The FCC has ignored our filings against and has instead joined the DOJ in rubberstamping the PIRG-opposed mergers of SBC/AT&T and Verizon/MCI. Previous blog has details.

As we head toward the PIRG-backed Wal-Mart Higher Expectations Week November 13-19th, today's New York Times has a good overview (free regis. req.) of how the skyrocketing health care costs that have pummeled uninsured (45 million strong) and under-insured (add another 30 million) Americans are now facing corporate America. The problem is, while corporate America finally recognizes it has a problem paying for health care, it has refused to embrace the best solution for corporations and citizens, single-payer national health care. The employer-based U.S. health care system is broken, and only single-payer can fix it. Meanwhile, the rest of the economy is starting to feel the pain of the broken system. Morton Mintz recently explained why single-payer is the answer in the Nation: Single-Payer: Good for Business.

Today's NY Times story by Reed Abelson, Wal-Mart's Health Care Struggle Is Corporate America's Too, is a broad followup to the story the Times broke last week -- Wal-Mart Memo Suggests Ways to Cut Employee Benefit Costs -- after the activist Wal-mart Watch leaked it an internal Wal-Mart memo, which is available at Wal-mart Watch. That memo suggests controversial ways for Wal-Mart to cut health care costs.

It will be far easier to attract and retain a healthier work force than it will be to change behavior in an existing one. These moves would also dissuade unhealthy people from coming to work at Wal-Mart.

The story on the Wal-Mart memo is a great piece. It shows the paradox Wal-Mart faces. Wal-Mart's health care costs may be rising, but its health care plan isn't that good, so what should it do? One externality created by Wal-Mart's failed health care plan is that excessive numbers of the children of Wal-Mart "Associates" collect state Medicaid.

Wal-Mart's failure to adequately cover its workers places a massive burden on taxpayers. This spring, the state of Maryland nearly enacted legislation which would have required large companies to either provide adequate health care or pay increased taxes to compensate, since taxpayers pay for Medicaid (it's a joint state-federal burden, with the Congress trying to slough even more of the cost onto the states).

The Fair Share Health Care Fund Act was vetoed by MD Governor Bob Ehrlich in May, but activists hope the new Wal-Mart memo will help in their efforts to seek a veto override.

The Abelson story goes into some of the problems that other firms face paying for health care. Often their solution is to increase co-pays, deductibles and non-covered services or raise the employee share of the monthly health care costs. These band-aid solutions, and the vaunted employee choice solutions, don't fix the overall problem. Healthy, well-off people can make better health care choices than sicker, less-well-off people. A health insurance system in a country like the U.S. should fairly serve both groups, not only the former. Ours does not. Gimmicks to assist the healthy and well-off won't significantly lower health care costs; worse, many of these proposals may increase the burden on the poor and the sick.

The problem of the broken employer-based health care system ripples into other parts of the economy like a jagged festering wound from a rusty knife.

The looming threat of competition from Wal-Mart is used as an excuse by supermarket chains across the nation to insist on labor concessions -- hurting the standard of living of employees and further weakening the ability of labor to balance the interests of workers against those of management, as this labor backgrounder points out.

The problem of rising health care costs isn't limited to retail workers and supermarket chains. GM and Ford have claimed rising health care costs cut their global productivity and they may be right. "GM says that $1,500 of the price of every new vehicle it sells goes towards health care for past and present employees," according to the Economist. GM and Ford compete with companies in countries with nationalized health care systems. [Of course, they've also made a lot of bad or even stupid bets on gas-guzzling SUVs and monster trucks. If those behemoths were moving off the lots, they wouldn't have to squeeze employee and retiree health care.]

No big firms have yet embraced single-payer, which took a bad rap twelve years ago in the famous Harry and Louise ads run by the health insurance lobby to kill the Clinton health plan (good background here from Center for Media and Democracy). Yet, we suppose it is encouraging that even the U.S. Chamber of Commerce has gone so far as to join an annual "Cover the Uninsured Week" coalition, which provides useful information and educational resources on the problems of lack of health care. Unfortunately, I haven't seen any of the suits from the Chamber urging members of Congress to back HR 676, The United States National Health Insurance Act. It's a bill with 50 co-sponsors by U.S. Rep. John Conyers to reform the health care system. It's comprehensive and it's going nowhere while the House leadership keeps pushing band-aids like Medical Savings Accounts and Association Health Plans. As Consumers Union points out: MSAs (or HSAs) are good for the wealthy and the healthy-- no one else. And as for AHPs, Consumers Union points out that these are not fully regulated health care plans.

We can only hope that the glare of the spotlight being placed on some of America's largest companies, Wal-Mart, GM and Ford and others, and their claim that they cannot afford to pay for health care will force Congress to re-visit the important idea of single-payer national health care. The solution is not to bash single-payer. It's too look at it as a potential solution to an employer-based system that is broken beyond repair. We need to force these stubborn companies to revise their obstinate opposition to the single-payer solution that makes sense for corporate America and the American people, too.

And as for Wal-Mart, avoiding health care costs is only part of the problem. Investigative staff for U.S. Rep. George Miller (D-CA) compiled a detailed report in 2004: Everyday Low Wages: The Hidden Price We All Pay For Wal-Mart,

It explains the health care burdens Wal-Mart dumps on all of us:

In 2002, 43 million non-elderly Americans lacked health insurance coverage – an increase of almost 2.5 million from the previous year. Most Americans receive their health insurance coverage through their employers. At the same time, most of the uninsured are working Americans and their families, with low to moderate incomes. Their employers, however, either do not offer health insurance at all or the health insurance offered is simply unaffordable.

Among these uninsured working families are a significant number of Wal-Mart employees, many of whom instead secure their health care from publicly subsidized programs. Fewer than half – between 41 and 46 percent – of Wal-Mart’s employees are insured by the company’s health care plan, compared nationally to 66 percent of employees at large firms like Wal-Mart who receive health benefits from their employer. In recent years, the company increased obstacles for its workers to access its health care plan.

The report goes on to detail the myriad other labor costs Wal-Mart externalizes and passes on to the rest of us:

The Democratic Staff of the Committee on Education and the Workforce estimates that one 200-person Wal-Mart store may result in a cost to federal taxpayers of $420,750 per year – about $2,103 per employee. Specifically, the low wages result in the following additional public costs being passed along to taxpayers:
• $36,000 a year for free and reduced lunches for just 50 qualifying Wal-Mart families.
• $42,000 a year for Section 8 housing assistance, assuming 3 percent of the store employees qualify for such assistance, at $6,700 per family.
• $125,000 a year for federal tax credits and deductions for low-income families, assuming 50 employees are heads of household with a child and 50 are married with two children.
• $100,000 a year for the additional Title I expenses, assuming 50 Wal-Mart families qualify with an average of 2 children.
• $108,000 a year for the additional federal health care costs of moving into state children’s health insurance programs (S-CHIP), assuming 30 employees with an average of two children qualify.
• $9,750 a year for the additional costs for low income energy assistance.

Wal-Mart externalizes tremendous other costs including environmental costs. We'll have more on Wal-Mart as we get closer to Higher Expectations Week. And we'll have more on the costs of health care.

Over at his Red Tape Chronicles blog, MSNBC's Bob Sullivan has outed Bank of America for charging him $1.50 for attempting to withdraw more than his daily limit from a foreign ATM. He had the money, but he asked for too much.

Quick: What's your daily ATM withdrawal limit? If you said $400, you might be wrong. At Bank of America, for example, the limit is $300. The price of making that mistake is $1.50. That's what I found out last month when I tried to grab as much cash as I could before I hopped a plane to cover Hurricane Rita in Texas. Given other reporters’ experiences after Katrina, I decided to bring as much cash as possible. The ATM nearest the plane gate wasn't Bank of America, but I decided to pay the $4 or so in fees for using another bank’s machine.

My first attempt to get $400 was denied and my transaction canceled. That's all I knew. I took my card bank.

Moments later, I tried to withdrew $300, and was warned I'd face fees both from the machine owner and my bank for using the wrong ATM. Duly censured, I accepted the fee. And that, I thought, was that.

Bob quotes a BofA flack as claiming that BofA had to pay a fee to the ATM owner for an attempted transaction so it was rightfully and justificably passing along the cost. The BofA flack claims these fees can run up to $5-7. I'd like to know what bank charges a $5-7 inter-bank fee. These interbank fees are known as interchange fees, are set by networks, not by banks, and typically run less than a buck.

