Current Events in August 2001

August 28, 2001
Online currency company Flooz.com has ceased operations, fired its staff and says it will file for bankruptcy protection. The company had closed its online gift certificate operation earlier this month and has been trying to arrange a merger or sale of the business since then.

CEO Robert Levitan blamed "dramatic changes" in the capital markets and the slowdown in the economy. But the company has long had other problems as well, including mounting complaints from consumers and major losses due to credit card fraud.

Flooz basically sold online currency that could be used as a gift certificate at any of its partner sites, including Barnes & Noble, J. Crew and many others. With the site offline, the currency is valueless and gift certificates are no longer redeemable.

What Can Consumers Do?
Flooz customers who paid by credit card should immediately contact their credit card issuer to dispute the charge. One major credit card company has already put a hold on $1 million in Flooz funds to handle disputed charges.

To dispute a charge, consumers should call the customer service number listed on their card and also follow up with a certified, return receipt requested letter setting forth the facts of the dispute. The letter should include account numbers, transaction dates and amounts and any transaction numbers. It doesn't hurt to mention that dispute letters should be brief and factual, not laced with invective and slanderous comments.

August 27, 2001
Target Corp. says it's preparing to sue Kmart, charging that Kmart's "Dare to Compare" advertising campaign misquotes Target prices 74 percent of the time.

The Target suit in U.S. District Court in Minnesota accuses Kmart of violating the Lanham Act, a federal statute governing truth in advertising, as well as Minnesota's consumer protection laws.

Kmart launched its "Dare to Compare" campaign as discount retailers fight for market share in a sluggish economy. Kmart claims it has lowered prices on about 20,000 products so far.

The Kmart campaign uses in-store signs to promite its prices on specific products, comparing them to Target and other retailers. The Target suit charges that an "astounding" number of the signs are wrong.

Target hired a Chicago research firm, Leo J. Shapiro and Associates, to conduct a price comparison audit. The audit covered 98 Kmart stores in Atlanta, Detroit, Los Angeles, Miami and Minneapolis-St. Paul.

The low-price competition is getting to be too much for some retailers. Sears announced last week it's throwing in the towel and abandoning its lowest price guarantee. Instead it's launching a new ad campaign that will portray Sears as "a fun place to shop."

Sears has lost $21 million so far this year. Target reported earnings of $271 million for the most recent quarter.

WASHINGTON, Aug. 17, 2001 -- The Limited Inc. and its subsidiary, Mast Industries, have agreed to pay a civil penalty of $500,000. The penalty settles allegations by the Consumer Product Safety Commission (CPSC) that the companies violated the federal Flammable Fabrics Act by knowingly importing and selling flammable children's sleepwear including pajamas and bathrobes.

CPSC alleges that The Limited and Mast placed children at risk by knowingly importing and selling through Limited Too stores (an independent retail chain formerly owned by The Limited) 100-percent polyester pajamas with a satin finish and 100-percent polyester fleece bathrobes that failed to comply with federal sleepwear flammability standards.

"The message to industry should be clear - we will not tolerate conduct that puts consumers at risk, including the sale of flammable sleepwear to consumers," said Ann Brown, the Commission chair. "Companies that violate the law will be punished. CPSC has already obtained $6.5 million in penalties so far this fiscal year for violations of consumer product safety laws. This is more than double the amount obtained in 2000 and more than twenty times the amounts obtained in the early 1990s."

The Limited and Mast deny the CPSC's charges.

The pajamas were sold as two-piece pullover or front button styles with sleeveless, short or long-sleeved tops and bottoms in various colors and patterns sold in girls' sizes 6-14. The robes were sold with a front wrap with shawl collar and a tie belt in girls' sizes 7-14. The Limited Too stores sold the pajamas from December 1995 through July 1998 and the robes from September 1998 through December 1998.

The Limited companies voluntarily recalled the pajamas in September 1998 and the robes in January 1999. The Limited and Mast report that they have implemented a comprehensive children's sleepwear compliance program. For more information about these recalls consumers should call Bob Atkinson at (614) 479-3739 between 9 a.m. and 5 p.m. Monday through Friday.

August 10, 2001
A Boston-based consumer coalition has filed a class-action lawsuit against Schering-Plough Corp., manufacturer of the popular antihistamine Claritin. The suit, filed in New Jersey state court, charges the company with misrepresenting the benefits of the drug in its advertising.

The coalition, know as Prescription Access Litigation (PAL) accused Schering-Plough of overstating the drug's benefits, thereby creating demand and driving up the price it's able to charge.

It's the fourth suit that PAL has filed this year against large pharmaceutical companies. A suit filed in May accuses Barr Laboratories and AstraZeneca of illegally keeping a generic version of a breast cancer drug off the market, forcing patients to pay the much higher costs of its name-brand product, tamoxifen.

