The banks don't like to talk about the vulnerability of PIN-based ATM cards. But I just received a complaint from a consumer who used her ATM card at a bank ATM -- the kind inside a little 24-hour card-locked lobby in the branch -- but then was a victim of hundreds of dollars in fraud. When she called to report the fraud, the "nonchalant" call center person said that there "may have been a device" attached to the machine and agreed to refund her money immediately. In this picture of a tampered-with ATM from an Australian consumer guide, note that there appears to be a kind of differently colored template over the actual card reader on this machine. That's a "device" that clones the card info and and sends the information over wireless to a nearby bad guy; there is probably a camera in the block-y box on the left, to copy your PIN. On this recent Channel 39 Houston TV story, you can see more about the problem, including an interview with a police fraud squad expert.

As my readers know, I often remind people of the dangers of ATM debit cards, which can be used without a PIN. Because the Electronic Fund Transfer Act (EFTA) protections are so weak, and because it is your money you are fighting to get back, anyone who uses ATM cards, as well as debit cards, should check their bank statements regularly.

In the case of signature-debit fraud, even if the bank honors its zero-liability promise (and it isn't the law, just a promise), you still have to wait for the bank to give you your money back.

But I am also concerned about the complaints I receive from consumers who claim that they've never given their PIN to anyone, and haven't lost their ATM card, but have still been victims of fraud, and that their bank refuses to honor their claim of ATM fraud "because if your PIN was used, it must be your fault." In this case, since nearly all of the "zero-liability" promises only apply to signature-based, not PIN, fraud, the consumer has to rely solely on the protections of the EFTA, which require you to take swift and vigilant action to uphold your rights but do still hold the bank accountable.

Note that even the not-so-friendly-to-consumers regulator known as OCC rejects the "it must be your fault" defense and reminds banks in this alert that the burden of proof is on them, not the consumer, Regardless, because OCC rarely slaps the hands of banks that break the law, let alone penalizes them, banks try this claim all the time.

Any time your bank refuses to help you, you should cc the OCC. If your bank tries the "your fault" argument, definitely tell them about this alert and also contact occ.gov and file a complaint. Also, keep a log tracking all your communications with the bank about the fraud, including names of officials spoken to/dates and times/call details. Save all receipts and print out out all screens showing details of fraudulent transactions. (If OCC is not the regulator for your bank, it will let you know who is.)

According to the Channel 39 story above, police and the Secret Service recognize this sort of ATM fraud is serious, even if the banks don't like to talk about it.

This blog has a lot of details. This consumer booklet from an Australian bank has more details and advice for consumers about identifying tampered ATM machines. You'd expect to find these in convenience stores, maybe, but bank lobbies? Here is the blog where I found that booklet. This fairly technical blog entry has more about a different kind of ATM card fraud. We'll keep monitoring this situation.

According to his new website, ctwatchdog.com, former Hartford Courant consumer reporter George Gombossy says he was "fired for doing my job – being the advocate for consumers." He'd had an investigative column about bedbugs in used (but sold as new) mattresses allegedly sold by one of the paper's big advertisers spiked. Over at his Watchdog Nation website, Fort-Worth Star Telegram watchdog Dave Lieber reports that

"One of my comrades on the journalism battlefield has fallen, and anyone who cares about fighting the bad guys should take note."

You can watch me ripping the banks for unfair overdraft fees and unsafe debit cards in an interview (video; and transcript) with Stephanie Dhue that ran last night on PBS Nightly Business Report. In this previous blog I count the ways that debit cards are bad for you. Legislation to reform and upgrade consumer and fraud protections in debit and other second-class payment methods is desperately needed. Meanwhile, remedial overdraft fee legislation from Rep. Carolyn Maloney (D-NY) has languished for years under assault from banks and some credit unions.

Kudos to consumer champion Hank Klein of Arkansans Against Abusive Payday Lending. In a press conference today, held with an assistant state attorney general and others, the group he founded and tirelessly volunteered with today declared that Payday lending is history in Arkansas.

First American, the final payday lender to cease operations in Arkansas, closed its last store on July 31. [...] The formal end of payday lending in Arkansas occurs nine months after the Arkansas Supreme Court ruled that a 1999 payday lending industry drafted law violated the Arkansas Constitution, and 17 months after Arkansas Attorney General Dustin McDaniel initiated a decisive crackdown on the industry.

A few days ago Adam Levitin blogged over at Credit Slips about a San Antonio Express News story that USAA Bank will allow customers to take pictures of checks and send them to the bank for deposit over their IPhones. The bank already allows this -- called Remote Deposit Capture (RDC) -- from home computers and scanners. From Adam's post, which has several interesting comments also:

RDC, combined with ATM fees waivers and e-banking (for transfers and payments) has the potential to make physical branch banking largely irrelevant. This won't happen immediately...and the fraud risk issues will have to be better addressed. ...But if the bank branch becomes an outdated and expensive method of deposit collection due to RDC, small banks with lower overhead and employee costs will have a leg up on the behemoths with thousands of branches.

From our colleagues at CFA:
Consumer Complaints Up, Resources to Help, Down
Debt Collection is Fastest Growing Complaint in Latest Consumer Agency Survey
Washington, DC – State and local consumer agencies deal with problems that directly impact people’s lives and their wallets. Unfortunately, the latest survey of these front-line agencies conducted by the Consumer Federation of America (CFA), the National Association of Consumer Agency Administrators (NACAA) and the North American Consumer Protection Investigators (NACPI) shows that while complaints went up, the resources to help consumers went down. CONTINUE READING

Just had a "lower your credit card interest rate" robocall on my cell. These scam artists are a big problem, and not just because consumers pay for incoming minutes. Some people actually "push one" or call back and get roped into the scam. Don't do it. Recently, after receiving a "your car warranty is expiring" robocall, U.S. Senator Chuck Schumer called for action against robocalls and the FTC has promised action.

... doesn't mean we endorse either their product or the use of our work. A company using the domain called creditreport.com is selling over-priced unnecessary credit monitoring services ($14.95/month!, yikes!) and using U.S. PIRG data on mistakes in credit reports in its latest PR release. In this case, they actually also claim some added feature to their product. The company claims some sort of "push-button" dispute reporting system.

"With our new online dispute button, it’s now simple and easy for consumers to monitor and report potential mistakes,"

I wish I could push a button and make credit report mistakes go away. I've been walking around the Federal Trade Commission for years looking for the button that will at least wake them up to take credit reporting mistakes seriously. Also, remember, accurate, but negative information can only be removed by the passage of time. Not with a button.

From the New York Times story When a Blogger Voices Approval, a Sponsor May Be Lurking:

And the Federal Trade Commission is taking a hard look at such practices and may soon require online media to comply with disclosure rules under its truth-in-advertising guidelines.

Many forms of online word-of-mouth marketing depend on the perception of unsolicited or personal opinions, said Robert Weissman, managing director of the advocacy group Commercial Alert.
“It’s a contrast to the Tupperware model, where everyone knows what’s going on, and no one’s trying to be deceiving,” said Mr. Weissman, whose group favors stricter oversight of marketing practices.

Kids, don't try this at home. Swoopo is a lottery -- it's not a store, not even an EBay auction -- and there's no good system for winning a lottery. As Mark Gimein explains in his Washington Post story At Swoopo, Shopping's Steep Spiral Into Addiction:

Unlike eBay, however, on Swoopo you pay 60 cents each time you make a bid. [...] What makes Swoopo so fiendishly compelling is the tendency of people to think of the bids that they have already put in as a "sunk cost" -- money that they have already put toward buying the item. This is an illusion. The fact that you have already bid 200 times does not mean that your chance of winning on the 201st bid is any higher than it was at the very beginning.

In the Middle Seat column in today's Wall Street Journal, Scott McCartney reports: Paying for the Pool: Hotels Are Piling On Fees (Pd. subs. may be req'd):

Some hotels are charging mandatory valet parking fees if you show up with a car. Some have upped their "resort fees," required whether or not you use the pool or exercise room. Housekeeping gratuities and bellman fees are aggressively being added to bills, travelers report. Some motels are even charging for in-room safes, regardless of whether you use them.

Both House Financial Services Chairman Barney Frank with Reps. Carolyn Maloney (D-NY), reform bill sponsor, and key subcommittee chair Luis Gutierrez (D-IL) (their letter to the Fed) as well as Senate Banking Chairman Chris Dodd (D-CT) (his release) have issued warnings to the banks that the next reform battleground may be their use of unfair, deceptive overdraft "protection" schemes to extract penalty fees from consumers. A couple of years back, the Fed led bank regulators in a disgraceful bit of regulatory legerdemain. They declared that even though overdraft protection was in fact a form of loan that should be subject to Truth In Lending warnings, because the banks could make a lot more money if they merely disclosed the practice under the Truth In Savings Act instead, why not just do the latter and let consumers suffer? Previous blog linking to our testimony on the Maloney bill, HR 1456, to reform unfair overdraft practices. In the case of unfair overdraft fees, all the kids are doing it, including pretty much all community banks and even some (too many) member owned credit unions. It is yet another pathetic business model. Consumer release (December 2008) criticizing the Fed. Meanwhile over at the FDIC, a regulator that dares to protect consumers, depositors and taxpayers, a recent study found that what consumer advocates have said about overdraft fees being unfair and targeted at people who could least afford to pay them is true.

Today's Washington Post says Capital One credit card bank will have to re-invent itself following passage of credit card reform last month. Well, the core provision of the law says you cannot impose unfair late fees. Turns out Cap One, supposedly an innovative company, relies heavily on late fees. Profitable yes, innovative, no. Re-invention needed to have a fair business model, yes.

Just as Wall Street titans weren't really inventing anything useful (risk is not useful) except in their own minds and wallets, basing your business model on gotcha fees is not useful to social welfare either. By the way, a recent National Consumer Law Center report on fee harvester credit cards heavily criticized Cap One for its practice of issuing multiple low-limit cards to some consumers instead of raising their limits. That's a reverse innovation designed to keep people buried in late fees. From NCLC:

Another Capital One customer who found she had a problem in her wallet was Maryann Strouse, a partially disabled woman in Sunbury, Pa., to whom the bank issued a card in August 1999. Strouse, who is now 73 years old and living on social security payments, had used the card which had an initial credit limit of $200 “extremely sparingly,” according to her lawyer. Between February of 2000 and June 2005, Strouse made only four purchases for a total of $430 and paid $1,190 to Capital One.

Papers around the nation have picked up an AP story Ticket markups capped as NY scalping law expires describing how the New York legislature has allowed a law that had allowed legal ticket reselling at grotesque markups to expire, while negotiations continue on reinstating the law with better consumer protections than it had previously. Russ Haven of NYPIRG, perhaps the leading authority on ticket scalping in the nation, is quoted:

"This is an opportunity for the governor to stand up for fans across New York," said Russ Haven of the New York Public Interest Research Group. "He can make sure they can afford seats for events at arenas like Yankee Stadium and Citi Field that New York taxpayers paid to build."

John D. (Jay) Rockefeller IV, Chairman of the U.S. Senate Committee on Commerce, Science, and Transportation today announced a Senate Commerce Committee investigation into certain e-commerce marketing practices that generate thousands of mysterious monthly charges to consumer credit cards.

On many well-known websites, including Fandango.com and Orbitz.com, after consumers make a purchase, a hyperlink or “pop up” window appears and offers consumers a cash back reward if they sign up for a company’s online membership service.

The practices? Pre-acquired account telemarketing and "free-to-pay" scams. Without your informed consent, if any consent at all -- a company you "trust" (some of the companies you used to trust were called "banks") shares your confidential credit card, debit card or even checking account information with a "marketing partner" that it "trusts" to provide it with massive commissions after it signs you up for products you didn't order and clubs you didn't join.

In the free-to-pay variant, you might get a few weeks free. But unlike the Mickey Mouse Club, you don't even get a cool hat. You just get monthly bills and find it a royal pain in the neck to get your money back.

Yes, Virginia, it is "very true" that websites are sharing your credit card number with third parties that bill you for products you didn't order and club memberships for clubs you didn't join. But, you say, "I just clicked on a "special offer" popup and immediately closed the horrific page of junky offers. I had no idea they could, or would, enroll me for looking at a page for two seconds. They can do that?"

Yes, websites could and yes, they would. And they have for years (my previous blog). But maybe, as part of this investigation and the renewed Congressional oversight of the financial system, the old problem of "pre-acquired account telemarketing" will finally be solved.

The 1999 Gramm-Leach-Bliley Financial Services Modernization Act was supposed to fix a lot of things. It was supposed to remove barriers that prevented financial firms from becoming giant one-stop financial supermarkets that would create synergies, boost competition, offer consumers choices, lower prices and make America strong. How's that going for you?

In response to a rotten privacy scandal involving Memberworks and U.S. Bank, first uncovered by the Minnesota Attorney General, GLBA was also supposed to stop banks and other firms from sharing your credit card, debit card and even checking account numbers with "trusted" marketing partners without your consent. Who needs identity theft? An identity thief didn't steal your information and sell it. Your bank had it already and sold it.

Just as its consolidation of the banking industry didn't work out, GLBA didn't completely solve this problem, either, so after pressure from the state attorneys general, the FTC made changes to the Telemarketing Sales Rule to further limit the seamy practice of "pre-acquired account telemarketing" as explained in these supplemental comments of the Minnesota and Illinois Attorneys General. As the Minnesota comments make clear, it isn't just hard to avoid being signed up without consent, it's hard to cancel.

Some financial institutions have a “hotline” system so that consumer calls can be transferred directly from the customer service center at the financial institution to the retention department of the preacquired account seller. As one bank told its customer service representatives: We prefer that cardmembers contact the Business Partner directly when
attempting to cancel. However, when a call comes into [Bank], we will attempt to re-route the call to the Business Partner via an abbreviated warm transfer, i.e., we introduce the caller and then the Business Partner handles the call.

Unfortunately, GLBA and the TSR include only limited protections against pre-acquired account telemarketing and related "free-to-pay" scams. Let's hope Senator Rockefeller's investigation leads to more financial privacy reforms, including on the Internet.

Believe it or not, Vertrue even has a page warning about pre-acquired account telemarketing, even though that's its game.

More links:

My testimony from a 2002 Senate hearing on privacy and Gramm-Leach Bliley. Other pro-privacy witnesses at the hearing included the Minnesota and Vermont Attorneys General and Phyllis Schlafly, head of the conservative Eagle Forum. Among the industry witnesses was John Dugan, now head of the obscure, but powerful, federal OCC (previous blog).

An article from the Multinational Monitor about Memberworks and U.S. Bank.

New credit law will regulate Freecreditreport.com, a classic free-to-pay scam.

Well. as you can see, I am so excited about this investigation, this blog could go on and on...

Today, the Consumer Federation of America is launching a national campaign to combat fake check scams. Millions of consumers are lured into accepting genuine-looking checks and money orders and wiring money to crooks in return. The press release link offers tips to consumers.

When I testified alongside Ticketmaster chief Irv Azoff a few weeks back, he and his army of flacks assured me and the Congress that the Bruce Springsteen ticket fiasco in February was a one-off--it wouldn't happen again. Fans would pay regular prices, not be re-directed to Ticketmaster's legal scalping subsidiary known as Ticketsnow. Well according to the Washington Post, it has happened again, for a show right in the nation's capitol where a New Online Ticket Flap Thwarts Springsteen Fans. Excerpt:

"There are what now appear to be chronic problems with how Ticketmaster uses its secondary market ticket reseller TicketsNow," said Springsteen manager Jon Landau in an e-mail. "We would like our audience to know that this is a problem concerning Ticketmaster and its wholly owned subsidiary TicketsNow. Neither Bruce nor his management have any control whatsoever over these two troubled entities."

In a statement at Mr. Springsteen’s official Web site, brucespringsteen.net, his manager, Jon Landau, wrote that there “appear to be chronic problems” with how Ticketmaster uses TicketsNow, and that he and Mr. Springsteen “deeply resent the abuse of our fans.”

The Senate has begun floor consideration of S 414, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act sponsored by Senate Banking Chairman Chris Dodd (D-CT). A final vote could occur Wednesday or more likely Thursday. Today, Dodd announced a PIRG-backed compromise with ranking Republican Richard Shelby (R-AL) that has allowed the bill to be brought to the floor. While other Senators will still offer pernicious amendments, we expect the compromise to stay solid without significant weakening amendments passing. In late April, the House passed the companion Credit Cardholders' Bill of Rights on an overwhelming 357-70 vote. With President Obama's strong support now buttressed by Shelby's support, we expect that a bill could become law by Memorial Day. Our view on the compromise:

We like the House bill. But we like the Senate bill more.

In the story Facebait over at Portland, Oregon's KOIN-TV, watch consumer attorney Justin Baxter explain how debt collectors are using attractive young women seeking to become your Facebook friends to collect alleged unpaid debts. Baxter says that the practice may be in violation of both a new Oregon-PIRG backed state law as well as federal laws against deceptive debt collector techniques. Of course, corporations and employers are employing similar scams, although sometimes they simply put up a corporate page. But who would want to friend a giant faceless corporation anyway, hence the fake pages.

Heck, in one of the few interesting stories I heard or saw or read in the interminable runup to the interminable 6-month long, 6 million round NFL draft (well, it seemed that long), "Mike and Mike" on ESPN-Radio explained that even NFL security has fake "hotties" who try to friend gullible draft-eligible college players so that the NFL can get access to their pages and check them out.

Last week, on a chilly day, over 350 advocates for the blind and others with print disabilities held a protest in front of the Author's Guild in New York City over the authors' demand that speech software on the Kindle 2 e-book reader be turned off to preserve authors' rights to royalties from selling "books on tape" products that they read themselves. Amazon, the Kindle's maker/seller, has capitulated to the authors. The authors want the blind to submit to a special registration process where they would pay a fee and would be granted a license to turn the robotic reader software back on. They claim the Kindle 2 otherwise violates copyright laws. Fair use experts say "not true." We agree with advocates for the blind and others with reading disabilities that the authors are wrong on the law and wrong to pick this fight and that Amazon took the wrong side.

I've seen numerous reports on the net about the power of the event (Jamie Love chronicles numerous stories in the Huffington Post, Manon Ress at the Knowledge Ecology International (KEI) blogs with many photos (including the one in this post), an Electronic Frontier Foundation (EFF) report with numerous photos, Cory Doctorow posts at BoingBoing, Greg Sandoval writes at CNET, John Mahoney writes at Gizmodo, etc. From Manon Ress:

In a world where paying consumers can download a book and start reading it and where there exists a technology that allows people with reading disabilities to do the same, turning off text to speech is a brutal act of segregation. Why is it an unacceptable form of censorship? Because if authors and publishers can decide who reads, when and how, it is censorship. It is against the free flow of information that they claim to believe in.

You can sign the Reading Rights Coalition petition in favor of fair use. Excerpt from the preamble:

Sadly, the Authors Guild does not support equal access for us. The Guild has told us that to read their books with text-to-speech we must either submit to a special registration system (that not all may qualify for and that would expose disability information to all future eBook reader manufacturers) and prove our disabilities -- or pay extra. The Guild’s position is contrary to the principle of equal opportunity for all and discriminates against millions of people with print disabilities.

Along with other leading groups, we're joining onto critical testimony today by Jean Ann Fox of the Consumer Federation of America at a hearing of the House Financial Institutions and Consumer Credit Subcommittee. Unfortunately, our testimony happens to be in opposition to a proposal, HR 1214, by the subcommittee's chairman, Luis Gutierrez (D-IL) to legalize predatory payday lending at an allowable 391% interest rate (APR). Excerpt from our comprehensive testimony after the jump:

We oppose enacting legislation to sanction a predatory credit product that traps cash-strapped American families in a debt cycle of repeat borrowing. Congress outlawed these loans for Service members and their families in 2006 and should extend the same protections to all Americans. As American families struggle to make ends meet, protections against extremely expensive loans, unaffordable repayment terms, and loss of control of bank accounts are more important than ever. H.R. 1214 does not provide the protections that American consumers need or want.

After the jump, a few more odd Bank of America stories.

The lawsuit, filed in Federal District Court in Brooklyn late Thursday, contends that Bank of America “established, equipped and staffed” a branch office in the headquarters of Mr. Cosmo’s firm, Agape Merchant Advance. As a result, the lawsuit contends that the bank knowingly “assisted, facilitated and furthered” Mr. Cosmo’s fraudulent scheme.

Bank of America rebuffed earlier news reports that its chairman and chief executive, Ken Lewis, intended to suggest to President Barack Obama to separate commercial and investment banking. The Charlotte bank said in a statement, "Mr. Lewis was referring to people's understanding of banks and how they should view the difference between commercial and investment banks in terms of forming perceptions of their various activities."

It turns out he was just trying to tell the public where to direct its ire against "banking" in general: Hate those Wall Street bankers, but not the poor tellers in your local branch.

If the local police stumble onto a bank robbery, they will say "stop robbing now" and arrest the perpetrators. But after the Fed stumbled upon the blatantly obvious idea that credit card banks were robbing their customers, the Fed said, "Keep robbing now, then stop robbing in July 2010." So, according to widespread reports, banks continue to tighten down the thumbscrews on their customers, by imposing higher fees and new fees (how about that Chase $10/month fee?) and jacking most consumers, even good risks, to higher interest rates.

Now, there is hope. As noted today by Reuters, the Senate Banking Committee and a House Financial Services subcommittee are scheduled to mark up (vote on) two PIRG-backed credit card reforms next week. On Tuesday, 31 March, the Senate committee will consider Chairman Chris Dodd's (D-CT) Credit CARD Act, S. 414. Our previous letter of support is attached. On Wednesday, the subcommittee on Financial Institutions and Consumer Credit will consider Rep. Carolyn Maloney's (D-NY) Credit Cardholders' Bill of Rights, HR 627, which passed the House overwhelmingly last year on a 312-112 vote.

In the Senate, we expect that the banks will simply oppose the Dodd bill because it is more comprehensive than the Maloney bill, which largely tracks important but narrower Federal Reserve rules declaring routine bank practices as illegal unfair and deceptive acts. The Fed rule was approved in December but is not slated to take full effect until July 2010. In the Senate, the banks will say, "the economy is bad, don't hit us when we're down," and in the House they will say "Wait for the Fed, or at least delay Maloney until the same timeframe as the Fed." Consumers need protection now, not in 2010. Call your committee members, now. House Financial Services (full committee) members. Senate Banking Committee members. All can be reached through the Congressional switchboard at 202-224-3121.

Over at his Red Tape Chronicles MS-NBC's Bob Sullivan chronicles his nightmare with canceling his Sprint cell phone contract. It comes down to this comment:

If you want to know why U.S. companies seem to run rough-shod over consumers on a regular basis, now you do: federal regulators hold the door open for them.

I wouldn't buy a subscription to a for profit ID theft service. And you shouldn't either.

[W]hen Consumer Federation of America (CFA)(release and report) studied the websites of 16 for-profit identity theft services, it found that the descriptions of how they help consumers are often confusing, unclear, and ambiguous. Furthermore, these services may not always offer the protection that consumers are led to believe they will get.

We testify tomorrow afternoon in the House Financial Institutions and Consumer Credit subcommittee (hearing page with all testimony already posted) in favor of two bills from Rep. Carolyn Maloney (D-NY). HR 627, the Credit Cardholders Bill of Rights, passed the House 312-112 last year, but is opposed by the credit card companies. HR 1456, the Consumer Overdraft Protection Fair Practices Act, did not make it out of committee last year. It's opposed by all the banks, and many credit unions, too.

Combined, big banks, little banks and some (too many) credit unions make billions of dollars on so-called bounce protection loans:

"Ed, your debit transaction*** for that $4 latte overdrew your account by 50 cents. We knew you didn't have $4, but we let it go anyway because we figured you wanted us to clear it anyway. But here's the good part, for us, anyway. We protected you from overdrawing that account with a feature you didn't even know you had -- we call it "courtesy overdraft." It only costs you $35 bucks each time you overdraw. Of course, since the average debit transaction at point-of-sale is less than $20 it's not so good a deal for you. Good deal for us here at the bank, you think? How's that latte?"

*** Of course, this is all just a dream. I would never ever use a debit card. The risks of fraud are too great, not to mention the risks of unfair overdraft fees!

We're on Air America with Ron Reagan, in a few minutes (around 7:15 PM Eastern) to talk about freecreditreport.com, which I also discussed on HuffingtonPost today. Why the FTC hasn't shut this down, I have no idea (well, actually, I have several and some are discussed in that Huffington piece by Arthur Delaney). In any case, don't go to freecreditreport.com, it isn't free and it won't stop identity theft.

Over at the Consumers Union defendyourdollars.org blog, plastic card (credit, debit, gift, payroll, etc.) expert Michelle Jun has a warning to online gamers: If you get a re-loadable pre-paid plastic card with your favorite capcom.com hero or bad guy emblazoned on it, you don't have a credit or a debit card. You have an eating card. It eats your money. You'll pay fees, and more fees. It won't matter how many secret potions or laser pistols or invisibility cloaks you're carrying, or how many lives you've accumulated, or what level you play at, you'll lose. Make a note of it. More on cards and card rights.

We asked our members what questions they'd ask the Wall Street bankers if they were sitting on a House or Senate panel investigating the bailout. Most of your questions fall into five categories. You want Wall Street bankers to:

Meanwhile, today's Wall Street Journal (pd. subs. req'd) has a page 1 story by Susanne Craig called Merrill's $10 Million Men: Top 10 Earners Made $209 Million in 2008 as Firm Foundered. Excerpt:

While Merrill staggered, 11 top executives were paid more than $10 million in cash and stock last year, say people familiar with the situation. An additional 149 received $3 million or more. The stock awards, which accounted for much of the compensation, have fallen sharply in value since they were made last year. New York Attorney General Andrew Cuomo has subpoenaed information about Merrill's highest-paid employees in connection with his probe into $3.6 billion in bonuses paid by Merrill in the days before it was taken over by Bank of America Corp. Thus far, Bank of America hasn't turned over the names of Merrill's highest-paid executives, claiming it would help rivals woo its top talent.

Live blog-- update7 In response to query from Sen Dodd, Professor McCoy says her research into bank S.E.C. filings following issuance of regulatory "light touch" guidances shows that big banks felt that they could continue to break laws with impunity. This empirical research provides critical backup to concerns consumer groups have long had.

