Current Events in October 2002

Utah's Division of Consumer Protection has filed suit against Qwest Communications, accusing it of repeatedly lying to customers and intentionally engaging in deceptive sales practices.

The 40-page complaint accuses the company of "unconscionable acts and practices in connection with consumer transactions." It includes a laundry list of alleged offenses, including billing for services that were not ordered and ignoring complaints.

Qwest has run afoul of regulators in other states as well. Last week, it was fined $20 million by California regulators who said the company switched customer's long-distance service without permission. Qwest has 90 days to provide full refunds to all customers who were "slammed."

Minnesota is so inflamed at Qwest's using backroom deals to favor some local competitors over others that it is considering lifting the company's franchise and throwing it out of Minnesota.

"Cramming and slamming are not acceptable in California ... Qwest must make substantial changes in its marketing policies and practices related to long-distance sales," the California Public Utilities Commission judgment said.

In August, Qwest agreed to pay the state of Colorado a $1 million penalty as well as an undisclosed amount of restitution to its customers after the state sued Qwest for deceptive sales practices.

In Utah, regulators said they acted after the number of complaints exceeded reasonable limits.

When you have one investigator spending the majority of her time working on Qwest issues, it is time to try and correct the problem," consumer protection director Francine Giana told the Salt Lake Tribune.

In one case cited by the division, Qwest sent a Utah consumer a wireless telephone she had not ordered. Then, even though the woman never opened or used the phone, it billed her for it and threatened to sue her if she didn't pay. Finally, when the consumer tried to cancel the service she had never ordered and never used, Qwest demanded she pay a $200 deactivation fee.

October 21, 2002
Americans are increasingly finding their own solution to the problem of high-priced prescription medicines. It's called Canada and it's as close as the Internet.

Numerous Web sites have sprung up that offer to fill U.S. prescriptions in Canada. It's a convoluted process. The consumer places an order, then faxes a copy of his prescription so that it can be co-signed by a Canadian physician, filled by a Canadian pharmacy and then sent to the U.S. consumer.

Some of the more popular sites include canadadrugs.com, thecanadiandrugstore.com and canadapharmacy.com.

The savings can be steep. For example, a month's supply of 30-mg Paxil capsules was $106.99 at a Northern Virginia CVS pharmacy, $76.57 at Costco and $48 at canadapharmacy.com.

The phenomenon has sparked official outrage in Canada but U.S. reaction is muted and many insurance companies are routinely reimbursing policyholders for prescriptions filled in Canada or elsewhere.

"If the ingredient is U.S. Food and Drug Administration (FDA) approved, we'll honr the claim whether it is filled in Tacoma or Timbuktu," a spokesman for Washington state's Premiera Blue Cross and Blue Shield said recently.

UnitedHealth Group, which writes policies for AARP members, announced a few weeks ago that it would approve prescriptions filled "offshore" and many other HMOs already do so, including Humana and Anthem

It's technically illegal for individuals to buy prescription drugs outside the U.S. but the FDA has not taken any enforcement actions and sources indicate it does not intend to. Rather, it's the Canadian pharmacists and doctors who bear a greater risk of official sanctions.

Congress was considering legislation to make it legal for Americans to "re-import" drugs bought outside the U.S. but adjourned before taking action on the measure. Earlier this year, many lawmakers staged bus trips to Canada with seniors looking for cheaper drug prices.

Three states -- Arizona, North Dakota and Rhode Island -- have asked that Canadian drugs not be shipped into their states but it's not known how effect that's had.

The nation's largest subprime lender, Household International, has agreed to pay as much as $484 million to settle lawsuits filed by a coalition of state attorneys general and financial regulators. It's the largest consumer protection settlement ever -- more than twice as large as the Federal Trade Commission's $215 million settlement with CitiGroup last month.

Officials from 19 states and the District of Columbia accused Household of cheating its customers by overcharging them for home equity and other loans. Because the monthly payments were higher than consumers expected, many lost their homes.

"We apologize to our customers for not always living up to their expectations," said William Aldinger, chairman and CEO of Household in a prepared statement.

Household has also agreed to several reforms, including the elimination of prepayment penalties for borrows who keep their loan for at least two years. In the past, customers who paid off their loans in less than three years were hit with large prepayment penalties.

Florida Attorney General Bob Butterworth said Household's targeting of low-income homeowners particularly affected racial minorities and the elderly, whose homes are often their only assets.

"We want to change the way this industry does business," Butterworth said. Florida began investigating Household, after Madie Bell Wilson, 89, was evicted from her Miami home last year. She had taken out a $27,000 home-equity loan, thinking it was a home repair grant that did not have to be paid back.

Wilson does not read or write well and said she had no idea she had taken out a loan. Household eventually forgave her loan but the case piqued Florida officials' interests and helped lead to the multi-state settlement reached today.

Investigators said they found many consumers who said Household charged interest rates that were much higher than they had been promised and that they also wound up paying costly "points" and other loan fees, as well as staggering prepayment penalties.

Settlements vary from state to state. In Florida, about 15,000 consumers will receive an average settlement of $1,544 each.

Consumer advocates applauded the states' actions but the housing activist group ACORN echoed what many said privately. The settlements are "puny" compared to the damage Household has done to consumers, the group said.

ACORN is not just hurling verbal brickbats. It has filed class action suits against Household in California, Massachusetts and Illinois. That cases have yet to make their way through the courts. Also, AARP sued Household last yuear on behalf of an elderly Rochester couple who were in danger of losing their home.

Household recently agreed to refund $586,278 to 3,100 borrowers in Washington state after a routine state audit found problems with loans issued to homeowners.

