Current Events in December 2003

FedEx is buying Kinko's Inc., the chain of copying centers, for $2.4 billion, apparently in response to United Parcel Service's purchase of Mailboxes Etc. a few years ago.

The goal is to provide one-stop shopping and shipping for small and medium-sized businesses. The deal may also help FedEx expand its ground delivery business, which has not achieved the blazing growth its founders predicted.

Consumers complain that FedEx Ground is plagued by lost shipments, misdelivered packages and inadequate insurance protection.

As FedEx's relatively high-priced overnight shipping business matures, the company has been seeking ways to muscle in on UPS' dominance of lower-priced ground delivery to small businesses and residential customers.

With his customary modesty, Frederick W. Smith, the chairman of FedEx, said the Kinko's acquisition was "supremely logical."

Some observers were skeptical, noting that FedEx already operates counters at 134 of Kinko's 1,200 stores, where customers can leave packages for either ground or air delivery.

"I understand why FedEx wants a bigger retail base, but we had expected it to buy operations in Europe or to acquire companies more in keeping with its existing logistics businesses,'' Kenneth Hexter, an analyst with Merrill Lynch, told the New York Times.

Unlike FedEx's high-flying overnight air express service, the ground-delivery business is much more labor intensive and returns a lower profit margin, putting downward pressure on wages and other costs, unhappy FedEx Ground employees note.

"Packages come down the conveyor belt at an unbelievable and probably unsafe rate. On several occasions, every day, we have many packages just falling off of the conveyor. Many times, the packages are already damaged and open when they get to the package loader," an employee of FedEx Ground's Houston terminal told ConsumerAffairs.com.

December 21, 2003
iPod owners are learning an unpleasant truth: their little pal isn't immortal. It turns out that the rechargeable lithium-ion battery in the iPod is good for about 500 recharges. After that, it's toast.

Apple's answer, until recently, was that when the battery breathed its last, iPod owners should shell out several hundred dollars for a new iPod, since the battery is not easily replaced by the user.

This inflamed the passions of one Casey Neistat, a New York multimedia artist who took his dissatisfaction public. Neistat and his brother, Van, fired up their Apple computers and iMovie software and put together a guerrilla rant, "iPod's Dirty Secret," currently a huge hit on the Internet circuit at www.ipodsdirtysecret.com.

The brothers also spent some time pursuing a non-digital approach to the problem: they or their supporters sprayed graffiti on Apple advertisements around New York City warning unsuspecting Gotham of the latest threat lurking in the city - "iPod's Unreplaceable (sic) Battery Lasts Only 18 Months."

Apple, meanwhile, has taken note of the problem and recently announced a new $99 mail-in batery replacement offer for iPod owners. The company denies that the brothers' movie had anything to do with the new service.

December 10, 2003
The transition to portable cell phone numbers is working about as well as ... well, your average cell phone. Industrywide, about half of all number transfers have gone awry. AT&T Wireless leads the pack with a 60 percent error rate -- and is also reported to be losing the most customers.

Regulations say numbers are supposed to be transferred in a few hours but many consumers have had to wait days for the switchover to occur.

The Federal Communications Commission (FCC) says that more than half of the complaints it's received about number-switching have involved AT&T Wireless and it has launched two separate investigations of the problems.

At&T puts the blame on NeuStar, a company that it uses to verify orders for customers switching carriers. AT&T admits it faced "great problems" but claims its record is not much worse than the industry average.

For its part, NeuStar says no single company is to blame for the confusion.

Number portability began Nov. 24 and during the first two weeks, industry analysts say about half a million customers switched carriers, taking their old numbers with them. Although no one really knows which companies have been winners and losers, several analysts said AT&T Wireless was losing customers at a fast pace because of network problems and poor customer service.

AT&T says it is now managing to get most numbers transferred within three to five days.

While cell phone customers have been switching carriers in large numbers, there's little sign that there's similar enthusiasm for dropping landline numbers in favor of wireless. The FCC has also required that local phone companies let customers take their home numbers with them if they want to go all-wireless.

"It's incredibly minimal," said Andrea Ayers of Convergys Corp., a Cincinnati firm that handles portability calls for some wireless carriers. An SBC spokesman called it "minimal."

General Motors Acceptance Corporation (GMAC) faces a $125 million hit after losing a class action lawsuit on behalf of over 30,000 California borrowers. The suit charged that GMAC was illegally collecting from borrowers whose vehicles had been repossessed and sold by GMAC.

The ruling is a "stunning wakeup call for lenders who violate California law," said Mark A. Chavez, the attorney for the plaintiffs.

In an 18-page decision, Santa Clara County Court Jack Komar found that GMAC violated California law governing automobile repossessions throughout a seven year period, and was engaging in unlawful collection activities.

The lawsuit, Smith v. GMAC, alleged that between August 20, 1994 and June 30, 2001 GMAC repossessed the automobiles of thousands of its customers and sold them without providing the customers with a legally adequate post-repossession notice. Judge Komar agreed, finding GMAC's post-repossession notices to be "legally defective".

