lives abroad might not be included in the eight-year tally. So careful planning can help some holders stay under this threshold.
Cushion the blow of U.S. taxes and disclosure with planning. Although the U.S. rules are strict, there is room to maneuver.

Cadwalader’s Mr. Berry points out that a wealthy person who plans to expatriate might be able to use the U.S. gift-tax exemption of $5.25 million per individual to shift assets into a trust in order to reduce total assets enough to avoid the exit tax.

If trust assets are used to purchase a life-insurance policy, then U.S. heirs could inherit cash from the expatriate who isn’t subject to the special inheritance tax, he adds.
In some cases, a wealthy family may choose to have one family member expatriate and hold assets for the benefit of the rest of the family. Using a “foreign grantor trust,” the non-U.S. person could hold assets and make taxfree gifts to other family members who are U.S. citizens or green-card holders. However, the non-U.S. person is often required to have authority to revoke the trust and keep the assets, giving that person enormous power.

Write to Laura Saunders at laura.saunders@wsj.com and Liam Pleven at liam.pleven@wsj.com

Philippine authorities said the death toll from the collision of a passenger ferry and a cargo ship in Cebu province has increased to 52, making it the worst such tragedy for the country since June 2008. Sixty-eight people are still missing as efforts to contain an oil spill intensify.

A total of 750 passengers and crew members from M/V St. Thomas Aquinas and cargo vessel M/V Sulpicio Express 7, which collided on the evening of Aug. 16 have been rescued, Commander Winiel Azcuna of the Coast Guard station in Cebu said by phone. As much as 30,000 liters [7,920 gallons] of oil have leaked from the sunken passenger ship, and containment and coastal clean-up operations are ongoing, Azcuna said.

The passenger vessel, which has an authorized capacity of 1,010 people and 160 units of twenty-foot containers, came from Surigao and Nasipit port and was scheduled to arrive in Cebu for a stopover at 10 p.m. on Aug. 16 before heading to Manila, owner 2GO Group Inc. said on its website. 2GO said it’s flying in international oil spill experts and several Japanese technical divers to assist in containing the oil spill.

The cargo vessel is owned by Philippine Span Asia Carrier Corp. formerly known as Sulpicio Lines Inc. Sulpicio owned M/V Dona Paz which collided with an oil tanker and sank in December 1987, killing more than 4,000 people in the world’s worst peacetime shipping tragedy. It also owned M/V Princess of the Stars, which capsized in June 2008 and killed more than 800 people as typhoon Fengshen lashed the central Philippines.

Divers retrieved 11 bodies this morning before halting operations due to high waves and strong winds, Azcuna said.

The passenger ferry had 20,000 liters [5,280 gallons] of diesel fuel and 120,000 liters [31,680 gallons] of crude fuel in its fuel tank, while 20,000 liters of lube oil were being used by the engines before the incident, 2GO said. M/V St. Thomas Aquinas carried mostly agricultural products, it said.

–Editors: Colin Keatinge, Clarissa Batino

According to catastrophe modeling firm AIR Worldwide, homes and roads in central New Zealand were damaged by a M6.5 earthquake on Friday, August 16, at 2:31 p.m. local time (2:31 a.m., UTC), but no serious injuries have been reported.

AIR noted that the “region has experienced several small- to-moderate earthquakes in recent weeks, including one event of M 6.5. These have all occurred in the Cook Strait, which separates New Zealand’s North and South Islands. The epicenter of Friday’s event however, was on land, 10 km (6.2 miles) southeast of the South Island town of Seddon. Because of New Zealand’s stringent building codes, the location of the epicenter and the moderate magnitude of the event,” AIR said it doesn’t “expect significant losses from this earthquake.”

Dr. Arash Nasseri, senior research engineer at AIR Worldwide, said: “The earthquake was felt as far away as Christchurch, 240 km (150 miles) southwest, and Auckland, 404 km (250 miles) north, and there have been several aftershocks of M5.0 or more.”

AIR noted, however, that the earthquake was “felt strongly in Wellington, some 80 km (50 miles) from the rupture. Items jiggled off shelves, some buildings were evacuated. In Seddon, a small town of about 450 people, several homes suffered cracks, fallen chimneys, and collapsed roofs. An earth dam near the town, cracked during an earlier quake and in the process of being emptied over concerns about its safety, was further damaged.”