Like Bob and like the experts he quotes, this is a new fee on me. But banks gouging consumers for every transaction and, now, attempted transaction, isn't new, as we chronicle at Stopatmfees.com. Here's our most recent blog (also mentioning BofA) on interchange issues.

The attorneys general of 47 states and territories have sent a very strong letter to Congressional leaders urging passage of the strongest possible security breach notice bill (one without any loophole known as a "reasonable risk" trigger) and security freeze protection law. The letter goes on to articulate in detail why any federal bill should not preempt, or overide, the right of the states to enact stronger privacy laws.

The Department of Justice has rubber-stamped the anti-competitive mergers of the Baby Bell SBC with AT&T and the Baby Bell Verizon with MCI. PIRG, Consumers Union and Consumer Federation of America filed peitions to deny in both SBC/AT&T and Verizon/MCI. The mergers must still be approved by the FCC. More below.

Here's the FCC's SBC merger page and its Verizon merger page. Here's an excerpt from our SBC petition to deny:

FAILURE TO PROMOTE THE PUBLIC INTEREST
The Commission simply cannot look back on the carnage of the past six years and conclude that its decision to allow a handful of incumbents to dominate the local telecommunications market has served the public interest. Not only have we suffered through a wave of bankruptcies and scandals that destroyed billions, if not trillions of dollars of equity, but the piecemeal approval of mergers and the failure to enforce market opening and network access policies enacted by Congress has allowed the industry structure to devolve into what
Business Week called a “cozy duopoly.� This “cozy duopoly� has failed to serve the most fundamental public interest objective of the Communications Act. The “cozy duopoly� fostered by the Commission’s policies has failed to provide ubiquitous advanced telecommunications services at affordable prices.

Along with CFA and CU, in June we also published the report BROKEN PROMISES AND STRANGLED COMPETITION on the failed promises of the Bells. Excerpt:

THE ANTICOMPETITIVE IMPACT OF THE TELECOM MEGA-MERGERS The wave of proposed mergers in the telecommunications industry — SBC attempting to gobble up AT&T, and Verizon trying to swallow MCI — mark the ultimate demise of any hope for consumers getting more choices and lower prices for local, long distance, wireless, and the new Internet-based services exploding on the market. Evidence submitted to regulators across the country proves the pending mega-mergers of telephone giants SBC/AT&T, and Verizon/MCI will have a devastating impact on the nation’s residential customers.

Taken together, the merger protests submitted by consumer groups show beyond a shadow of a doubt that the mergers are anticompetitive and will impose substantial harm on consumers. The harm posed by these mergers goes well beyond local and long distance markets that are already highly concentrated. More importantly, the mergers will destroy the feeble competition in markets for the telecommunications facilities that are necessary to provide a wide range of telecommunications services, including access to the Internet.

These mergers would create super-Regional Bell Operating Companies (RBOCs) that monopolize the in-region public switched telephone network and “mega-Peer Internet backbone� providers that dominate access to the Internet for end-users. After a decade of market opening, the two firms being acquired account for about three quarters of the competitive presence in telephone markets. The four companies in question comprise the number one, two or three largest providers of local and long distance service, network access, switching and transport services.

The remaining competitors in the telecommunications business would be minuscule in comparison, lacking the size and geographic reach to provide a competitive check on the two dominant firms. Illogical promises of greater concentration bringing greater competition should be flatly rejected by regulators. The track record of the RBOCs since the passage of the Telecommunications Act of 1996 shows a persistent pattern of bad acts, broken promises and the failure to compete. Intermodal competitors—such as Voice over Internet Protocol and wireless—have all been recently been examined and correctly dismissed as substitutes for retail services by both the Federal Communications Commission (FCC) and the Department of Justice (DOJ).

That RBOCs’ dismal competitive track record, combined with the dearth of competitive alternatives and the dramatic increase in market power that the megacompanies would possess post-merger, demand the conclusion that anti-competitive and anticonsumer behavior would sharply increase post-merger.

Today the House Energy and Commerce Committee rejected 28-21 a PIRG-backed proposal to adequately compensate consumers whose TV sets will go dark through no fault of their own unless they purchase expensive settop converter boxes when the digital TV (DTV) transition takes place. (Previous blog.) We'll have more later on a Mary Bono (R-CA) amendment that the committee apparently did accept-- the Bono amendment preempts a strong California energy efficiency law (her own state!) for new appliances, allowing these converters to be energy-wasters.

You can listen to our recent interview with Mari Frank on her show Privacy Piracy on KCUI-FM 88.9 FM in Irvine, CA. Mari also archives her interviews with other guests, from the Washington Post's Robert O'Harrow, author of No Place To Hide, to Robert Ellis Smith, author and publisher of Privacy Journal.

Every year when the banks and credit unions say "Jump," the House Financial Services Committee often says "How High?" This year's early holiday gift is a package of supposedly non-controversial, so-called "regulatory relief" items, HR 3505, Hensarling (R-TX), expected to to be approved tomorrow in committee. Here's a group letter opposing and here are some excerpts (annotated with additional comments that are my own, not necessarily the group's):

Errors of omission (it's all for the banks, nothing for consumers):

-- The bill fails to increase the vastly outdated jurisdictional limits and statutory penalties initially included in the Truth in Lending Act (TILA) in 1968.
-- The bill fails to “clarify� recent rules issued by the Federal Reserve Board to require bounce protection loans with extremely high interest rates to be covered by the basic consumer protections found in TILA.
-- The bill fails to include an important amendment requested by the state investment fraud cops over at the North American Securities Administrators Association (NASAA) to amend its Section 209 to allow state securities regulators to oversee the loosely supervised business of selling risky, uninsured “jumbo� Certificates of Deposit that exceed $100,000 in value.

-- As yet another way to limit access to justice, Section 213 would establish that for diversity purposes in federal court, both federally chartered savings banks and national banks would be considered citizens only in the states in which they have their main office. This would clog up the federal courts, and worse, in most states would create a procedural morass that would likely result in many consumers losing their homes to illegal foreclosure. Because of a split among circuit courts on this matter, the issue is now pending before the U.S. Supreme Court.
-- Section 301 would allow privately-insured credit unions meeting certain criteria the same access to the benefits of Federal Home Loan Bank membership as taxpayer-insured credit unions, essentially granting less expensive financing options such as the discount loan window to privately-insured firms. Giving more benefits that they don't deserve to risky privately-insured credit unions will only encourage more credit unions to switch. That's bad public policy. While credit unions have long played a critical role in offsetting the most unfair and over-priced banking products, many in their leadership have lost their way -- they ask Congress for ridiculous and risky subsidies like this and they support the credit card industry's unfair bankruptcy bill, yet they fail to back consumer initiatives. We'll have more blogs on credit unions and their disappointing positions.
-- Section 401 is another preemption section-- it will make it harder for states that currently do not allow banks to automatically branch to protect their consumers.
-- A biggie: Section 401 takes the very dangerous step of allowing Industrial Loan Companies (ILCs) to branch at will into all 50 states. This would allow financial firms and some commercial entities to set up a new, nationwide commercial banking system through ILCs that is subject to much less rigorous oversight than under the current structure. The bill has a so-called "No Wal-Mart" provision that attempts to stop de novo branching if an ILC is directly or indirectly controlled by a commercial firm receiving more than 15 percent of its annual revenue from non-financial sources. However, this minor limitation is overwhelmed by the fact that the overall number of ILCs and the amount deposited in them would likely escalate without a corresponding increase in the oversight of safety and soundness at these institutions. Moreover, the bill allows the very states that are aggressively attempting to charter more ILCs to make the all-important determination about whether ownership of an ILC is commercial in nature; a clear conflict-of-interest.
-- Section 504 would preempt the Arkansas Constitution. This is truly a brazen play by the preemption crowd. With the backing of much if not all of the state's Congressional delegation, this stealth provision overturns a constitutional usury limit that's been upheld by the voters numerous times. That's bad for all consumers and unfair to Arkansas voters. This proposal would prohibit the people of Arkansas from establishing any limits on interest rates in their state. This proposal not only undermines federalism – the voters of Arkansas have repeatedly rejected raising the ceiling on interest rates -- it also will mean that Arkansas consumers will pay far more than necessary for credit and risk exposure to discriminatory lending practices. That is why this proposal is opposed by a broad coalition of national civil rights, labor and consumer rights organizations.
-- Section 601 weakens the enforcement of the Community Reinvestment Act (CRA.) The banks have never liked this very important law, which simply says: don't take the money and run. If you take deposits in a community, especially a lower-income community, you must reinvest in it. The CRA is a very simple and very legitimate duty that taxpayer-insured and heavily federally subsidized banks continue to hack away against.
-- Section 617 would unjustifiably exempt certain financial institutions from the annual privacy notice disclosure requirement under the Gramm-Leach-Bliley Act (GLBA). It makes little sense to alter the privacy notice requirement at this time as regulatory agencies currently have two open rulemakings on the subject.
-- A truly anti-consumer provision of the Manager’s Amendment would exempt check diversion companies from the Fair Debt Collection Practices Act. This provision will allow private companies to use the punitive power of the local prosecutor’s office to force consumers to pay for checks that they may not even owe, as well as exorbitant fees that are not authorized under state law. Believe or not, certain elected prosecutors allow debt collectors to send out threatening letters on their letterhead and this amendment makes it worse. Consumers will be subjected to threats of criminal prosecution for not paying for the checks without being granted basic rights, such as the right to request copies of the checks or protections against unfair, abusive or deceptive collection practices. This provision also places no reasonable limits on the activities of check diversion companies, which have a track record of abusing consumer rights throughout the country. Despite the fact that consumer organizations and the Federal Trade Commission have opposed this unjustifiable exemption in the past, it has been slipped into this bill without public hearings or genuine debate.

