Current Events in October 2003

Two distributors of "Body Solutions Evening Weight Loss Formula" have agreed to settle federal charges that they used false and unsubstantiated claims to sell their weight-loss product.

Mark Nutritionals, Inc. and Edward DAlessandro, Jr. were sued by the Federal Trade Commission in December, 2002.

In separate settlements, Mark Nutritionals is prohibited from engaging in any business activity, and DAlessandro is required to pay $140,000 and is prohibited from making false or misleading representations about Evening Formula, or any other weight-loss product, including through the use of endorsements. The FTCs case against one additional defendant is still pending.

Since 1999, the defendants sales of Evening Formula have totaled more than $155 million. The FTCs complaint alleged that defendants made sales primarily through the use of deceptive radio advertisements. The 30 to 60- second radio spots aired daily in English and Spanish on radio stations across the United States.

Typically, local radio personalities who purportedly used the product read the ads and presented their personal experience with the product, the FTC alleged.

Mark Nutritionals

In September 2002, Mark Nutritionals filed for Chapter 11 reorganization in bankruptcy court. In April 2003, the bankruptcy court, at the recommendation of the FTC and others, converted Mark Nutritionals case to a Chapter 7 liquidation. Since the conversion from Chapter 11 to Chapter 7, Mark Nutritionals has ceased all operations including all manufacturing, advertising, marketing, and sales. Under the terms of the stipulated final order announced today, Mark Nutritionals is barred from engaging in any future business activity.

DAlessandro

The stipulated final order with DAlessandro prohibits the defendant from making false or misleading weight-loss representations, including false or misleading representations that:

• a product will cause substantial weight loss without reducing caloric intake or increasing exercise;
• a product will cause substantial weight loss even if users eat substantial amounts of high calorie foods; and
• a product will cause substantial long-term or permanent weight loss.

The DAlessandro settlement also requires him to pay $140,000 to the federal government, and contains a suspended judgment of $155 million with an avalanche clause that requires him to pay the amount in full if it is found that he lied on his financial disclosure statements.

The order further requires that DAlessandro possess competent and reliable scientific evidence to substantiate any future representations about the safety or efficacy of any food, drug, dietary supplement, or other health-related product or service. It also prohibits the use of the term weight loss in the name of Evening Formula or the use of any other term that communicates the same or similar meaning, unless at the time the term is used, there is competent and reliable scientific evidence that substantiates that such product will cause clinically significant weight loss. In addition, the settlement prohibits DAlessandro from misrepresenting any test, study, or research concerning any food, drug, dietary supplement, or other health-related product or service.

October 24, 2003

Husqvarna is recalling the Royal 53S or ROY53INTEK walk-behind lawn mower models with serial numbers between 24600001 to 31000205.

A loose blade bolt could cause the blade to come loose or the blade adapter to crack, resulting in the blade falling off. Should this condition occur, the operator or a bystander could be injured.

Husqvarna has received 15 reports of blades coming off, 41 reports of loose blades and one report of a consumer being struck in the toe by a blade.

The walk-behind lawn mowers are gas-powered and have an orange body with a black push-handle. They are capable of being operated with or without a bag attachment. The model number and serial number can be found on a decal mounted above the left rear wheel axle.

The mowers were distributed by Husqvarna dealerships and Lowe's Home Improvement Centers from December 2002 through August 2003 for about $500.

Contact Husqvarna technical support representatives to receive a free service kit including a new blade adapter, blade bolt, and associated hardware with a complimentary blade to be installed by a Husqvarna dealer.

Husqvarna technical support representatives are available between 9 a.m. and 5 p.m. ET Monday through Friday at (800) 448-7543 Ext. 3.

The recall is being conducted in cooperation with the U.S. Consumer Product Safety Commission (CPSC).

Almost 4,200 Arizona consumers have received $721,000 in refunds from Qwest Communications International, and the amount is rising daily as more complaints are processed.

The refunds are a result of a 2001 consumer fraud lawsuit brought by by then-Attorney General Janet Napolitano. It accused Qwest of numerous violations of Arizona's Consumer Fraud Act, including placing unauthorized charges on bills and creating customer-service departments that thwarted consumers' attempts to resolve problems.

In an initial investigation of more than 5,000 complaints, 3,181 were found to have merit and warranted bill credits or cash refunds totaling $653,683 -- about $205 per customer.

The suit was settled in July and an Oct. 7 deadline was set for filing additional complaints. The settlement also required Qwest to reform its marketing practices and pay a $3.75 million penalty.

More than 1,700 additional complaints were filed after it was announced that the company had settled the suit. Of those, more than 1,000 have been sent to Qwest, which will have to pay another $67,000 in refunds, the Attorney General's office said.