“Seismic design codes in New Zealand have set stringent requirements for new buildings, and Wellington has initiated a comprehensive policy to identify earthquake-prone pre-1976 buildings and seismically rehabilitate and strengthen them,” Dr. Nasseri explained. “As usual, non-engineered buildings such as unreinforced masonry structures are the most vulnerable types in this region.”

At least one of the homes severely damaged in Seddon was a 120-year old structure built of cob, a traditional blend of earth, sand and straw usually resistant to seismic activity.

“The immediate region has been subject to large historical earthquakes, such as the M7.5, 1848 Marlborough event (situated north of the July 21 epicenter), and the 1855 M8.2 Wairarapa Earthquake (80 km to the northeast),” said Dr. Gerald Galgana, scientist at AIR Worldwide.

“The motion associated with the August 16 event was right-lateral strike-slip, reflecting the relatively horizontal motion of tectonic plates in the region,” he continued. “The earthquake occurred at the boundary of the Pacific and Australia Plates, along a tectonic transition zone where the plates converge at 39–48 mm/year. Plate motion direction and deformation style dramatically change along the plate boundary between the North and South Islands.”

According to AIR, “north of the epicentral region, the predominantly westward subduction of the Pacific Plate (North Island part) along the Hikurangi Trench transitions into nearly pure strike-slip motion along the Marlborough Fault system in the south. This further transitions into oblique strike-slip faulting along the Southern Alpine Fault.

“The generally SW-NE trending Marlborough Fault system (located in the northern region of South Island) itself is made up of several parallel fault splays that accommodate the motions, the most prominent being the Clarence, Awatere, Wairau and Hope faults. In North Island, the Wellington Fault and the Wairarapa Fault dominate and lie parallel to these fault structures.”

I know that most of you have missed my retweeted blogs this week. Yeah, right! You’re probably saying, “here he goes again”. Another portion of my fan base is probably saying, “blog, what blog?”

Whether you have missed me during this week or just woke up from a deep slumber and are totally confused, “what’s he talking about”. Here is my recap of the first week from my (much needed) two week vacation.

Saturday the 3rd my wife, our daughter Cristina and our very special son-in-law Alfie (short for Alfredo), stepped off of the plane in sunny Cancun to what we thought would be a serenade of Mariachis and free Tequila. About 45 minutes later sans Mariachis and Tequila we were on our way to our villa at the Royal Caribbean Resort. Upon our arrival at the the Royal Caribbean we were greeted by a very friendly concierge named Selene; who now seems to be a part of our family, she seems to pop up everywhere. The other day I went to take a shower and could have sworn I heard Selene’s voice saying; “if you want to take a shower I can get you a good deal on soap and water”. Ok, so I was taking a nap and, no, Selene was not in the shower with me. Thank God! That would have been pretty embarrassing.

Once we settled into our villa, my wife Roxana, our daughter, Cris and our very special son-in-law, Alfie went to La Palapa for lunch. Lunch was uneventful, we had the usual guacamole with totopos a black bean soup (excellent may I add) and each had something Mexican, in the way of food that is. After lunch Cristina and I got on a bus to downtown Cancun where we went grocery shopping at the local supermarket Chedraui. Chedraui is polish for; I am the only non-Mayan name in the Mayan Riviera and surrounding areas. The reason that I know this is to be true, because the name doesn’t begin with an X (Xcaret, Xel-Ha, Xplore. Catch my drift?).

So now Cris and I (keep up, Cris is my daughter) are in the supermarket making important decisions. Is the chicken in the freezer fresh or did it come over with Hernan Correz in 1519. Is the bottle of Vodka cheap enough, and more important, is one bottle enough. As we deciphered these very important culinary and AA related questions we came upon the deli.

The Deli, an experience all of its own. As we arrived at the deli it was a no brainer, two pounds of ham and some cheese, so we thought. In Mexico they measure weight in grams. Mind you I barely passed high school math; how am I supposed to convert pounds into grams??? Easy, find a Mexican deli employee who is smarter than me. FYI, if you’re ever in Mexico and want to buy ham, the conversion is half a kilogram is equal to a pound, or so she said. But, since she seemed to know more than me about this particular subject, I just went with it.

The next Deli challenge was asking for the Ham. Sir, would you like breast ham or leg ham? Ok… whose breast are we referring to, or whose leg for that matter. As it turns out leg ham is our traditional pork derivative; and when I say derivative, I mean exactly that. It’s no Boar’s Head. Breast ham refers to turkey breast, that sounds simple right? Not so much, at plain sight you can’t tell the difference. Anyway, we went with the leg ham, which by the way, has so many fillers I’m still wondering if the pig ever existed. After choosing the ham I was asked if I wanted the 90 pesos or the130 pesos a kilo brand, I immediately deduced that the more expensive option might have two less fillers than its cheaper counterpart.