Update6 Sen. Schumer (D-NY) making late opening statement with good news that he will be joining Sen. Durbin this week in introducing a bill to create a consumer regulator to respond to "Peddlers" of financial "elixirs."

update5 Steve Bartlett continues to preach lender gospel of weak and preemptive federal rules as solution to all problems. Pat McCoy expands on her point of regulator reluctance to act --making point that current system is opaque and non-transparent and secretive.

Update4: Senator Shelby's excellent questions to the witnesses are rehabilitating his
Opening statement where he went out of his way to criticize some homeowners.

3: Citing her academic research in response to a query from Sen. Dodd, Pat has described a "distinct reluctance" by the Fed, OTS, and OCC to impose formal consent orders or penalties. She suggests that the new consumer agency should be able to step in itself when this occurs. We agree.

Update2: Ellen concluded her open by posing some important questions needing answers. Pat McCoy is up. She is strongly supporting the new independent consumer regulator idea and issuing a powerful denunciation of the Fed and other regulators and their myriad failures, while also supporting the need for state AGs to have shared jurisdiction. You can get the witness testimony at the Banking Committee website under hearings.

Update: Ellen Seidman is backing the Consumer Credit Safety Commission idea provided that bank regulators retain their power to enforce its enacted rules to protect consumers.
Live blog-- The Senate Banking Committee -- chaired by Chris Dodd (D-CT) is holding a hearing on the future of consumer protection in banking. Senator. Dodd has given a powerful opening statement alluding to the need for a new consumer protection agency like the CPSC for banks. We expect Senator Durbin (D-IL) to re-introduce such legislation as suggested by Harvard law professor Elizabeth Warren soon. Senator Shelby's (R-AL) opening remarks not so much in favor of the idea, plus he took a shot at homeowners (and bankers). Witnesses are UConn Law professor Patricia Mccoy, former Clinton regulator and current New America Foundation fellow Ellen Seidman and finally Steve Bartlett of the bank and insurance lobby known as the Financial Services Roundtable. Bartlett has leaped out to attack state attorneys general again (see last post) and the Durbin bill, which hasn't even been filed yet. He is now describing an industry "reform" wishlist.

Unfair credit card practices don't just hurt consumers, they hurt small businesses also. Credit card reform makes the Top 10 Priority Issues for 2009 list for the National Small Business Association. Small businesses pay anti-competitive interchange fees and face the same "change the rules and interest rates at any time" regime consumers face. Even worse, the consumer protection laws that protect consumers generally only apply to credit for "personal, family, or household purposes." So if a small businessperson has a bank dispute, they're even worse off than you or me. Those "zero-liability" promises for fraud on debit cards? Good luck collecting if you have a small business card.

We signed on to testimony delivered yesterday by Travis Plunkett of the Consumer Federation of America at a Senate Commerce Committee hearing on Consumer Protection and the Credit Crisis. The hearing focused on predatory lending, debt counseling scams, the growth of credit card debt and ways to increase regulatory and legal resources to protect consumers in the declining economy. Also appearing as a witness was University of Minnesota Law School professor Prentiss Cox, a longtime ally and former assistant state attorney general. From Travis's testimony:

The National Consumer Law Center, the Consumer Federation of America, and U.S. PIRG were among the first to warn that the nature of credit counseling had also begun to dramatically shift in ways that were very harmful to debtors. In the late 1990s, a new class of agencies emerged that aggressively marketed DMPs and related services, dramatically raised consumer fees, and had extensive relationships with for-profit vendors and consultants. Complaints about deceptive practices, improper advice, excessive fees and abuse of non-profit status sharply increased. 21 Federal and state regulators and policymakers, who had largely ignored the rise of these new agencies, and the problems they had created, began to investigate.

Our colleagues Chi Chi Wu of the National Consumer Law Center and Jean Ann Fox of the Consumer Federation of America have released their latest warning (release> and report) against triple-digit Refund Anticipation Loans. Tax preparers offer RALs as a way to get your refund today, not in a few days, but you'll need to pay through the nose for the "privilege." Don't. The report details how RALs promote fraud and how RALs hurt every taxpayer, not just purchasers.

The report reveals that RALs drained the refunds of about 8.7 million American taxpayers in 2007, the last year on which the Internal Revenue Service provided data. This represents about $833 million in loan fees, plus over $68 million in other fees. In addition, another 11.2 million taxpayers spent $336 million on related financial products to receive their refunds. NCLC and CFA also issued a special companion report entitled “RALs, Tax Fraud, and Fringe Preparers.” This report discusses how RALs provide tax preparers with an incentive to inflate refunds and commit tax fraud, while attracting payday loan stores, check cashers, used car dealers, and other questionable businesses into the field of tax preparation.

We testify this morning before the Subcommittee on Courts and Competition Policy of the House Judiciary Committee at a hearing on Competition in the Ticketing and Promotion Industry (you should be able to watch the hearing and download all testimony after 10am).

The hearing is really about the question: What were the behemoth monopolists Ticketmaster and Live Nation thinking when they proposed to merge instead of compete in the marketplace? Our testimony says: This merger is bad for consumers, bad for artists and bad for independent promoters. We also discuss the importance of NYPIRG's longstanding efforts to protect New York consumers against ticket scalping, question the long-term contracts between ticket and concert promoters and taxpayer-built venues and, finally, we condemn Ticketmaster's wretched, over-priced customer "service." Would you like convenience fees with that ticket? How about paying lots more than mail postage would cost for mere Internet "delivery?"

We also endorse the testimony of antitrust expert David Balto of the Center for American Progress Action Fund from Tuesday's Senate Judiciary hearing on the merger. We also approve this Huffington Post blog Stopping the Ticketmaster/Live Nation Merger by our colleague Jamie Love of Knowledge Ecology International. Our previous blog comparing the merger to the completion of Darth Vader's Death Star.

U.S. PIRG Tax and Budget Reform Advocate Nicole Tichon has released Bailout Briefing #1: How to Stop Rewarding Failure. It focuses on comparing executive compensation approaches, including the provisions of the newly-enacted law (as part of the Recovery package). The detailed accompanying table compares the executive compensation provisions of the new Recovery law, the Geithner guidelines and other federal proposals. Each quarter, we will update our recent report, Failed Bailout, with a new Report Card on the status of the transparency and accountability of the bailout.

In other banks behaving badly news, Chairman Barney Frank and 17 other House Democrats have demanded that Northern Trust Bank return its $1.6 billion in TARP money, which it apparently used for classic rock concerts (Chicago; Earth, Wind and Fire; Sheryl Crow), golf tourneys and Tiffany swag bags. Read more at the website TMZ.com, which helped break the story.

Oregon State PIRG (OSPIRG) Consumer Associate Matt Wallace is teaming up with Attorney General John Kroger to improve consumer protections against unruly debt collectors who may violate the law because they don't fear repercussions. (Statesman-Journal). Here is the AG's testimony in favor of legislation also backed by OSPIRG.

As the economy cools off, the phone threats from debt collectors heat up. While most people try to pay their bills, sudden layoffs, medical debts or family emergencies often make it hard. Worse, the resale of old debts to a daisy chain of often seamy debt-collection mills often results in demand for payment of very old debts well beyond the statute of limitations and in mixups, where debt collectors abuse others who don't have debts but do have similar names. These "debt collector trade lines" often end on credit reports; frustrated consumers who never owed or no longer owe will often pay a harassing creditor, just to improve their scores. Using the threat of ruining your credit report is just one of the unsavory tactics of debt collectors.

In recognition of a history of widespread abuses by some companies and third-party collectors attempting to collect debts, legislators and regulators have used laws such as the Fair Debt Collection Practices Act to make the process fair. But it often isn't. We need strong state enforcement and authority as the Oregon proposal would provide and we also need stronger consumer rights to sue debt collectors who abuse the law. No debt collector should be above the law. Most think that they are, especially bottom-feeder debt collection mills that buy really old debts.

For more information about your debt collection rights, read this handy fact sheet from the National Consumer Law Center.

Karen Blumenthal has an excellent column, In the Fight Against Bill Creep, Every Extra Fee Is the Enemy (pd. subs. req'd), in today's WSJ where she notes that add-on a la carte service fees are offsetting modest increases in basic costs of services.

Consider your cellphone, for instance. A typical month of local service today now costs about $48.50, about a dollar a month less than in 2003, and you get about 60% more minutes, according to CTIA-The Wireless Association, the industry's trade group. But the harsh reality is that the typical bill is more like $76 a month, says TNS, a New York-based market-research firm. The reason? Families keep adding phones and minutes and a slew of additional services, such as text messaging, ringtones and games.[...] Basic cable costs have climbed about 20% since 2003, to about $44.28 a month, according to research firm SNL Kagan. But factor in Internet access, extra channels like HBO or regional sports, and a digital video recorder, and the average monthly bill is more like $98, up 63% since 2003. Health clubs are another area where people have added services.

Over at Smartmoney.com, reporter Aleksandra Todorova has a story I'd agree with even if I weren't quoted in it: Credit-Monitoring Services: A False Sense of Security. Credit monitoring is over-priced, doesn't stop identity theft and provides that "false sense of security." In fact, Maxine Sweet from Experian is even quoted saying this:

"Experian’s credit-monitoring service provides “peace of mind” and should not be counted on to prevent identity theft alone."

Our colleagues Jean Ann Fox of the Consumer Federation of America and Chi Chi Wu of the National Consumer Law Center have issued their latest warning to consumers: avoid triple-digit ripoff tax refund anticipation loans and their variant, paystub loans. A longer CFA/NCLC report will be out in February. From yesterday's release:

How much will taxpayers pay if they get a quickie tax loan? The price of a RAL includes several components –

A loan fee ranging from $34 to $130, which is usually broken down into a “Refund Account” fee and a “Bank Fee.”

Some tax preparers may charge one or more separate add-on fees, sometimes called “application,” “administrative,” “e-filing,” “service bureau,” “transmission,” or “processing” fees. Add-on fees can range from $25 to several hundred dollars. Add-on fees are not charged by H&R Block, Jackson Hewitt or Liberty Tax. In general, the effective annual interest rate (APR) for a RAL can range from about 50% to nearly 500%. If a $40 add-on fee is charged and included in the calculation, the effective APRs range from about 85% to nearly 1,300%. RAL loan fees can vary significantly.

In good tax news, another related ripoff, paying private contractors a huge fee for the privilege of filing your tax return electronically, has been reduced. Now, taxpayers who make up to $56,000 can file free (USA Today story by Sandy Block; IRS site; our 2007 "some Free File fixes" blog) The so-called Free File program is still an outrageous subsidy to powerful corporations who are allowed to advertise through the IRS website and of course, use tricks and traps to add on other fees and "services." Even the Americans making less than $56,000 should watch out for these add-ons if they use "Free" File through an IRS tax preparation "partner" company. Let's hope Obama dumps the rest of this distasteful corporate welfare program into the trash for next tax season. Advertising on government websites? Private firms charging fees to file your taxes?

On behalf of President-elect Obama, economics advisor Larry Summers has sent Congressional leaders a letter urging better TARP oversight as a condition of the new administration's support for releasing the second half of the $700 billion Wall Street bailout. One of the wackier findings of the reports from the Congressional TARP oversight panel chaired by Professor Elizabeth Warren is that the Bush Treasury Department doesn't have and never had a plan for tracking bank use of the billions of dollars of taxpayer money it's been giving out in big chunks. Findings of the January 9th report:

The report highlights four key areas that demand special attention:

1. Bank Accountability—the Panel still does not know what banks are doing with the taxpayer money they have received.
2. Transparency—confidence in markets can only be restored when information is transparent and reliable, but we still have no clear mechanism to ensure transparent and accurate asset valuation and no confidence that the dangers posed by toxic assets have been addressed.
3. Foreclosures—Treasury has yet to take any steps to use TARP funds or develop plans to “maximize assistance to homeowners,” as required by law.
4. Overall Strategy—Treasury's shifting explanations for its purposes and the tools used have exacerbated the Panel's concern that Treasury does not have a coherent overall strategy and goals for use of the TARP funds.

In today's editorial A Voice for the Consumer, the New York Times backs the recent call by U.S. PIRG, the Consumers Union, the Consumer Federation of America and other leading groups to restore the long dormant White House Office of Consumer Affairs. From the NYT:

The time has come to give the American consumer a much stronger voice in Washington. President-elect Barack Obama has already named what amounts to an energy and environmental czar in the White House, and America’s beleaguered consumers deserve no less.[...] Presidents Johnson and Carter both recognized the need for a strong person to do that job. Both chose Esther Peterson, who during about eight years in office pushed for then-radical ideas like nutritional labeling on food and truth in advertising. As the Reagan anti-government era began, the consumer protection job steadily lost clout until it was shuttered in the late 1990s.

Read the details here:
1. Restore the United States Office of Consumer Affairs; Put a Consumer “Czar” In The White House.
2. Rein in Wall Street Excesses, Protect Consumers from Abusive and Predatory Lending.
3. Protect Consumers from Price-Gouging in Oil, Gas and Electricity Markets, and Take Steps To Provide Households With Access to Alternative Energy and Efficiency.
4. Improve Consumer Access to Justice By Reinstating Legal Rights.
5. Guarantee Safe, High Quality, Affordable Healthcare for Everyone.
6. Ensure our Food and Products are Safe.

As part of their new credit card rules approved last week making certain unfair practices illegal, the regulators had also intended to finalize an additional -- quite weak -- rule regulating the lucrative "bounce protection" programs that banks have used to collect billions in overdraft fees. While the regulators did at the same time as they approved the credit card rules, withdraw their mediocre overdraft rule, what they ended up doing is weak also. We joined other leading groups in a news release explaining the problems with what the Fed ending up doing-- proposing two alternatives instead. The Fed's new proposal is based on two supposed alternatives. The first, an opt-out, is unacceptable; the second, an opt-in, is marginally acceptable, although the remainder of the new rule proposal simply fails to address all of the other inherent problems with overdraft loan programs. The Fed should have simply immediately required that no consumer could be enrolled automatically in one of these programs without an affirmative opt-in (e.g., without a comment period), and then proposed rules only to address the other problems with these bounce protection programs. Instead, the Fed proposed an opt-in to address some of the problems, but inanely asked for comment as to how it compared with an opt-out (duh) and ignored the myriad other problems with bounce protection in its proposal. How bad are overdraft programs? One study by our colleagues at the Center for Responsible Lending found that "the typical overdraft loan triggered by a debit card, incurring a $34 fee, is only $17." Excerpts from our joint news release explaining that:

For instance, the proposed rule does not require that consumers be provided with federal truth-in-lending disclosures about the APR of overdraft loans. A recent FDIC study noted that charging a $27 overdraft fee for a $20 debit card transaction would be the equivalent of a 3,520% APR if the overdraft is repaid in two weeks.

While the Fed proposed to prohibit most overdrafts caused solely by debit card “holds”—when a hold by a merchant exceeds the actual amount charged—it did not address check holds, when banks intentionally delay the availability of deposits, or banks’ ability to manipulate the order in which transactions are cleared in order to maximize overdrafts.

UPDATE: Over at Felix Salmon's Conde Naste blog, see a long post by Adam Levitin of Credit Slips on this.

Original post: Last week, bank regulators made some unfair credit card practices illegal. Now, an empirical study by Neil Stewart, a psychologist at Warwick University, as reported on in The Economist, shows that disclosure of the minimum monthly payment encourages some consumers to pay less than they otherwise would:

Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43% less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.

The minimum monthly payment is integral to the open-end credit business model used by credit card companies. Instead of requesting full payment, or a fixed monthly payment that reduces principal significantly, card companies feature the "minimum" payment required, thus encouraging consumers to wallow in perpetual debt, since making the minimum payment each month virtually guarantees you will never pay off the card.

During the 1997-2005 Bankruptcy Wars that culminated in passage of the 2005 bankruptcy law rolling back consumer protections, a credit-card-company approved generalized provision requiring some disclosure of how long it would take to pay off a card if that minimum payment were made was included in the final law but has not yet taken effect. Better PIRG-backed notices that would provided consumers with customized disclosures of their exact "months to pay" and "total additional interest" they would pay if they continued to make only the minimum payment were defeated.

The federal bank regulator known as the OCC has announced an amended settlement with Wachovia Bank over its "alleged" relationship with fraudulent payment processors who used electronic debits known as "remote checks" to debit or deduct (steal) from customer accounts. Wachovia customers will receive over $150 million in restitution (repayment of the stolen funds). The US Attorney has embraced the settlement. For more information, call (866) 680-6659 or visit RestitutionPayment.com.

As we note in a previous blog, Charles Duhigg of the New York Times broke major stories in 2007 and earlier this year on the scam. In the second, he reported that Wachovia had apparently looked the other way because of the massive profits from the fees generated by this electronic payment business, despite warnings from regulators, other banks and even its own executives:

"YIKES!!!!" wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. "DOUBLE YIKES!!!!" she added. "There is more, but nothing more that I want to put into a note."

It's been rumored for weeks they'd be voting on the credit card rules this month, and the agenda for the Fed's December 18th board meeting is now posted and confirms it:

Discussion Agenda:
1. Amendments to Consumer Regulations Affecting Credit Card Accounts and Overdraft Services.

I've often written about the freecreditreport.com scam. The website is run by the credit bureau Experian. Over at Smartmoney.com, in her story FreeCreditReport.com: Not So Free -- Still, reporter Stacey Bradford points out two key astonishing facts.

FreeCreditReport.com spent a little more than $19 million on advertising during the third quarter, an increase of 28% from the same period in 2007, according to TNS Media Intelligence. A vast majority of that money -- roughly $14 million -- was spent on television ads.

The somnolent lapdog known as the Bush Administration Federal Trade Commission is responsible for the deception. Perhaps the numbers in the Bradford piece will wake them up. In weak settlements totaling a paltry $1.2 million dollars, it has continued to allow Experian to use the word "free" for its overpriced subscription service. Using the word "free" confuses consumers into thinking that they are going to the government-mandated annualcreditreport.com site where you can get an actual free credit report required by law. The web is full of other blogs that agree with me: (MSNBC Red Tape Chronicles blog, Huffington Post blog, Washington Post blog). If you are tricked into purchasing over-priced credit monitoring with the promise that it is "free", complain to the FTC and also to your own state attorney general (list here). He or she is a tough consumer cop, unlike the FTC.

Here's another thing: When the full history of the financial meltdown is written, it will describe the role of the credit bureaus. Not only did their super-duper credit scores fail to accurately warn of consumers' ability to repay, but their use of trigger lists and their incessant Internet ads for products such as lowermybills.com (also owned by, you guessed it, Experian) drove people to the mortgage companies where they got hooked on over-priced debt (previous blog). Over at his Center for Digital Democracy, Jeff Chester has written about the role of the credit bureaus in the explosive growth of behavioral advertising on the Internet.

A massive new FDIC study confirms that most (77%) large banks are offering "automated" (you don't sign up, it's a "feature") overdraft or bounce protection programs and accruing billions of dollars in revenue. The programs have been heavily criticized by nearly every major consumer and civil rights group, including PIRG. In the 110th Congress, remedial overdraft fee legislation offered by Rep. Carolyn Maloney (D-NY) languished in committee due to fierce opposition from the banks.

Here are a few selections from the executive summary, confirming what we already know (that these these programs are unfair, tricky, and make lots of money for the banks at the expense of younger, less-well-off consumers):

Aggregate data from over 1,000 banks:

You get the idea. There's a lot more in the study and its accompanying exhibits.

Consumeraffairs.com website is reporting that Chase is imposing a $10/month "service fee" on some credit card customers with very low balance transfer or other promotional interest rates. That's equivalent to a $120/year annual fee. Chase is also raising their minimum payments.

UPDATE: I took PIRG's own Deflate Your Rate advice and called Citi to complain and ask for a lower rate. They gave me a very good rate, even better than my old pre-Jack rate. Now, that could be because I have had this card in good standing for 15 years, or because they read my blog, or because I made the call. I hope more consumers make that call, rather than submit to the ridiculous 17.99% APR re-pricing rate.

ORIGINAL POST YESTERDAY: Got a Thanksgiving card from Citibank. Well, it isn't a card, but it isn't a letter. It's a boilerplate change of terms notice jacking my rate by 3% (previous blog on recent Citi announcement). According to news stories, Citibank is repricing (raising) rates on about 20% of its customers, despite promises to Congress and the public it would not (without a card-related reason such as a late payment). Here's my profile:

If that's the profile of their worst 20% of customers, why are they in so much trouble? MORE:

According to the most recent Fed G-19 statistical release, the average APR for customers who don't pay interest is 11.93%; for those who pay interest, 13.64%. Either way my new rate of a minimum of 17.99% is outrageous, even if I don't carry a balance (so I don't pay finance charges).

It may be more likely that I have been re-priced due to the "science" of behavioral scoring: I may live in a zip code or shop in stores where a lot of their other customers are deadbeats. Since I live in the burbs of our nation's capitol, this is troubling-- meaning the country is likely being run by deadbeats. But actually, according to the Fed's dynamic maps of credit card delinquency rates, I live in an area with very low delinquencies.

Maybe their supercomputers are programmed wrong. Probably the same computer that calculated their risk exposure from derivatives and currency default swaps. How's that going for ya? They've blown a gasket (legacy computers may have gaskets, who knows) and yellow lights are flashing on consoles that my shopping and card use profile has changed. Instead of my normal profile of marching through malls looking for dangerous toys, which is about the only time I visit one, perhaps I have a new updated profile in Citibank's South Dakota citadel. I guess Citibank's supercomputers have run an analysis predicting that I'm gearing up for a mall shopping binge tomorrow on Black Friday.

More likely, it means Citigroup is in worse trouble than even the front pages tell us. Despite the extremely favorable terms of the new Citigroup bailout, maybe it just isn't enough and they need me to kick in, too. (The Economist's View blog skewers the terms of the Citi bailout granted by Treasury Secretary Hank Paulson and the Fed.)

And if you are wondering when I would work in turkey and football, I thought we'd close with baseball. Last year Citi bought the naming rights for the new Shea Stadium (also built on the backs of taxpayers). Now that Citi has its own special taxpayer bailout, two New York City Councilmembers have proposed to re-name the new home of the Mets from Citi Field to Citi/Taxpayer Field:

Mr. Oddo quipped: “Not naming the field after Jackie Robinson in the first place: mindless. Tom Seaver stepping onto the new mound for the first time: timeless. Actually acknowledging the contributions of the hardworking taxpayer: priceless.”

The papers are reporting that executives at former investment bank Goldman Sachs will not ask for or take bonuses this year. Goldman is now a financial services holding company under the wing of the Federal Reserve. My only question, dear readers, is this: How big a bonus are you supposed to get when your profits are down 70% through three quarters and it looks like a loss for the fourth? The good news here is maybe some of the other former Wall Street masters of the universe will do the same. To mix a few sensory metaphors, though, most of these guys are tone-deaf; meanwhile, the optics of excessive executive compensation in the current financial crisis just aren't that good (Washington Post: Growing Sense Of Outrage Over Executive Pay).

We've written before on what is worse than a consumer pet peeve. Thousands of consumers are injured seriously enough to go to the emergency room each year trying to open nasty hard plastic "clamshell" packaging intended to deter shoplifters. In today's New York Times, Brad Stone and Matt Richtel report on the possible end to "wrap rage" in their story Latest Marvel: Packages That Open Without a Saw.

Update: Gift card holders may be out of luck in retail bankruptcies in the LA Times explains that when companies file bankruptcy consumers lose the value of unused prepaid gift cards.

Original post: Over the last several years plastic payments, especially debit, have eclipsed cash and check transactions. Also, the Internet has provided a new portal for shopping and bill payments and has stimulated development of still more payment systems (Paypal, cell-phone payments, etc.). But the laws have not kept pace. So, the only way I will pay on the Internet is with a credit card. It's the safest way. You risk all the money in your bank account and more when you use check transfers or debit cards.

In addition, as banks added and increased fees without mercy or regulatory oversight, more and more consumers found themselves un-banked. Others found themselves on debt and fee treadmills. Meanwhile, check-cashers, payday lenders, rent-to-own stores and other high-cost lenders boomed as they were able to march through state legislatures enacting safe harbor laws that exempted their products from usury (interest rate ceilings) and other protections. Federal regulators and Congress ignored or even encouraged the trend.

The laws have not kept pace. The New York Times has some stories today on payment systems. First, the brief Social Currency by Rob Walker discusses prepaid debit cards. These cards (marketed by hip-hop stars and others) have fees, but do not always link to bank accounts. Debit cards in general are not as well protected as credit cards; debit cards not associated with bank accounts are less well-protected than bank account debit cards, and of course, do not come with the possible savings benefits of bank accounts (if you can afford the fees, you can save). Along with the Consumers Union, the Consumer Federation of America, the Center for Responsible Lending and others, we have long called for comprehensive reform of the payments system. It should be high on the agenda of the new Congress. Here are some resources.

That ought to be enough to get Congressional oversight committees off to a start on reform.

The NYT Magazine also has a much longer feature Check Cashers, Redeemed by Douglas McGray of the New America Foundation that points out some of the problems with the unregulated new businesses but also points out that the banks are partly to blame:

“If they’re properly regulated and scrutinized, there’s nothing wrong with check cashing as a concept and there’s nothing wrong with payday loans as a concept,” Robert L. Gnaizda, general counsel for the Greenlining Institute, a California nonprofit focused on financial services and civil rights, told me. “And there’s nothing automatically good about free checking accounts if you have multiple fees whenever you make the most minor mistake.”

Yesterday, Wall Street bailout talks collapsed (Washington Post story, New York Times story) as dissident House Republicans rejected the President's proposal that was being negotiated by Congressional leaders and the President and plan architect Treasury Secretary Hank Paulson at the White House. While the House Republicans have philosophical opposition to market intervention, a number of House Democrats led by John Conyers (D-MI) and Zoe Lofgren (D-CA) and a broad U.S. PIRG-backed coalition also continue to oppose the plan, for different reasons. The proposal, even as modified by Congressional leaders, still does nothing for Main Street. It still lacks our lead demand -- giving consumers in dire straits modest loan modification rights to avoid foreclosure. As the New York Times asks in its lead editorial: What About the Rest of Us?

Mr. Paulson has long opposed what is probably the best way to help Americans stay in their homes: allowing a bankruptcy court to reduce the size of bankrupt borrowers’ mortgages. Unfortunately, but predictably, drafts of the bailout plan circulated late Thursday do not mention that relief. It is simply outrageous that every type of secured debt — except the mortgage on a primary home — can be reworked in bankruptcy court. The law was designed to protect lenders, who have obviously and disastrously abused that protection. There would be no favors dispensed in bankruptcy proceedings. Lenders would have to accept less of a payback and borrowers would have to submit to the oversight of the bankruptcy court for years.