Qwest settled the case, along with other pending suits, because it is hoping to win approval to sell long-distance service in Arizona. Approval is expected by December.

October 20, 2003
Cell phone consumers are in the cat bird's seat as Nov. 24 approaches. Though most consumers are unaware of the date's significance, you can bet it's circled in red on every cell phone executive's calendar.

That's the day on which federal regulations require what's known in the trade as "number portability." That means you can switch cell phone carriers and take your number with you.

Since fear of losing their number is the main reason consumers cite for staying with companies they're unhappy with, number portability is a very big deal indeed for cell phone carriers eager to hang onto their customers and poach more of their competitors'.

All of the major companies have started quiet campaigns to get customers to renew their contracts for longer terms. They're handing out free phones, additional minutes, cash credits and other goodies to nail down existing customers before the dread date arrives.

For example:

• AT&T Wireless is giving away $50 credits to some customers who sign up for an extra year of service. Bigger customers are getting airline miles as well.
• Cingular is giving free phones and big discounts on color phones to customers who sign up for two more years.
• Sprint PCS is also giving away less expensive phones and giving big discounts on more expensive models to customers who extend their contracts.

But for crafty consumers, this is no time to be in a rush. Even better days are in store. Once Nov. 24 passes and consumer awareness grows, it will be officially open season. Customers with good payment records who use a respectable number of minutes per month will be frantically courted by both their existing vendors and those who covet them.

Verizon Wireless, the largest wireless carrier, has developed several strategies to improve its retention of customers. One is to provide continuing subscribers with a new phone every two years.

The stakes are huge. Studies indicate that nearly 9 million customers are likely to switch immediately after number portability becomes available.

Over the next few years, the new power number portability puts in consumers' hands is likely to depopulate the cell phone landscape. There are six major national providers now -- AT&T, Verizon, Cingular, T-Mobile, Nextel and Sprint PCS. It's likely that a few years from now, that number will be down to four or fewer as some companies adapt better than others.

With the Halloween season approaching, the Food and Drug Administration (FDA) is warning consumers about serious risks of using decorative contact lenses distributed without appropriate involvement from an eye care professional. These decorative lenses can cause permanent eye injury and may potentially lead to blindness.

The FDA has received reports of decorative contact lenses being marketed and distributed directly to consumers through sources such as flea markets, convenience stores, beach shops and the Internet.

The agency says it has also received reports of corneal ulcers associated with wearing decorative lenses in excess of the recommended period. Corneal ulcers can progress rapidly, and, if left untreated, could lead to infection of the eye. Uncontrolled infection can lead to corneal scarring and vision impairment. In the most severe cases, this condition can result in blindness and eye loss.

Other risks associated with the use of decorative contact lenses include conjunctivitis (an infection of the eye); corneal edema (swelling); allergic reaction and corneal abrasion due to poor lens fit.

Other problems may include reduction in visual acuity (sight), contrast sensitivity and other visual functions, resulting in interference with driving and other activities.

Although decorative contact lenses may seem festive during this time of year, consumers should understand that these lenses can seriously harm the eye if they are used without appropriate supervision by an eye care professional, said FDA Commissioner Mark B. McClellan.

The FDA has issued an import alert for decorative contact lenses presented for importation into the United States that are intended for distribution without the appropriate involvement of an eye care professional.

The Agency has examined numerous entries of decorative contact lenses presented for importation. Currently, there has been no demonstration to FDA's satisfaction that these products, when distributed without eye care professional involvement, comply with federal safety standards. Consequently, these products have not been permitted to enter United States commerce.

Domestically, FDA has inspected several firms distributing decorative contact lenses, and additional inspections are planned. FDA has recently issued a warning letter to BWild Incorporated, warning the firm that it is selling decorative contact lenses without proper labeling about the risks and proper instructions for safe use.

The FDA hs also sent letters to Yahoo! and the on-line auction site eBay, alerting them to the risks of decorative contact lenses distributed without appropriate eye care professional involvement and requesting their assistance in preventing improper online sales.

The agency urges consumers not to use decorative contact lenses unless they have seen an eye care professional and have obtained proper fitting and instructions for using the product.

October 15, 2003

Honda is recalling about 30,000 Harmony Walk-Behind Lawnmowers because of a problem with the crankshaft.

If the lawnmower strikes an object with sufficient force, the crankshaft can bend. Vibration created by a bent crankshaft can eventually result in a fatigue failure of the Roto-stop blade brake control assembly. This can allow the cutting blade to continue rotating after the blade control lever is released, posing a risk of injury.

American Honda has received six reports of broken stop plates. No injuries or property damage have been reported.