Still at the Deli, we are now ready to tackle the cheese. Manchego cheese is a fine delicacy from Spain, of which I am very fond of. In fact, I could probably attest to the fact that it is my favorite cheese in the whole wide world. Looking at the wrapper, marked Manchego, and looking at the cheese, totally white, when Manchego is usually a bit on the off white side, I immediately deduced that the color had to do with the fact that the “manchego” was locally produced. So, we proceeded to get a pack of the manchego and one of good old American Cheese. The end to this story; the American cheese was actually American cheese, the manchego, not so much manchego. It turned out that what they refer to as manchego is actually white American cheese. So much for my powers of deductive reasoning.

We are now set with all of our groceries and headed back to the villa in a local taxi, driven by a local taxi driver, who charged me for a NY taxi ride… I thought I might have to mortgage the house to pay him off…

Sunday, Monday and Tuesday, poolside, beachside, more guacamole with totopos, and the bottle of Vodka is rapidly evaporating.

Wednesday we had our yearly trip to Isla Mujeres. For those who have never traveled to Cancun, Isla Muneres is a small island in the Cancun bay, it is very quaint, a lot of restaurants, souvenir stores, small hotels as well as a couple of larger resorts, and beachside lounge chairs for the general public who just wants to spend the day. The only way in and out of Island is on a very modern and comfortable 15 minute ferry ride. It is getting to the docks that might become quite an ordeal if you are not a local, or in our case, tourists who do not want to pay tourist fares.

Two years ago my good friend Raúl Ferreyra, (probably the most humble Argentine I have ever met… ok one of two humble Argentines, he and Pope Francis) took us to Isla Mujeres by way of Puerto Juarez.

Puerto Juarez is the port where the locals ferry themselves to work on the island, the cost is US$5 cheaper than if you take the ferry from Hotel Row.

So, I decided to save US$20 and led my group to Puerto Juarez. After deep research (ok, maybe I exaggerated a tad on the research) and a couple of well place questions, I was told that route R1 would take us directly to the port. After a 45 minute bus ride and passing the sign that said “Puerto Juarez”, three times, the driver stops the bus in the middle of a street and tells us that we need to get off and get into a very small van with bench seating, set around the inside perimeter of the, did I mention, very small van. There were already four locals sitting inside the van as the four tourists (thats us) file into this, did I mention, very small van. As our driver takes off we are sitting adequately comfortable, at least I thinks so. About two blocks down the street the driver stops to pick up three more passengers, one holding a very sharp spear. Did I mention that my son-in-law, Alfie, is very special person?

When the three new passengers jump into the van, the one with the spear sits next to Alfie, the second one sits across from Alfie and the one remaining has to stand while hunched over, for lack of proper seating, his butt is now part of Alfie’s face. The van takes off and my wife is now feeling sorry for our very special son-in-law, so she scoots over, to where there is no scooting to be done, so that Alfie’s new addition to his face can sit down and detach his derrière. A few minutes later we are at the port and ready to hop on our ferry to Isla Mujeres.

On Isla Mujeres. We arrive on the island where we proceed to walk to our favorite spot where we spent the day two years ago with our humble argentine friend and his lovely wife, Clara. We decide to rent four lounge chairs close to the water, where we proceeded to enjoy the rest of the day.

Remember that I told you that these chairs were public and that Alfie is a special human being. Well Alfie is special in many ways. He is an excellent husband, a wonderful son to his parents and the son-in-law that all parents want to have. There are also other things that make him special. He is a very observant person, constantly being aware of all of his surroundings, this could be a blessing, but sometimes it could turn into not such a blessing. One of those moments happened when our neighbor on the beach, who happens to be wearing a speedo, turns his chair around and exposes himself to our special son-in-law. I will leave the rest to your imagination. Needless to say, our very special son-in-law is now scarred for life.

Other than that unsavory moment, the day at Isla Mujeres was awesome. The water was clear blue and calm, you can walk as far as you want and the water will rise no higher than your waist. We had three buckets of Sol beer, a Vuelta a la Vida (a mixed seafood cocktail) a Ceviche and Guacamole and Totopos. All without ever getting out of our lounge chairs. Now that’s the life!