On Jan. 10, Household agreed to pay $12 million to settle California regulators' allegations that Household deliberately overcharged tens of thousands of customers. On April 23, the 7th U.S. Circuit Court of Appeals in Chicago reversed a $25 million settlement of a class-action suit against Household and H&R Block. The decision removed a legal shield that had protected Household and Block from allegations they illegally gouged customers by providing "refund anticipation loans" at interest rates frequently exceeding 100 percent. Household and Block could face damages of up to $2 billion in Texas alone, the appeals court said.

Household is the parent company of the Household and Beneficial finance companies. Companies included in the settlements are Household Finance Corp., Beneficial Finance Corp. and Household Realty Corp. The company had net income last year of $1.9 billion.

Subprime lenders write loans to people with credit problems or low incomes. They defend their higher interest rates and fees by saying the risks of writing such loans are greater. "Predatory" lending is generally defined as charging consumers high interst rates, excessive points, fees and prepayment penalties, often while requiring expensive credit insurance.

October 11, 2002
New Jersey's attorney general has filed suit against Sears, accusing it of overcharging hundreds of customers at its car-repair centers around the state.

The lawsuit claims that Sears routinely charged for performing "four-wheel alignments," even though only the front wheels can be aligned on many vehicles. The suit also charges that mechanics told customers they would conduct a "free" vehicle inspection but then went on to charge for unauthorized repairs supposedly discovered during the inspections.

According to the lawsuit, Sears offers only a $59.99 four-wheel alignment and does not offer any discount on vehicles with a "live," or solid, rear axle. Rear wheels are not adjustable on such vehicles, which include most pickup trucks, sport utility vehicles and other light trucks and full-sized cars.

The lawsuit also charges that Sears mechanics routinely did repairs without providing a written estimate and often failed to tighten lug nuts or properly grind brake rotors.

Attorney General David Samson said the state will seek refunds for customers and penalties of up to $10,000 for each violation. The lawsuit lists 362 alleged violations.

A Sears spokesman in Chicago said the company knew nothing about the allegations until being served with a copy of the lawsuit and denied the alleged actions were part of a companywide policy. But both Samson and Gov. James R. McGreevey said the actions were widespread and pervasive.

"This was repeated over and over again. There was a persistent and pervasive pattern of fraud and deception," Samson said. He said there were at least 350 instances of the alleged overcharges for wheel alignments at 19 separate Sears stores in New Jersey.

McGreevey said Sears was responsible for "a moral erosion of business practices."

None of this is new for Sears. Ten years ago, it was accused of defrauding millions of auto repair customers. It finally settled that suit by offering $50 coupons to nearly one million auto-repair customers.

In 1992, Sears paid a $200,000 penalty in New Jersey after the state conducted an undercover investigation into alternator repairs. In that investigation, the state charged that Sears mechanics routinely disconnected a wire leading to the alternator and then recommended unnecessary alternator repairs and replacements costing up to $400.

October 11, 2002
Six large title companies have agreed to pay $50 million to settle lawsuits brought by the California attorney general, San Francisco district attorney and other California officials. The companies have also agreed to stop the alleged deceptive business practices that were at issue.

Of the settlement, $40 million will go to customers who bought, sold or refinanced residential property in California between May 19, 1995 and Oct. 8, 2002. Checks will be mailed within six months. Most eligible consumers will get between $25 and $165, the attorney general's office said.

Named in the suits were

• Fidelity National Title Insurance Co.
• Chicago Title Insurance Co.
• First American Title Insurance Co.
• Commonwealth Land Title Insurance Co.
• Lawyers Title Insurance Corp.
• Stewart Title Co. of California

The companies were accused of deceiving consumers with hidden fees and costs during such routine transactions as escrow and title services. They were also accused of failing to pass on to their customers the benefits that were provided to the title companies by banks and other financial institutions.

The companies control about 80 percent of the real estate market in California. About 2 million customers are expected to be eligible for refunds.

WASHINGTON, Oct. 8, 2002 -- The Federal Trade Commission today said it has settled a complaint alleging that unscrupulous marketers misled thousands of consumers into paying $480 apiece for a worthless medical billing work-at-home business opportunity. The settlement is the second law enforcement action of its type in the last three weeks.

The latest action brings to a close the FTC's case against Nevada-based Electronic Processing Services, Inc. (EPS) and its principal David Stewart. The FTC alleged that these defendants defrauded consumers by misrepresenting their relationship with physicians, how willing those physicians would be to sign up for medical billing help, and what consumers could expect to earn by working at home.

"Companies claiming that consumers can make easy money rarely deliver on their promise," said Howard Beales, III, Director of the FTC's Bureau of Consumer Protection. "Unfortunately, the purveyors of fraudulent medical billing work-at-home scams continue to trap unwary consumers in their web of misrepresentations. We urge all consumers to look very carefully at these pitches before spending their hard-earned money."

According to the FTC's complaint, EPS and Stewart violated Section 5 of the FTC Act through a variety of misrepresentations to consumers. The final order announced today prohibits EPS and Stewart from misrepresenting that they have job openings or work-at-home positions to fill, that work-at-home opportunities are available in particular parts of the country, that they will provide consumers with the names of doctors who are likely to become billing clients, or that they have established relationships with doctors. The order also prohibits the defendants from telling consumers that they can earn a specific level of income through work-at-home medical billing and from failing to disclose material information concerning refunds or guarantees.

The order requires the defendants to pay $23,400 in redress, plus an estimated $5,000 from merchant account reserves. However, as the cost of administering any redress program would far exceed funds available for redress, the FTC does not anticipate that defrauded consumers will obtain reimbursements.