I am speaking later today at an all day FTC workshop on debt settlement firms. You can get the agenda, a live webcast and other materials (including consumer help brochures) at that link. Debt settlement firms have been the subject of numerous FTC and state enforcement actions for taking consumers' money for no good reason while using unfair and deceptive practices. The firms charge desperate consumers anxious to reduce credit card debt burdens massive upfront fees with the vague promise that the banks will reduce their debts because of the firms' sophisticated negotiating skills. Don't believe them. As you can see, I am a skeptic on this "industry." Not a problem, as I think they asked me to speak in the interest of fairness and balance, since there are a whole lot of "industry" types speaking!

Here's a great CNN video story The Money Pushers about recently released Youtube video interviews with former MBNA (now part of Bank of America) credit card call center "associates." Exposing the unfair tactics is a project of the PIRG-backed Americans For Fairness In Lending and the actual interviews are available at this "watch all the videos" page at AFFIL. From the AFFIL release:

Earlier this year, former employees of MBNA contacted AFFIL looking for a way to speak out about disturbing sales practices at one of the country’s largest credit card companies. “Everything that I was trained to do was about selling money, nothing else,” stated Cate Colombo, who worked for four years as a Customer Service Representative at MBNA, now run by Bank of America. “We were given financial incentives to drive customers more into debt. The company’s practices were absolutely unethical and should be illegal,” said Ms. Colombo.

The New York Times reports in a story by David Herszenhorn on its website on Saturday: Rescue Plan Seeks $700 Billion to Buy Bad Mortgages. The amount is staggering as the story points out:

A $700 billion expenditure on distressed mortgage-related assets would be roughly what the country has spent in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. It represents more than $2,000 for every man, woman and child in the United States.

Most of the assets in the S.& L. crisis were real estate — which are always going to have value. And the government didn’t have to acquire them; it simply took them over and, over time, sold them. This time, the assets are complex derivatives of uncertain value that the big firms will actually be selling to the government. But how is the government going to assess these securities — and what price will it pay for them? In many cases, these securities aren’t being sold because they are still overvalued on a firms’ books.

We often point out that all plastic is not created equal. This week, we joined Consumers Union in a petition to the FTC to improve the rights of gift card holders (AP story via Rocky Mountain News). If you were the recipient of a now-valueless Sharper Image gift card following its bankruptcy, you know what I mean. If not, here is an excerpt from our joint petition (the Consumer Federation of America and National Consumer Law Center also joined CU).

Gift cards do not have adequate consumer protections, particularly when a retailer files for bankruptcy. Consumers are now discovering their gift cards may be greatly devalued or not worth anything at all when a retailer declares bankruptcy. There is no guarantee to consumers that they will be able to obtain the prepaid value on their gift cards from struggling or bankrupt retailers.

Declare the sale of gift cards without both segregating the funds and holding those funds in a trust to be an unlawful and deceptive practice; and

Prescribe new rules that require retailers to both segregate and hold in trust gift card funds, and to automatically honor a consumer’s gift card from those segregated funds for goods or services until or unless a bankruptcy court orders otherwise.

The New York Times has a story today by Bob Driehaus -- Some States Set Caps to Control Payday Loans. It's a good overview of recent state efforts to push back against predatory payday lenders. The loan sharks enjoyed a good run for a while, and used massive campaign contributions to successfully pass numerous laws preserving their right to charge triple digit interest and keep consumers in perpetual debt, but state legislators are finally realizing that high cost lenders are bad guys, not good guys, and that payday loans aren't a choice worth having in the marketplace. Of course, as the story notes, the lenders are mounting ballot initiative campaigns in states where allowed, in efforts to try and overturn the new pro-consumer usury limits that many states have approved. My previous blog.

Somehow my fairly unknown cell phone number has been put on the list used by fly-by-night extended auto warranty hacks who try and sucker people into buying their useless product that costs up to $700/year or more. I just received the latest of what seems to be about a call a week from various numbers threatening dire roadside emergencies and other dramas unless I re-up my supposedly expired factory warranty with them. Over at his MSNBC column, ConsumerMan Herb Weisbaum has more on why paying these guys is a bad, bad idea and why their entire practice of calling cell phones should be investigated by the FTC.

Two stories in today's New York Times highlight how hard it is to fix mistakes in online bill payments and how easy it is for a thief to reach into an online account:

The wealthy financier "is getting a taste of what the rest of us have to deal with all the time," said Gail Hillebrand, the senior staff lawyer for Consumers Union in San Francisco. That sour taste is called automated clearing house fraud, theft involving unauthorized electronic transfers through the automated networks of the circulatory systems that connect the world’s bank accounts.

U.S. consumers today have a broad range of choices about how to make payments. In addition to checks, credit cards and traditional debit cards, consumers may be offered prepaid cards, contactless cards, mobile payment devices, online payment sites, online credit payments, and other new ways to pay.

Federal payments law was developed before many of these methods existed, so it is no surprise that it has gaps in coverage. The variations in the law underlying the different payments methods place consumers in very different legal positions when something goes wrong. The gaps in the law mean that the particular payment method used, and how the payment is processed, can affect the consumer's ability to get his or her money back if the goods are not delivered as ordered, the payment information is stolen and misused, the payment was unauthorized, or the payment is processed for the wrong amount.

Yesterday the FTC announced two amendments to the Telemarketing Sales Rule. The key change "expressly bar telemarketing calls that deliver prerecorded messages, unless a consumer previously has agreed to accept such calls from the seller." There are some exceptions, but it is a big step.

There's always good stuff in the Multinational Monitor. From this month's issue:

AARP has announced a new member benefit: a cell phone from Consumer Cellular with (among other benefits):

Yikes, other cell phone companies claim all these pro-consumer terms are impossible to offer! AARP also has a credit card with no mandatory arbitration. When your buying club has 45 million members, companies are willing to negotiate with you. Let's hope these consumer-friendly terms are adopted by other cell phone companies.

Yesterday NCPIRG staff attorney Shana Becker and coalition colleagues rolled out NC SAVE$, an alternative to the controversial Duke Energy plan to charge ratepayers $16 each for compact fluorescent light bulbs worth less than two bucks each, all supposedly in the name of energy conservation. The coalition (Carolina Newswire) proposed that the state Utilities Commission establish NC SAVE$, instead of allowing Duke to run a ratepayer-fueled boondoggle for its shareholders.

NC SAVE$ would be an independent non-profit established by the Utilities Commission. Historically, the Utilities Commission has established non-profits to meet needs underserved by the utility companies. Advanced Energy Corporation was established to promote alternative energy generation methods, and to maximize the energy currently produced.

North Carolina PIRG (campaign page) is leading a campaign that's shining light on a not-so-bright idea from Duke Energy. The behemoth utility -- one of the monsters that came out of the misguided Enron-wrought deregulation push of the 1990s, is asking ratepayers to buy compact fluorescent lightbulbs at a price that includes a subsidy to shareholders for 90% of the cost of the nuke and coal base-load plants it will not need to build due to the energy savings. From a coalition release:

"While families are struggling to pay energy bills, Duke Energy is requesting hefty, new charges for energy efficiency." says Shana Becker, Staff Attorney for NCPIRG. Under the program, Duke would charge $18.23 for promoting an energy efficient light bulb that retails for $1.65...

Our colleagues at Consumer Action have released their annual credit card survey. From the release:

Notable findings:

Four of the top ten credit card issuers cited factors beyond a consumer’s control that might cause an interest rate increase such as: "market conditions," "the economy," and "business strategies."

77% of surveyed credit card issuers (17 of 22) answered "Yes" to the question "Can you increase my APR or change my terms 'any time for any reason'?" This includes all Top Ten issuers - even Citibank which pledges not to change a customer’s terms before the card's expiration date.

Five financial institutions told CA surveyors that they would reduce a cardholder's credit limit because of perceived customer risk. Factors include: a decline in credit scores, late payments and balances that go too close to the credit limit.

Interstate Commerce Subcommittee Chairman Byron Dorgan (D-ND) and Chairman Daniel Inouye (D-HI) of the Senate Commerce Committee held a hearing today entitled Privacy Implications of Online Advertising. In her testimony, Lydia Parnes, Associate Director of the FTC, referenced the PIRG/Center for Digital Democracy online advertising petition to the FTC (previous blog).

In her testimony, Leslie Harris of the Center for Democracy and Technology offered a good overview of what's at stake. She pointed out, as does our PIRG and CDD petition, that the new trend of behavioral targeting poses greater threats than traditional search advertising:

There is also a risk that profiles for behavioral advertising may be used for purposes other than advertising. For example, ad networks that focus on “re-targeting” ads may already be using profiles to help marketers engage in differential pricing.10 Behavioral profiles, particularly those that can be tied to an individual, may also be a tempting source of information in making decisions about credit, insurance, and employment. [...] The concerns about behavioral advertising practices are heightened because of the increasingly sensitive nature of the information that consumers are providing online in order to take advantage of new services and applications. Two data types of particular concern are health information and location information.

The use of ISP data for behavioral advertising is one area that requires close scrutiny from lawmakers. The interception and sharing of Internet traffic content for behavioral advertising defies reasonable user expectations, can be disruptive to Internet and Web functionality, and may run afoul of communications privacy laws.

You can watch Thursday's hearing of the Financial Institutions and Consumer Credit subcommittee at the CSpan website. The hearing explored the implications of aggressive credit card marketing to college students. Look for the hearing on this page (although after a few days it may move and you'll need to use the search engine). The hearing featured testimony by U.S. PIRG's Chris Lindstrom explaining the results of our report The Campus Credit Card Trap, available at www.truthaboutcredit.org. Other key witnesses were from the NY Attorney General's office, Campus Progress, and the University of Illinois at Chicago Student Government. All testimony and the House video of the hearing available here.

Today, PIRGs around the country released our new report Squandering the Stimulus: Average American Households Spent Economic Stimulus on Gas. It's part of our campaign to promote mass transit spending increases to reduce the heavy negative impacts of our car and gasoline based transportation system. I joined staff attorney Shana Becker and NCPIRG outreach staff at their release in Raleigh today in front of the Moore Square transit center (photo). From the national release:

Without sufficient alternatives to driving, American families spent their entire economic stimulus check on high-priced gas. According to new analysis from the U.S. Public Interest Research Group, since President Bush signed the tax rebates into law on February 13th, the average household spent over $1500 filling their tanks. Gas costs were higher than average in areas without robust public transportation.

On Thursday, the US House of Representatives will vote on a bill to approve additional funding for public transportation as an alternative to high gas prices. "If Congress wants to do something long-term about high gas prices, it will give people more alternatives to driving," said US PIRG staff attorney John Krieger, "Unless we make it easier to drive less, American families will be stuck in neutral as they spend more and more at the pump."

Today the FCC held a hearing on cell phone early termination fees. At least two witnesses Pam Gilbert, an attorney representing California consumers and Pat Pearlman, a West Virginia state government consumer advocate representing the National Association of State Utility Consumer Advocates (NASUCA), cited our authoritative 2005 Locked In A Cell report. It describes the results of a nationwide survey of consumer opinion against these penalty fees of $150-200 or more that prevent you from switching cell service when you have shoddy service. The ETFs, of course, therefore allow the wireless providers to offer shoddy service, since you happen to be ... locked in a cell phone contract.

What is truly incredible and outrageous is that FCC Chairman Kevin Martin didn't hold this hearing in response to the pleas of the thousands of consumers who complain to the FCC about ETFs each year. He held the hearing in response to requests from a few powerful wireless companies that have asked him to enact a federal rule to protect them from consumers. The federal proposal Tom Tauke of Verizon and other special interest lobbyists back would have the effect of releasing the telcos from the liability they face if ETFs are held to be illegal and unconscionable under state law in several pending lawsuits. The real question is how far will Martin go in his last few months as chairman? Will he actually push for a vote to provide the telcos with an industry safe-harbor federal regulation that retroactively immunizes them from the liability they face for harms they have already caused millions of consumers? That is a bold step.

More and more, the Bush Administration appears to be a one-stop shopping center for companies seeking relief from strong state consumer laws. Previous blog.

Today in Geneva Switzerland, at an undisclosed location, the US government, the European Commission, Japan and a handful of other countries will meet in a secret negotiation on a new treaty. The working name is the Anti-Counterfeiting Trade Agreement (ACTA), a name that masks the much broader subject matter, and one that was deliberately chosen to intimidate and discourage politicians from expressing opposition to provisions that undermine civil rights and privacy, and which many say will change the substantive rights the public has to use copyrighted works or inventions.

You can't make this stuff up. It writes itself. I guess I can't fault the iconic Saturday Night Live character Mr. Bill or his creator Walt Williams for selling out to MasterCard. After all, too many of my favorite rock stars who probably need the money a whole lot less have done the same. Wendy Lee reports in Tuesday's New York Times that Mr. Bill Returns (in One Piece) to Pitch a Debit Card:

The small clay figure that appeared in "Saturday Night Live" short films three decades ago -- being dismembered, pulverized and humiliated to his falsetto cries of "Oh, nooooo!" -- will be the latest star of MasterCard’s "Priceless" campaign. He is being revived as a debit-card holder who gets roughed up but keeps on going.

Fortunately, we get the last word in the story:

But Ed Mierzwinski, the federal consumer program director for the United States Public Interest Research Group, said that debit cards were far from a panacea. "If you’re using plastic, you tend to spend more than when using cash," he said, adding that cardholders can incur heavy fines if they overdraw their accounts. Mr. Mierzwinski also said that debit transactions -- and the right to dispute them -- are not legally protected the way credit card transactions are. "Zero liability promises on debit cards are only promises, they’re not the law," he said.

In her Washington Post story Scrutiny of Phone Fees May Broaden to TV, Internet, Cecilia Kang reports on Saturday that the 12 June FCC hearing on unfair cell phone early termination penalty fees

may be expanded to include a discussion on similar fees for ending cable and Internet services ahead of schedule, the chairman of the Federal Communications Commission said in an interview yesterday.

Scouring the Internet this morning, I found our name and data from our 2004 report on credit bureau errors Mistakes Do Happen in two recent PR news releases from two separate firms claiming NOT to be illegal credit repair doctors -- one from Lexington Law Firm and another from something called NACRA.

We are not connected with either of these firms and would never urge you to give your money (hundreds of dollars!) to a company that claims it can eliminate bad credit, even ones that claim to do "legal" credit repair. You can fix mistakes yourself. You can eliminate identity theft and fraud accounts yourself. But your own bad credit can only go away over time. Keep your current bills timely. Pay down your credit cards so you aren't maxed out. But don't waste your money on credit repair. More from the FTC.

Anytime a firm claims not to be an "illegal" credit doctor, but makes promises to fix bad credit for large amounts of cash, use your head. if your efforts to fix false or inaccurate negative information on your credit report fail, we recommend you talk instead with an attorney who specializes in the Fair Credit Reporting Act, such as one from the National Association of Consumer Advocates.

Should your car insurance bill be based on how many claims, accidents and speeding tickets you have? Makes sense to us but not to the insurance industry. They want to base your rates on whether you paid your Mastercard on time last month and whether your credit score is high enough. Today, Consumer Federation of America's Bob Hunter (an actuary, a former Texas Insurance Commissioner and a former U.S. insurance czar) will urge the House Financial Services Committee and its Subcommittee on Oversight and Investigations to look at how insurance credit scoring is not based on legitimate insurance rating factors and hurts non-whites even worse than whites. Details in previous blog.

Over at The Philly Inquirer's Philly.com, reporter Henry Holcomb has more on the impact of credit card interchange fees on small retailers, especially gas stations, in his story Credit card fees further strain gas stations:

Gasoline at $4 a gallon might be a burden for consumers, but it is a windfall for credit card companies, according to industry experts. Caught in the middle are the gas station operators, who must pass the credit card fees on to their anguished and angry customers.

Over at his Red Tape Chronicles, MSNBC's Bob Sullivan reports that when student loan giant Sallie Mae merely changed its reporting method to credit bureaus, something in the the massive credit reporting/credit scoring system burped, and the credit scores of young graduates with student loans that were paid as agreed came crashing down. For those interested in credit bureaus and credit scores, here's some more analysis from me.

Credit scores are derived from credit bureau databases. The bureaus sell their own now, but the market leader in scoring has long been Fair Isaac and its FICO score. As Sullivan reports, a coding change at the bureaus or at Fair Isaac caused the scoring algorithm to presume that regular, on time payments as agreed were actually partial payments negotiated by delinquents as part of a workout strategy. Some consumers lost over a hundred points.

For years, Fair Isaac protected its scoring system like the Coca-Cola formula. No one could look inside the black box. They wouldn't even explain the general concepts and weighting of factors.

They claimed it was so consumers couldn't figure out how to game the system. They claimed it was to protect their intellectual property from would-be competitors.

It seems to me that another reason is they don't like to admit mistakes. For years, for example, their software downgraded consumers who were simply shopping around, for example, for the best deal on insurance or a new car. FICO instead presumed their multiple inquiries were precursors to credit-binge fueled bankruptcies.

Today, thanks to pressure from advocates and ground-breaking California legislation on credit score disclosure later incorporated into federal law, FICO's system is more transparent, it is richer (thanks to sales to consumers) and it has some competition. But it still needs to do a better job of preventing these sorts of errors before they happen.

In this case, either the bureau computers or FICO computers bungled entries that resulted from a laudable Sallie Mae program that benefited its younger borrowers by setting repayment schedules to ramp up as a young graduate's income increased over time. The mis-coding presumed these were not payments as agreed, but some sort of partial payment workout plan after a consumer's delinquency. (The default switch at a credit bureau is generally "D for deadbeats." The FICO analytics rely on the coding of the payment history it receives from the bureaus.)

Sometimes, creditors game the scoring system:
But Sallie Mae hasn't always been so altruistic. Several years ago, it came under Congressional pressure for failing to report to all the credit bureaus. Columnist Ken Harney helped expose the fiasco. This resulted in potentially lower scores for consumers when their score was calculated from a credit report at a bureau that Sallie didn't report to. Many young consumers only have a few trade lines on their credit reports. To use a collegiate analogy, it would be like calculating their cumulative grade point average on only 3, not all 4, of the courses they were taking.

Sallie did this intentionally -- both to deflate scores, making their customers appear less desirable to competitors who wanted to send them pre-screened offers, and also to make it harder for those competitors to find their customers generally, so they'd never send the offers in the first place. Sallie didn't want other student loan companies to offer loan consolidation deals. This was also during its high-flying days when it wanted to become a one-stop shop for all financial products. Keeping its own customers as a captive customer base and limiting their ability to shop around aided that business plan.

But it certainly made it harder for young consumers who were applying for auto or home financing to get the credit they deserve, when their paid-as-agreed student loan wasn't adding points to their score. Under pressure from the Congress, Sallie changed its ways. By the way, one of its lamer defenses at the time was that it was simply doing it for the students, since for every consumer who benefited from reporting, it claimed there was another who didn't make payments as agreed and would benefit from not having that negative trade line shared. Of course, that's ridiculous.

Another way to game the system and make your customers appear less desirable to competitors seeking to buy pre-screened lists from the bureaus to make offers is to report only partial information about them. Credit card companies, including Capital One and Citibank (again, Ken Harney was on the case), have been accused of doing this, in Congressional hearings and other venues. If you only report a consumer's credit card balance but not his or her credit limit, the scoring computers' default setting is that the current (or highest previous) balance equals the limit. If your balance equals your limit, you are of course maxed out. Maxed out consumers have lower scores.

I am not necessarily a big fan of pre-screened offers, which can led into too much debt. But some consumers may benefit. More importantly, remember that the consumer making his own or her own applications for credit is hurt also.

Finally, even though FICO guards the scoring algorithm as if it were the fabled Cocoa-Cola formula, it is prone to systemic mistakes as above, it can be spoofed by creditors as above, and it's even been reverse-engineered (by the Fed and others). "Pay no attention to that man behind the curtain, I am the great and powerful FICO," just doesn't cut it anymore.

In addition, the bureau coding systems contribute to the problem. Everyone involved needs to do a better job.

Over at The Consumerist blog, check out the important warning Watch For Baloney "Reservation Rewards" Charges On Your Credit Card. Companies, including federally-insured banks whose regulators should have them concerned with "reputation risk," form partnerships with often-sued marketers including Trilegiant (see 2006 settlement between 16 state Attorneys General and Chase Bank and Trilegiant. Chase has recently been accused of continuing these practices anyway). Another firm in the biz is the ever-morphing Memberworks (is it now Vertrue?). The companies and their partners exploit gaping loopholes in the porous 1999 Gramm-Leach-Bliley Financial Modernization Act which "allow" them to share confidential information garnered from account relationships with the telemarketers. The club purveyors then claim the right to bill you based on either a "one-click" look at their pages or, in the offline version of the scam, after you cash a teeny $2.37 or so check that arrives with your bill. In either case, you've "signed up" for an often useless but expensive $10-$15 month club membership. Insist that your credit card company remove these charges.

Years ago, the federal government foolishly deregulated interstate moving companies, leaving consumers whose goods are held hostage for punitive additional fees, or delayed weeks or even broken in transit with little recourse. With the arrival of mover advertising on the Internet, as the story Keeping 'Furniture Ransom' Off Your Moving Bill by Kristina Shevory in the New York Times notes, things have only gotten worse. The story does note a few sites where you can get information, at least, including the federal government site protectyourmove.gov and the bad mover warning and consumer advice site movingscam.com. The story notes that Florida and Maryland are among states with strong intrastate moving protections.

We spoke today at Chairman Chris Dodd of the Senate Banking Committee's news event announcing the introduction of the Credit CARD Act (previous blog). Senator Dodd was joined by 4 Senators -- Senators Carl Levin (D-MI), Bob Menendez (D-NJ), Claire McCaskill (D-MO) and Jon Tester (D-MT) -- and by Professor Elizabeth Warren of Harvard Law School, as well as by leading consumer groups and labor organizations. Here is Senator Dodd's release and statements of support from Senators, Representatives and groups, including U.S. PIRG. Here is a summary of the bill, which should be available tomorrow. The little camera-phone flash was somewhat overwhelmed by the klieg lights of the Senate Banking Committee hearing room, but the photo shows Senator Dodd at the microphone, with Professor Warren behind him and Senator Levin at right. Our letter of support to Senator Dodd. In addition to the bill's strict prohibitions on unfair consumer practices, the bill includes a study of the unfair interchange fees imposed on merchants. See previous blog (last paragraph) for more on interchange fees.

When the somnolent regulators over at the regulator/cheerleader known as the Office of the Comptroller of the Currency (OCC) issue a civil penalty (OCC release) against one of the members of their country club --in this case, the nation's #4 bank, Wachovia -- think Halley's Comet, think hundred year flood, think Cubbies win the World Series -- you get the idea. Also think: who got there first and shamed the OCC into action? In this case, it was a Page One New York Times story nearly one year ago by Charles Duhigg, Bilking the Elderly, With A Corporate Assist. That story reported that at last one victim had been scammed as early as 2003, and that several banks had warned Wachovia since then that its accounts were being used to fleece their customers (our previous blog after release of "Yikes! Double Yikes!" Wachovia emails). As Duhigg reported in his story Friday on the settlement:

The bank's actions were "part of a pattern of misconduct" that resulted in Wachovia’s collecting millions of dollars in fees, regulators wrote. Wachovia has agreed to pay a $10 million fine, contribute $8.9 million to consumer education programs and make restitution to victims that could top $125 million. In a statement, the bank said this "situation was unacceptable and we regret it happened."

severed relationships with Mexican foreign-exchange firms in December and January after authorities began their inquiries. Some have struck agreements with the government to improve their efforts to fight money laundering, avoiding prosecution.

In 2005, [Wachovia] introduced the Dinero Directo card to facilitate cross-border remittances. The bank pushed into the business despite well-publicized concerns from U.S. law enforcement that such firms were sometimes used to launder drug money. Wachovia declined to discuss why it pursued this business despite the warnings. Internal emails and documents filed in federal courts in Miami, Chicago and New York describe former ties between Wachovia and money-changing firms.

... Lee has continued to do business with banks and licensed mortgage brokers who fail to detect questionable actions by him and the people working for his companies. Last year, Wachovia, the fourth-largest U.S. bank, funded 196 loans totaling about $54.2 million that Lee brought to the financial institution, according to an e-mail sent to Lee by Scott Davenport, a former national account executive with Wachovia.

Davenport sent the e-mail several months after The Washington Post and other publications reported that cease-and-desist orders had been issued against Lee in Maryland and Georgia for originating loans without a license. Soon after I inquired about Wachovia's business transactions with Lee, Davenport was fired. Wachovia confirmed that Davenport was terminated but declined to comment why.

2 bad 4 us that the big bnks & OCC r BFFs (Best Friends Forever).

Back to Duhigg: His story also points out that not everyone is happy with the OCC action, which requires bilked consumers to run through a complicated, if court-approved, rat maze to obtain restitution:

Under the terms of the settlement, victims will not automatically receive compensation from Wachovia. Instead, they will have to submit claims through a complicated bureaucracy. Because many of the victims are elderly or poorly educated, it is likely many of them will stymied by these obstacles, Mr. Markey said. In previous cases, the comptroller’s office, also known as the O.C.C., has mailed checks to victims of fraud, rather than requiring them to file claims. [Release from U.S. Rep. Ed Markey-D-MA: Weak Wachovia Deal Shortchanges Elderly Fraud Victims]

Every once a while, I'll list some new, or higher, gotcha fees:

The ticket applications for the early rounds for next year's men's basketball tournaments are due March 1 and require the consumer to pay about $200 plus a $9 service charge for each ticket. Consumers can apply for as many as eight tickets.

On the bright side, as Kelli Grant reports at SmartMoney.com, the FAA has increased passenger "involuntary" or forced bumping compensation from the longstanding prehistoric level of $400 to "up to $800." That's not anywhere near inflation levels since 1978 ($1300) but it should at least result in better offers to the people who accept bumps.

Today's Washington Post features an op-ed column Preventing Profit From Debt Help from my colleague Johanna Neumann, director of Maryland PIRG. She and other consumer advocates in Annapolis are fighting a proposal to allow for-profit debt counseling.