While HR 3505 is a bad bill, as noted above, we're also watching the Senate Banking Committee carefully. Former FDIC Vice-Chairman John Reich (now OTS director) has championed a process known as EGRPA that has resulted in development of a massive package (although OTS, FDIC or Reich may not support all of them) of regulatory relief items, with the aid of a variety of bank trade associations. See all the testimony at this hearing in June, including PIRG-backed consumer group testimony by Travis Plunkett and Carolyn Carter. The working title for the 187-item package the Senate is considering is "The Matrix." Many provisions seem as diabolically anti-consumer as the world-view of the machines that ran the matrix in the movie trilogy. While the matrix does include 5 or 6 consumer-backed provisions based on our testimony, we're watching carefully to make sure none of the objectionable provisions make it into the Senate Banking Committee's version of HR 3505.

The House Energy and Commerce Committee will vote today on its digital television (DTV) transition bill. Many low-and-moderate income TV viewers will see their sets go dark, unless the committee accepts a Dingell (D-MI)-Markey (D-MA) amendment to Chairman Joe Barton's (R-TX) unacceptable proposal to create a fund of less than $1 billion to compensate consumers for converter boxes to keep their sets working. As a letter from PIRG, Consumers Union and Consumer Federation of America points out, this is not about subsidies or windfalls or free money, but essential fairness and holding consumers harmless:

Consumers paid good money for their TVs with the reasonable expectation that they would receive broadcast signals over their useful electronic life. The $10 billion or more in auction revenue facilitated by the transition is more than enough to fully compensate consumers for the costs they are asked to bear just to keep those TV sets working.

Full compensation for the cost of converter boxes is far from a windfall for consumers. The boxes do not provide for a government-supported technology upgrade; they merely allow consumers’ existing analog sets to continue displaying analog images—something they have a right to expect. Nor is compensation a subsidy. By compensating consumers, Congress isn’t giving them anything; it merely holds them harmless from a government mandate that would otherwise make their perfectly good personal property virtually useless.

National Journal reports today on the issue and references a similar letter from AARP. Last week, the Senate Commerce Committee approved a much better bi-partisan proposal for $3 billion in converter box compensation (previous blog).

Congress continues to raid student aid, among other other important programs on the chopping block. Here's a release condemning a scheduled House committee vote for "largest cuts in history" from The State PIRG Higher Education Project and USSA. Excerpt:

"The House Education and Workforce Committee will vote today to cut $15 billion dollars from the student aid programs. These cuts include the $8.7 billion in cuts to the programs that the Committee made this summer. If passed these cuts will amount to the largest cut to the student aid programs in history.

“America’s investment in affordable higher education is our national 401k plan, Congress is treating it like it’s petty cash,� said Luke Swarthout, the State PIRGs’ Higher Education Associate."

Privacy expert Dan Solove has an excellent post over at Concurringopinions.com describing the trials consumers face when they try to find their federally-mandated free credit reports on the Internet. Even after you beat your way to annualcreditreport.com (the right place), you still face slick and deceptive marketing of over-priced products. My most recent posts on the final lurch of the staggered free report rollout and on Experian's recent civil penalty and restitution order for deceptive marketing of "free" products.

The Los Angeles Times reports in More Homeowners With Good Credit Getting Stuck With Higher-Rate Loans that many consumers are paying more for mortgage loans than they should based on their credit scores.

Based on estimates from Freddie Mac and the Center for Responsible Lending, as many as 1 million borrowers are paying too much for their loans. Such customers paid an estimated $3 billion in excess interest in 2001 alone, the consumer group said in a study that year.

The story points out that some of these consumers may simply have been steered by a broker to a high rate subprime mortgage firm, because the broker might get a better commission, but that others may have simply walked into the wrong affiliate of a financial colossus.

Consumer advocates say it's a "borrower beware" market. Companies and independent brokers generally are not legally required to tell customers that they might get a better deal elsewhere, and regulations have not kept pace with the booming mortgage refinancing market and skyrocketing home prices.

"The reality is, if you happen to walk into the wrong door, you can be trapped," said Kathleen Keest, senior policy counsel at the Center for Responsible Lending, a nonprofit advocacy group in Durham, N.C.

Over the last ten years or so, as greater information resources have become available, companies have used it to develop risk-based pricing. Risk-based pricing certainly has benefits, since instead of being turned down, higher-risk consumers now get loans, though at higher subprime rates. However, some consumers may walk in that wrong door and pay too much. Worse, some subprime lenders may cross over and make predatory loans.

While some of the information resources now available are simply greater computer power and analytical tools, some of the information now available results from the lack of strong privacy laws. Unfettered information sharing is allowed between corporate affiliates; consumers have virtually no consumer privacy rights. Some companies may be using profiles or dossiers developed on consumers to predict which ones will respond to over-priced offers. The companies have a lot more information about us, and we have little control over it, yet, for example, they aren't required to tell us more about them and which of their doors we should open.

And worse, as Keest points out, nothing in federal or state law requires a sub-prime affiliate to warn you that another affiliate may have a better deal for you.

The article was written by Times reporter Scott Reckard and its special correspondent Mike Hudson. Hudson is an investigative journalist and longtime chronicler of predatory lending-- his 2003 feature Banking On Misery: Citigroup, Wall Street, and the Fleecing of the South won the magazine Southern Exposure a coveted Polk Award.

One of the subprime companies reported on in the LA Times story "More Homeowners With Good Credit Getting Stuck With Higher-Rate Loans" is Ameriquest.

Ameriquest's lending practices are being reviewed by a 30-state task force. The company recently set aside $325 million to cover a possible settlement. Speaking generally to allegations of improper practices, Ameriquest Chairman Roland E. Arnall told a Senate panel last week that "some of our employees did not do the right thing," but said the company had fired them and taken steps to correct problems. Arnall is awaiting confirmation as U.S. ambassador to the Netherlands.

The Insurance Journal reports that under an agreement with Delaware Insurance Commissioner Matt Denn the Hartford insurance company has made refunds totaling $135,000 to 1,400 Delaware consumers it wrongly scored as bad insurance risks by miscalculating their credit scores. What does your credit score have to do with your insurance risk anyway?

Nothing, in the view of leading consumer groups. The state PIRGs, Consumers Union, Consumer Federation of America and the Center for Economic Justice have long campaigned for state bans on the use of credit scores for insurance ratemaking. Hawaii, Maryland and other states have adopted all or part of our proposals. The PIRG/Consumers Union model state Clean Credit and Identity Theft Reform Act includes a section banning credit scoring for insurance.

Unfortunately, the powerful insurance industry circulates an "industry-approved" model law of its own through the National Conference of Insurance Legislators or NCOIL, so some states have actually affirmed the practice of allowing insurance companies to raise consumer rates based on a score derived from their credit reports.

While this Delaware incident shows that credit scoring models can be flat-out incompetently designed, resulting in consumers with excellent credit paying higher rates, the use of credit scores in insurance ratemaking creates much more pernicious problems than simply rate mistakes.