PAL attorney Stephen Rosenfeld said the group's goal is to bring down the rising cost of prescription drugs. He noted that Claritin costs about a third as much in Canada, where it is sold over the counter, as in the U.S.

The Food and Drug Administration (FDA) has cited Schering-Plough in the past for violating FDA regulations in its Claritin ads aimed at consumers.

WASHINGTON, August 10, 2001 -- A consumer watchdog group says asthma inhalers recalled by Schering-Plough Corp. are the "primary suspect" in the deaths of 17 asthma patients that occured from late 1998 through early 2001.

Schering-Plough has recalled albuterol inhalers distributed during that time period because of a manufacturing problem that could have caused some of the inhalers to contain no active ingredient. The manufacturer insists that possibility is "remote."

The Public Citizens Health Research Group said that at least 10 of those who died were attempting to use the inhalers that were later recalled. Albuterol is used in "emergency" inhalers which asthma patients use when they are having an attack. Other inhalers are used on a preventive basis.

Public Citizen said its study of Food and Drug Administration (FDA) records indicated that asthma deaths spiked during the time that the recalled inhalers were being distributed and called for a criminal investigation to determine whether Schering-Plough knowingly shipped defective inhalers.

In a letter to Tommy Thompson, Secretary of Health and Human Services, Public Citizen said remarks in FDA reports clearly indicate there were problems with albuterol inhalers during the time the recalled units were in use.

The remarks included those of a 21-year-old, shortly before his death, who complained on several occasions that his albuterol inhaler did not seem to treat his asthma attacks as usual. A ten-year-old boy who had an asthmatic attack reached for his inhaler and obtained no relief and died shortly thereafter.

"Both of these people were using inhalers from the recalled lots. Of those who died whose ages were known, six were under the age of 30 including three who were less than 20 (10, 12, and 16)," said Sidney M. Wolfe, MD, Director, Public Citizens Health Research Group.

WASHINGTON, Aug. 8, 2001 --In an action brought against a company that target-marketed its travel packages primarily through unsolicited faxes, the Federal Trade Commission today announced a settlement that will bar Resorts Exchange International of America, Inc. (REIA) of Orlando, Florida and its owner from similar actions in the future.

According to the Commission's complaint, since at least 1999, REIA (which also did business as Players Exchange) and its owner Anthony A. Arrigoni, have deceived consumers throughout the United States by deceptively marketing travel packages. Using in-house sales personnel and a number of third-party boiler rooms throughout Florida, the FTC contends, REIA contacted consumers by sending unsolicited faxes to their workplace promoting travel packages at a deeply discounted rate. The faxes, which were addressed to "All Current Employees," typically said that the "wholesale travel department" was releasing reduced-price, corporate closeout discount vacations.

In many cases, consumers who received the faxes at work believed either that they were sent from the travel division of their company or were approved or sponsored by their employer, the FTC alleged. The packages promoted typically included a number of nights in destinations such as Orlando, Cancun and Hawaii, as well as a "complimentary" Carnival Line cruise. Customers were invited to call a toll-free line to purchase the vacations for $349 per person. When they called the number, they were told that REIA would charge them an additional $149 per person to book each package.

The FTC's complaint states that during the initial sales presentation, the defendants misrepresented the material terms of their refund and cancellation policies, at times telling consumers that they could cancel their payment in the future if they wanted to. However, when customers did call to attempt to cancel, they were told that they had no right to do so.

After consumers bought the packages, REIA sent them written confirmation material containing ads, information about the locations they were to visit and travel documents that required them to send "reservation" forms to the company either 60 or 90 days before they wanted to travel. Often, when consumers read the fine print in the confirmation materials or began to schedule their trips, they learned for the first time that the company had misrepresented the total cost of the package, as well as other material terms and conditions.

For example, consumers were routinely required to pay additional fees and upgrade charges to book their trips. Accommodations were seldom available at the "discount" prices quoted in the original solicitation, and it was up to the consumer to pay the difference. In addition, consumers who wanted to take the Carnival cruise were typically told that they had to pay $500 or more for a cabin upgrade for the purportedly "free" cruise. If the consumers did not pay for the upgrades, the company was allegedly unwilling to make their reservations, according to the Commission.

Under the terms of the stipulated final judgment, the defendants will be permanently barred from violating both the FTC Act and the TSR. In addition, the stipulated judgment requires the defendants to post a $400,000 performance bond prior to engaging in telemarketing or the sale of travel-related products. The judgment also provides for a $4 million suspended judgment that can be reinstated if the defendants are found to have misrepresented their financial situations.