What's wrong with the proposal? Remember Andris Pukke? Probably not, but he's a big part of the reason the original 2003 law was passed to limit for-profit counseling. Despite his apparent status as a previously-convicted federal felon, he and his wife Pamela were the principals in a Maryland-based debt counseling mill with various names, most commonly Ameridebt and DebtWorks, that masqueraded as a non-profit debt collector even though its basic business purpose was to take money -- many millions of dollars -- from desperate debtors and enrich the Pukkes. From the FTC in 2006:

The Federal Trade Commission today put a successful end to the largest case against deceptive credit counseling and debt management brought by the agency. The FTC announced a settlement with Andris Pukke, founder of AmeriDebt, Inc., and with a related company owned by Pukke, DebtWorks, Inc. The agreement, if approved by a federal court in Maryland, would require Pukke to give up virtually all of his assets for a consumer redress program for victims of the deception, a fund that ultimately could total as much as $35 million. [...] "Our case alleges that these defendants used their credit counseling business to deceive nearly 300,000 consumers about the services they provide, the fees they charged, and their status as a non-profit company," said Lydia B. Parnes, director of the FTC’s Bureau of Consumer Protection.

The McClatchy papers are running a nice story today by Christina Rexrode. The story is titled Your low-interest credit card? Yeah, well ...Some consumers' rates are rising for mysterious reasons. The piece highlights how Bank of America, in particular, is among the credit card companies jacking up the rates of good customers, perhaps because it lost money on its mortgage and hedge fund business recently, but also, of course, because it can:

Some consumers and analysts say Bank of America, which saw profits all but disappear in the fourth quarter, is trying to squeeze money out of its credit card users to make up for disappointing earnings.

But what I liked most about the story is the illustration, torn from the pages of George Orwell's 1984:, "If you want a vision of the future, imagine a boot stamping on a human face - forever." If that Orwellian dystopia doesn't best describe both the effect of perpetual debt brought on by penalty interest rates and the attitude credit card companies have toward consumers, what does? Kudos to the unnamed illustrator.

UPDATE: In this great video from WRAL-5 in Raleigh, NC reporters who didn't yet know about our study duplicated it yesterday and found the same results!

FCC Commissioner and consumer champion Jonathan Adelstein (his statement) was kind enough to help us release a new "secret shopper" report today on retailers and their understanding, or lack thereof, of the impact of the digital television transition on Americans who still receive over-the-air TV on analog sets. One year from this Sunday, 17 February 2009, those TVs will go dark unless the consumers purchase government subsidized converter boxes. Consumers with older non-digital TVs receiving satellite or cable service will not be affected. Find out (in several languages) more about free $40 coupons from the government to reduce the cost of converter boxes at www.dtv2009.gov.

Here is our news release, which also includes a comment from Rep. Ed Markey (D-MA), chairman of the House Subcommittee on Telecommunications and the Internet Highlights from the report Mixed Signals: How Retailers Mislead Consumers on the Digital Television (DTV) Transition:

Retail sales clerks are providing inaccurate or misleading information about the upcoming digital transition and these mixed signals will cost consumers time and money, according to a new report released today by U.S. PIRG.

Nationally, U.S. PIRG researchers found the following:

You can listen to me on Marketplace Morning Report or read these stories: Baltimore Sun or WRAL-Raleigh, NC. I hear Best Buy is claiming our data are old and things have changed! Well, we re-validated our fall results in January-- same results, including at several Best Buy stores. More recently, meaning this week, Best Buy and other retailers have announced improved education campaigns for their staff and the public. That's great-- and it is probably due to relentless pressure from Jonathan Adelstein, Ed Markey, U.S. PIRG and others. We released preliminary data from this study at two Congressional hearings last fall.

Over at the New York Times, Charles Duhigg reports that Papers Show Wachovia Knew of Thefts. The papers were released in a lawsuit concerning a long-running telemarketing fraud scheme targeting the elderly. It's a followup to his 2007 expose Bilking the Elderly, With a Corporate Assist. In today's story, he reports that internal papers show that while some Wachovia Bank executives were saying "Yikes, Double Yikes," -- others were counting profits from the fees that the fraudsters had to pay the bank after charges were reversed following consumer complaints:

"YIKES!!!!" wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. "DOUBLE YIKES!!!!" she added. "There is more, but nothing more that I want to put into a note." However, Wachovia continued processing fraudulent transactions for that account and others, partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months, according to investigators.

The story goes on to point out that Wachovia looked the other way while internal fraud investigators, credit unions and even other banks sent it warnings about fraudulent accounts. Meanwhile, I ask: Where was Wachovia's chief regulator, the little-seen regulator known as the OCC (our site OCCWatch) that spends more time preempting state regulators than supervising big banks? It hasn't issued a public civil penalty of note in many years. While Duhigg reports that Wachovia announced some changes last summer, any unreported, private regulatory sanction that may have been imposed by the OCC to inspire such unfettered altruism is simply not enough to reassure this consumer advocate, or the Congress, that enough has been done to deter shabby bank practices that lead to crime against consumers. Public sanctions, including civil penalties, would reassure us that vulnerable populations have the full force of the federal government protecting them from unsavory practices that deplete their life savings.

Michael Sorkin, who writes the Savvy Consumer column for the St. Louis Post-Dispatch, points out in his story Naked DSL arrives -- but you'll get a better price next month that AT&T continues to do a sloppy, self-serving job offering the low-cost naked-DSL (no phone package required) broadband product that was required by the FCC as a condition of its competition-eliminating purchase/merger with BellSouth:

AT&T finally is offering "naked" Internet service to people without the company's landline phone service. Meanwhile, scores of angry customers say AT&T is still making it hard, if not impossible, to sign up for two nonadvertised money-saving services: $10 a month DSL and "uSelect3," one of the company's cheaper phone plans.

Thanks to vigilance by state legislators, state enforcers and the FTC, store-issued gift cards have even fewer fees than before and are an even better deal than high-priced fee laden bank and mall issued cards, according to a story Gift Cards Coming With Fewer Strings by Nancy Trejos of the Washington Post. The story goes on to also point out:

Many retailers have responded to consumer complaints that gift cards are too laden with fees and expiration dates, experts said. In its fifth annual gift card survey, Montgomery County's Office of Consumer Protection found that 18 of the 22 retail cards examined had no fees and no expiration dates and could be replaced if lost or stolen or had scratch-off PINs for security.

Gift cards aren't necessarily the best gift, as we recently pointed out. Recipients may forget to use them. Worse, some gift cards, especially bank-issued cards (including many with the name of a mall or store on them) decline in value due to fees. Although many states have banned or limited the fees, the national bank regulator known as the OCC (our warning site OCCWatch) has aided and abetted bank lawsuits seeking to overturn state laws restricting gift card fees as they apply to bank-issued cards. Now comes the OCC press release: OCC Reminds Consumers to Read Gift Cards' Fine Print because of fees and expiration dates, which largely only occur on bank-issued cards. With regulators like these, who create the problem and then issue the warning about the problem, who needs enemies?

It's illegal to impersonate a police officer. But dress up like a prosecutor so you can better threaten consumers into paying off small debts? Heck, the prosecutors actually let debt collectors do this-- why? In return for kickbacks of course! The debt collectors "rent out a prosecutor's name and authority."

Do the debt collectors then gain the right to break the debt collection laws, by arguing that the sovereign immunity of the government official extends to them? Over at Consumer Law & Policy Blog, Deepak Gupta, a Public Citizen consumer attorney who has been fighting these tawdry arrangements (which have even been legitimized by Congress) reports that important progress is being made in the courts.

Sovereign immunity, the court said, "has never been held to apply simply because an independent contractor performs some government function." The decision has potentially far-reaching implications for holding all sorts of government contractors--from private prisons to Blackwater--accountable in the federal courts.

titled "Prisoners of Debt," by reporters Robert Berner and Brian Grow. The piece focuses on how big lenders and credit card companies keep squeezing money out of consumers whose debts have been discharged in bankruptcy, and on the selling and buying of those discharged debts.

The National Consumer Law Center has a new report Fee-Harvesters: Low-Credit, High-Cost Cards Bleed Consumers. The report provides an excellent overview of the entire credit card industry, the history of its rapid growth under deregulation and preemption and how its staggering profits have been fueled by abusive practices affecting all consumers. It then focuses on the fee-harvester cards, which "represent an extreme version of the abuses by the card industry." It describes how the companies use sophisticated algorithms and access to credit report data to target vulnerable consumers, not for true credit solicitations, but for fee-harvesting. I could use the metaphor of a parasitic alien, jumping on the backs of consumers and sucking out their money, fee by fee, but the report does better.

In the 1975 movie "Jaws," a marine biologist played by Richard Dreyfuss makes this observation about the great white shark: "What we are dealing with is a perfect engine, an eating machine. It's really a miracle of evolution."

One of the fee-harvester cards featured in the NCLC report comes with a credit limit of $250. However, the consumer who signs up for this card will automatically incur a $95 program fee, a $29 account set-up fee, a $6 monthly participation fee, and a $48 annual fee -- an instant debt of $178 and buying power of only $72. Fee-harvesting is extremely lucrative for the industry. In 2006, Atlanta-based CompuCredit -- one company featured in the NCLC report -- collected $400 million in fees from a portfolio of fee-harvester cards that by mid-2007 had saddled cardholders with nearly $1 billion in debt.

The report points out that "fee-harvester cards have very little purchasing power" for the consumers who "use" the cards: "much of the unpaid balances represent fees rather than payments for purchases to third-party merchants." The report describes in detail how credit card banks, large and small, obscure (CorTrust) and well-known (Capital One and HSBC) have developed the fee-harvesting business model to target sub-prime consumers with low credit scores. The report provides a detailed explanation of the techniques used by fee-harvester cards to deplete millions of dollars annually from consumer wallets -- from down-selling and abusive debt collection to the slice-and-dice, used by the massive "What's In Your Wallet?" lender Capital One:

Slice and dice: Rather than increasing the credit available on an existing card with a low limit, a bank will sometimes issue an additional card that also has a low limit. That increases the odds that a cardholder will incur penalty fees or rates by exceeding the limits or missing payment deadlines on one of multiple cards. A 2006 report in Business Week magazine identified five consumers who ended up mired in debt after they were issued multiple credit cards by Capital One Bank. A Capital One spokeswoman told the magazine that the "vast majority" of Capital One cardholders had only one account, but that "a very small percentage" had three or more cards.

Reverse redlining. Lenders have historically denied residents of minority communities equal access to credit, a form of discrimination known as redlining. Some issuers, seeking to exploit that history, have launched "affinity" campaigns that market high cost products, including fee harvester cards, to minority communities. For example, a marketing company called Urban Television Network distributed the Freedom Card, a fee-harvester card that often had a credit limit of only $300. Promotional efforts for the Freedom Card included a contract with musician Queen Latifah.

Wal-Mart Watch has a post by Alex Goldschmidt that the CPSC has charged that Wal-Mart withheld recall information (score one for the CPSC!). Meanwhile, over at Consumer Law and Policy blog, Steve Gardner's post The Doctrine of Unintended Consequences finds that the fast food industry should have been more careful about what it wished for when it sued to overturn New York City's food menu labeling law:

The court thus provided a road map for cities and states to draft menu labeling laws that don't conflict with federal law. In other words, the decision gave cities and states a green light to make nutrition information mandatory at restaurants.

Meanwhile, over at Credit Slips, the blog about bankruptcy and consumer credit issues, Katie Porter has a withering critique -- Reporting on the "Mortgage Meltdown" -- of a recent Wall Street Journal article and an editorial that both get it wrong on bankruptcy facts. Bookmark these consumer blogs.

Today's Wall Street Journal has a front page expose on the business of "lead cards" called Marketers Use Trickery To Evade No-Call Lists (pd. subs. req'd). The story by Jennifer Levitz and Kelley Greene explains that "Older Americans around the country are getting duped by a seemingly innocuous tactic that can expose them to hard-sell pitches from the insurance industry." Read the story and you won't be surprised to find that right in the middle of it are the data brokers, led by ChoicePoint (you remember ChoicePoint, the ones who sold consumer dossiers to identity thieves and paid a $15 million fine including victim restitution to the FTC). Well, according to information obtained during a successful lawsuit by AARP to defend its name:

In internal emails, ChoicePoint employees attributed the cards' success in generating responses to their "fear factor" and described response rates that "tumbled" when AARP's name was temporarily removed from mailings.

In April 2006 it [AARP] won a permanent injunction in U.S. District Court in Jacksonville, Fla., prohibiting a company owned by ChoicePoint Inc., a big Alpharetta, Ga., seller of personal data, from referring to AARP on its lead cards and from using a Washington, D.C., return address unless it had an office there. In a settlement, ChoicePoint also agreed to destroy lead cards violating the injunction and paid an undisclosed sum to AARP.

When the virtually unregulated data brokers lobby Congress for exceptions from privacy laws, they argue that they deserve the right to use non-public personal information like Social Security Numbers because their practices are allegedly in the public's interest. They point to their relatively minor efforts to find lost children or missing heirs, track potential terrorists and expose miscreant "deadbeat dads." Funny, I haven't seen the legislative fact sheet that explains the public benefits of misusing AARP's name to trick seniors into dropping off the federal Do Not Call list so that they can be scammed out of their life savings. Here's some older material of ours explaining the data brokers' unregulated "parallel universe."

The story also explains that many state attorneys generals, including Illinois AG Lisa Madigan, are attacking the deceptive use of "lead cards" to trick consumers, especially seniors, into dropping off the federal Do not call list designed to protect their privacy:

The technique is centered on a marketing tool called the lead card, and it became popular after the federal government created its Do Not Call Registry in 2003 to shield consumers from unwanted solicitors. Sent through the mail, the lead card invites the recipient to mail off an enclosed reply for free information about, say, estate planning. But the cards fail to warn that by sending off replies, recipients are giving up their right to avoid telephone solicitations from the sender -- even if their phone numbers are on the Do Not Call list. "It's a huge loophole," says Pam Dixon, executive director of the World Privacy Forum...

Last week, Neely Tucker of the Washington Post reported the story of 75-year-old Mona Shaw Taking a Whack Against Comcast. After a several-day long debacle where Comcast apparently left her "Triple Play" installation in disarray then cut off all phone, cable and Internet service, Shaw and husband Don went to Comcast's Manassas (VA) office for a customer service rep to hear her service complaint. Reasonable. There, the reps left her and husband Don sitting outside the office for hours, then all went home. Unreasonable. Not to worry, Mona came back the next day with her hammer. From the Post:

Hammer time: Shaw storms in the company's office. BAM! She whacks the keyboard of the customer service rep. BAM! Down goes the monitor. BAM! She totals the telephone. People scatter, scream, cops show up and what does she do? POW! A parting shot to the phone! "They cuffed me right then," she says. Her take on Comcast: "What a bunch of sub-moronic imbeciles."

Go to the site and read their stories. The growth of these "mycompanysucks.com" Internet sites -- and this isn't the only one (See cybergriping.com) -- shows the power of the Internet to give small speakers an unfiltered voice and an opportunity to organize at low-cost. It also shows, of course, that consumers are getting fed up with the impersonal, arrogant, over-priced and nuisance-fee-laden so-called services of banks, airlines, cable companies, phone companies and other behemoth firms. And while companies use phalanxes of lawyers to try and take down the sites using copyright and other legal arguments (but mostly blustery threats designed to intimidate), Paul Levy of the Public Citizen Litigation Group has been leading efforts to protect the First Amendment free speech rights of consumers to complain.

Under deregulation, market competition, rather than pesky bureaucratic regulators, is supposed to restrain the most unfair tendencies of large, powerful corporations. But it doesn't seem to be working. Many firms use Early Termination Penalty fees and other tactics, including counting on consumers not wanting to pay the high switching costs (lost time in phone calls, getting new account numbers and new email addresses, waiting on new equipment service calls, or whatever) of switching providers, to establish a virtually captive customer base so they don't need to have good service to compete.

But Comcast at least, didn't count on Mona, who took the hammer into her own hands. She's not the first, and she won't be the last, consumer to take direct action. Corporations need to wake up. Consumers who pay good money for service deserve a better deal than the pathetic, impersonal treatment many get. Consumer complaints about bad service are not isolated incidents -- bad service is economy-wide (previous blog).

We'd all be better off if states figured out a better way to raise money for education and other government services than their regressive lottery systems, which rely heavily on the dreams and paychecks of the poor for funding government programs. It's the wrong way to run a government. Even worse, as the New York Times points out on Sunday in its latest expose (link to the series) on these legalized gambling systems, just two firms have used "heavy-handed" tactics to divide up the domestic state and now international lottery business into their own cash machines. The story Divide and Conquer: Meet the Lottery Titans, by Ron Stodghill and Ron Nixon, alleges that the duopoly has used "heavy-handed" tactics, sometimes including bribes, to dominate the industry and make billions feeding at the public trough:

Every business has its titans, of course. But according to analysts, lottery officials and public documents, Gtech and Scientific Games have done more than just ride the gambling boom -- they have strong-armed their way to the top of a publicly sponsored industry that they now dominate. [...] Gtech, in particular, has been heavy-handed at times. According to court papers and regulatory filings, the company's representatives have drawn persistent allegations of bribing their way into contracts.

In her regular Basic Instincts column, New York Times financial columnist M.P. Dunleavey today warns of the fees associated with some gift cards, especially bank-issued cards (often, a "mall" card that can be used at several stores is actually a bank card). It's a well-timed piece as the holiday shopping frenzy kicks in soon. More and more gift givers who want to avoid the hassle choose cards. But Dunleavey's well-headlined piece points out that buying a gift card is often like Giving a Gift to Merchants and Banks:

Although Mr. Riley of Tower Group is an industry analyst, not a consumer adviser, after 25 years in this business he urges gift card users to read any fine print carefully. "And just as you might ask what a store's return policy is before you buy something, ask them what their gift card policies are." Mr. Riley said he was hit with some unexpected fees not long ago, when he bought a bank gift card for his son, who was leaving for college. He was surprised to learn, when he read the terms of service, that there was a $5 monthly maintenance charge.

The U.S. PIRG Education Fund's new truthaboutcredit.org campaign to get predatory credit card marketing off college campuses is picking up steam, with major stories yesterday in the New York Times (Pushing Colleges to Limit Credit Offers to Students by Charles DelaFuente) and today in the Washington Post. And, we're even getting requests for our FEESA--Free Gifts Now, Huge Fees Later counter-marketing project's cool light blue FEESA logo polo shirts. I don't even have one yet! Here's an excerpt from Washington Post syndicated columnist Michelle Singletary's story The Extra Credit Students Don't Need:

Many schools have signed lucrative affinity deals with credit card companies in which they provide contact lists of students or allow sidewalk-marketing by the credit pushers. It's an insidious relationship. [...] I don't think any college student needs a credit card. If students don't have the money to pay for school supplies, textbooks or food (the top reasons they use credit), what are they going to do when the bill comes due? Oh yes, they'll do what many seasoned cardholders do. They will roll over their balances to the next month and dig themselves deeper into debt.

Over at Consumerworld, the Mouse Print* blog is worth taking a look at. Among the items on the front page today are items about how much you'll get from the TJX Marshall data breach settlement (probably nothing) and one about the surprise terms in AT&T wireless contracts (none of them in your favor). Check it out. A few excerpts from the AT&T item:

Two good consumer money stories in the New York Times this weekend, plus a nice one in the Detroit Free Press:

In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender. And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.

In the last couple of years, credit card companies have created cards that are a hybrid of credit, debit and gift cards -- and the companies are marketing them squarely at teenagers. [...] And some companies promote the cards as a step toward using credit cards. The parental information section on the MYplash Web site says: "This will give your son/daughter a chance to get acquainted with a cash card prior to getting a credit card."

Our view: Paying with plastic is too much like magic to learn the value of money. Sure, the banks claim that the parent can track spending on whiz-bang computer interfaces and then have meetings with the kids to explain money, but what do you expect the banks to say?

Over at the Consumer Law and Policy blog, Deepak Gupta has a nice blog explaining a Florida appellate judge's important dissenting opinion in an arbitration case:

This dissent doesn't say anything that hasn't been said many times before, but it does say it forcefully--and at a time when Congress is beginning to take notice. Ultimately, the question isn't whether state courts take their role seriously, but whether federal law should stand in the way, and only Congress can decide that question.

There's a fascinating article by Gail McGovern and Youngme Moon in the June Harvard Business Review: Companies and the Consumers Who Hate Them (long summary is free, download full article for a fee). The article picks on practices including tricky bank fees, cell phone early termination fees, unfair longterm health club contracts from Bally's and others, Blockbuster's business model built on late fees, not rentals and a variety of other scams. Then, it points out that ING Bank, Virgin Mobile pre-paid cell phones, Curves and other health clubs and Netflix are among those firms that have taken advantage of the large pool of disgruntled "defecting" consumers who simply want to be treated fairly in the marketplace. These firms and others have a business model that puts "customer satisfaction and transparency first." From the summary:

Why do companies bind customers with contracts, bleed them with fees, and baffle them with fine print? Because bewildered customers, who often make bad purchasing decisions, can be highly profitable. Most firms that profit from customers' confusion are on a slippery slope. Over time, their customer-centric strategies for delivering value have evolved into company-centric strategies for extracting it. Not surprisingly, when a rival comes along with a friendlier alternative, customers defect.

A new California law extends lemon law protection to military personnel based in California, even if their car was purchased in a different state. The bill was pushed by long-time lemon rights and car safety champion Rosemary Shahan and her group Citizens for Auto Reliability and Safety (CARS). The legislature enacted the law after the debacle faced by Lt. Nathan Kindig when Chrysler refused to grant him rights under the lemon law for his 2004 Dodge Dakota lemon truck.

In 1982, when I was with Connecticut PIRG, we helped pass the nation's first new car lemon law. At the time, we were only a few weeks ahead of passage of California's law, where Rosemary Shahan was leading the way.

Lemon laws have now been enacted in every state. They solved the myriad legal problems consumers faced when they bought a car from a dealer that didn't work. Lemon laws generally define a lemon (a new car that has the same major unfixable defect 3-4 times during warranty, or is in the shop 30 days during warranty, for example) so consumers no longer have to prove their particular car is a lemon in court (previously, they did). Lemon laws also give consumers an explicit legal right to sue a manufacturer, something that they didn't have, which also crippled many lawsuits. Lemon laws also streamlined the legal process. A few states have enacted similar laws for used cars.

The new California law is the latest example of laws designed to meet the special needs of our underpaid military personnel, who are often targets of unfair predatory practices. The law simply provides the same protections to in-state military personnel that other residents enjoy. Recently, the Congress has recognized that in some cases, military personnel need even greater rights. In 2003, stronger rights for military personnel to prevent identity theft (active duty military fraud alerts) were established. In 2006 rights against predatory lending (although rules on this are not yet final and aren't as good as we would like) were enacted.

Along with other leading groups, we joined testimony today by attorney Joanne Faulkner on behalf of the National Association of Consumer Advocates (NACA) before the Senate Commerce Committee's hearing on Oversight of Telemarketing Practices and the Credit Repair Organizations Act (CROA). MORE.

Faulkner's testimony concerned the CROA aspects of the hearing only. It addressed both the vile practices of credit repair doctors and also the interminable, ongoing efforts by the credit bureaus themselves to exempt their actions from CROA (previous post), which regulates the credit repair doctor practices. Credit repair doctors are ripoff artists who make a living claiming that they can fix accurate, but negative, credit report items. Unfortunately, the main reason that CROA was before the committee was only that the credit bureaus seek a self-serving exemption from the act. Why? Because their own deceptive advertising of over-priced ($12-15/month), next-to-useless (don't stop identity theft, only the security freeze can do that) credit monitoring services has gotten them caught up in class action lawsuits for violating the CROA themselves. But, after strong testimony from Faulkner, and opposition to the current industry proposal from the FTC witness, Lydia Parnes, the director of the Bureau of Consumer Protection, we doubt the committee or the Congress will move forward. Although we aren't directly signed onto their testimony, we also strongly support the views of Iowa Assistant Attorney General Steve St. Clair and AARP board member Richard Johnson, who both testified on deceptive telemarketing ripoffs primarily aimed at the elderly (previous post describing how banks aid and abet fraudsters directly debiting consumer accounts).

Why does it take the intervention of a top gun consumer watchdog reporter to get a consumer's unfairly collected bounced check fees back from a bank? If the bank regulators hammered banks that ignore consumer complaints or misinterpret the law to their own benefit with some penalties (civil money penalties, to be exact), fewer problems such as this would occur. This detailed Q&A -- Regulation E protects us from electronic bank fraud -- from Yvonne Zanos of KDKA-TV and the Pittsburgh Post Gazette explains your Electronic Fund Transfer Act (Regulation E) rights, including the right to be made whole after checks or other debits bounce due to errors-- including when the bank allows unauthorized electronic debits by fraudsters, and those unauthorized debits lead to fees.

The obscure but powerful federal bank regulator known as the OCC (our OCCWatch page) has a long way to go improve its public relations with either state enforcement officials (it has preempted enforcement or enactment of all stronger state consumer laws as they apply to either national banks or any non-bank company that is an operating subsidiary of such a national bank) or consumers (no consumer advocate believes that it does itself actually enforce the laws to protect consumers, although it certainly claims it does). This month, OCC rolled out the website Helpwithmybank.gov. We're unimpressed. One sample: When they can't help, it's apparently not their fault:

Can the OCC help me find out if a bank has been cited for a violation of a regulation or law?

According to Federal law, results of examinations are considered confidential. The OCC cannot release any information relating to any supervisory actions or regarding whether a violation of law or regulation occurred in connection with your complaint.

However, you can look for two kinds of information on our Web site, www.occ.gov:

* whether a bank is in compliance with the Community Reinvestment Act (CRA)
* whether a bank is subject to an enforcement action

Thanks for that! Recently, the Government Accountability Office (GAO) issued a report on OCC consumer complaint handling efforts.

Reuters and Fox are reporting in the story Sprint Hangs Up on High-Maintenance Customers that Sprint -- a cellphone company -- is canceling customers who call customer service too much. The company claims that the customers were calling "hundreds" of time a month on issues it felt were "resolved." Two things:

Most Americans think that everyone with a dispute has the right to a day in court. Wrong. On Tuesday, I am speaking on a panel in Philadelphia, at a conference of the National Association of Consumer Agency Administrators. The topic: Binding mandatory arbitration. It's an important access to justice issue that may finally be receiving serious legislative scrutiny, with hearings and bills to protect consumers, employees and farmers under consideration in both the House and the Senate. And, investor arbitration is the topic of Washington Post syndicated columnist Michelle Singletary's column today: If you take on your broker, you're likely to lose.