The recalled models are Honda Harmony 21-inch, walk-behind mowers with model numbers HRB216TXA or HRB216HXA. The model numbers are located on a metal plate behind the engine, just in front of the rear discharge opening. These black and red mowers have "Honda Harmony" printed in white on the front.

The mowers were sold at power equipment dealers and Home Depot stores nationwide from November 2000 through June 2003 for between $700 and $760.

Honda Lawn and Garden dealers will repair these mowers by replacing the Roto-stopTM mechanism.

To locate a servicing Honda Lawn and Garden dealer, consumers should call American Honda at (800) 426-7701 between 9 a.m. and 5 p.m. ET Monday through Friday or go to the Web site at www.hondapowerequipment.com.

A new study finds that U.S. cell phone users will soon be paying $10 per month per user in fees, taxes and costs imposed by regulations. Nationwide, the study concludes, the higher prices could result in nearly 31 million fewer wireless users.

The report by economists Thomas M. Lenard and Brent D. Mast says the typical wireless user faces a total tax rate (federal, state and local) of over 14 percent on wireless services. This amounts to $6.77 for the average monthly bill of $54.14.

Among the federal regulatory mandates assessed are

• Wireless Local Number Portability, which allows consumers to take their cell phone numbers with them when changing providers;
• Number Pooling, which sets aside numbers for anticipated growth;
• The Communications Assistance for Law Enforcement Act, which requires cell phone companies to modify their equipment to allow law enforcement and national security agencies to eavesdrop on calls;
• Enhanced 911 (E911), which enables 911 dispatchers to know where a cell phone call is coming from.

The study projects the cost of these four programs to be $2.62 per consumer per month, and says the additional expense could price almost eight million potential wireless users out of the market.

Although it is widely regarded as deregulated, the cell phone industry in fact faces many of the same fees and taxes as landline phone service, the authors note. In fact, the federal tax on wireless service is presently 4.10 percent, the same as that charged for landline service. State and local taxes add another 10 percent on average.

The lowest state and local tax rate is 0.17 percent in Idaho. The highest -- hardly a surprise -- is New York's, a whopping 16 percent.

The federal tax is made up mostly of a three percent federal excise tax that was levied on telephone companies to help finance the Spanish-American War.

Proposed consumer protection regulations will further increase costs, the study finds. The economists said a proposed California measure that would make it easier for consumers to cancel cell phone service during the first 30 days, and requirements for additional truth-in-advertising measures will add nearly $4 to monthly bills.

Viewing cellular as a "mature" market tempts regulators to impose new fees and regulations, the study warned. It noted that, although there are about 175 wireless carriers, six national companies -- Verizon, Cingular, AT&T, Sprint PCS, Nextel and T-Mobile -- account for nearly 80 percent of the market, presenting a tempting target to legislators looking for new tax revenue.

In such a competitive environment the costs associated with these mandates will be passed on to consumers, Lenard and Mast conclude. The wireless sector is under increasing pressure on a number of regulatory fronts most notably in the areas of taxation and regulatory mandates."

While the study says some of the mandates may be justified, the authors contend there has been little or no systematic analysis of the combined effects on average consumers.

You can download the full report online.

Hoping to at least slow the rush of AOL customers towards the exit, America Online Inc. will launch a new discount Internet service to compete with Juno, NetZero and other low-cost providers.

The $9.95-per-month service, debuting early next year, will use the Netscape brand and will provide users with a single e-mail address. It's similar to two other discount AOL services -- CompuServe and Wal-Mart Connect, which sells for $9.94 per month.

AOL, which sells for $23.90 per month once you get past all the promotions and supposedly free trials, has lost more than 1 million customers in recent months. Though some are defecting to broadband providers, many are going to cheaper dial-up services, primarily Juno and NetZero, both owned by United Online.

Despite its losses, AOL remains the largest Internet service provider with about 25 million U.S. subscribers, though United Online has been growing fast and now has about 2.6 million.

AOL says it will market the new service primarily to AOL customers who call to cancel their AOL service. It will also promote it to those visiting the Netscape site.

AOL has long made it difficult for subscribers to cancel and recently offered to settle federal charges that it continued billing subscribers who had closed their accounts. It's impossible to close one's account online. Customers must go through a complex telephone procedure that pits them against customer service reps whose mission is to persuade them to keep their subscription active.

KB Toys, the nation's largest combined mall and online retailer, has agreed to refund $3 million to consumers to settle a class-action lawsuit that accused it of violating Illinois' Consumer Fraud and Deceptive Trade Practices acts.

The company will give all customers an automatic 30% discount on all purchases through Tuesday, Oct. 14. The discount excludes video games, computer software and hardware, and gift cards.