At about 4 PM we walked back to the docks and headed back to Puerto Juarez. Upon our arrival at Puerto Juarez we refused to take a taxi back to the villa, we figured that getting financially ravaged by a local taxi driver twice in the same week was not on our vacation agenda. So, we waited and waited and waited for a bus, until one came along, we happily got on and an hour and a half later we were back in our villa reminiscing about the fine points of the day.

Thursday, it rained all day, but it was fine, we were still recuperating from our trek to Isla Mujeres as the family spent the day reminding me of how I should not quit my day job to become a tour guide.

Friday, more pool, sun and guacamole with totopos.

Saturday, Cris and Alfie left at 10:30 for the airport, at around noon the bellhop came to help us switch villas, and a new week of fun In the sun had begun.

No sooner than Alf and Cris left, we began to miss them. We love vacationing with our kids. But, our consolation was that our eldest, Roxy, was coming in Sunday morning.

Next week… The vacation continues.

By the way, did I neglect to mention, before I left Miami I made sure that I acquired Short Term Health Insurance, so that our trip would be free from worry of any health health situation which could arise. I invite you to do the same for your next holiday or business trip.

By Charles Passy

Could debit cards, once a cash cow for banks, be put out to pasture?

A federal court ruling on Wednesday paves the way for a further reduction in the interchange fees (also known as “swipe” fees) that banks levy on merchants for debit cards. It is a victory for retailers, who protested that the 2010 Dodd-Frank financial law, which lowered the fees from 44 cents to 21 cents per transaction, didn’t go far enough. Now, U.S. District Court Judge Richard Leon has essentially scrapped the 21-cent limit and set the stage for an even lower amount, though it may be months, if not years, before any changes are made to the existing cap.

But if changes are indeed made, it could be consumers who ultimately pay the price for banks’ potential loss of billions of dollars in “swipe” fees. As banking industry experts note, the revenue has to be replaced, so higher overdraft penalties and account maintenance charges are all possible. And ultimately, the very existence of debit cards could be in doubt, even if consumers still embrace them as a way to instantly tap into their checking accounts when they reach the cash register. Nevertheless, the math may no longer work out for the banks that issue those cards.

dean bertoncelj / Shutterstock.com
“It is like squeezing one end of a balloon. The air’s going to have to go somewhere,” says Richard Barrington, senior financial analyst with MoneyRates.com.

Certainly, that is what history has shown. When Dodd-Frank was passed in 2010, it resulted in a decline in the percentage of banks offering free checking and an increase in the amounts charged in overdraft penalties. (In the case of the latter, the average penalty rose from $28.71 to $30.01 from 2011 to 2013, according to MoneyRates.com.) But more to the point, say industry experts, it resulted in a culture of nickel-and-diming for just about anything. Those generous debit-card reward programs? Banks have scaled them back considerably. Those free coin-counting machines? “Now banks charge more (for coin counting) than if you took out a home-equity loan,” says Bankrate.com senior financial analyst Greg McBride. (BankRate.com shows the average rate for a $75,000 home-equity loan is currently 5.68%; coin counting at some banks can be as much as 6%.)

And McBride says history is likely to repeat itself. “The consumer got stuck with the bill” on the previous interchange-fee legislation, he says. “A second go-round is only going to lead to further pain.”

To some extent, that is not disputed by the banking industry, which is calling on the Federal Reserve to follow-up on the court decision. “We urge the Federal Reserve to pursue all legal means to mitigate the harm this decision will cause to consumers,” said American Bankers Association president Frank Keating in a statement released on Wednesday.

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Bank of America cuts costs out
Bank of America’s second-quarter profit jumped 63%, boosted by strong income from its global markets arm and improved credit quality. Photo: AP

Nessa Feddis, a senior vice president with the American Bankers Association, explains that if interchange fees are lowered, checking accounts will be the source of revenue most likely to be targeted, since each account already costs a bank around $250 a year to maintain. “Consumers will see fewer free checking accounts, higher checking-account fees and higher minimum balances to avoid those fees,” she says.