Who is being forced into arbitration? Pretty much everyone, including identity theft victims of MBNA credit card bank. Identity theft victims? They never had an account! Yet, as described in recent testimony by Paul Bland of Public Justice, MBNA routinely files arbitration claims seeking "unpaid" debts from the victims, and gets its favorite arbitration company to "blackball" arbitrators that rule for the consumer, even once.

Did I say "pretty much everyone?" Wrong. Car dealers convinced Congress to pass a law a few years ago protecting them, as "small" guys, from mandatory arbitration in disputes with car manufacturers (big guys). What about car buyers? Arbitration. Must be as big and powerful as car dealers. However, at the end of the last Congress, the Sens. Jim Talent-R-MO and Bill Nelson (D-FL) amendment banning mandatory arbitration as an unfair practice in predatory loans to military personnel became law as part of S. 2766, the 2007 Defense Appropriations bill. That was an important step.

Over the last 15-20 years, a concerted effort by corporations and their law firms has resulted in the insertion of binding mandatory arbitration clauses into virtually all consumer, employee, investor, small farmer and other small business contracts. In many cases, the consumer never even signed that contract (and most are one-sided standard form contracts, anyway, not negotiable contracts); rather, it was amended with a "blow-in insert" to a monthly credit card or other bill, sometimes with a "right" to opt-out or decline the change. Employees have no real choice, either, of course, other than quitting. As for the farmers, when the agribusiness truck full of baby chicks arrives, they don't get the truckload unless they sign the receipt that includes an "I agree to arbitration" line.

In his recent detailed testimony at a hearing (all testimony) of the House Judiciary Committee, consumer lawyer Paul Bland of Public Justice explained that private arbitration firms are using practices that make arbitration even more unfair:

Private arbitration companies are under great pressure to devise systems that favor the corporate repeat players who draft the arbitration clauses (and thus decide which arbitration companies will receive their lucrative business). For example, arbitrators who rule against corporations and in favor of individuals are often blackballed from serving as arbitrators in future cases. Also, some arbitration companies have undertaken advertising campaigns aimed at prospective corporate clients which make a number of inappropriate promises of favorable treatment.

The Singletary column reports on a study that finds it is getting harder and harder for small investors to win claims against their brokers. While this is true, the small investor arbitration system run by the private regulator known as the NASD remains one of the few arbitration systems that is not stacked completely against the consumer. As an example concerning the private firm known as the National Arbitration Forum in Paul Bland's testimony explains:

From material taken from NAF's website disclosures pursuant to California's disclosure requirement, enclosed as Exhibit 8 hereto are the results from a single quarter's worth of decisions by just one NAF arbitrator. This person handled 80 cases brought by banks against individuals, and ruled for the bank in all 80 cases. In 78 of the 80 cases, she gave the bank 100% of the amount it claimed, in two cases, she gave slightly less. She also ruled on one claim brought by a consumer against a bank, and dismissed it.

A large number of cases have been documented establishing that the NAF has entered awards in favor of MBNA and other lenders against persons who were identity theft victims who did not, in fact, owe any debts.

Among the pro-small guy arbitration bills that have been introduced in the 110th Congress are the following:

We expect many more bills to be introduced. And we expect a lot of Congressional action to restore access to justice. Visit the PIRG-backed Givemebackmyrights.org campaign for more information.

Most consumer laws were written before the Internet. Many disclosures -- such as toy safety warnings -- are only required to be made on real-world packaging, but not posted in ads on the web. Truth In Savings disclosures must be printed by banks for prospective customers, but not posted on the bank's massive web sites. Do consumer protections that apply to telephone or mail-order purchases apply to the Internet? How about when a consumer orders something with a cellphone (it's the next big thing-- mobile commerce). Under the leadership of Attorney General Andrew Cuomo (his release also quoting NYPIRG and Consumers Union), New York State has extended many of its longstanding consumer protections to Internet purchases, so consumers who order online will have basic rights when goods don't arrive. This is is an important step, but there's a lot more to be done. Not only haven't laws kept up with the Internet, they haven't kept up with less-new payment mechanisms than cell-phones, including certain stored value (e.g., gift cards) cards and a variety of confusing on-line and check payment mechanisms, where your check-writing rights vary. Most importantly, Congress needs to immediately improve consumer protections for debit cards (also called check cards), which look like credit cards and sort of work like credit cards, but access your checking or savings account and have fewer consumer protections by law than credit cards. And, don't forget that with a debit card, it's your own money. Our advice, never ever use a debit card on the Internet, if you must use one at all.

Along with our colleague Kathleen Keest of the Center for Responsible Lending, I am representing consumers at a hearing on unfair credit card practices (committee announcement: Improving Credit Card Consumer Protection: Recent Industry and Regulatory Initiatives) Thursday before the House Financial Institutions Subcommittee of the Financial Services Committee. There are apparently six regulators and five industry lobbyist witnesses. Not to worry. The Texas Rangers motto, I think, is "One riot, one Ranger." With me and Kathleen, we've got an extra Ranger. By the way, if you want a preview of my testimony, there's a video excerpt of my interview from a forthcoming documentary on credit cards, UR Pre-approved, available on the movie's "trailers" page. Scroll down.

If you've ever had to fight with a bank over a disputed automatic debit or electronic fund transfer from your account by a health club or a utility or a contractor that didn't finish the work so you refused to pay, you know how difficult it is to get the bank to believe you. The Electronic Fund Transfer Act is certainly one of the weakest and least enforced consumer protection laws going. It's true that they've got your money and you've got nothing. But when it all comes down to it-- maybe it's simpler than that. Maybe it's nothing more than that bank wants to keep all the fee revenue.

Although Wachovia, the nation's 4th-largest bank, has apparently returned the money and not been "accused of wrongdoing," Charles Duhigg reports today in a major New York Times story -- Bilking the Elderly, With a Corporate Assist -- that Wachovia

accepted $142 million of unsigned checks from companies that made unauthorized withdrawals from thousands of accounts, federal prosecutors say. Wachovia collected millions of dollars in fees from those companies, even as it failed to act on warnings, according to records.[...]Banking rules required Wachovia to periodically screen companies submitting unsigned checks. Yet there is little evidence Wachovia screened most of the firms that profited from the withdrawals.

processing consumer payments for an international network of fraudulent telemarketers. [...] Fraudulent telemarketers transmitted consumers' bank account information to PPC. PPC then created unsigned bank drafts -- checks without signatures-- based upon the consumers' fraudulently obtained bank account information. Using accounts at Wachovia Bank, PPC processed the unsigned bank drafts for payment.[emphasis added]

sold his name, and data on scores of other elderly Americans, to known lawbreakers, regulators say. InfoUSA advertised lists of "Elderly Opportunity Seekers," 3.3 million older people "looking for ways to make money," and "Suffering Seniors," 4.7 million people with cancer or Alzheimer's disease. "Oldies but Goodies" contained 500,000 gamblers over 55 years old, for 8.5 cents apiece. One list said: "These people are gullible. They want to believe that their luck can change."

Senator Carl Levin (D-MI) has followed up his excellent hearing on credit card ripoffs by introducing a strong reform bill today. Here are our joint consumer group release, a Reuters story and Senator Levin's and his co-sponsor Claire McCaskill's (D-MO) release. Here is an excerpt from our release:

National consumer organizations today applauded Senator Carl Levin (D-Michigan) for introducing broad legislation to curb abusive credit card lending practices. The "Stop Unfair Practices in Credit Cards Act" would forbid practices recently exposed by Levin in hearings of the Permanent Subcommittee on Investigations that allow credit card issuers to assess unjustifiable fees and interest rate charges.[...] "Owning a credit card company is often a license to steal, but Senator Levin's legislation makes him the new sheriff in town," said Ed Mierzwinski, U.S. PIRG Consumer Program Director. "His bill bans some of the most unfair credit card company practices that strip money out of consumer pocketbooks and wallets."{...] The bill would prohibit or restrict several credit card lending abuses that have received a great deal of attention in recent months, including:

Retroactive interest charges. The bill would prohibit the widespread practice of charging higher interest rates on balances incurred before a rate increase went into effect.

Outrageous interest rate hikes. It would limit “penalty” interest rate increases to 7 percent above the previous rate if the consumer fails, for instance, to make a payment on time.

Repeat over-limit fees. Over-limit fees could only be charged once, unless additional charges increase balances above the account limit.

Fees for paying a bill. Credit card companies could not charge a fee to allow consumers to pay a bill by telephone, on the internet or by mail.

Interest charges for on-time payment. It would prohibit “double cycle billing” and other practices that result in interest rate charges on balances that have been paid on time.

Banks continue to make life miserable for consumers whose debit cards are victimized by fraud or identity theft. Don't let those shallow "zero liability" promises fool you-- a debit card is less protected by law than a credit card. Even if the bank decides to honor its promise: remember, you've already lost your money and you've got to fight to get it back. You also could face similar problems getting your money back with electronic transfer fraud or forged check fraud, as Bob Sullivan's latest MSNBC Red Tape Chronicles blog explains:

For two full weeks after [Rachel] Poor reported the [forged check] crime to her bank, her imposter continued to withdraw money from her account as fast as she added it. As a result, she was hit with 20 overdraft fees totaling $670, and nearly six weeks after the fact, she was still fighting to get all her money back. "Basically, I feel like I was the victim of fraud twice, once by the (person) who was using my account and again by Bank of America," Poor said. "Every time my balance went positive for even a moment another fraud charge would pass through ... so you can imagine my frustration."

Even though the regulators don't like this, begin immediately to copy all letters and faxes to your bank's regulator. It is often the only way to get the bank's attention. Don't wait until your dispute fails to get your money back.

Not sure which of the hodgepodge of regulators to write to or call? The OCC, chief regulator of national banks, is a good bet. They're not too busy, as no one's ever heard of them and they like it that way. They'll tell you which other regulator to complain to if they're the wrong one. Ignore their advice about trying to work it out with the bank first. Work with the bank, but keep the regulators apprised every step of the way.

Over at the Consumer Law and Policy blog, Jeff Sovern blogs about the FTC Rebate Debate workshop held yesterday in San Francisco. Jeff has references to detailed law review articles, including his own, on the problems with rebates. Excerpt:

I believe that sellers often use rebates instead of sales because rebates persuade consumers to purchase the product--but then many consumers (perhaps as many as 97%) never collect the rebate. The result is that sellers sell their goods at a higher price than consumers intend to pay.

Three leading consumer groups filed detailed comments this week objecting to a proposed Federal Trade Commission settlement with the retailer Kmart over its practice of deceptively selling gift cards with hidden fees that reduce their value by more than $50 in less than two years of inactivity. The Consumer Federation of America, Consumers Union and U.S. PIRG, longtime advocates for stronger state and federal laws to protect gift card holders, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains. FULL NEWS RELEASE:

FOR IMMEDIATE RELEASE: Friday, 13 April 2007
CONTACT:
Ed Mierzwinski, U.S. PIRG, 202-546-9707
Travis Plunkett or Jean Ann Fox, Consumer Federation of America 202-387-6121
Gail Hillebrand, Consumers Union, 415-431-6747

Leading Consumer Groups Oppose Proposed FTC Settlement With Kmart Over Deceptively “Shrinking” Gift Cards
-- Say Settlement “Unjustly Enriches” Violator--

Three leading consumer groups filed detailed comments this week objecting to a proposed Federal Trade Commission settlement with the retailer Kmart over its practice of deceptively selling gift cards with hidden fees that reduce their value by more than $50 in less than two years of inactivity. The Consumer Federation of America, Consumers Union and U.S. PIRG, longtime advocates for stronger state and federal laws to protect gift card holders, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains.

"Attention, Kmart shoppers, this settlement is unfair to you," said Ed Mierzwinski, U.S. PIRG Consumer Program Director, "It's bad enough that you'll need to jump through innumerable hoops to maybe get reimbursed for your incredibly shrinking gift card, but this sends exactly the wrong signal to other corporate criminals that the FTC is soft on crime."

"Numerous states have taken action to prohibit gift card sellers from even including dormancy or other monthly fees on gift cards," said Gail Hillebrand, senior attorney for Consumers Union. "At the very least, companies should not be allowed to deceive consumers into purchasing cards with hidden fees, and should be punished when they do." [More from Consumers Union on gift cards.]

The proposed settlement was approved on a 5-0 vote, with two commissioners, Jon Leibowitz and Pamela Jones Harbour, dissenting in part over the failure to require Kmart to disgorge its ill-gotten profits. The FTC will now review comments and decide whether to make it final. In their comments, the groups noted that in another recent settlement, against Darden Restaurants, the owner of Red Lobster and Olive Garden, that the FTC ordered automatic reinstatement of card value.

This is the second settlement order in the last few months where Leibowitz has dissented due to a weak, non-disgorgement penalty (see the DirectRevenue decision of 16 February 2007), Mierzwinski noted.

The groups were represented pro bono in this matter by David Balto, a former senior FTC attorney.

"Consumers need greater rights in gift cards and indeed in all plastic cards ranging from other types of stored value cards to debit cards, where rights are vastly inferior to the protections offered credit cards," concluded Jean Ann Fox, the Consumer Federation of America's director of consumer protection. "Taking action against Kmart for deception is a first step, but it should have been a more meaningful step."
-30-

At Wednesday's hearing (See video webcast and all witness statements, including ours and that of three other consumer advocates) on proposed legislation to grant airline passengers basic rights when wrongly "imprisoned" on planes stuck on the tarmac, our champions, Senators Barbara Boxer (D-CA) and Olympia Snowe (R-ME) asked the DOT and the Air Transport Association witnesses some tough questions. Michael Reynolds, DOT's DAS for Aviation, kept telling Senator Snowe that DOT's "market" approach to customer service was working, and when it didn't, not to worry, because of "section 41712 of Title 49 of the U.S. Code, which broadly prohibits unfair and deceptive practices and unfair methods of competition in air transportation." Nice try, Mr. Reynolds, except Senator Snowe wasn't buying it, and sitting next to you was your fellow witness, The Honorable Calvin Scovel III Inspector General, U.S. Department of Transportation, who testified:

The Department should take a more active role in airline customer service issues. ... We found that while the Office has made efforts to enforce civil rights violations, it needs to improve its oversight of consumer protection laws, including its efforts to monitor compliance with the terms and conditions of enforcement actions. In recent years, the Office has not conducted on-site compliance reviews, relying instead on self-certifications and company-prepared reports submitted by the air carriers without supporting documentation.

The event was widely covered (USA Today, San Francisco Chronicle, Newsday and its affiliates, and other outlets). A House hearing on HR 1303 (Mike Thompson (D-CA)-Barbara Cubin (R-WY)) is expected next Friday in the Aviation Subcommiittee of the Transportation Committee. If you've got an airline complaint, you need to let Congress know. Real stories from real people offer us our best shot to win reforms. Our previous blog.

We're testifying today Wednesday at 2:30 in a Senate Commerce Committee hearing on an airline passenger bill of rights. We're privileged to have as our fellow witnesses Paul Hudson, the longtime director of the Aviation Consumer Action Project, and Kate Hanni, one of hundreds of passengers left for nine hours in hot non-hygienic planes (no drinking water, clogged toilets) on the Austin (TX) tarmac in December (previous blog). Kate is founder of The Coalition for an Airline Passenger Bill of Rights. I will post my testimony when it is released by the committee. Here is a letter we (joined by four leading groups) sent the full Senate Monday in support of S. 678, bi-partisan Airline Passenger Bill of Rights legislation sponsored by Senators Barbara Boxer (D-CA) and Olympia Snowe (R-ME). Back in 1999, the airlines beat off an attempt to enact an airline bill of rights by making a lot of promises that they have not kept. We'll see what happens this time.

Latest sign that owning a credit card company is a license to steal: When a bank buys your bank, usually fees get worse, even if they weren't all that much to write home about before. In yesterday's Boston Globe, Bruce Mohl reports in Ex-MBNA cardholders face new minimum fee that Bank of America is now imposing a minimum $1.50 finance charge, which allows the bank to rake in bigger bucks from any consumers who carry over less than $100 or so of their balances, by charging them the equivalent of the interest on $100 bucks or so at 18% APR. BofA's rationale, such as it is: All the kids are doing it.

"It's pretty much industry practice to have a minimum finance charge," [BofA flack] Wagner said. Greg McBride, senior analyst at Bankrate.com, said minimum finance charges are common in the banking industry but the $1.50 minimum imposed by Bank of America is among the highest he has ever seen. "The minimum finance charge is sort of the industry's way of squeezing some extra income out of very minimal balances that are carried over," McBride said.

It's bad enough when a tawdry payday lender uses your un-cashed check as collateral on a triple-digit predatory small loan. Many people may not be aware that in some states, car title pawn companies are allowed to use a copy of your car keys as well as your actual car title as collateral for a similar small loan of a few hundred dollars. Can't pay back your $200 loan? They take your car, no matter what it's worth. Here's Iowa Attorney General Tom Miller's statement on Iowa's new ban on car title pawn. Meanwhile, Blue Oregon critiques a car title ad running on Oregon TV.

Recently, the FTC settled charges that KMart had engaged in deceptive conduct by selling incredibly-shrinking gift cards. But, is the lack of will to punish violators by making them pay becoming a trend at the FTC?

The FTC's complaint alleges that since 2003, Kmart did not disclose adequately that after 24 months of non-use, a $2.10 "dormancy fee" would be deducted from the card's balance for each month of inactivity, resulting in a $50.40 reduction from the card's value if the card was not used for 24 months. In many instances, the Commission alleges, consumers did not learn of the fee until they attempted to use their cards.

It's good to see that three New York legislative committees -- the Assembly's Standing Committees On Consumer Affairs and Protection and also Banks, along with the Senate's Standing Committee on Consumer Protection -- plan a joint April 16th hearing on unfair credit card practices, despite last year's indefensible Pataki (former governor) veto of an important bill to ban universal default. While we have seen some encouraging scrutiny from Congress this year, credit card company practices need all the sunlight that we can put on them.

Privacy expert Robert Ellis Smith, author and longtime publisher of the Privacy Journal newsletter, has a column up at Forbes.com about how the FTC and state attorneys general are hitting privacy violators where it hurts-- in the wallet. Most corporate general counsel are aware of the $10 million FTC civil penalty plus $5 million restitution order on ChoicePoint after it was nailed for selling 163,000 consumer dossiers to identity thieves, but in FTC Says It's Gonna Cost Ya, Smith details a long list of other privacy-related settlements and civil penalties against miscreant companies.

We've set up a new site over at StudentPIRGs.org to collect complaints (or praises) from college students and other young people about their interactions with credit card companies.

Carrying a credit card is practically a necessity these days for young adults. One-quarter of students report using credit cards to pay for the cost of books and tuition. Students should get the credit they deserve, but they pay more than they bargained for. Irresponsible credit card companies pile the debt on young adults.

What with 10 days in Europe and all, I am behind on checking out the consumer blogs. So, here are a few excellent posts from the last few weeks: Over at Credit Slips, the consumer credit and bankruptcy professor blog:

In the paper, I build off their ideas to develop a proposal for "self-directed credit cards," which would allow consumers to pre-commit to set levels of credit-card usage and avoid the temptation to spend or borrow more in the heat of the purchasing moment.

If the average card offers is about $5,000 in pre-approved credit, that about $365,000 in offers for every American household--or about $1000 a day, every day of the year. By comparison, median household income is about $46,000, or about $127 a day. It wouldn't be unreasonable to speculate that many families are offered about seven times their annual incomes in credit card debt.

And, over at his Digital Destiny blog, Jeff Chester has some prolific and thoughtful posts:

Software used on the Internet has enabled the development of reputational rating systems based on feedback: users of sites can see what their "friends" or "similar users" are buying at Amazon and can read "ranked" reviews (How many of you found that helpful?) at many sites, can rate (or flame) comment posters at a variety of sites, and importantly, can rate and rank the sellers at either small businesses or big auction sites including EBay. This ranking has been important in increasing consumer confidence about doing business with sellers they know little, or nothing, about.

In today's Washington Post, in his story The Ol' Bait and Click, Alan Sipress reports that not only are some authors using fake "sock-puppet" identities to pump up their own books, but worse, that some EBay sellers are actually very patient scammers who may spend months selling cheap products legitimately to build up their reputation ratings. Then, they start "selling" big-ticket items that they never ship to the customer. It's a variant as old as "The Big Con" pulled off in the Paul Newman-Robert Redford classic "The Sting." Sipress reports:

John Morgan, a business professor at the University of California at Berkeley, said his research found that 526 eBay sellers posted more than 6,500 listings on the site during the second half of 2005 for low-priced or seemingly valueless items in an apparent bid to inflate their feedback reputations.

In today's New York Times, an editor, Eleanor Randolph, has an "Editorial Notebook" piece on consumer complaints: A Time and Place for Grousing .

American consumers are so angry that companies are assessing the new level of customer rage. A study by Arizona State University found that 70 per cent of customers who had problems were either extremely or very teed-off as a result of their complaints.

Companies don't care. Why should they? They don't have to care. For example, banks know that it is a lot of work to get a new account-- so an account relationship is said to be "sticky." Cell phone companies can just leave you hanging on hold-- if you try and cancel your account when you're mad at them, they'll impose an early termination penalty of up to $200 or more. You're locked in a cell. The companies also count on the fact that you will not want to pay the less-measurable but very significant switching costs of obtaining a new account-- ordering new checks, changing automatic payment numbers, returning cable boxes, telling friends your new phone number, etc. -- it allows them to both charge more than the market would otherwise allow and treat you worse to boot. And with banks and many other firms, you also often can't sue them when they do you wrong, so they don't need to worry. Further, the level of federal government enforcement is at such an all-time low level that consumers cannot rely on agencies to police unfair business practices.

The Internet may eventually provide greater balance and power to consumers. Despite the growing number of complaint sites and forums and boards on the web, I don't think that it has yet achieved its full potential for growing the information power of buyers in the marketplace. The angry consumers with the mycompanysucks.com websites are just the tip of the iceberg, and merely the first wave of consumer organizing for redress on the web. There will certainly be more and more effective responses to the "just don't care" attitude of too many sellers.

A few items from the "You can run, but you can't hide from advertising" files:

If you go to, or more importantly, watch a college basketball game on TV, watch for the State Farm "Basket Profile" program's garish signs cluttering the backboard stanchions. In the New York Times story State Farm Is There, Right by the Backboard, columnist Stuart Elliott captures the moment concisely in his concluding rejoinder to a ludicrous quote from arena marketing consultant David Bialek:

Bialek: "It's just part of the backdrop, as much a part of the game as students wearing sweatshirts with team logos."
Elliott: Hmmm. Now there is an idea: paying students to wear sweatshirts with advertisers' logos.

Meanwhile, in the Wall Street Journal, Emily Steel reports in Grabbing Older Consumers via Cellphone (pd. sub. req'd) that Redbook is targeting 30-something women with cellphone text-message ads. So-called mobile-marketing is the next big thing (after college hoops backboard stanchions, of course); marketers have so far failed at any demographic except teens and college students. From the WSJ:

Forrester Research estimates that consumers between ages 12 and 21 are more than twice as likely as the average adult mobile user to send messages or browse the Internet on their cellphones. Just 33% of mobile-phone users 45 to 54 years old use any form as messaging, compared with 76% of mobile-phone users 18 to 24 years old, the firm estimates. To expand the mobile-ad market, marketers need to teach older consumers to use their mobile phones for more than just talking, ad executives say. That will help consumers to start using their phone "for more than just voice, but this retail and purchasing experience,"

In 1999, the airlines beat back a proposal to give passengers more protection against their worst unfair practices, including canceled flights without compensation, senseless fare rules, lost/destroyed baggage and their growing trend of leaving passengers sitting on the runway for hours in too-hot or too-cold tin tubes with no food, no water and no working bathrooms. Now, after the latest trapped-on-the-runway incident, passenger Kate Hanni has launched a new campaign (Strandedpassengers weblink) for an enforceable Airline Passengers Bill of Rights. Here's the story After 8 Hours on the Taxiway, You Might Want a Bill of Rights from New York Times travel columnist Joe Sharkey. In the past, this important issue has been beaten down by airline campaign contributions to the Congress but this time, it may gain greater traction. Believe it or not, your federal government even has a passenger rights page. Go there to learn about your weak and largely unenforceable rights.

Syndicated consumer columnist Humberto Cruz joins me as a consumer lab rat in what should be called the "mail-in rebate offer rat-maze." Here's his column Hassle of getting a mail-in rebate will try your patience as it appeared in the Florida Sun-Sentinel. The good news: Cruz says "Luckily some stores and merchants, among them OfficeMax and Best Buy, have discontinued or are phasing out rebates in favor of store discounts." My previous blog on my own adventure.

ATM and debit card fees are the banks' holy grail. Banks punish consumers with foreign ATM fees and surcharges, of course. The banks also collect fees from merchants when consumers pay with plastic. Debit replacing cash is their targeted growth area here. And, the banks collect bigger fees when you pay at the pump or cash register without a PIN, so the banks offer Cash Rewards and greater liability protection for signature debit. Today's Wall Street Journal (paid subscription required) has a good story today As Card Fees Climb, Merchants Push PINs by Robin Sidel on the long-running battle between merchants and banks over PIN vs. signature. With Rewards, the banks have been successful in enlisting consumers as their paid mercenaries, but everyone pays more at the pump or the cash register, whether they pay with cash or plastic, because stores must raise their prices to compensate for the punitive "interchange fees." Your cash payment subsidizes my cash reward. Thank you, I think. (Satirical wink.) Previous blog with links to our hill letters and testimony.

The FTC has penalized 4 diet pill and vitamin manufacturers, including the massive Bayer, a total of $25 million for making false or deceptive promises about the effects of their products. One company involved, Trimspa, used Anna Nicole Smith as its celebrity. The Pharma Marketing Blog has a good post called If FDA were as Powerful as FTC explaining the difference between the FTC's enforcement actions (which often include money penalties) and the FDA's (generally limited to "don't do this again" letters). From the blog:

FTC has powers far beyond those of mortal FDA -- it can impose fines, force the liquidation of assets, and put liens on property to collect settlement fees, all of which the FDA cannot do -- or has never done to my knowledge.

PIRG's latest report on weak FDA enforcement is Turning Medicine Into Snake Oil.