The information in an insurance credit score is not derived from your driving habits (number of speeding tickets, number of accidents) or the number of homeowners' claims you've filed. It is derived from your credit report. The use of credit reports for insurance ratemaking brings up two fundamental problems.

First, no actuarial study has fully linked credit reporting to insurance risk. The industry claims a correlation, but cannot show statistical proof that meets actuarial tests.

Second, while the factors used in deriving a credit score may appear on face to represent good or bad credit and then that correlation that the industry claims, analysis by the Center for Economic Justice shows that some of the companies may instead be using credit scoring as a way to subvert civil rights laws and redline lower-income and minority Americans. As CEJ's Birny Birnbaum recently argued:

As you review the factors in these scoring models, two things become clear. First, your so-called “financial responsibility� has little weight in the scoring model. And second, the models are systematically biased against consumers in low income and minority communities. The bias arises for two reasons. First, the credit scoring models are systematically biased against the credit characteristics of low income and minority consumers, such as type of credit used. Second, consumers in low income and minority communities are not served by the financial institutions that report to credit bureaus.

Even if a consumer was able to pay the massive interest rates for a check cashing, payday loan or rent to own, it would not help because these institutions do not report to credit bureaus. And so-called thin files – little credit information – yield bad scores. In short, insurance credit scoring is the 21st century tool for redlining. In the past, for example, insurers simply didn’t write homeowners insurance for homes older than a certain age or under a certain value. These underwriting guidelines eliminated coverage in older and low-income neighborhoods.

Fair housing groups challenged these practices and prevailed – these underwriting guidelines have largely been eliminated, although these characteristics are still used for determining premium. But today, insurers have a new tool – credit scoring – that accomplishes the same redlining as in the past. Insurers defend credit scoring as an “objective� tool that doesn’t “consider� race or income. Sound familiar? As if bias could not be built into a computer model.

As President Bush announced the nomination of Professor Ben Bernanke to replace Alan Greenspan as chairman of the Federal Reserve, U.S. PIRG and other leading consumer groups sent a letter to Senate Banking Committee Chairman Richard Shelby and issued a news release urging that the nomination hearings be used to evaluate how well the Fed protects consumers and to ask Professor's Bernanke's views on whether it can do a better job.

The letter urges the committee to ask Professor Bernanke whether he will urge the Fed to do a better job in 7 key areas where banks now have the upper hand over consumers, to our detriment.

• Reduce check hold times – Reduce as much as feasible the current delays before banks must make funds available from a deposited check. Check clearing is speeding up, but check holds have remained the same. This increases the risk of a consumer bouncing a check and paying higher fees. • Protect all debit cards holding significant household funds – Extend legal protections under the Electronic Fund Transfer Act (EFTA) to debit cards that are used to deliver payroll, emergency benefits, and other funds significant to a household. Of particular importance is placing a limit on loss of funds from unauthorized transactions. • Credit cards – Use the regulatory power of the Federal Reserve Board to curtail practices by credit card issuers that harm consumers, such as universal default clauses, high fees, and credit limits that outstrip the ability to pay. • Change overdraft policies – Require banks to provide consumers with the true cost of bounce protection loans before the consumer incurs the fees. • Adopt proactive policies for future disasters – The Federal Reserve Board can take an active role to better prepare the U.S. financial system for future disasters, including establishing a comprehensive set of best practices and developing information for the public about federally chartered and federally insured financial institutions compare to the best practices and to one another when a disaster strikes. • Stop abuses in mortgage lending – The Federal Reserve Board has the power to define certain mortgage lending abuses as unfair or deceptive practices as a tool to help police the marketplace for subprime loans. • State consumer protection law and state law enforcement – Question the nominee on his recognition of the value and role of state consumer protection laws and state law enforcement as applied to federally-chartered financial institutions.

The letter and release take no position on the nominee. U.S. PIRG does sometimes take positions on judicial or administration nominees, but not all signatories do.

Harvard Law professor and bankruptcy scholar Elizabeth Warren has a nice op-ed critiquing the new bankruptcy law in today's New York Times (free registration req.) Excerpt:

Punishing debtors this way won't put money in creditors' pockets. Creditors who planned to reap windfalls from this new law may be sorely disappointed as they discover that their lobbyists promised more than they can deliver. And if the bankruptcy system becomes unworkable for both debtors and creditors, pressure will build for change.

Here's our most recent blog on the most draconian, anti-consumer bill in a long stretch.

Letter from U.S. PIRG, Consumers Union, AARP and Consumer Federation of America urging the Senate Commerce Committee to include a $3 billion compensation fund to help purchase converter boxes for consumers whose over-the-air analog TVs will otherwise "go dark" when the Congressionally-ordered digital transition (DTV) is made in April 2009.

When broadcasters make this switch to digital spectrum, some of the taxpayer-owned analog spectrum they have been using will be allocated to public safety communications and a large part of the remainder will be auctioned off to phone companies and others, netting a one-time budget windfall of $10-100 billion.

Yesterday, the Senate Commerce Committee included the converter box funding in its DTV bill, although similar House funding is not guaranteed.

On the negative side, the bill had no additional language ensuring that a portion of that analog spectrum be retained, not auctioned off, for "unlicensed uses" such as community wi-fi projects. Details in previous blog.

On Thursday the Senate Judiciary Committee brought up its comprehensive data breach notice/data broker regulation, bill, S 1789, but after some criticism of the chairman's substitute, consideration was delayed.

Senator Jon Cornyn (R-TX) raised the point that his staff had just received the substitute Wednesday night at 4:55pm. Senator Dianne Feinstein (D-CA) expressed concern about a specific change in that substitute, the elimination of health-related information from the list of confidential information that could trigger a breach notice to victims. So, Chairman Specter (R-PA) delayed the vote at least until next Thursday.

Chairman Specter and Ranking Member Pat Leahy (D-VT) originally introduced S. 1332, which was modified over the summer and re-introduced in late September as S. 1789 with Sens. Feinstein and Russ Feingold (D-WI) as co-sponsors.

The bill imposes modest Fair Information Practice based duties on virtually unregulated data brokers such as Choicepoint. It also requires security breach notification in many more circumstances than most of the weak bills before the Congress, which all have a "risk of harm" trigger. Unfortunately, it still preempts stronger state consumer laws in a wide variety of areas, which is unacceptable.

While the committee tabled this comprehensive bill, it voted out, on a very quick voice vote, the very weak, even more restrictive of state authority alternate security breach notice bill, S 1326 (Sessions (R-AL). Previous security breach blog.

In response to a petition from the Financial Services Roundtable, the FDIC has proposed a rule it says is intended to increase the value of state bank charters relative to national bank charters. Comments due 13 Dec. We will oppose the proposed rule.

It relies on thin legal authority to escalate an arms race between the state bank regulators and the national bank regulators-- the losers will be consumers as state banks join the race to the bottom exemplified by credit card banks headquartered in South Dakota and Delaware.

The proposed rule allows state banks that branch interstate to ignore the stronger consumer and community laws in the states where they branch, and instead rely on home state laws. The OCC, which sweepingly preempted all state laws as they apply to national banks, is rumored to be quite offended by the FDIC's proposal, which may undercut its own efforts to make national bank charters the gold standard. This previous blog links to consumer testimony against the original petition. See testimony of Elizabeth Renuart of National Consumer Law Center, John Taylor of the National Community Reinvestment Coalition and Yolanda McGill of Center for Responsible Lending. Elizabeth's testimony articulates the essential problem:

The current state of preemption rights claimed by national banks is due in large part to administrative, not legislative, fiat. The OCC has swollen the preemption playing field for national banks and their subsidiaries without Congressional permission. The FDIC should not snatch the bait presented by the Roundtable to say "me too."

The implications of the Roundtable's request are frightening for state banks chartered in most states and certainly for consumers. First, a significant portion of the home state law of states like Delaware and South Dakota could apply in all states and the District of Columbia. In effect, the state law of states willing to race to the bottom and completely deregulate consumer protections would become the federal law governing state banks. In the absence of state law on a subject, the federal law would become what the OCC says it is for national banks. If the Riegle-Neal Act is the basis of any regulation issued by the FDIC, that Act ties the extent of host state law preemption for state banks to that permitted national banks.