It is also possible that banks will try to steer consumers to seek other payment options, especially credit and prepaid cards, which aren’t subject to the same “swipe” fee limits. “It really could mean that the debit-card business is much less viable,” says Sherief Meleis, a partner with Novantas, an advisory firm that tracks the banking industry. See also: 10 things credit bureaus won’t tell you

By JAY SOLOMON And VICTORIA MCGRANE

WASHINGTON—The State Department has extended the closure of many American embassies in the Middle East by a week and has shuttered additional diplomatic missions, underscoring what U.S. officials said was the continued threat posed by al Qaeda and its affiliates.
U.S. officials on Sunday said the decision to close the embassies was based on the same intelligence that led the State Department on Friday to issue a global alert on the possibility for al Qaeda attacks across the broader Mideast and possibly into Europe and the U.S.
Obama administration officials said they are particularly tracking the operations of al Qaeda in the Arabian Peninsula as the primary organization behind the threat. These officials said they’ve monitored communications traffic between the Yemen-based group’s members indicating a major terrorist plot has become operational.
The Obama administration had initially said it was closing most of its Mideast embassies for just one day—Sunday.
“Given that a number of our embassies and consulates were going to be closed in accordance with local custom and practice for the bulk of the week…at the end of Ramadan, and out of an abundance of caution, we’ve decided to extend the closure of several embassies and consulates including a small number of additional posts,” State Department spokeswoman Jen Psaki said Sunday. “This is not an indication of a new threat stream, merely an indication of our commitment to exercise caution and take appropriate steps,” she said.
Among the embassies the State Department said it is closing through next Saturday are the U.S. missions in Egypt, Jordan, the United Arab Emirates, Kuwait and Qatar.
U.S. officials said they didn’t have any specifics on the targets al Qaeda might be pursuing, but stressed the terrorist threat continues unabated with the potential for attacks on embassies, airlines and mass transit systems.
A U.S. official said the Obama administration will be evaluating warnings and embassy closings on an “ongoing basis,” and added: “Sunday was the first day we really cared about.”
Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, said Sunday the terrorism threat leading the U.S. to close most of its embassies in the Middle East is “more specific” than other recent threats and was directed broadly at Western interests, not just those of the U.S.
Gen. Dempsey and a range of American lawmakers speaking on Sunday news shows emphasized both U.S. concern about the threat and the lack of precise details unearthed by intelligence services.
“There is a significant threat stream, and we are reacting to it,” Mr. Dempsey said in an interview with ABC’s “This Week.” The threat is coming from an “Al Qaeda branch,” he said. “The intent is to attack Western, not just U.S. interests.”
House Homeland Security Committee Chairman Michael McCaul (R., Texas) said on CBS’s “Face the Nation” that “this is probably one of the most specific and credible threats I’ve seen perhaps since 9/11.” He said the terror threat was notable because of the link to the Al Qaeda faction in the Arabian Peninsula.
Mr. McCaul and Rep. Peter King (R., N.Y.) were two of several Republican lawmakers Sunday to praise the Obama administration’s pre-emptive steps to alert the public and to protect personnel abroad. “The administration’s call to close these embassies was actually a very smart call, particularly in light of what happened in Benghazi,” Mr. McCaul said, referring to the fatal 2012 attack on a U.S. outpost in Benghazi, Libya, over which the Obama administration has come under intense criticism from Republicans.
And several lawmakers used this latest terrorist threat to buttress their arguments about the importance of intelligence-gathering efforts of the National Security Agency. The NSA has been mired in controversy since former spy contractor Edward Snowden leaked scores of classified documents to media outlets describing the inner workings of U.S. spying and eavesdropping operations.
“The good news is that we picked up intelligence,” said Maryland Rep. C.A. “Dutch” Ruppersberger, the top Democrat on the House intelligence committee. “That’s what NSA does. NSA’s sole purpose is to get information intelligence to protect Americans from attack.”
“The NSA program is proving its worth yet again,” Sen. Lindsey Graham (R., S.C.) said, speaking on CNN’s show “State of the Union.” He did not specify which particular NSA program. He said to his colleagues who are critical of the NSA’s intelligence gathering, “if you want to gut it you’re making us much less safe.”
Other lawmakers drew a distinction between NSA programs directed at overseas intelligence gathering as opposed to those that collect information on U.S. soil. Rep. Adam Schiff (D., Calif), a member of the House Intelligence Committee and a critic of the NSA’s collection of data on Americans’ phone calls, said on CNN that the NSA’s role in helping uncover the latest terror threat doesn’t change his mind about the program. He said he’s seen no indication that the program contributed to the information about this particular plot.
-Siobhan Gorman contributed to this article

Write to Jay Solomon at jay.solomon@wsj.com and Victoria McGrane at victoria.mcgrane@wsj.com