Over at her blog The Checkout, Washington Post reporter Annys Shin reports in Blinko: A Cellphone Charge Mystery about the hassles consumers face with cell phone add-on fees and charges for services consumers did not realize they'd signed up for:

After several phone calls to Verizon Wireless, Beyers was told the source was something called Blinko...no fly-by-night operation but the U.S. brand name of Italian mobile entertainment company Buongiorno...There is nothing new about allegations of mysterious and stubborn cellphone charges from mobile content companies...Verizon Wireless received so many complaints about Blinko and its billing practices that over the summer, the wireless carrier took the unusual step of putting Buongiorno on probation, suspending the company from signing up any more Verizon Wireless customers...

If your credit card company, bank or cell phone company refuses to investigate or remove mysterious charges and claims that your only recourse is to contact the vendor, contact your state attorney general, the Federal Trade Commission and, as appropriate, either your bank's regulator or the FCC.

Here are links to a few interesting recent entries in the various consumer and public interest blogs I read:

While the day after Thanksgiving is known as the biggest shopping day of the year, the day after Christmas is the biggest return day of the year [The Reporter (CA), the Washington Post consumer blog seeks your stories, retailer returns survey]. Allegedly in response to "serial returners" and other "abusers," many stores have tightened up their return policies. Some participate in a multi-store database called the Return Exchange. Find out more about the range of restrictions found at 219 stores across New York in a recent NYPIRG report, Many Unhappy Returns. The various restrictions, ID requirements and restocking fees are probably representative of the range of problems consumers may find nationwide. Let us know how your returns go and what problems you encounter. Even if a return policy is disclosed, it may be deceptive or otherwise violate state law, so let your state Attorney General know of any hassles. Excerpt from the NYPIRG report Many Unhappy Returns:

NYPIRG surveyed 219 retail outlets across New York in October-December 2006 to determine the return policies, disclosures and restrictions on returning merchandise at retail sellers in the state. Our findings include the following:
(1) Onerous restrictions and limitations were found at outlets for national chain retailers as well as single-store retailers. Some of the return limitations identified include:
* Imposing a time limit restriction on returns.
* Requiring original sales receipts.
* Requiring original packaging, tags, etc.
* No Cash Refunds.
(2) While the above restrictions may prove burdensome and inconvenient for consumers, the following restrictions on returns and exchanges stand out as particularly anti-consumer:
• Specified ID Required
• Reductions on Return Amount and/or Restocking fees:
(3) Several stores surveyed had policies of "no returns, no exchanges."

A few years ago, I visited Gallup, NM, along with local NMPIRG leaders organizing against predatory lenders (previous blog). The town is perched in the northwest corner of one of the nation's poorest states and acts as a gateway to the massive multi-state Navajo Reservation known locally as "the res." I was struck by a statement from a local legal services attorney we met, who quoted General William Tecumseh Sherman from the 1870s: "A reservation is a parcel of land inhabited by Indians and surrounded by thieves."

A lot of the thieves have set up shop in Gallup, surrounding that gateway. From Eric Eckholm's story Seductively Easy, Payday Loans Often Snowball in today's New York Times:

Payday lenders have proliferated over the last 15 years, including here in Gallup, a scenic but impoverished town of 22,000 with a mix of Indian, Hispanic and white residents and a striking density of storefront lenders. At least 40 lending shops have sprung up, scattered among touristy "trading posts," venerable pawn shops and restaurants along the main street (old Route 66) and with as many as three crowding into every surrounding strip mall. "Payday lending just keeps growing, and it just keeps sucking our community dry," said Ralph Richards, a co-owner of Earl's, Gallup's largest and busiest restaurant. Mr. Richards sees the impact among his 120 employees, mainly Navajo, some of whom become trapped by payday loans they cannot repay and, he said, "develop a sense of hopelessness."

The Lafayette Federal Credit Union in Kensington, MD is claiming on its website that members have approved management's "take-the-money-and-run" plan to convert to a for-profit bank. Meanwhile, according to the Washington Post, insurgent members continue to organize to oust the board members seeking conversion. Also, the Post reports that the National Cooperative Business Association continues to assist members who say they never received ballots. The conversion vote must still be approved by regulators at the National Credit Union Administration. Our previous blogs explain the problem of credit union conversions, which are being driven not by the business needs or original public-interest, community welfare purposes of these member-owned bank alternatives but instead by a small number of wrong-way leaders dreaming of potential personal profit.

The U.S. Ninth Circuit Court of Appeals yesterday condemned the Federal Energy Regulatory Commission's (FERC) lax oversight of the electric power industry that resulted (in addition to the loss of billions of dollars of investor retirement dollars) in skyrocketing energy prices and rolling blackouts in California during the height of the Enron debacle. The court allowed claims for compensation from what's left of Enron and affiliated banks including Morgan Stanley by California, Washington State, Nevada and local utility ratepayer districts to go forward. From the New York Times:

"The ruling makes it clear that markets need to have a cop on the beat and that the Federal Energy Regulatory Commission failed to step in and do its duty as that cop," said William J. Kayatta Jr., a lawyer who argued the case for California. "If the commission comes back and just says market prices are just and reasonable, they will be slapped down again."

Their company, Enron, was a house of cards that pretended to the world that it was making money with some of the most idiotic ideas ever-- leasing electricity barges off Nigeria and supposedly building trading markets in dark (unused) fiber-optic cable, video downloads and even water. All they were really ever doing was cheating to make these bogus, untested projects appear profitable. They also manipulated the California energy markets to steal from grandma Millie. They created hundreds of fak-o affiliated enterprises named for Star Wars and other movie characters to hide evidence of the thefts. They cooked the books so hot you could fry an egg on them. Throughout, however, they were shamefully aided and abetted by some of the biggest banks in the Wall Street world who all wanted their own piece of the action. Meanwhile their accountants, Arthur Andersen, forgot that the Supreme Court had designated accountants as "the public's watchdog."

I've often called credit monitoring services shabby protection rackets. At least when you pay off the mob every week, it doesn't burn down your store. But paying off the credit bureau, or its sales agents (including credit card companies), up to $15/month or more for credit monitoring won't stop identity theft and may not even warn you that it's happened. That's shabby. There's more at Washington Post report Annys Shin's recent blog The Checkout and in a recent story by Eric Dash of the New York Times.

Don't pay for credit monitoring. It's a defective product sold at a high price by companies whose sloppy practices led to the continuing epidemic of identity theft they claim to be protecting you from in the first place. Instead, any consumer who lives in a state where either a previous victim (for free) or any consumer (for either a fair fee or a too-high fee, but still less than credit monitoring prices) can place a security freeze on their credit reports, should freeze their reports from access by thieves instead. We'll be watching Congress closely to make sure that it does not enact an industry-friendly (pricey, preemptive of better state laws and clunky to use) security freeze law next year.

Over at CounterPunch, Ralph Nader's column The Big Boys of Financial Crime analyzes the anti-investor protection platform that the Wall Street barons are pushing at the expense of small investors. Their vehicle is to issue reports through a lobbying apparatus called the Committee on Capital Markets Regulation, generously sprinkled with academics to add the appearance of independence, and endorsed by Treasury Secretary Paulson. Here's an excerpt from Nader's column concerning their recommendation #7 -- weakening accountant responsibilites and liability even further than the current low threshold of investor protections:

7. Either cap liability for auditors or give them outright immunity. After major accounting firms profited by looking the other way in big corporate scandals like Enron, WorldCom and the like, it takes a special brand of commercial hubris to stake out this position.

Once auditors are immune, the CCMG wants to let outside Directors escape liability for "corporate malfeasance," if they rely "in good faith" on the auditors. It isn't clear what non-good faith reliance would be like.

"If you take every single step on their list," declared Barbara Roper, director of investor protection at the Consumer Federation of America, "you would have made it significantly more difficult to hold corporate criminals accountable for their crimes."

In today's Washington Post, Kathleen Day reports that a membership vote is occurring this week on the proposed conversion of the Lafayette Federal Credit Union (located just outside DC in Kensington, MD) to a for-profit bank. As I pointed out last summer in this blog entry: bank lobbyists seeking to eliminate competition from low-cost, member-owned credit unions have been running campaigns to convince credit union members into agreeing to convert their charters to a mutual savings bank ownership structure. On the banks' side? A few credit union leaders who want to take the money and run. As Day's story today explains:

In a study of five conversions, industry trade group the Credit Union National Association found that stock and other awards averaged $742,000 for each director and more than $1.2 million each for the chief executive and other top executives.

In a story MasterCard Europe to Reduce Debit-Card Fees Amid EU Probe, the Wall Street Journal (pd. subs. requ.) reports today that Mastercard will be cutting fees it charges merchants on debit card transactions dramatically -- in hopes of staving off further regulatory scrutiny.

One of the biggest of the big lies is when the banks tell us that they don't make any money on consumers who pay off their credit cards each month. Actually, they do. They take a hefty cut of every merchant credit or debit transaction. All customers, cash or plastic, pay higher costs for goods to offset these fees. A series of lawsuits in the U.S. has questioned whether the way the bank associations (Visa and Mastercard) set these fees for both credit and debit card interchange violates the antitrust laws and has helped reduce the excess profits they've been making on these merchant interchange fees. Here's recent PIRG Congressional testimony. The WSJ reports fees will go down up to 60%. From the WSJ:

MasterCard Europe said its new fee structure would take effect in January 2008. The new fee for a Euro50, or about $67, transaction paid with a Maestro debit card would be between nine European cents and 20 European cents (12 cents to 27 cents), down from the current 25 European cents to 59 European cents, it said.

Washington Post consumer report Annys Shin has a good blog entry summarizing the latest gift card report from Montgomery County, Maryland's Office of Consumer Protection. The main takeaway from the report: bank-issued gift cards are bad (fees, fees, fees); most store cards are much better deals (few have fees); and, finally, watch out for mall or multi-store cards -- these are probably issued by a bank (scary bad). Here's the html release from Montgomery. Our pliant federal bank regulators at the OCC (PIRG site OCCWatch) issued a weak rule this summer, essentially saying: banks, it's ok to have unfair fees on gift cards as long as the fees are disclosed. Tell that to your niece who finds out too late that the fees have reduced her unused gift card to nothing.

Despite a series of post-Enron scandals, and despite that Enron was only five years ago, the accountants and Wall Street are cheering the retirement of investor champion Paul Sarbanes (D-MD), the U.S. Senator who led passage of the bi-partisan 2002 Sarbanes-Oxley Act to crack down on the culture of corporate crime and lax corporate governance that had lessened investor confidence and led to the loss of billions of dollars in retirement investments for millions of average Americans. According to Steve LaBaton and Floyd Norris in Panel to Urge Rewriting Rules to Aid Companies in today's New York Times, a group of academics aligned with Wall Street will release a report today describing the ways that our corporate crime laws must be weakened further to keep Wall Street happy: Excerpt:

It recommends making it harder for companies to be indicted by the government or sued by private lawyers, and urges policies to keep the Securities and Exchange Commission from adopting rules that impose high costs on business.

Today's New York Times story about investment and retirement scams The High Cost of Too Good to Be True by Julie Creswell and Vikas Bajaj offers important lessons for any investor.

"The best scams start with a kernel of truth that are ripped right out of the headlines," explained Joseph P. Borg, director of the Alabama Securities Commission and president of the North American Securities Administrators Association. "Oil prices are up. There's a war in Afghanistan and Iraq. Tainted spinach. All of these can spawn frauds."

A younger victim may be motivated by a rich payday, while the elderly appear to fall for schemes that claim to involve the government or a charity, said Sid Kirchheimer, author of "Scam-Proof Your Life," a book published by AARP.

"Whether in a religious group or any other community-based organization, all you may need to do is scam one person very aggressively, in hope that this 'centerpoint' will start peddling the scheme to other members," said John Reed Stark, chief of the office of Internet enforcement at the S.E.C. "The centerpoint may not even profit or be at all complicit in the scheme, but he or she nonetheless becomes an important part of the overall con."

California Attorney General Bill Lockyer has settled a lawsuit with the nation's largest rent-to-own company, Rent-A-Center, which will pay California consumers $7 million to resolve allegations of a variety of practices that deceived California consumers in violation of California law: EXCERPT:

The settlement resolves a lawsuit, filed simultaneously with the settlement, that alleged RAC failed to disclose the true cost of its rent-to-own program to California consumers. Additionally, RAC engaged in deceptive advertising in marketing and selling memberships in its "Preferred Customer Club (Club)," according to the complaint.

The settlement requires RAC to make full or partial refunds to thousands of California consumers who bought Club memberships, or who rented or purchased electronic merchandise, appliances, or computer systems from RAC on or after November 1, 2004. Lockyer's office estimated the restitution will total more than $7 million. RAC also will pay $750,000 in civil penalties....

...Lockyer's complaint alleged RAC, in violation of state law, engaged in unfair competition and illegally misrepresented the cash price of certain merchandise.

The complaint also alleged RAC misrepresented the benefits and terms of its Club membership in numerous ways. The misrepresentations included: falsely claiming to provide an extended warranty, insurance, or service contract for rental merchandise; and telling consumers they would receive up to $500 in grocery discounts, without adequately disclosing that to obtain the maximum discounts consumers had to pay RAC more than $100 in additional fees.

Data security expert Avivah Litan of the Gartner Group is reporting that 4 out of 5 breaches are occurring in point-of-sale (POS) systems -- e.g., convenience stores,gas stations, grocery stores and other retail outlets. According to this Computerworld story quoting Litan, Fifth Third Bank of Cleveland has joined a growing number of banks and credit unions re-issuing debit cards after a breach at the Wesco convenience store chain.

Consumers should remember two things about debit cards:

The best advice is to only use debit cards in ATM machines. Maybe with all this fraud, the banks will go back to offering plain old ATM cards.

There's a lot happening at consumer blogs around the blogosphere: Over at the Consumer Law and Policy mega-blog: Ira Rheingold of NACA comments on Senator Tim Johnson's (D-SD) recent disparaging comments in the trade paper American Banker, where Johnson attempts to scare fellow Senators into backing a bank-friendly, consumer unfriendly "fix" to landmark legislation signed by the President this fall banning predatory lending to our military families. The Senator has also made disappointing comments this year that he was disappointed that the Senate hadn't yet rolled back strong state laws in a few courageous states (New Jersey, Vermont, Minnesota, Wisconsin and North Carolina) that still protect all their consumers from predatory rent to own stores.

"How much do these companies earn by taking aggressive positions with the expectation the consumer will just give up over a small dollar amount? It's only $50 to us, but when the companies take thousands of aggressive positions with thousands of customers, it adds up to real money for them."

consumer scams, credit cards, health insurance, fees, nickeled and dimed, broadband, privacy, bank fees, predatory loans, payday loans, military families, rent-to-own

Some of you are anxiously awaiting election results. Some others are probably waiting for your deposited check to clear. Even though Congress two years ago passed a law known as Check 21 that gives banks faster access to the checks we write to others, it failed to shorten the length of time banks are allowed to hold the checks we deposit to our own accounts. Instead it required a study, and the regulators have been conducting it over their typical geological time cycle. Here's a blog entry by Gail Hillebrand of Consumers Union with more details. Here's a letter from CU, US PIRG and others urging the Fed to speed up the study and speed up the checkholds. Otherwise, banks will continue to pile on unfair bounced check fees as they game the system against consumers by imposing bounced check fees on deposited but "unavailable" funds.

[Update 7 Dec- corrected bad internal URL] IRS Commissioner Mark Everson gave a big speech (report from Government Executive Magazine) Friday to tax industry companies, where he warned them that that their long corporate welfare ride on the backs of taxpayers may be over. He said Congress is ready to allow taxpayers to file taxes online directly with the IRS for free. What, we can't now? No, we can't. MORE:

The tax preparers have been beneficiaries of something called the Free File on-line program, which is only free for certain low-income taxpayers, not everyone, and, even then, allows the companies to load up a shopping cart for themselves full of extra fees, including massive predatory Refund Anticipation Loan (RAL) fees and triple-digit interest, so long as there is no fee for actually clicking the button that sends the file off to the IRS.

Everson referred to a harsh letter from Senators Grassley (R-IA) and Baucus (D-MT) he received last week. Excerpt from Sen. Grassley's press release:

"It seems the tax preparation industry was holding all the cards in the renegotiation of this program," Grassley said. "The industry appears to be using the Free File program as an opportunity to bolster its revenue through the sale of ancillary products at taxpayer expense. I'm all for private enterprise, but not when it co-opts taxpayer service. The IRS is losing the game and doesn't even seem to realize it. The IRS' first priority is supposed to be the taxpayer. It shouldn't be taking away from taxpayer service to subsidize the tax preparation industry."

According to some press reports, Everson apparently tried to blame the demise of the program on the companies' greed and complaints about their sloppy tax preparation, forgetting that it was a dumber than dirt idea from the get-go to try and force most taxpayers to pay a private company if they want to file their taxes online. Our previous blog on Free File.

Here's another Damian Paletta story running on Dow Jones Newswires: this one's on the banks' unpatriotic attempt to use the coming lame duck Congressional session to roll back the Talent-Nelson amendment, now law, that prohibits predatory lending to the military. Here's my previous entry with more details. And, here's a new blog -- LameDuckHunt.org -- from our colleagues at Public Citizen, keeping track of this and other possible lame duck quackery plays by powerful special interests.

Another electric utility merger based more on the unenlightened self-interest of investment bankers and utility kingpins ("I want to be the next Ken Lay or Jeff Skilling and have my own Enron cash machine and raise rates when I want") than on sound public policy principles has been derailed, this time in Maryland.

While consumers in Maryland are not out of the woods yet, since they still face the temporarily-delayed effects of rate deregulation, the cancellation of the planned FPL (Florida Power and Light) takeover of the Maryland utility Constellation is a major victory for consumers. See the Baltimore Sun as well as the Washington Post and Washington Times. MORE:

From the Post:

Johanna Neumann, a policy advocate at Maryland Public Interest Research Group, said "the blocked merger is a victory for BGE [Baltimore Gas and Electric] ratepayers." She said the merger "would have created an energy giant large and powerful enough to dictate electric rates" and that "the risk of skyrocketing electric bills far exceeded Constellation's paltry pass-on of savings." The collapse of the FPL-Constellation deal highlights the difficulty of merging two utilities, despite the 2005 repeal of the Depression-era Public Utilities Holding Company Act (PUHCA) that many experts had predicted would lead to a major consolidation of the industry. Last month, Exelon Corp. dropped its $17.8 billion bid for Public Service Enterprise Group Inc. after failing to come to an accord with New Jersey regulators.

Here's more from NJPIRG on Exelon. Here's more on the just-launched PIRG New Energy Future campaign, which outlines a longterm, sustainable, clean energy program based on what's good for the public interest and the environment. Here's our 2004 report Toward A Consumer-Oriented Electric System: Assuring Affordability, Reliability, Accountability and Balance After a Decade of Restructuring.

Check out this blog entry by our higher education advocate Luke Swarthout on today's New York Times story by Jonathan Glater called Offering Perks, Lenders Court Colleges' Favor. It's about influence peddling by some student loan giants -- not (this time, anyway) to the Congress, but to college financial aid administrators. Excerpt from Luke's post:

It is impossible to know exactly whether a Caribbean vacation will result in Loan to Learn being added to any particular lender list, just like there's now way to know for sure that Jack Abramoff flying politicians to Ireland for golf outings influenced their particular votes. That's why we should set a higher standard for administrators and politicians alike-no expensive vacations, trips, fancy dinners.

This month the President signed PIRG-backed legislation banning payday loans and other predatory lending to the military. Could the banks be organizing to weaken the law already (more below)?

One reason that the Pentagon strongly supported the proposal was its growing concern over alarming increases in loss of security clearances and the effect on military preparedness. Now, the Associated Press has confirmed the problem: MORE:

Thousands of U.S. troops are being barred from overseas duty because they are so deep in debt they are considered security risks, according to an Associated Press review of military records. The number of troops held back has climbed dramatically in the past few years. And while they appear to represent a very small percentage of all U.S. military personnel, the increase is occurring at a time when the armed forces are stretched thin by the wars in Iraq and Afghanistan.

Of course, another reason for the Pentagon's concern, and the concern of a broad coalition of military aid societies that worked tirelessly on the amendment to cap interest rates to the military at 36% APR by Senators Jim Talent-R-MO and Bill Nelson-D-FL was the overall financial welfare of its largely young personnel, as detailed in recent Senate testimony by Defense Undersecretary David Chu and retired Admiral Steve Abbot, CEO of the Navy-Marine Corp Relief Society. More in previous blogs here and here.

Eileen Ambrose's Baltimore Sun column today explains this Talent-Nelson amendment. Eileen also explains another new law designed to stop high-pressure sales of low-performing mutual funds and insurance products on bases. The second law is the result of an expose over the past several years by Diane Henriques of the New York Times (PBS interview with Gwen Ifill).

Now along with other advocates, we are watching carefully to ensure that the banks don't sneak into the lame-duck Congressional session with some special-interest amendment to exempt them from the Talent-Nelson amendment's broad coverage against any form of predatory lending, even by banks (yes, predatory lending is so profitable, all the kids are doing it). The banks generally use the Bart Simpson defense whenever their practices are challenged: "I didn't do it, I wasn't there, it's not my fault." Expect them also to present their claim as an argument that only their expert regulators, not the Pentagon as the law provides, should be writing the rules implementing the new law.

Of course, these are the same bank regulators that

With "banks can do no wrong" bank regulators like these, consumers should be thankful that the Pentagon, at least, is leading the way on protecting some consumers from predatory lending. And of course, the powerful bank lobby is also worried that the reinstatement of federal usury ceilings -- even if only for military consumers -- will eventually result in re-establishment of these necessary protections for all consumers. Funny, they think that is a bad thing. We, on the other hand, are excited that possible reform of unfair bank practices, long stymied on Capitol Hill by a never-ending spigot of campaign cash that lulled Congress into ignoring unfair bank practices, has been reinvigorated by the passage of legislation protecting military consumers from unfair lending. It's too bad that it took nothing less than a threat to the nation's security to force Congress to debate the problem of usury, but now, at least, we have a debate.

Most consumer contracts -- for credit cards, health insurance, health clubs and gyms, leases, rentals, and even to take out a payday loan -- now contain one-sided clauses requiring binding mandatory arbitration as a remedy for disputes-- you've probably already given up your day in court but you may not know it. Over at two of my favorite consumer blogs, posts are coming fast and furious about the rigged system of mandatory arbitration that denies access to justice every year to thousands, if not millions, of aggrieved consumers. At the Consumer Law and Policy Blog, Paul Bland has Arbitrators Are Answerable to No One and National Arbitration Forum's Wall of Secrecy is Crumbling. Paul Nelson follows with More on Unaccountable Arbitrators. Meanwhile, at Credit Slips, Bob Lawless comments on former WV Supreme Court Chief Justice Richard Neely's recent article -- Bloodsuckers, Godless, or Both? -- on his one case as an arbitrator. For more, see the PIRG-backed coalition site GiveMeBackMyRights.org.

[update 13 Dec 06-fixed bad urls] Following a letter from commissioners and consumer champions Jonathan Adelstein and Michael Copps to FCC Chairman Kevin Martin (his reply), the chairman has been forced to delay a rubber-stamp vote on FCC approval of the AT&T/Bellsouth merger recently rubber-stamped by the supposed antitrust authorities over at the Department of Justice. Along with the Consumer Federation of America, Free Press and Consumers Union, (our petition to deny and declaration of our experts and reply comments are available at the FCC AT&T/Bellsouth merger page), we've steadfastly opposed this merger, which is anti-competitive, fails to preserve net neutrality and practically completes the anti-consumer, pro-monopoly process of putting AT&T back together again. See also our previous blogs on the AT&T/SBC and Verizon/MCI mergers and our letter urging a court review of those rubber-stamped decisions. Here's a recent news story (13 Oct) on the ongoing review by U.S. Judge Emmett G. Sullivan.

[1 Dec update-corrected internal URL] A GAO study Credit Cards: Increased Complexity In Rates and Fees Heightens Need for More Effective Disclosure to Consumers (GAO 06-929), requested by Senator Carl Levin (D-MI), has been released. Here's an excerpt from our joint release with other consumer groups:

The report points out the need for simplified pricing that consumers can better understand, and the importance of prohibiting abusive credit card pricing practices (such as two cycle billing, residual or "trailing interest" and "universal default.") The report finds that there are many new types of credit card fees, and that they have risen much faster than inflation. It also finds that current fee disclosures are difficult to understand, bury important information, and often fail to convey to cardholders when late fees would be charged and what actions could result in penalty interest rates.

Unfair or confusing credit card practices take advantage of working families. This report shines a needed spotlight on excessive credit card fees, unfair interest rates, and inadequate disclosure practices that ought to be stopped.

If you care about consumer rights, check out the work of the activists at Defective by Design, who are trying to discourage the use of software that limits our cultural freedom and prevents us from full enjoyment of our legally-purchased digital products. They seek to educate the world -- sometimes through street theater and direct action -- about the threat of so-called Digital Rights Management (DRM) schemes, including the one used by Apple's iTunes and the apparently even more intrusive one said to be coming on the soon-to-be-released Microsoft Zune mp3 service, according to an article Hot Rod Your iPod, in the Phoenix, which also says you can come to a party at MIT Friday to learn how to switch out your iPod's proprietary software for an open-source alternative: MORE:

While Apple’s products may be more user-friendly than most, they’re hardly DRM-free. This Friday, Free Culture Boston and the Computing Culture group at the MIT Media Lab aim to change that by hosting an iPod Liberation Party. There, attendees can switch their compatible iPods (or other mp3 players) to run on Rockbox or iPod Linux, open-source firmware that lets your iPod work like a hard drive: it frees you from having to depend on iTunes software, lets you access your song files, supports Ogg Vorbis and FLAC codecs, and offers a bunch of other cool customizations...The iPod Liberation Party takes place at 7 pm this Friday, October 6, at the MIT Media Lab, 20 Ames Street, in Cambridge. For more information e-mail freeculture-boston@hcs.harvard.edu or visit Freeculture.

STATE PIRGs' HIGHER EDUCATION PROJECT

FOR IMMEDIATE RELEASE: September 29, 2006
FOR MORE INFORMATION: Luke Swarthout (202)546-9707
Department of Education: Private Lender Bilking Taxpayers for Billions

Statement of Luke Swarthout, State PIRGs' Higher Education Advocate

"According to a new OIG report released late Friday by the Inspector General (IG) of the Department of Education, private lender Nelnet Inc. abused a student loan loophole to generate $1.2 billion in illegitimate government payments. Through the "9.5% loophole" the company has already been paid $278 million in excess subsidies and stands to receive $882 million more unless the Department steps in. The IG report calls on the Department to stop the payments and repay the outstanding $278 million.