As the Senate Commerce Committee prepares to vote on a Digital TV transition bill as early as Thursday, U.S. PIRG joined the nation's leading consumer and media reform groups in a letter urging the Congress not to sell off all the public's analog airwaves being returned by broadcasters as part of the DTV transition. Instead, we urge that some spectrum, especially unused spaces between stations, be retained for unlicensed public use. While some of our groups may have different priorities for the DTV transition overall,

"on one crucial element of the bill, we speak with one voice: DTV legislation must expand availability of unlicensed spectrum to promote affordable broadband access."

So far, Congressional deliberations on the transition have emphasized the anticipated one-time multi-billion dollar budget windfall from selling this spectrum to telephone companies and others. To some extent, Congress has also worried about over-the-air viewers whose televisions will go dark unless they get digital converter boxes as part of the transition. But Congress has not really deliberated much about about ensure that more Americans hook up to a vital, dynamic high-speed, broadband Internet. To date, while local wi-fi projects have been a stunning success around the nation, the projects have been run in "garbage" spectrum, along with grarage door openers, baby monitors and plain old microwave oven interference. The spectrum available in the DTV transition, conversely, is so-called "beachfront" spectrum, suitable for much better, faster, longer-range wi-fi which will also ideally stimulate more Internet innovation.
From the letter:

It is vital that the American people benefit from the public airwaves in specific, concrete ways. The DTV bill may be the Senate’s best opportunity to promote affordable broadband nationwide and close the growing gap between the U.S. and our international competitors. The U.S. has fallen from 3rd to 16th in the world in broadband subscribers in the last few years. We remain among the worst performers in the industrialized world in terms of bit-speeds per dollar paid by the consumer for monthly service. This gap is both unacceptable and unsustainable for our long-term global competitiveness. Access to unlicensed spectrum will help close it.

Leading consumer groups are now urging Senators to oppose (new letter) an amendment we'd previously supported by Elizabeth Dole (R-NC). As originally intended (previous blog with support letter) Senator Dole's amendment would have protected military families from payday lenders and other high-cost predatory lenders. Anyway, the latest version of the amendment is not only weak, it could roll back current protections, so we now oppose it.

You can listen to us criticizing the bankruptcy law in a short story on NPR Marketplace today. Previous blog has a detailed analysis.

Two items on protecting access to knowledge and medicine from one-sided patent and copyright protection:

(1) Here's a letter (15 Oct 05) to Congress from CPTech, U.S. PIRG and others opposing a dangerous new proposed broadcast/webcast treaty moving through the UN's World Intellectual Property Organization (WIPO). Previous blog here explains how it grants extraordinary intellectual property rights to firms, above and beyond existing copyright protections.

(2) An International Commission convened by the Royal Society of Arts in London has issued an important proposal: the Adelphia Charter.

The Charter sets out new principles for copyrights and patents, and calls on governments to apply a new public interest test. It promotes a new, fair, user-friendly and efficient way of handing out intellectual property rights in the 21st century.

Members include Larry Lessig of Stanford Law School (also Chair of the Creative Commons Board) Jamie Love of CPTech (Jamie and CPTech have been leaders in the fight to bring low-cost AIDS and other medicines to Africa, as well as in fighting the WIPO broadcast/webcast treaties), Jamie Boyle of Duke Law School, Nobel Laureate Sir John Sulston (who has worked to keep the Human Genome Project "open-source" (article)) and others.

News paper stories this week are widely reporting on the surge in last-minute bankruptcy filings. On Monday, 17 October, the new bankruptcy law, S. 256, takes effect. It's a disgraceful piece of public policy enacted for all the wrong reasons: what reasons? Millions of dollars in campaign contributions over a nine-year campaign by the credit card industry.

We were privileged to work as part of a broad coalition alongside the late great Senator Paul Wellstone (D-MN) as he virtually singlehandledly stopped the bill for several Congresses. Indeed in 1998, he was the only Senator voting against the draconian proposal. This year, Senator Teddy Kennedy (D-MA) led a fierce 2-month fight against the bill, but it still passed the Senate 74-25 and then the House 302-126.

The sweeping amendments to the bankruptcy law were enacted due to a massive increase in campaign cash, not an increase in abuse by consumers of the bankruptcy system. Indeed, every independent study has documented that the real reason consumers filed for bankruptcy was, and is, financial hardship. Over 90% of filings are due to job layoffs, divorce, or illness.

An important new study, Get Sick Go Broke by bankruptcy scholar Elizabeth Warren of Harvard Law School and colleagues at Harvard Medical School found that many consumers are facing financial hardship either because they do not have health care or don't have health care that's good enough. They put their medical bills (due to co-pays, non-covered services, deductibles or lack of coverage) on usurious credit cards, then they get sicker, or laid off, and the bottom falls out.

Illness begot financial problems both directly (because of medical costs) and through lost income. Three-fifths (59.9 percent) of families bankrupted by medical problems indicated that medical bills (from medical care providers) contributed to bankruptcy; 47.6 percent cited drug costs; 35.3 percent had curtailed employment because of illness, often
(52.8 percent) to care for someone else. Many families had problems with both medical bills and income loss.

The law makes it harder and more expensive to file for bankruptcy. Then, if you do manage to navigate the minefield, which now requires you to attend credit counseling before filing (and you could get ripped off there, as I discuss below) it makes it harder to obtain a Chapter 7 Fresh Start bankruptcy by forcing most consumers into a Chapter 13 five-year repayment plan. The lenders' propaganda mill spews out tons of spin claiming that anyone below their states' median income can still file Chapter 7-- they forget to tell you about the means test and about the many legal motions available now to creditor lawyers to challenge your income status. Even if you do qualify for Chapter 7, you may give up trying to get in because you cannot afford to challenge the creditor motions in court. This article has several consumer lawyers critquing the means test and other aspects of the law. The means test is a complicated rule designed to calculate your income available for payback after deducting living expenses. But the living expenses are not based on real-life, they are based on non-real-world IRS rules.

Consumers will have to pay to go to "approved" credit counselors before filing. That's kind of like teaching gun safety to someone with a bullet hole in their foot. Too little, too late. Worse, the credit counseling business is full of scam artists under investigation by the IRS (here's a summary and another), FTC and state Attorneys General. Some of the worst won't be "approved for bankruptcy," but will all the bad guys be blocked out? With all the new business, more fly-by-nighters may sign up. Here's an excellent report by the National Consumer Law Center and Consumer Federation of America.and CFA.

In addition to the campaign donations, the industry spent millions on a successful (inside the beltway anyway) PR campaign alleging that people who don't pay their bills are personanly irresponsible. That resonated on the hill, but the campaign cash certainly helped.

The worst problem with the bill is that it fails to deal with corporate irresponsibility. It does nothing to rein in unfair credit card practices. That's not surprising, since the highly profitable credit card industry made massive donations and stands to benefit the most from more consumers being forced into repayment plans. Their donations have always been huge, but many Americans may not know that the President's number one contributor in the 2000 election wasn't Enron, wasn't Halliburton and wasn't Exxon. It was MBNA Bank, which in 2004 surpassed Enron as Bush's top "career donor", according to the a report by the watchdogs at the Center for Public Integrity.

We maintain an archive of bankruptcy related bill materials here, with links to coalition letters and other documents, and here at Truthaboutcredit.org we have links to testimony, reports and fact sheets for consumers on needed credit card reforms. More information in this previous blog also.

A new PIRG report The Right Start: The Need to Eliminate Toxic Chemicals from Baby Products documents toxic chemicals, including phthalates and polybrominated diphenyl ethers (PBDEs), in teethers, bath books, and sleep accessories.

U.S. PIRG tested seven infant sleep accessories, such as mattress pads and sleep wedges, for the presence of PBDEs or toxic flame retardants, and eighteen other children’s products, such as bath books and teethers, for the presence of a set of chemicals known as phthalates. The report was written by U.S. PIRG Environmental Health Advocate Meghan Purvis:

“Parents cannot be expected to deal with these issues on their own. The U.S. government must act to assist parents and ensure that products on the market are not potentially harmful for children." Purvis said.

The report found that in the absence of federl leadership, state governments are already acting to protect their citizens. Nine states have phased out two types of flame retardants from consumer products, and the California legislature is considering a proposal to ban phthalates and another chemical, bisphenol-A, from children’s products.

PIRG was joined at the event by Dr. Larry Silver, past president of the Learning Disabilities Association of America and current Clinical Professor at Georgetown Medical Center.

“Normal brain development is impaired by exposure to toxins, such as flame retardants and phthalates, often resulting in learning and other developmental disabilities. There is an immense disconnect and unacceptable delay between scientific data and public awareness and prevention,� said Dr. Silver.