While denying the accusations in the lawsuit, KB Toys agreed to change its labeling practices and agreed that it will donate toys to charity equaling the value of any monies left in the settlement fund after the close of business on Tuesday.

The consumer suit charged that the retailer the retailer displayed price tags containing two prices -- one, a fictitious base price with a slash through it; the second, an actual purchase price deceptively implying a false discount.

KB Toys, headquartered in Pittsfield, Massachusetts, has 1300 stores nationwide, including 73 in Illinois.

Illinois Attorney General Lisa Madigan has filed suit against a career counseling company that allegedly deceived its clients to obtain advance fees for its services.

Madigans suit charges two corporations operating under the name Bernard Haldane and Associates with charging job-seekers hefty upfront fees for access to a supposed "secret job market" which in fact does not exist.

In a slow economy like ours, people out of work are highly hopeful and highly susceptible to claims that a high-paying job is available, Madigan said. This company inexcusably and illegally took advantage of its hard-working clients.

The defendants allegedly sold career counseling services to Illinois consumers by promising to match candidates with their ideal job and claiming to be selective about which clients they took on.

While the company mainly targeted middle- and upper-management job seekers, clients with less formal education were assured that a lack of education would not be an obstacle for finding a high-paying job. In addition, the company conducted psychological exams but had no one qualified to analyze the results of those tests.

Madigan said the defendants built up false hopes in their clients and then asked for money, taking a financial profile of each applicant and charging the clients varying amounts of money based on the liquid assets of each applicant. The fees ranged between $3,500 and $12,500 and unfairly charged different customers higher fees for the same service.

After making all of these allegedly false claims, Haldane employees never found employment for many of their clients.

Madigan noted the fees were collected from the consumers before any results were produced, and that the customers often remained unemployed. Haldane employees told their clients to refrain from looking for jobs during the program, decreasing the likelihood that they would find a job on their own.

The defendants are charged with numerous violations of the Consumer Fraud Act. Madigans suit seeks a permanent injunction against the defendants, a civil penalty of $50,000 for each violation of the Consumer Fraud Acton and restitution to the victims.

These suits highlight how people who very much want to work can be taken advantage of by con artists during tough economic times, Madigan said.

The suit names California-based DRB, Ltd. and Illinois-based Career Management, Inc., which together operate the counseling business under the Haldane name, and the individual salesmen working for Career Management, Inc.

The company issued a statement denying it had deceived job-skeers.

"Bernard Haldane Associates has successfully helped thousands of clients during its more than 20 years in Chicago. We remain deeply committed to assisting every client in achieving their career goals," the statement said.

The Supreme Court has refused to review a February decision giving 7 million California AT&T long-distance customers the right to take their complaints to court, instead of being bound by a secretive AT&T arbitration process.

Without comment, the high court yesterday denied review of the Ninth U.S. Circuit Court of Appeals' finding that AT&T's arbitration rules were "oppressive and unenforceable."

It is one of several recent cases in which state and federal courts in California have overturned major companies' arbitration rules. The basis for those rulings is an August 2000 state Supreme Court decision that one-sided arbitration programs could not be imposed on consumers or employees.

AT&T adopted the mandatory arbitration rules in 2001 for its 60 million customers nationwide. The rules were written in tiny print in new contracts the company mailed to customers, basically giving them the choice to take it or leave it. Further, findings by the AT&T-controlled arbitrators were nearly impossible to appeal.

The recent court decisions affect only California customers but are seen as an important development in consumers' struggle to break free of the onerous mandatory arbitration clauses that have been adopted by telecommunications and credit card companies, among others.

"This is a great day. The courts have recognized that consumers are still citizens and that human beings have the same legal rights as corporations," said ConsumerAffairs.com President James R. Hood.

"Not too long ago, corporations -- which are really imaginary people -- were not even recognized as having 'rights' in the same manner as living, breathing, voting citizens. Over the last few decades, they seem to have waved huge fistfuls of money and convinced everyone that they have more rights than so-called 'ordinary' citizens," he said.

The appeals court ruling said AT&T's arbitration rules contained several unfair provisions, including:

• A ban on class actions filed on behalf of multiple customers. The company decreed that arbitrators could consider only individual claims.
• A rule that allowed victims of willful misconduct to collect damages only for the amount they were improperly charged for phone service and barred damages for additional losses and punitive damages.
• A requirement that customers split the cost of arbitration with AT&T;, while giving them no say in who the arbitrators should be, how much they should charge or where the sessions should be held.
• A secrecy clause banning customers, as well as the company, from publicly disclosing the existence or results of arbitration.

The appeals court also rejected AT&T's argument that long-distance phone service must be subject to uniform national standards, saying federal law allows states to use their own laws to protect consumers.