The Department of Education must stop this abuse of taxpayers at the hands of private student lenders. Citizens pay taxes to help students go to college, not to pad the profits of private lenders."
###

Monsters come out at night from under the bed. But one of the most dangerous times for consumers is actually all day long, 24/7, in the last few weeks of any two-year Congressional session. That's monster time. That's right now. That's when the special interest lobbyists come out both day and night. They ratchet up their efforts to pass bad legislation that favors them; even worse, they do it outside the regular order of business. Instead of passing bills after hearings and through committee votes, they cut deals in backrooms, or slip new language into floor "packages."

The so-called Big 3 credit bureaus are making just such an end-game play in an effort to immunize themselves from the Credit Repair Organizations Act of 1996. CROA was passed to protect consumers from credit repair doctors, who make false promises that they can fix your credit. As a deterrent, the law prevents companies from collecting fees in advance, before services are performed.

But what if the credit bureaus themselves sell products that falsely claim they can fix your credit? What if the credit bureaus themselves collect money in advance for that service? Could the credit bureaus be credit doctors because they sell credit monitoring? Could their billion dollar revenue stream for a heavily-advertised product that doesn't stop identity theft and cannot improve your credit be cut off by CROA? Or, instead, will Congress immunize them by creating a special-interest safe harbor so that the bureaus can do what others cannot? Will the bill also take away strong mechanisms used to go after sleazy debt collector practices, too? Will the bill be so poorly written that credit doctors will be able to hide behind its immunities also? MORE:

A few years ago some consumer lawyers sued some of the credit bureaus, alleging that credit monitoring was a credit repair product. They also sued some of the credit card companies and so-called "membership club" companies that make huge commissions for selling credit bureau credit monitoring to their own customers. The cases allege that credit monitoring is no different than any other tawdry credit doctor product. [It actually is different. Credit doctors make a few thousand here or there; most estimates place the annual credit monitoring revenue stream at a billion dollars a year and rising.]

So the credit bureaus came to Congress and asked for a fix. Not only that, they asked that the fix be retroactive. They want Congress to pass a bill that will cancel the existing lawsuits, not merely prevent future lawsuits. Last spring, the House Financial Services Committee passed HR 3997. We've criticized that bill (LaTourette-R-OH and Hooley-D-OR) extensively because it includes a weak data breach notice provision and it would also preempt 20 state security freeze laws available to anyone. (Longer list of problems here).

HR 3997's Section 6 provides sweeping and retroactive immunity for credit bureaus, their friends, affiliates, relatives and business partners -- and perhaps credit doctors themselves -- from liability for violations of CROA. Recently, Senator WIlliam Bennett (R-UT), along with Sens. Debbie Stabenow (D-MI) and Tim Johnson (D-SD) introduced S 3662, a virtually identical companion bill.

In letters opposing the House proposal, here is an excerpt from what U.S. PIRG, Consumer Federation of America, National Consumer Law Center and National Association of Consumer Advocates have said:

We write to ask you to work to remove the amendment to the Credit Repair Organizations Act (CROA) currently included in Section 6 of H.R. 3997. In addition, we urge you to oppose the inclusion of this section in any other data security bill negotiated for Floor action. This proposal undermines a viable and important consumer protection law, going far beyond the stated purpose of relieving credit monitoring activities from coverage under the Act.

Currently, CROA broadly applies to any person who, in return for money, provides services to improve a consumer's credit record. Only non-profit organizations and a few other entities are exempted. In addition to requiring key disclosures, and mandating important contract terms, the Act prohibits credit repair agencies from violating standards of truthfulness, fraud or deception.

Advocates for consumers have found CROA a useful tool in dealing with a range of bad actors in the credit marketplace, a tool which will no longer be available if the CROA amendment in H.R. 3997 is enacted. Below are some examples of the consumer protections in the current law that would not be available under this amendment.

-- When run-of-the-mill credit repair businesses deceptively advertise their ability to improve consumers' credit scores by exaggerating what they can accomplish, CROA offers protections against this deception.
-- When debt collectors collect debts by deceptively promising improvement of a consumer's credit rating, CROA's prohibition against deception can be brought to bear.
-- Some payday lenders are now advertising themselves as credit repair specialists to evade state restrictions on interest rates; activities to which CROA's protections clearly apply.

The amendment to CROA in H.R. 3997 for credit monitoring activities includes broad and sweeping exemptions. It would allow anyone who characterizes their services as providing "access to credit reports, credit monitoring notifications, credit scores ...., any analysis, evaluation or explanation of credit scores . . . ." to be exempted from coverage under CROA so long as they provide a new disclosure and cancellation rights for credit monitoring services. In other words, any business that is currently defined to be a credit repair organization under CROA can simply escape the coverage of CROA by slightly changing the description of what they do from promising to "improve credit" to providing -- for example -- analyses and projections of a person's credit score. CROA's current strict prohibition against deception and fraud would no longer apply to that business.

The bureaus argue that the CROA was never intended to affect them. They claim that the Fair Credit Reporting Act (FCRA) provides a comprehensive enforcement scheme for credit bureaus themselves. They claim that the punitive damages exposure posed by CROA is unfair.

Consumer groups disagree, especially when the bureaus' proposed fix will probably make things worse for consumers. And even though the Financial Services Committee did approve HR 3997 with Section 6, no hearings were ever held, and the Senate has held none.

The marketing of credit monitoring services has always been tawdry, and the FTC has not seen fit to impose adequate penalties on the bureaus for misleading consumers about credit monitoring. [In 2005, the FTC did fine Experian a token $950,000 (essentially chump change) for deceiving consumers into thinking that credit monitoring was "free."]

Private enforcement is an effective deterrent that should not be undermined and Congress should not pass legislation that may gut a comprehensive law at the behest of powerful special interests.

That's especially true with credit monitoring. It doesn't stop identity theft, it simply makes money for credit bureaus.

We are getting so many machine-generated comments and trackbacks -- most either crude pornography or crude fraudulent business or health opportunities -- that we at this time, at least until we get new software with a better filter, are simply deleting all new comments. We apologize. Hope to solve the problem soon. Keep reading though!

The pliant federal bank regulator archaically known as the Comptroller of the Currency (OCC) has advised national banks that issue gift cards to at least have better disclosure rules regarding any unfair and anti-consumer practices associated with the cards. "It's a ripoff-- says so here!" MORE:

According to a recent study by the Consumer Affairs Department of Montgomery County, MD, bank gift cards are a worse choice for consumers than store-issued cars. They often impose fees that cause your gift to erode and expiration dates that erase it. Meanwhile, many states -- tired of gift card ripoffs, (Consumers Union fact sheet) have chosen to strictly regulate and ban unfair gift card practices, instead of saying they are OK as long as they are disclosed. Increasingly, national banks are partnering with businesses to issue their cards in efforts by the businesses to avoid strong state laws and hide behind OCC preemption. The OCC does try to make it clear that the relationship between the bank and the business must not be an artifice. States have been litigating the issue, especially with the multi-state mall owner, Simon Property Group. A recent federal court decision (AP story) has held that New Hampshire law is preempted because Simon mall gift cards are now apparently actually issued by a national bank; in a similar recent Connecticut case with Simon, Connecticut law prevailed. More news as we get it. Consumers-- the OCC suggests you can easily identify and avoid a second-rate bank-issued card because:

the gift card and the related disclosures, the cardholder agreement, and other documentation will specifically identify the bank as the issuer of the card (and) carries the logo of a payment card network such as VISA, MasterCard, or American Express.

Deanne Loonin of the National Consumer Law Center has released (27 July) a new report on credit card debt ensnaring the elderly. The Life and Debt Cycle (pdf) finds:

Older consumers generally hold less credit card debt than younger consumers. What is new is that elders are catching up. The average credit card debt for Americans between 65 and 69 years old rose a staggering 217% between 1992 and 2001, to $5,844. Not surprisingly, given these and other trends, elders are filing bankruptcy in record numbers.

Consumers who call corporations from A-Z, but starting with the big three A-B-Cs-- the Airlines, Banks and Credit bureaus -- are often left in a voice mail jail for what seems like the rest of their normal life spans. Some companies, such as the airlines, mostly leave you on hold. After all, you wouldn't be calling if you didn't have a question. Others that think they are 21st Century customer service stars leave you attempting to communicate verbally with a software robot that's really just a bad hack-- it's got a single-digit IQ and a single-digit vocabulary to go with it: "Why are you calling? ... Sorry, I didn't understand your question. Try again."

"Press 3 to shoot a Photon Torpedo into this "customer service" computer:" (We wish.) Most, however, place you in a Kafka-esque or, perhaps even medieval, torture "tree" of "press 2 now" choices that don't answer your question and don't seem to leave you with the option of finding your way out of the maze to speak to scarce humanware. Today's Wall Street Journal (subscription) in a story by Loretta Chao, Stuck in a Phone Tree: Some Companies Try To Make Escape Easier, reports that the website gethuman.com, which already "lists "cheat sheets" for hundreds of corporate phone trees, Tuesday will announce a campaign that encourages companies to ease the aggravation of using their so-called phone trees."

This week's Anchorage Press has a very nice cover story profile by Casey Grove -- Pushing for Change -- on Alaska PIRG's director Steve Cleary, shown here riding his bike to work.

While lawyers and politicians are often viewed as the successful ones, the ones who have made something of their lives, success can also be measured in terms of idealism and commitment. Sometimes the rebels don't tune the world out completely, living on the fringes and complaining about what could or should be changed. Sometimes they find a way to join the system without compromising their ideals, instead putting them to work.

[The consumers got their money back but] the real payoff for Meili was that vulnerable people who were taken advantage of got some justice. And for Meili and students at the Consumer Law Litigation Clinic he runs at UW-Madison's law school, justice for consumers is the top priority. "I have an interest in seeing justice done in the marketplace, and I see a lot of instances where it's not being done," said Meili...

Over at her Washington Post Consumer Checkout blog, Caroline Mayer talks about her most recent hassle with an airline (Northwest) that charged her an unfair fee (and misled her about it) and how such practices to make "bad profits" may turn around and kick the companies using them in the head, according to a recent book by marketing guru Fred Reichheld. From Mayer:

MORE:

Instead of trying to seek out that extra penny (or $10 per ticket in my case) companies should be trying to earn money by offering better service. Reichheld figures that a 5 percent increase in customer retention could yield a 25 to 100 percent improvement in profits. To achieve customer loyalty, and what Reichheld calls "good profits," companies need to ask their customers only this: "The Ultimate Question...How likely is it that you would recommend this company to a friend or a colleague?" In other words, companies and their employees need to treat their customers as they would like to be treated.

A few months ago I chronicled the hassles I went through (5 separate letters with copies or originals of package materials) to get 5 separate checks totaling $210 or so in rebates on a new laptop. Turns out that I did receive them all -- but what a pain. Over at the San Jose Mercury News, consumer columnist Dennis Rockstroh, in a blog item Death To Rebates! urges all consumers to walk away from products where the advertised price is contingent on rebates. Only then, he says, will the obnoxious rebate idea wither and die. He's got a point.

In a powerful straight-talking speech on a variety of issues that are important to him -- from better veterans' preferences in education to the need for the media and the public to not merely criticize the problems but to also recognize our successes and progress in Iraq -- it was significant that Major General Mike Lehnert, commander of Marine Corps Bases (West), spent some time condemning predatory lenders because of their impact on both military families and military readiness. Here's a brief excerpt: MORE:

With our Navy partners we are going after Pay Day Lenders. Pay Day Lenders are the parasites found outside of our military bases in Southern California who prey on young Marines and Sailors because the lenders know they are uninformed consumers.

Check out Jonathan Rowe's new blog entry Agents of Distrust over at On The Commons. He describes how buzz marketing (hiring "cool" people to drive certain cars, wear certain clothes, order certain drinks in bars, or even to read certain books on the subway) poses a real threat:

And when selling spills out of the traditional channels of commerce, and into our personal relationships, then the capacity to have those diminishes as well. All that's left is me. It is the ultimate triumph of the commercial values of the corporate state, because there is no refuge from them.

Tom Zeller's story today in the New York Times, Identity Thief Finds Easy Money Hard to Resist, describes the saga of one Shiva Brent Sharma, a convicted identity thief now in jail, who started phishing for money at an early age. He was just a computer-savvy kid -- a dime-a-dozen category -- but no rocket scientist, unlike these actual NASA rocket scientists at left. More:

From the Times:

He also suggested it all became too easy too fast. "The challenge was really stopping, you know?" he said. "That was the hardest challenge of them all."

In what is likely a calculated move designed to convince the FCC into granting an industry petition to preempt state laws regulating cell phone early termination fees (ETFs) as penalties, Verizon has announced (Washington Post) that it will reduce ETFs over the term of a two year cell plan contract. The gradual reduction doesn't solve the essential problem: ETFs prevent consumers from shopping for the best deals. This allows cell phone carriers to use a variety of unfair practices, knowing that their customers cannot afford to switch plans because they are essentially locked in a cell. MORE:

The PIRG report Locked In A Cell found that:

Nearly half (47%) of all cell phone customers would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn't have to pay an average penalty of $170 to cancel their service contract. The report also found that consumers have paid $4.6 billion over the last 3 years due to the penalties-- that's $2.5 billion in actual penalties paid and $2.1 billion in lost benefits from consumers who either couldn't afford the penalty or didn't think it was worth paying.

We filed the report to the FCC as a comment in its proceeding, and also filed joint comments with the National Consumer Law Center and Consumers Union in the same docket. The industry hopes that the FCC will classify the punitive ETF fees as rates, which would not be subject to state regulation. In a related docket, the FCC has issued a rule which is being challenged in court, that would treat other state regulation (truth in billing rules) as rates. We link to comments in both dockets here. Yesterday's Senate Commerce action on telecom deregulation -- if it becomes law -- would further limit state authority to protect consumers from unfair cell phone practices.

The triple-digit predatory payday lender Advance America is attempting to circumvent a tough new Pennsylvania usury law that had forced it to exit the state. According to a Pittsburgh Post-Gazette story by Patty Sabatini that's been picked up nationally by the AP, the company is hiding its punitive interest and finance charges inside a "participation fee." MORE:

From the Post-Gazette:

The new product, called the "Choice" line of credit, allows customers to borrow up to $500 for a monthly "participation fee" of $150. At the end of the month, the customer also owes finance charges equal to an annual percentage rate of 5.98 percent plus a minimum $20 principal payment.

"Pennsylvania law clearly prevents companies from charging that much to make small loans, whatever they decide to call the charges," said Jim Swoyer, a Public Interest Advocate. "This is just another cynical attempt to circumvent the Pennsylvania small loan and usury caps which prevent companies like Advance America from fleecing vulnerable consumers."

Gretchen Morgenstern's column Is This Game Already Over? in today's New York Times describes the horrors of securities law arbitration due to arbiter conflicts of interest. Along with numerous allies, we've got a coalition Givemebackmyrights.org that describes how these horrors extend to every aspect of consumer commerce. Your health insurance contract, your credit card account and your savings account, your car purchase and even your predatory payday loan may be legally subject to binding mandatory arbitration, a process that takes away your ability to hold sleazy corporations accountable in court.

I'm hearing a lot from consumers about debit card blocks leading to multiple $35 "courtesy overdraft" fees. And even though the banks promised the Senate Banking Committee last year that they weren't raising credit card interest rates on the basis of your credit score or alleged late payments to a different creditor, why am I getting so many letters about this? Until more consumers complain about unfair bank fees, or about their credit card company tripling their interest rates for no good reason, or about the mysterious small scam charges (often from a website sharing your credit card number with telemarketers) on their phone bill or cable bill, it will remain difficult for us to interest the coin-operated Congress into making changes that benefit consumers. Congress would much rather do favors for the companies that make those massive campaign donations. So, let us know when you're ripped-off. And send a copy of your complaint to your Representative and Senators. Most have email web forms at house.gov or senate.gov.

Yhe New York Times is reporting that the VA has admitted that its loss of the confidential information of over 26 million veterans "may have included information on as many as 1.1 million active-duty service members, 430,000 National Guardsmen and 645,000 members of the Reserves." The Washington Post says that the unprecedented data loss "raises concerns about national security as well as identity theft." From the Post:

"There is a global black market in this sort of information . . . and you suddenly have a treasure trove of information on the U.S. military that is available," said James Lewis, director of technology and public policy at CSIS. One defense official, speaking on the condition of anonymity because of the sensitivity of the matter, called the extent of the data loss "monumental."

That's PIRG's Athan Manuel with Shawnee Hoover of PIRG-backed ExxposeExxon at a news conference outside ExxonMobil's shareholder meeting in Dallas yesterday. Manuel leads PIRG's corporate campaigns against oil companies that either still want to drill in the Arctic National Wildlife Refuge, won't take positive stops against global warming or otherwise take arrogant positions against consumers and the environment. Manuel called ExxonMobil "a 'rogue company,' whose executives should pay the $4.5 billion in punitive damages from the 1989 Exxon Valdez oil spill."

Over at her Washington Post Checkout blog, reporter Caroline Mayer and several commenters have blogged on deceptive add-on fees for supposedly free e-mail trial offers. Often the fees are added on your phone bill. Never click on a "free offer" balloon on a website either, as we noted last year in a blog about complaints from online Ticketmaster shoppers over websites sharing credit card numbers with third parties.

I've often said that owning a credit card company is a license to steal. Somnolent federal regulators and a disinterested Congress let you gouge consumers nationwide with usurious interest rates and fees while you hide out in a state like Delaware or South Dakota with no consumer protection laws worth writing home about. MORE:

For example, you can also change the rules at any time for any reason, including no reason. Credit card banking is (according to the Fed) the most profitable form of banking.

But it now looks like the bankers actually need to work -- at least just a little -- for their money, which usually means new tricks will be coming soon to take more money from customers and merchants. A Page One story in the Wall Street Journal on May 25th by Robin Sidel, Credit-Card Issuers' Problem: People Are Paying Their Bills (paid subs. req.), reports:

Although consumers are using plastic for more of their daily purchases, they are giving card issuers fits by juggling their debts more shrewdly. When cardholders are hit with high interest rates on one card, they routinely transfer balances to new cards at lower rates. And in recent years, as real-estate values soared and mortgage rates fell sharply, more consumers wiped out credit-card debts altogether by borrowing against their homes.

Although it was not reported widely, on Tuesday, Senate Banking Committee Chairman Richard Shelby asked Fed Chairman Ben Bernanke whether we needed better laws to tell consumers how much credit card debt they are ratcheting up and how long it will take (in months and years, and for some, in eras and eons) to pay it off when they only make the minimum payment. Kudos to Chairman Shelby. From CFO Magazine:

Bernanke, who told senators that the Fed is reexamining the Federal Deposit Insurance Corp.'s consumer-protection rule, Regulation Z, to see that lending fees and terms are fairly represented, was pressed on this point by committee chairman Richard Shelby (R-Ala.). Shelby asked whether the Fed could compel credit-card issuers to include a warning on statements about how long debt would linger if only the minimum payment were made, "Or is legislation necessary?"

After that Senate hearing, a TV news talk show scheduled me to debate a banker on the issue. They called back the next day to cancel. Reason: Even though Washington is awash in financial industry lobbyists and their sundry PR flacks, no banker wanted to talk about excessive credit card debt or deceptive credit card practices. Imagine that.

This week New York Attorney General Eliot Spitzer amended his H&R Block lawsuit after announcing he has new evidence that senior management had "steam-rolled conscientious employees who objected to the fact that clients were losing money" on the firm's Express IRAs marketed as an add-on to tax preparation. Also this week, in a speech to the American Bar Association Tax Section, IRS Taxpayer Advocate Nina Olsen generally backed the view of PIRG and other consumer groups that current tax privacy protections are weak, and should be strengthened more than a proposed rule would accomplish. More:

In response to the current interpretation that if a consumer consents, he or she can be sold an over-priced triple-digit APR Refund Anticipation Loan or an under-performing IRA, Olson says:

It is my personal opinion that taxpayer consent to use or disclosure of tax preparation information should be limited to only those instances where it is necessary for tax-related purposes. I believe the regulations should define what purposes are "tax-related." I do not believe that releasing tax return information for purposes of obtaining a Refund Anticipation Loan -- or RAL - is "tax-related." I do not believe that releasing tax return information to a bank --whether affiliated or unaffiliated with the preparer -- in order to obtain an IRA or other retirement account is "tax-related."

[Update: fixed url, 2/07] The Wall Street Journal reports today in Costly Textbooks Draw Scrutiny of Lawmakers (pd. reg. req.) that state and federal lawmakers are taking notice of the Student PIRG Maketextbooksaffordable.com campaign to lower skyrocketing textbook prices, which have risen at twice the rate of inflation, according to the GAO. From the WSJ:

Virginia and Washington have enacted laws designed to make textbooks more affordable, and lawmakers have introduced similar bills in 10 other states.

In yet another story on how the airlines want to squeeze every dollar out of every flight, the New York Times reports that One Day, That Economy Ticket May Buy You a Place to Stand. According to the story, Airbus

"has been quietly pitching the standing-room-only option to Asian carriers, though none have agreed to it yet. Passengers in the standing section would be propped against a padded backboard, held in place with a harness, according to experts who have seen a proposal."

A new survey (report in pdf) by our colleagues at Center for Responsible Lending finds that $7.3 billion of over $10 billion in bounced check fee income comes from repeat borrowers-- just 16% of all people who bounced a check accounted for nearly 3/4 of the revenue.

-- Repeat users are more often low-income, single, non-white renters.
-- Repeat users are in effect using the overdraft loans as an expensive substitute for a line-of-credit, and are paying fees that can be as costly as payday loans.

For years, we have urged Congress to force credit card companies to tell us the truth -- right on our monthly bill -- about how long it will take us to pay off our credit cards, if we only make the requested minimum payment. A study for Senator Daniel Akaka (D-HI) by the Government Accountability Office (GAO) released today finds that over half (57%) of consumers who carry credit card debt (revolvers) want customized disclosures; two-thirds of revolvers (68%) would find these disclosures "very useful." A customized disclosure would change each time a consumer made a payment. Unfortunately, the new bankruptcy law only requires a generic, industry-approved disclosure. We have more information about years to pay here at our truthaboutcredit.org site.

What good is a right without a remedy? Increasingly, as consumer advocates, we fight the real threat that Congress will enact meaningless new laws without remedies, or that corporate lobbyists will convince Congress to dismantle previous remedies. Now, companies are trying to take away protections from whistleblowers. In a story, Whistle-Stop Campaigns, in today's Washington Post, Kathleen Day reports that "some firms are trying to limit protection of workers who expose wrongdoing."

Especially over the last thirty or more years, Congress has enacted a series of whistleblower protection statutes designed to protect government workers (including government contractor employees) who step up to expose government or corporate malfeasance or corruption. Day explains why the important Sarbane-Oxley Corporate Reform Act of 2002 (SOX), enacted in the wake of the massive Enron and Worldcom scandals, included whistleblower protections for corporate employees as well:

So when Congress passed the 2002 Sarbanes-Oxley Act with the goal of protecting investors, it included sweeping provisions to encourage employees to blow the whistle on corporate wrongdoing by shielding them from retaliation. Now those provisions are being tested, with attempts underway to narrow the scope of the act. This is troubling to the bill's supporters, who view whistle-blowers as a first line of defense for investors, fellow employees, retirees and ultimately the public at large, who could all benefit if a problem is uncovered before it causes major damage or ruin. Folks who trudge to the office each day without thought of becoming a gadfly may one day land in a situation in which their consciences require they act.

Even with whistleblower protections, winning a case is a big lift. SOX requires whistleblower complaints to go first to a Department of Labor review board. According to the Post story, of 750 complaints since the law took effect, only 4 whistleblowers have won and these cases are all on appeal:

The vast majority of these cases have been thrown out. Fewer than 100 have been settled. And only five whistle-blowers have won, though that number dwindled to four last summer, when the agency's administrative review board overturned a case on appeal. Companies have appealed three of the remaining four to the board, whose handful of judges so far have not decided an appeal in favor of a whistle-blower.

To limit the scope of the law, companies claim it only applies to certain types of allegations of lawbreaking, but not all. Others require employees to take claims to mandatory arbitation (our coalition website Givemebackmyrights explains the problems consumers, employees, small businesses and farmers face in their contracts with large special interests) instead of to court. In one case, the "allegation clearly is covered by the Sarbanes-Oxley Act, [a] court held, but that doesn't override the contract the worker signed agreeing to take complaints to arbitration."

The attack on whistleblowers is only part of the U.S. Chamber of Commerce's orchestrated attack on the broader Sarbanes-Oxley Act. And that attack is only part of the general corporate attack on consumer and employee rights generally. At the behest of powerful corporate interests:

-- Congress frequently enacts laws with no private right of action (the right of an aggrieved consumer to enforce the law by bringing a lawsuit against a violator).
-- Congress and state legislatures often cap the damages available to victims, who deserve adequate compensation for their injuries. Moreover, this threat of large punitive damages deters corporate misconduct in the first place.
-- While passing only weak laws itself, Congress is increasingly preempting state authority to enact stronger state laws.
-- Congress is also, in a relatively new assault on strong protections, restricting the right of state attorneys general to enforce federal consumer laws. That leaves consumers at the mercy of captive federal regulators, like the national bank regulator known as the Office of the Comptroller of Currency, which has rarely met a big bank it didn't like and protect.
-- Following issuance of OCC's sweeping rules limiting state protections in 2004, other Bush Administration agencies are scrambling to be the next kid on their block to protect powerful special interests from strong state consumer laws (more information here and here).

A little history, for those interested: Corruption isn't a new problem. The original whistleblower statute is the federal False Claims Act. It was enacted during the U.S. Civil War to counter a series of scandals over corrupt government contracting.

The derogatory term "shoddy workmanship" is derived from shoddy, the name of the cheap wool uniform fabric "described in a factual article in Harper's Monthly at the time as "a villainous compound, the refuse stuff and sweepings of the shop, pounded, rolled, glued, and smoothed to the external form and gloss of cloth, comprised of felt scraps glued together," that fell off the soldiers in pieces, "dissolving into their primitive elements of dust under the pelting rain" (Source, Civil War Definitions).