U.S. District Court Judge Sidney Stein has further limited the authority of tough state consumer cops by ruling forcefully against the right of New York State Attorney General Eliot Spitzer to investigate national bank and even state-licensed national bank subsidiary compliance with state fair lending laws.

Parallel lawsuits filed on the same day (hmmm...) were brought by a coalition of big banks (the Clearinghouse Association decision) and by the federal bank regulators at the Office of Comptroller of the Currency (OCC decision). From the OCC decision:

the Attorney General is permanently enjoined from issuing subpoenas or demanding inspection of the books and records of any national banks in connection with his investigation into residential lending practices; from instituting any enforcement actions to compel compliance with the Attorney General’s already existing informational demands; and from instituting actions in the courts of justice against national banks to enforce state fair lending laws.

This opinion says nothing about whether it is better public policy to vest visitorial powers over national banks in state attorneys general as well as in the OCC. That is a matter for the legislative and executive branches of government to determine. What this opinion does conclude is that the federal statutes, regulations and decisional authority as they now exist compel the conclusion that the New York State Attorney General may not exercise visitorial powers over national banks in connection with an investigation into the banks’ residential lending practices.

This court is the latest in a series of courts to read too much deference into what are essentially political, not expert, opinions of the OCC. The solution now is for Congress to roll back the abusive authority of this unelected bureaucrat. As a start, consumer and community groups support a bill by Rep. Barney Frank (D-MA) (info here) and we maintain more background on the OCC here.

I'm appearing live tonight at 8PM Eastern/5PM Pacific on the show Privacy Piracy, streamed on the Internet from KUCI.org 88.9 FM in Irvine, CA. The host is Mari Frank, a nationally-known ID theft victim-turned-expert, attorney, author and now radio host. We'll be talking about a wide range of privacy topics.

Or, the plastic is melting, take your pick. A new study, The Plastic Safety Net: The Reality Behind Credit Card Debt in America, was released today by our colleagues at Demos and the Center for Responsible Lending.

"American families are facing financial hardship not experienced for generations, and we commissioned this survey to tell us precisely why they are turning to credit cards so often."...

...says Tamara Draut, Director of the Economic Opportunity Program at Demos and co-author of the report. "The results are clear: wages have stagnated while medical and housing costs have skyrocketed, and if confronted with a layoff or health emergency there are few, if any, personal or public safety nets adequate enough to help in a crisis. Households are turning to high-cost credit cards to keep afloat."

It's an important study that uses new survey methodology to confirm that low and moderate income Americans carry much more credit card debt (average = $8,650) than many previous studies, based on less detailed data from the Federal Reserve Board's Survey of Consumer Finances, have found. While numerous academics and other researchers, including PIRG, have relied on the important SCF, which has a very long longitudinal basis for triennial (it is completed every three years) comparisons, the Demos/CRL surveyors were able to drill down with even more detailed questions than the Fed surveyors about the average debt on a consumer's three most-used cards to get over the well-known statistical problem that people tend to under-estimate their debts in self-reported surveys like the SCF. Although the Demos sample of low and moderate income Americans may not be representative of all consumers, we believe its results are.

As we explain in our report "Deflate Your Rate," the Fed's often-quoted estimates of $3-4,000 in credit card debt, per household, make no sense in the real world and must reflect self-under-reporting. If you analyze the number of families carrying revolving debt and measure them against the staggering $800 billion (with a B) in revolving debt now reported by the Fed, then the Demos numbers make more sense than the SCF results. We have consistently calculated average debt for households carrying debt to equal between $8-12,000, depending on what percentage of families we estimate carry over balances and pay interest (this number is generally considered proprietary by the banks, but belived to be about 55-60%, with the other 40-45% of consumers convenience users who pay off the full balance in full and pay no interest.

In addition to making important advances in estimating average debts, the survey also buttresses recent findings by bankruptcy expert and Harvard Law Professor Elizabeth Warren that:

half of all personal bankruptcies result from families being unable to pay their medical bills, even though they often have health insurance when they first get sick.

Why? As Demos/CRL pointed out: Households are turning to high-cost credit cards to keep afloat. Simply put: they put those medical debts on high-cost credit cards and the problem got worse. The Demos/CRL study found that

Seven out of 10 low- and middle-income households reported using their credit cards as a safety net--relying on credit to pay for car repairs, basic living expenses, medical expenses or house repairs.

The study makes numerous recommendations for solutions, which we agree with. We maintain a website truthaboutcredit.org, with links to our recent testimony (May 2005) before the US Senate Banking Committee and other reports and factsheets. We discuss one of the newer bills before Congress to rein in the credit card companies here.

Unfortunately, most members of the 109th Congress ran like their pants were on fire to be the first to vote in favor of the bankruptcy "reform" bill backed by the credit card companies, which passed overwhelmingly. That draconian bill takes effect next week on October 17th, and we doubt many members of Congress, other than our champions, will be climbing over each other to be the first to help the victims of those same credit card companies. It's a dynamic we need to change. Consumers who are angry about credit card companies and their unfair practices need to start fighting back.

Until then, low and moderate income Americans, and others, will face the deceptive and unfair practices of the credit card companies. Here's a few of them, which I outlined in my May testimony:

• Unfair and deceptive telephone and direct mail solicitation to existing credit card customers – ranging from misleading teaser rates to add-ons such as debt cancellation and debt suspension products, sometimes called “freeze protection,� which are merely the old predatory credit life, health, disability insurance products wrapped in a new weak regulatory structure to avoid pesky state insurance regulators ;
• increased use of unfair penalty interest rates ranging as high as 30% APR or more, including, under the widespread practice of “universal default,� imposing such rates on consumers who allegedly miss even one payment to any other creditor, despite a perfect payment history to that credit card company;
• imposing those punitive penalty interest rates retroactively, that is on prior balances, further exacerbating the worsening levels of high-cost credit card debt;
• higher late payment fees, which are often levied in dubious circumstances, even when consumers mail payments 10-14 days in advance;
• aggressive and deceptive marketing to new customer segments, such as college students with neither a credit history nor an ability to repay and to persons with previous poor credit history;
• partnerships with telemarketers making deceptive pitches for over-priced freeze protection and credit life insurance, roadside assistance, book or travel clubs and other unnecessary card add-ons;
• the increased use of unfair, pre-dispute mandatory arbitration as a term in credit card contracts to prevent consumers from exercising their full rights in court; and the concomitant growing use of these arbitration clauses in unfair debt collection schemes;
• the failure of the industry to pass along the benefits of what, until recently, were several years of unprecedented the Federal Reserve Board interest rate cuts intended to provide economic stimulus, through the use of unfair floors in credit card contracts.
• Any term can be changed at any time for any reason, including no reason: The unfair and deceptive practices at issue above are myriad, and are buttressed by the bank presumption that any contract term can be changed at any time for any reason, including for no reason, and by the aforementioned use of one-sided pre-dispute binding mandatory arbitration clauses.

Two other important new resources for reporters and consumers studying credit card practices are the 2005 Consumer Action survey and an article in the September Consumer Reports. It's available to print (with the magazine hard copy) or on-line subscribers only. This set of Consumer Reports Congressional recommendations is available to all.

Professor Dan Solove of George Washington U Law School in DC has a new blog, concurringopinions.com. Dan is co-author, with EPIC's Chris Hoofnagle (his blog), of the Model Regime of Privacy Protection. Dan has a post on the effort by Consumers Union, PIRG and other consumer groups to get the recalcitrant credit bureaus to treat Katrina victims fairly by creating pre-disaster credit scores (my post on this). [He also has a great post, with action photos no less, on the new Airline Screening Playset, Hours of Fun.]

On Friday the U.S. House narrowly passed (vote here, with public interest vote= NAY) the controversial Gasoline for America's Security Act, HR 3893, after leadership held the voting machine open for over 40 minutes on a nominal 5-minute vote while it twisted arms. If enacted, a little-noticed "loser pays" provision would reverse centuries of U.S. jurisprudence and require citizen groups to pay attorneys' fees of the prevailing parties (the government and the oil companies) if they lose legitimate (non-frivolous) lawsuits brought in good faith against oil refinery and pipeline projects.

The "tort deform" provision threat would deter legitimate challenges to anti-environmental projects. The provision appears to be a one-way provision-- if the oil companies lose, they do not pay. Here's a letter specifically in opposition to the "loser pays" provision from U.S. PIRG and other leading groups. Of course, there is much more that is objectionable in the Gas Act. U.S. PIRG outlines real energy solutions in a September report, called Solutions to America’s Oil Crisis: A Federal Agenda for Reducing Oil Demand and Protecting Consumers.

We are receiving an increasing number of complaints that banks are refusing to comply with federal rules governing losses due to ATM and debit card fraud. Complain to your bank and its regulator and send us a copy!

Disclaimer. This is not legal advice, simply consumer information:

While credit cards are subject to the more consumer friendly Truth In Lending Act (your maximum liability for loss/fraud is $50) and the Federal Reserve Board's Regulation Z, an ATM or debit card is subject to the FRB Regulation E, implementing the Electronic Funds Transfer Act (EFTA). Full legalese of Regulation E (an "access device" is an ATM/debit card) here; easy to read Fed fact sheet here. If your ATM/debit card is used fraudulently, there is a 3-tiered system of liability -- if you notify the bank within two days, your liability is $50, within 60 days, $500, and after that, as much as all the money in your account and other accounts (e.g, savings) or over-draft lines of credit linked to it. Worse, of course, you are fighting to get your own money back.

The banks, of course, have promoted their much ballyhooed voluntary schemes purporting to limit your liability to either zero or $50, same as a credit card. These claims are subject to asterisks and exceptions.

Regardless, however, of whether banks are sometimes honoring those purported voluntary liability limits, some banks and credit unions are also denying legitimate claims of fraud, where the consumer does make timely notice ("Sorry, your son wasn't authorized. Too bad he supposedly lost the card" OR "you must have given up your PIN, you lose.") Don't put up with these sorts of "go away" responses. The law requires an adequate and timely investigation and the law describes the circumstances under which you can be held liable. These may or may not be among them, depending on the facts. That's why you need to copy the regulators, so the bank (1) knows you mean business and (2) the regulators know that these problems are occurring and can review the investigation and disposition of your complaint.

You must, if you are a victim of debit card fraud, notify the bank immediately and keep copies of all documents as well as a written log of your interactions with the bank. We advise also sending copies of all communications with the bank to the bank's primary regulator. It lets the bank know you aren't willing to put up with any shenanigans.

Also send copies to the Federal Reserve Board here. If a bank has national in its name or NA after its name, it is regulated by the Office of the Comptroller of the Currency (OCC) which regulates most bigger (and a lot of smaller) banks. You can get a list of the other regulatory agencies here.

The fed’s general consumer fact sheet on Regulation E is here explaining your EFTA rights. PIRG's factsheet is here.

We've been quoted extensively this week criticizing Bank of America and American Express programs designed to increase consumer savings. (AP story here; USA Today story here). How could we possibly criticize savings programs? Here's how:

The programs are part of various plastic Rewards programs. The Bank of America program allows you to round up your small debit card purchases to the nearest dollar -- with the small change going to savings and a modest bank match provided. The American Express credit card apparently gives 1% cash back. What's the deal? With BofA, the enticement is based on increasing the use of debit cards instead of cash. Banks make billions in merchant interchange fees when we use plastic-- the merchants compensate by raising the prices we all pay, whether we pay with a buck or a card. Previous blog has details.

So increasing demand for plastic increases middleman bank profits while the cost of the goods and services we all buy goes up. The merchant pays a 1-2% fee on the non-PIN debit purchases (slightly less for PIN purchases). BofA hasn't yet explained whether the "small change" is subject to an interchange fee -- it may not be. But by increasing demand for plastic, they're making more than enough in increased interchange on the increased volume of plastic over cash to compensate for the savings program's nominal costs.

As for the AmEx card, it's been explained to me as a $35/year credit card with a 1% cashback feature. So, first, you need to spend $3500/year just to cover the cost of the card. That works out to about $300/month. After that, you start netting at 1%. But what if you don't pay the balance off each month? 12-24% APR interest -- whatever the rate on this card, clearly absorbs any 1% cashback and leaves you owing, not saving.

So, should a smart, rational consumer do either of these anyway to maximize his or her own gain at the expense of the rest of us? Well, as for the debit card plan, it's kind of a savings plan lite, and it does have (hard to measure) costs shared by everyone (including you because you're raising your own prices also). As for the credit card rewards-- if you are a convenience user, go for rewards, but calculate the full cost of the card, too (many rewards cards, like this one, have an annual fee even with no interest charges). If you carry over balances and pay interest, here is a simple fact: no rewards card compensates for 12-25% APR interest.

In any case, I hope people use the publicity we've maybe played a small role in generating to think about real savings plans. That's because Americans do have a serious savings problem. The Consumer Federation of America has some excellent materials and consumer tips at its site Americasaves.org.

U.S. PIRG and five other national consumer organizations today renewed our call (news release) on the credit bureaus Equifax, Experian, and TransUnion to take stronger measures to help survivors who are undergoing major economic disruption caused by Hurricane Katrina from suffering adverse consequences from reduced credit scores based on late payments reported by creditors.

We asked the bureaus to establish a "pre-Katrina credit score" so that Katrina victims aren't hit with another hurricane, Hurrican Bad Credit. But they've all refused (since we put the release out this morning, Trans Union joined Equifax and Experian in rejecting our request).

On the other hand, the leading credit score developer, Fair Isaac Company (FICO), has been working with us to attempt to find a solution. Previous blog.

U.S. Senator Daniel Akaka (D-HI) has introduced pro-consumer legislation to rein in the tawdry practice of payday lending. According to a letter of support from PIRG and six other leading groups the “Predatory Payday Loan Prohibition Act of 2005" would:

"prohibit lending based on checks or debits drawn on federally insured depository institutions...and...would prohibit banks from partnering with payday lenders, a tactic used by storefront lenders to evade state small loan and usury laws."

Court Ruling Takes Away Financial Privacy Rights of Californians

For Immediate Release: October 5, 2005
Contact: Steve Blackledge, Legislative Director, CALPIRG, 916-448-4516 x108
Ed Mierzwinski, Consumer Advocate, U.S.PIRG, 202-546-9707

Court Ruling Takes Away Financial Privacy Rights of Californians

Statement of Steve Blackledge, legislative director, California Public Interest Research Group (CALPIRG):

“Monday’s U.S. District Court ruling on financial privacy is troubling for Californians. Judge Morrison England determined that major sections of the California Financial Privacy Act, also known as SB 1, were preempted by federal law.

“The court ultimately decided that Congress took away most state rights to protect privacy, but Congress itself hasn’t chosen to protect privacy—far from it. Congress has voted to allow massive financial corporations to buy, sell and share confidential data with hundreds or thousands of affiliated and non-affiliated companies selling unrelated products. California citizens who were better protected are now stuck in the same leaking financial privacy boat as the rest of Americans.

“The decision is the latest in a series of blows against the right of states to protect their citizens’ privacy, health, safety and pocketbooks.�

30 – 30 – 30

CALPIRG, the consumer advocate, is a statewide organization that stands up for California’s consumers. For more information, visit www.calpirg.org.

PIRG and other leading groups have sent the IRS a letter with detailed exhibits criticizing an apparently recently rescinded gag rule that prohibited tax volunteers from warning taxpayers about over-priced, unnecessary Refund Anticipation Loans (RALs) being peddled by firms such as H&R Block and Jackson-Hewitt. Meanwhile, the IRS itself encourages the high-cost RALs by providing direct links from its site to those of these for-profit commercial firms. As we point out in the letter:

"...the IRS website www.irs.gov specifically directs taxpayers to the websites of certain commercial tax preparation companies, who then freely promote RALs to taxpayers, creating the appearance of a government endorsement. There appears to be a significant double standard here."

A Refund Anticipation Loan (RAL) is one of the worst forms of predatory lending. It's a short-term loan using your tax refund as collateral (not much risk there!). Plus, you'll get your refund in a few weeks anyway, so most people really don't need the loan. Worse, it not only picks your individual pocket if you get one; it picks every taxpayers' pocket as well. That's because these triple-digit APR RALs are targeted by tax preparation firms directly at the low-income recipients of the Earned Income Tax Credit (EITC). Billions of dollars annually that Congress voted to transfer to low-income consumers are instead skimmed off by powerful corporate interests.

For years, consumer groups have criticized the cozy way that the IRS allows tax preparers, especially those allowed to link directly to its website under the boondoggle "free file" program designed to encourage electronic filing, to promote RALs and other various costly add-on products when consumers click from .gov to .com, leaving the IRS site for a presumable trusted third party. (Here's a 2002 news release from PIRG and others; and here's a 2003 report from Consumer Federation of America and National Consumer Law Center.)