The False Claims Act is also known as the Qui Tam Law. It allows successful whistleblowers, as an incentive to come forward, to keep a share of the recovery. According to the consumer lawyers at Mehri and Skalet,

"qui tam" is an abbreviated Latin phrase that means "he who sues on behalf of the King as well as for himself." Qui tam plaintiffs are individuals who bring cases on behalf of the federal government, as well as for themselves.

If you are a government employee seeking to understand your own whistleblower rights, go first to the Government Accountability Project's Whistleblower.org pages. GAP's summary of SOX is here.

Internet and broadband visionary Jeff Chester of the Center for Digital Democracy has a new blog. He's got a nice piece on AT&T setting up a front group to kill Congressional efforts to keep the Internet free and its hiring of former Bill Clinton frontman Mike McCurry to front for them. Jeff forcefully makes the point that McCurry's work for AT&T is against the interests of many of the current or past grassroots clients of his other enterprises, including the ACLU, Sierra Club, Campaign for Tobacco-Free Kids, and MoveOn. More:

AT&T/SBC has made no secret that it wants to hijack the Internet, set up tollbooths and eliminate all pretense of its Net Neutrality principle that has helped stimulate both technological innovation and small-d democratic communication by citizen groups. As Jeff Chester points out:

Ironically, McCurry's work on behalf of AT&T will ultimately harm many of the non-profit and public interest clients who work with Grassroots Enterprise and the Public Strategies Group. Among the clients listed at McCurry's various firms include the ACLU, the Campaign for Tobacco Free Kids, Sierra Club (MoveOn.org is listed on Grassroots Enterprise website claiming that the firm's leadership team played a key role with the group).

If McCurry's "coalition" has its way, there will be a threat to civil liberties as a few control the Internet (hello, ACLU); more targeted ads promoting unhealthy lifestyles targeted to kids (please take note, Tobacco-Free Kids); an explosion of commercialism and consumption that will further wreck the environment (the Sierra Club and other such groups should be outraged); and an Internet where only big bucks will ensure you can sway voters (which should alarm MoveOn and all other groups concerned about the future of the Internet in politics).

The PIRG-backed Americans for Insurance Reform has a new report (release) attacking the insurance industry for its poor Hurricane Katrina response:

The case studies contained in The Insurance Industry’s Troubling Response To Hurricane Katrina, were gleaned from hundreds of calls that came into AIR’s Katrina Insurance toll-free hotline, established on September 12, 2005. This unprecedented hotline allowed AIR to monitor complaints, refer them to government officials where appropriate, and keep records of hurricane-related insurance problems.

I'm scheduled to appear on a live call-in edition of C-Span Washington Journal tomorrow, Saturday morning, 7 January from 9:30 am - 10 am, Eastern, to talk about rising credit card minimum payments. Then, I'll be talking about the same issue on CNN In The Money Saturday afternoon at a little after 1:30 or so for a segment (show is 1-2pm Eastern) and then the CNN show repeats Sunday at 3pm.

I'll put up up a longer post on this issue-- but here's the short version: Banks have raised minimum payments in response to regulatory action (previous blog) but have not been required to double them from 2 to 4% of the principal owed. The basic regulator rule is that minimum payments must include all new finance charges (interest) and any penalty fees, and must also reduce your principal by 1%. This will result (with no penalty fees) in an increase in payments, but nowhere near a doubling. Over the last twenty years or so, to increase profits from interest payments, most banks reduced minimum payments to about 2%, with the kicker that new interest was included. So, if you had a penalty interest rate of 24% APR, which computes to a 2%/month interest rate, your payment equals only your new interest, and there is no reduction in principal. Under this new rule, there will at least be some reduction in principal every month. You're still much better off paying more than the minimum -- pay as much as you can afford, if you cannot afford to pay the full balance each month.

The Seattle Times has a story Sunday Credit-card rule changes may break your back with a much stronger emphasis on credit card tricks.

Among credit-card disadvantages for consumers: One card can have several interest rates at one time. And terms of your cards can change at any time based on how you pay your other bills. "Credit cards offer convenience, credit cards offer emergency life preservers," said Ed Mierzwinski, a consumer advocate with WashPIRG's national office. "If you start to use your credit card for daily expenses, and you start paying for pizza at 18 percent interest — do the math."

The New York Times has a story today-- Credit Cards With Rewards Are Worth a Look. For 40% of you who are convenience users and do not ever carry a balance-- yes, get the miles, get the rewards, whatever. For the other 60% of you -- who carry a balance -- bad idea. The story does have one sentence, buried deep, explaining this caveat: It makes no sense to borrow money at an interest rate of 12 or 25 percent a year to get 1 percent back. Most of these rewards cards give higher rewards for regular household purchases than for travel purchases, which is another red flag for consumers who carry a balance. Don't run up credit card debt at the grocery store-- live within your means. For more information about credit card tricks, see our truthaboutcredit.org pages.

Over at the Orlando Sentinel, reporter Richard Burnett had a nice story recently, Ties That Bind, on the growing use of binding mandatory arbitration in consumer contracts.

Americans are discovering that they live in a nation of arbitration -- and many are not too happy about it. Whether buying a home, applying for a credit card or financing a new car, consumers who read the fine print are likely to find a clause in the sales agreement that requires them to waive their right to sue if a dispute arises. Instead, they must take their complaint to binding arbitration.

Consumer attorney/advocate Carl Mayer successfully sued long distance firm MCI in Small Claims Court for continuing to bill him after he cancelled service. But they won't pay up on his default judgment of $2,893. Here's his letter to a corporate scrooge from his blog. Excerpt:

MCI apparently routinely engages in illicit conduct without the slightest worry that the costs of getting caught would outweigh the benefits of continuing the conduct. The recently released (December 14, 2005) national Corporate Reputation Survey by Harris Interactive Polling revealed that Americans still consider MCI one of the least trustworthy and most unethical corporations in America today.

Banks like to claim they're the only victims of identity theft. Wrong. Yesterday, NJPIRG Consumer Attorney Abigail Caplovitz gave identity theft tips on the Montel Williams TV show. Watch for it in reruns. The other guests were victims of criminal identity theft who were wrongly identified as criminals. From Montel's show description:

One night Lori was at home with her twins cooking dinner when there was a knock at the door. The police ransacked her home, took some of her belongings, handcuffed her in front of her young children, and she sat in jail for two days.

We're quoted in a USA Today story today on banks raising credit card minimum payments. Consumers opening their bills next month may face sticker shock as their minimum payment due could double (if their bank hasn't already complied with a new regulatory requirement). While we strongly support the notion of paying more on credit cards, it's shoddy and embarassing that the regulators have allowed some banks to wait 3 years to comply at the last minute with the new requirement instead of urging them to raise payments gradually over the three year period. Our recommendation: Never pay the minimum on your credit cards. If you can't pay the full balance, always pay as much as you can afford, and pay as early in the month as possible to avoid late fees and penalty interest rates. Here's more:

Three years ago the bank regulators finally became shocked, shocked! at skyrocketing credit card debt (now $800 billion and rising) and ordered banks to raise minimum payments, within three years. Consumer debt had increased -- seemingly exponentially -- due to banks luring consumers onto a perpetual debt treadmill with lower and lower minimum monthly payments -- most at around 2% (or a little more) of the principal owed. With credit card interest rates for many consumers at 24-30% APR, or 2% to 2.5% per month, making that 2% minimum payment literally meant either never gaining ground or actually losing ground. Losing ground? When your interest is 2.5% each month and your payment is 2%, the amount you owe goes up, not down. It's called negative amortization and is entirely inappropriate for most credit card customers.

If you owe the credit card company $5000 at 16% APR and make 2% minimum payments, it would take you 26 years to pay off the card if you never used it again. More here.

In a recent speech to consumer advocates, the nation's chief credit card regulator, John Dugan, Comptroller of the Currency, said that he expected banks to work with consumers who can't make the new increased minimum payments:

...let me make one point perfectly clear. We recognize that the change in required minimum payments will make it more difficult for some existing credit card borrowers to pay the full amount of the increased minimum payments due. We have encouraged lenders to work with these borrowers to the maximum extent possible to avoid writing down the loan and cutting off the customer’s credit. Lenders have a variety of tools to do this, including restructuring or deferring payments and, in appropriate circumstances, re-aging accounts. In addition, lenders always have the option of reducing high interest rates charged to delinquent borrowers – sometimes exceeding 30 percent of the outstanding loan balance – and/or waiving fees in order to reduce a minimum payment while still amortizing a modest amount of the outstanding principal.

By the way, I was shocked, shocked, yet again, to find a clear explanation of what is going on with minimum payment increases, including examples, at the MBNA credit card company website. Usually the credit card companies make things as murky as possible.

Watch for future blogs about the implementation of new credit card disclosures about minimum payments, which will be appearing soon on your monthly statements as required by the recently enacted bankruptcy law. They're industry-approved, rather than what we wanted. We had hoped that the new law would require two new boxes to appear on your statement-- one to say how many years it would take to pay off your card if you stopped using it while still making required minimum payments and one to say how much interest would accumulate over that time. We got a more generic, less useful, disclosure, of course. More to follow.

The new regulator guidance requires minimum payments to result in a payoff of the principal within 5 years. In practice, this means a payment of about 4% (instead of 2%) of the principal, plus finance charges and any penalty fees. Note that the guidance does not specifically require a 4% of principal payment, it requires that payments result in a reduction of current principal to zero over 5 years (presuming the card is not used any more). Effectively, that means payments must cover accumulated interest and penalty fees and also reduce principal by 1% per month. As a rule of thumb, a payment of 4% of the amount due (plus fees) meets the 1% reduction in actual principal to zero over 5 years goal.

With some help from the band the Austin Lounge Lizards, our colleagues at Consumers Union, publishers of Consumer Reports, have released a new webvideo and song It's Always Christmas Time for Visa. Watch it and take action to tell Congress to fix the credit card laws. PIRG's credit card reform pages are at truthaboutcredit.org.

A new report (here's the html release and the report in pdf) by the Montgomery County (MD) Office of Consumer Affairs compares gift card terms and ranks bank cards much worse than store cards: Excerpt:

Some of the other bank cards carry fees that become scary. The iCARD Visa Gift Card imposes a $25.00 maintenance fee after six months and then it expires a month later. It will cost at least $25.00 to get the balance refunded by check and can cost up to $75.00 if one waits over two years to request a refund. The processing charge to purchase All-Access Visa Prepaid Card and the Good2Go MasterCard is $9.95 and both of these cards offer confusing options during online activation that could end up costing consumers a lot more.

Today, Oregon PIRG released a new report documenting the growth of the predatory payday lending industry in Portland.

Payday lenders charge consumers a staggering average interest rate of 521% in the City of Portland, [and] nearly half of the lenders surveyed are not even complying with the most basic requirement to post annual percentage rates (APR’s) where customers can easily read it.

Here's a link to a new blog criticizing a Netflix class action settlement, which I wrote a week ago, but erroneously posted to draft, so it's kind of hidden behind the latest blogs.

Tom Zeller's latest piece in the NYTimes, (free reg. req.) Ghost In The CD, details how Sony's attempt to copy-protect new music CDs has opened the door to malicious hackers spreading worms across the Internet through supposed anti-piracy Digital Rights Management programs that Sony chooses to install on your computer if you simply choose to copy and play your own legally-purchased music product.

At least two Internet-borne worms were discovered attempting to take advantage of the program, which the CD's transferred to computers that played them. And the company was facing lawsuits accusing it of fraud and computer tampering in its efforts at digital rights management, or D.R.M.

[Update 2/07-corrected bad url] As a Netflix subscriber, I received email notice of a proposed class action settlement over alleged deceptive advertising of the quality of its service (Netflix is an online movie rental company). These are the kinds of settlements that make it harder for advocates to defend civil justice rights than it should be.

Netflix is alleged to have:

failed to provide "unlimited" DVD rentals and "one day delivery" as promised in its marketing materials. Netflix has denied any wrongdoing or liability. The parties have reached a settlement that they believe is in the best interests of the company and its subscribers.

Class action lawsuits are critical tools in the consumer arsenal against unfair conduct. When individual losses are small, but the overall harm is great, the class action mechanism allows many consumers who otherwise couldn't afford individual representation to band together to seek justice.

But class action lawsuits should result in court decisions or settlements that end the illegal conduct and act as a deterrent against others doing the same, should punish the violators and should compensate the victim class.

In the Netflix case, the proposed settlement essentially says this: Netflix will clarify its marketing and the lawyers who sued them will get up to $2.5 million.

What about the millions of Netflix customers? What do we get? Millions of dollars, too? I don't think so.

you are eligible to receive a free one-month upgrade in service level. For example, if you are on the 3 DVDs at-a-time program, you will be upgraded to the 4 DVDs at-a-time program for one month.

After the benefit period ends, the new or upgraded level of service will continue automatically (following an email reminder) and you will be billed accordingly, unless you cancel or modify your subscription. You can cancel or modify your subscription at any time.

For many years, the worst class action settlements have involved similar coupons, or certificates, good only for discounts on purchase of future products from the company that allegedly broke the law.

But this is a bad mutation of a coupon and a coupon is bad enough to begin with. It isn't just a discount, it's a discount tied to a free-to-pay scheme. To take advantage of the super-duper one extra video at home at any one time benefit, consumers must enroll in a so-called "free-to-pay" agreement.

It's a coupon that keeps on taking: unless you affirmatively cancel, your credit card will be billed. Netflix could actually end up increasing its revenue due to this settlement, and could end up making a lot of consumers unhappy when they get their credit card bills.

When you agree to a trial offer where a company already knows your credit card number, and it is up to you to cancel, such a conversion transaction is known as a "free-to-pay." It's such a one-side transaction that when the FTC amended its telemarketing rules, it didn't simply create a Do-Not-Call list. Here's how FTC requires telemarketers to obtain consumer consent when they offer a free-to-pay transaction:

In transactions involving pre-acquired account information and free-to-pay conversion offers, a company can obtain "express informed consent" only by doing all three of the following: 1) obtaining the consumer's express agreement to be charged using a particular account number; 2) re-quiring the consumer to recite at least the last four digits of the account number to be charged; 3) making an audio recording of the entire telemarketing transaction not just a verification after the initial sales pitch.

[In a similar case, the FTC recently ordered the credit bureau Experian to pay a $950,000 fine plus restitution for a very deceptive free-to-pay offer (See previous blog).]

The National Association of Consumer Advocates, a respected association of consumer attorneys, advocates and law professors, has a proposed revision of its Guidelines for Litigating Consumer Class Actions. We recommend it. See especially pages 9-10, on certificate (coupon) settlements. [You can also comment on the revision, through February.]

As for this settlement, it's not final. It could still be objected to and it could still be modified. I make no comment on whether Netflix deceived its customers as I haven't studied all the case documents. But I have read the proposed settlement documents and am not impressed.

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.

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.

U.S. PIRG and other leading financial advocacy groups have sent letters to the House Financial Services and and Senate Banking Committees urging and detailing a plan of Katrina relief for the actual victims of Katrina. Meanwhile industry lobbyists of all stripes are bellying up to the Congressional trough looking for corporate welfare-- we can only hope that Congress helps the people who lived in the path of the hurricane first, and then rejects the various industry demands for consumer law waivers and corporate pork handouts.

One reason we all pay too much is because bank fees are bundled into the price of everything anyone buys, whether we use credit/debit cards or plain old cash. Over the last few years the banks' dirty little secret -- that they make a whole lot of money both coming (from us) and going (from merchants) on credit and debit cards -- has started to come out into the open. Today in the Washington Post Margaret Pressler describes (free registration req.) how bank revenue is increasing dramatically-- just because the price of gas has gone up so much.

"Since last year, the fees that gas stations paid to credit card companies have risen 64 percent, right along with the price of gasoline."

Consumers certainly know about double-dipping ATM surcharges (our StopAtmFees.com site is here), piled on top of the "foreign ATM" fee your own bank charges you to use another's ATM and shares with the ATM owner.

But the banks also take a percentage fee from the merchant of up to 1-2% on every credit transaction (using either a credit card or a debit card without a PIN) and somewhat less on every PIN-based debit transaction. Buy something for $100, the merchant may only get $98-- all prices for everything you buy with cash or credit, wherever a merchant accepts plastic, reflect this significant cost. It's called either the interchange fee or the merchant discount-- retailer lobbyists have told me that after the cost of goods sold (their products), it's often their largest cost-- more than rent, more than salaries, more than utilities. It's why some small merchants refuse to accept cards with high merchant discount fees; others insist on minimum purchases, even though requiring minimums supposedly violates their agreements with the card companies.

As banks drive us to use ATM debit cards (e.g., adding Rewards features) instead of cash, merchants have increased the heat on the banks, which so far refuse to show any quarter unless forced by a court.

When an ATM card is used without a secret PIN, it is treated as a credit transaction and the merchant fees are higher. That's why grocery stores hope you'll choose debit, not credit (note that their machines are generally programmed to default to debit). That's also why the banks steer you the other way. Some banks impose a consumer fee when consumers use debit cards with a PIN. They hit you with a 75 cent stick hoping you'll take the carrot of a "free" PIN-less transaction. NYPIRG has studied the PIN-debit fees in detail.

The practice affects all merchants, even Wal-Mart. This summer, several groups of smaller retailers filed class action lawsuits against the credit card associations Visa and Mastercard over their interchange fee practices. Stacy Mitchell of the Institute for Local Self-Reliance explains the issues here, particularly the banks' practice of charging all retailers too much, but small retailers even more:

Unlike other products where there are legitimate cost savings from dealing in larger volumes, that is not the case with credit card transactions. "It costs exactly the same for Visa to have a link with the merchant processor for a small retailer as for it to have a link with the processor handling Wal-Mart's transactions," said [former FTC anti-trust expert David] Balto [counsel for the retailers].

The suits follow on the heels of a recently completed multi-billion dollar settlement over so-called "honor all cards" rules (if you take credit, you must take PIN-less, or signature, debit) in a recent class action (with all retailers eligible to join the class) with Wal-Mart as the named plaintiff. The settlement and the history of the case are explained to potentially eligible merchants here.

Some time ago I saw an industry newspaper ad for a conference. The event's title: Fee Income: The Holy Grail. They weren't kidding. As Pressler details in the Washington Post:

"So a year ago, when gas prices averaged $1.87, banks involved in credit card processing made about $12.5 million a day on fees. Now, with prices averaging $2.75 nationally, the credit card companies are raking in $18.4 million a day. That is $183 million more a month, or nearly $2.2 billion dollars on an annual basis in extra money paid to the nation's banking giants just because of rising gasoline prices."

Here's a previous blog that discusses both Rewards and the practice of debit card blocking, an extremely unfair practice.

Finally, the vast bulk of these revenues and accompanying profits accrue to the very largest banks, since they dominate both credit and debit cards/

The Washington Post's Michelle Singletary reports today (free reg. required) on the hazards of flooded cars entering the market.

Insurance companies "total" these cars and allow them to be re-sold for salvage or parts, but unscrupulous car dealers launder their titles and attempt to re-sell them at auction to unsuspecting consumers. The process of laundering involves transferring the cars between states, so you could be living almost anywhere and be sold a flooded vehicle. These cars have had their computer technology soaked, meaning brakes, airbags and other critical safety equipment may fail. Of course other electrical parts may fail also, costing you big bucks for repairs. Clarence Ditlow of the Center for Auto Safety, in a recent AP story on the problem, calls for a

"mandate [that] the words "flood damaged" be placed on certificates of title of all flooded vehicles. He also wants to require that "flood damaged" markers be placed on doorjambs of affected vehicles. The sale of all used cars should include disclosure sheets listing any known problems, he said."

The Consumer Federation of America, U.S. PIRG and numerous state and local groups are urging the Senate (our letter) to support Senator Elizabeth Dole's (R-NC) critical amendment to the Defense Authorization bill, S 1042. The Dole amendment would restrict loans to military and their families to an annual interest rate of 36% APR.

As our letter notes:

"Such a limit would make sense in any case, but now it is critically needed, first, because this is a time of war, and second, because predatory lenders are targeting young military families, entrapping them in lending schemes that strip them of their hard-earned pay at annual interest rates of 400% and higher."

I'm speaking Sunday (9/11) on a panel on federal preemption of stronger state laws at the annual conference (agenda) of the North American Securities Administrators Association (NASAA) in Minneapolis. Hint: we support the state enforcers in their efforts to prevent the powerful Wall Street lobby machine from eliminating their authority to protect investors.

You can listen to a nice NPR interview (9/8) with our privacy colleague Evan Hendricks of Privacy Times warning of identity theft threats to Katrina victims. For more info on id theft, see our pages or the FTC.

The state PIRGs have set up a Katrina webpage with links to reputable sites where people can make donations. Please watch out for Katrina scams! Report possible Katrina fake charity scams, as well as evidence of price gouging by gas stations or others that may be in violation of your state laws, to your state Attorney General. Our webpage also includes information on environmental contamination threats, energy conservation and other issues.

A few weeks back we released "Locked In A Cell," describing how cell phone companies use early termination penalties averaging $170 to prevent consumers from canceling their wireless phone service. Turns out that the powerful Internet provider AOL had a different but related trick up its sleeve.

AOL was providing bonuses to its employees to prevent consumers who called to cancel from canceling. Says NY Attorney General Eliot Spitzer in a settlement announced today: "These bonuses, and the minimum "save" rates accompanying them, had the effect of employees not honoring cancellations, or otherwise making cancellation unduly difficult for consumers." AOL is doing away with the bonuses and related quotas, paying the state of New York $1.25 million in penalties, and offering refunds to New York consumers.

UPDATE: Corrected old urls: 2/07] [A few comments before the actual news release: (1) See also our related recent blog entry on "free to pay scams. (2) Note also that the FTC cites a complaint by EPIC's Chris Hoofnagle (his blog) that helped lead to this settlement." (3) See PIRG's identity theft website for more information on how to avoid these scams.]

FOR IMMEDIATE RELEASE 16 Aug 2005
CONTACT Ed Mierzwinski, 202-546-9707x 314

Statement of U.S. PIRG Consumer Program Director Ed Mierzwinski on FTC Settlement with Experian over Deceptive Free Credit Report Offers

“While we wish the penalty imposed on Experian were much higher than $950,000, we hope that this important FTC settlement serves as a wake-up call to credit bureaus and others that preying on consumers seeking their government-mandated free reports is wrong and will be punished. Experian deserves greater punishment for three reasons:

First, Experian took advantage of consumers scared of identity theft and credit reporting mistakes. These two major problems are partly caused by sloppy practices of Experian and the other credit bureaus, so Experian shouldn’t be allowed to run a kind of protection racket based on its inability to do a better job keeping credit reports accurate and safe from use by thieves.

Second, Experian stooped so low as to take advantage of consumers seeking to invoke government-ordered rights to get credit reports for free and tricked them into paying for its own over-priced and unnecessary credit monitoring service.

Third, Experian used the widely discredited trial offer gimmick known as “free to pay.�? Consumers thought that they were receiving their government-mandated free credit reports, but worse, they were instead signing up for a deceptive trial offer for an over-priced credit monitoring service that required them to cancel or be billed $79 or more.

For these reasons, we commend the FTC for its important action and for alerting consumers about numerous other scam sites offering free credit reports. Because Experian, however, is one of the nation’s largest credit bureaus, and has been fined for violating credit reporting laws before, it should have been punished more harshly for its abuse of the public’s trust.�?
-30-

U.S. PIRG is the national lobbying office for state Public Interest Research Groups, which are non-profit, non-partisan public interest advocacy organizations. U.S. PIRG’s consumer website is www.uspirg.org/consumer

Send us consumer ripoff stories

We want to know your consumer complaints. Post a comment!

Burned by late fees to your credit card company? Driven nuts by the fees and charges on your your cell phone bill? Treated badly by store or Internet customer service? Paid a $35 bounced check fee for a $5 overdraft? Has your bank failed to reimburse you for debit card fraud? Ma Bell won't delete that scam telemarketing charge? What else? Post a comment!

Last night, we appeared in a DC Fox-5 (WTTG) investigative story (transcript) exposing how web sites share credit card numbers with third parties and the third parties bill the credit cards for products the consumer didn't knowingly order. It's an old scam that's moved from telemarketers to the Internet.

According to the story, one of the victims bought a ticket from Ticketmaster.Com, then clicked on a "Rewards" popup, looked at the site that appeared -- thought "No Thanks" -- and then left it. Some time later she found that her credit card had been billed. In small print on the first site, she'd allegedly "agreed" that if she clicked the popup her credit card would be billed for a trial offer for a $7/month club under terms described partly on the screen. The small print, supposedly buttressed by more small print in the "Privacy Policy" and "Terms and Conditions" pages apparently told her that Ticketmaster could share her credit card information with the rewards firm if she used the site to buy a ticket. Two other victims had stories about other web merchants in the Fox piece, called "Terms and Conditions."

Identical scandals associated with so-called "free-to-pay" scams by telemarketers (some obtaining the information not from merchants but, incredibly, from regulated banks), resulted in hefty regulatory activity. "Free-to-pay" means a trial offer-- where you must cancel your credit card within a certain period of time or you are billed. The problem is exacerbated where a consumer hasn't given out his credit card number in the first place and is unaware that the telemarketer has it. State Attorneys General call this "pre-acquired account telemarketing" and it turns a purchase upside down. If you haven't given out a credit card number or handed anyone cash, how you have entered into a transaction?

After pressure was brought by state Attorneys General (their comments), the Federal Trade Commission amended the Telemarketing Sales Rule (TSR) prohibiting telemarketers from billing consumer credit cards in a similar way. The telemarketers are now required to ask consumers to read back at least part of their credit card number as a way of documenting that they have actually agreed to a transaction.

As the AGs argued in their comments to FTC: "The essential characteristic of [preacquired account telemarketing]is the ability of the telemarketer to charge the consumer’s account without traditional forms of consent."

So, in its final rule, the FTC said the following, for telemarketers:

"(i) In any telemarketing transaction involving preacquired account information and a free-to-pay conversion feature, the seller or telemarketer must: (A) obtain from the customer, at a minimum, the last four (4) digits of the account number to be charged;(B) obtain from the customer his or her express agreement to be charged for the goods or services and to be charged using the account number..."

Now we need a similar rule for the web that is based on real understanding and real consent, not simple clicking.

We want to know your consumer complaints. Post a comment!

Burned by late fees to your credit card company? Driven nuts by the fees and charges on your your cell phone bill? Treated badly by store or Internet customer service? Paid a $35 bounced check fee for a $5 overdraft? Has your bank failed to reimburse you for debit card fraud? Ma Bell won't delete that scam telemarketing charge? What else? Post a comment!