The bean counters at the IRS can't seem to reconcile the multiple missions given them by the Congress. While they are supposed to promote e-government through electronic filing, they are not supposed to leave low-income taxpayers at the mercy of profiteering firms selling over-priced RALs without even having to work at it. After all, their customers find them through the government's own direct link. Worse, that link means the RALS are sold with the appearance of a government endorsement, and the tax preparers end up taking billions out of an important goverment transfer program intended for the poor, for their own largesse.

The U.S Congress tends to promote and enact corporate-backed anti-privacy laws, but calls them, in Orwellian fashion, privacy laws. These laws are then generally upheld by the courts (see previous blog), leaving consumers with their confidential information for sale to the highest bidder. Yet for years and years, in poll after poll, the public -- Republicans, Democrats, conservatives, independents, whoever -- strongly supports greater privacy rights. The latest CBS News/New York Times poll, titled Privacy Rights Under Attack echoes the long-standing trend:

52% think the right to privacy is under serious threat, and another 30% think it has already been lost. Only 16% think it is still safe.

A large majority of Americans [83% say that it is mostly a bad thing] express negative views about companies collecting personal information about individuals, including what they buy, their credit histories, and income information.

Federal judge Morrison England has ruled, on remand from the Ninth Circuit, that the federal Fair Credit Reporting Act preempts the affiliate-sharing provisions of the landmark California financial privacy law SB1, so that SB1 can no longer give consumers the right to opt-out of the sharing of their confidential personal information among affiliated companies. California citizens are now subject to the same industry-approved weak federal privacy laws governing affiliate sharing (that is, virtually no rights at all) as citizens in other states. On the positive side, firms cannot share information about Californians with many third parties unless they convince the consumer to say yes (opt-in) to the sharing. That part of the stronger California law was not challenged.

Privacy expert Chris Hoofnagle of EPIC has posted the anti-privacy, anti-states' rights decision and more comment on his blog.

Some history:
The PIRG-backed law was championed by State Senator Jackie Speier (her page) for four years and was finally enacted as a compromise in 2003.

In return for the banks agreeing to no longer block final enactment of the law, CALPIRG, Consumers Union, AARP, the pro-privacy E-Loan Bank and others withdrew from filing an even stronger voter ballot petition on the very deadline for filing the hundreds of thousands of signatures we'd already collected. Of course, the banks that agreed to the negotiation then looked the other way when the American Bankers Association (ABA) and their other trade associations then filed suit against California Attorney General Bill Lockyer to overturn the law. EPIC's ABA v. Lockyer page lists the history of the litigation. [Judge England originally allowed SB1 to take effect, then was partially reversed and ordered to review the case again by the Ninth Circuit, US Court of Appeals. Today's decision holds that the bank-friendly and anti-stronger state law Fair Credit Reporting Act (FCRA) trumps the pro-stronger state law Gramm-Leach-Bliley Act (GLBA).]

The federal GLBA and FCRA grant consumers virtually no rights to prevent the sharing of confidential information. The 1999 Gramm-Leach-Bliley Act states that information can be shared with affiliates and many third parties regardless of a consumer's preference; only information sharing with other third parties (primarily telemarketers) is subject to a weak opt-out under GLBA, which also gave states the right to enact stronger privacy laws. An as yet unimplemented provision -- rife with loopholes -- of comprehensive 2003 FCRA amendments would give consumers a right, not to fully opt-out of affiliate sharing for all secondary purposes, but merely to opt-out of certain but not all marketing uses of the information after it has already been shared. The banks are fighting back during the rulemaking process to weaken even this modest provision so that it provides virtually no rights.

On the other hand, SB1 had created an opt-out right for affiliate sharing (subject to some exceptions) where federal law had no right at all. It also took third party transactions subject to the weak federal opt-out right and strengthened that right to an opt-in.

In detail, SB 1 established a consumer right to say no, or opt-out, of the sharing of their confidential account and personal information by financial firms (banks, insurance companies, brokerages, etc) with their affiliates, for any secondary purpose (such as marketing or profiling) not related to their account transactions. [Some sharing with "like" affiliates was not subject to the opt-out; further, some third parties selling products in the name of the firm were treated like affiliates, not third parties, and subject only to the opt-out.]

Under SB1, before a bank shares information with other third parties, it must gain a consumer's affirmative consent (says yes or opts-in). This provision was not preempted and is still in force. We'll have more as we analyze the decision further.

CCTV has posted a RealPlayer TV webcast here of a town meeting organized by U.S. Rep. Bernie Sanders (I-VT), VPIRG and CCTV last night to discuss the Comcast/Time Warner acquisition of the bankrupt cable company Adelphia's assets. (Comcast and Time Warner have proposed to divvy up the various U.S. consumer markets, and Comcast pretty much gets Vermont under their proposal.)

Speakers at the Burlington, Vermont event included Rep. Sanders, Mark Reilly (Comcast), Commissioner David O'Brien (VT Public Service Dept.), Paul Burns (VPIRG), Burlington Mayor Peter Clavelle and Lauren-Glenn Davitian (Vermont Access Network & CCTV). (If you want, you can skip ahead to about 41 minutes, where you can hear Paul followed by Lauren-Glenn, but the whole webcast is worth hearing.) Here's a previous blog that links to both the Petition To Deny the merger filed by the Media Access Project on behalf of U.S. PIRG, CCTV and other media reform groups and to other merger documents filed by all parties at the FCC.

Also on Friday, PennPIRG director Beth McConnell had an op-ed "Cable's creeping threat" in the Philly Inquirer outlining issues related to cable, media ownership and also one of Philadelphia's largest corporate citizens, the cable giant Comcast. The op-ed was timed to appear during a major media issues conference called "What Price Media Consolidation?" sponsored by the National Alliance for Media Arts and Culture. Here's an excerpt from Beth's piece:

Not only does Comcast enjoy the power that comes from being a monopoly, and from having friends in government, but the company has also stacked the deck internally. Not even Comcast's shareholders have any sway over their business practices. Any decision they make can be trumped by the Roberts family, which holds a "supermajority" of Comcast shares.

How Comcast behaves and how government regulates cable goes far beyond how much it costs to watch Six Feet Under on HBO. Cable has become far more than a vehicle for entertainment, especially in today's digital era. As a predominant means of broadband access, cable is increasingly a lifeline for information and communication. New broadband applications are evolving so rapidly that it's hard to predict all of its uses, but as Comcast itself will tell you, cable will soon become a leading way we phone home, with "voice over Internet protocol," or VOIP, ready to explode.

The article goes on to mention the leadership of a number of Philly groups on the national stage-- among them Prometheus Radio Project, the group whose lawsuit busted up the FCC's rollback of its media ownership rules, and Media Tank.

We wouldn't know about all the security breaches by Choicepoint and others if it weren't for California's pioneering notice law. State Senator Joe Simitian of California -- the author of that law, has an op-ed called "U.S. no help in quest for database security law" (free reg. req.) in Friday's San Jose Mercury News. Here's a few excerpts from Senator Simitian's piece:

Lead, follow or get out of the way. It's not a particularly gracious sentiment, but when it comes to our federal government's role in protecting our privacy, it certainly is apt. To date, Washington has proven itself either unable or unwilling to take the lead in protecting our personal privacy. That being the case, California passed legislation in 2002 requiring that notice be provided to individuals in a public or private database whose personal information has been compromised.

Finally, though, we hoped to prod the federal government into taking meaningful action on a national level. Indeed, many of the opponents to California's privacy law argued against a state law in favor of a federal approach. A patchwork quilt of state-by-state statutes, they argued, was not the ideal. This argument would have been more persuasive, perhaps, had not those same opponents been arguing against such requirements in Washington. Or if Washington has shown an inclination to tackle the problem.

Believe it or not, our active duty military personnel with families generally qualify for social welfare benefits (WIC, food stamps, etc) on the basis of their low pay. So, like other poor Americans, they pay more. They are often the targets of predatory lenders; fringe operations including payday lenders, the rent-to-own boys, and auto title pawn stores often cluster their high-cost, low-value predatory enterprises on base approach roads. Our allies at the Center For Responsible Lending have a new report "Payday Lenders Target the Military" that confirms the problem. Our previous blog has links to other related material.