Typically, when a car is repossessed and sold, the borrower will still owe the lender thousands of dollars. This is because the cars are generally sold at auction for prices that do not cover the amounts outstanding on a borrower's loan. The bill for this "deficiency balance" often comes as an unpleasant shock to consumers, who are already in financial trouble, and who mistakenly assume that once the car is gone, so is the debt.

California law, however, provides a measure of protection for consumers whose cars are repossessed. A lender such as GMAC is required to send its borrowers a written notice containing very specific information about their legal rights following a repossession. If the lender does not send such a post-repossession notice containing all of the required disclosures, the law says that the borrower is not liable for any deficiency balance.

Judge Komar ruled that because GMAC's post-repossession notices were "legally defective" class members "are not liable for any deficiency balances assessed to their accounts by GMAC, and never owed those amounts."

Nevertheless, GMAC had collected millions of dollars from class members to whom GMAC had sent legally defective notices.

"The evidence in the case indicates that GMAC assessed approximately $125 million in deficiency balances during the class period" stated Kim E. Card of Chavez & Gertler, counsel for the class. Card estimated that GMAC had collected more than $15 million of the deficiency balances prior to the trial and was trying to collect another $110 million in outstanding deficiency balances from borrowers who did not owe the money to GMAC.

Under the court's ruling, which addresses liability issues and reserves the damages award for later, a notice and questionnaire will be sent to all potential class members. They will have the right to seek refunds of any payments they made to GMAC after a repossession on a deficiency balance, plus interest on those payments.

Government agencies aren't the only ones cracking down on credit counseling agencies. Now some of the top banks and credit-card issuers are changing the funding formulas they use to help support credit counselors.

Lenders have for decades quietly funded credit counselors through rebates, paying the counselors a percentage of the money they recover through repayment plans. The lenders saw the program, called Fair Share, as a cost-effective way of dealing with problem loans that might otherwise wind up in the loss column.

Citigroup, the nation's largest credit card issuer, has abandoned Fair Share, informing 850 credit counseling firms that it will convert to a system of quarterly charitable contributions. Instead of rebates, Citigroup says it will make quarterly charitable donations based on its perceptive of the agency's need and "the benefit they provide to the customer and the community."

The nation's second-largest credit card issuer, MBNA America, is sticking with Fair Share but tightening its requirements. MBNA says it will only fund nonprofits that charge fair fees and don't use a for-profit firm to contact and enroll customers. Bank of America has already imposed similar terms.

The Internal Revenue Service has opened an investigation of the credit-counseling business, auditing more than 30 agencies to see if they have abused their not-for-profit status.

One of the largest credit counselors, AmeriDebt, has been sued by the Federal Trade commission and several states, charging that it deceived consumers and passed through fee payments to a for-profit company.

Consumer advocates were divided on the effect of the changes. Many noted that more consumers have filed for bankruptcy in recent months than ever before and millions of consumers are in serious financial trouble. It might not be the best time to cut back on helping troubled consumers, some suggested.

December 4, 2003
Wal-Mart will stop accepting some MasterCard debit-card transactions next year. Other retailers are likely to take similar measures as they digest the terms of a landmark lawsuit earlier this year.

It's likely to be a confusing development for consumers who have grown accustomed to the almost universal acceptance of Visa and MasterCard. At issue are the fees that merchants pay when they make purchases with Visa and MasterCard debit cards.

Merchants pay higher fees when consumers sign for their purchase rather than enter their PIN number at the point of sale.

The dispute does not affect "pure" credit cards. Rather, it centers around the "check cards," as they're often called, that deduct funds directly from consumers' checking accounts.

"We choose to eliminate the option rather than pass the costs on to our customers," a Wal-Mart spokesman said.

Wal-Mart was the lead plaintiff in a class-action lawsuit brought by retailers against MasterCard and Visa. The suit claimed the bank cards improperly forced merchants to swallow higher fees by requiring them to honor both credit and debit cards from Visa and MasterCard.

Wal-Mart says customers will still be able to use their MasterCard debit cards -- but you'll have to key in your PIN rather than sign for the transaction. The difference is that PIN transactions go through a different, lower-cost payment network.

The huge retailer has negotiated an arrangement with Visa under which it will continue to accept Visa debit cards on signature transactions but it didn't release details of the agreement.

California auto body shops are challenging a state study that found 42 percent of the collision repair jobs in the state are fraudulent, but the state is standing by the study, which it says found major problems in the industry.

We found significant problems," said Mike Luery, deputy director of communications for the California Department of Consumer Affairs. "That doesnt mean that the whole industry is bad. All we can speak to is what we found in this study. The bottom line is to make sure that California laws are being obeyed and followed, and when the BAR does find violations, we take action to protect consumers.

The California Bureau of Automotive Repair (BAR) reviewed 1,314 repair jobs costing more than $2,500. It found that in 551 of the cases, the invoice falsely listed parts or labor that had not actually been supplied. The average excessive charge was $811. The BAR referred 46 cars to local district attorneys for possible criminal or civil action.

The National Auto Body Council (NABC) and California Autobody Association (CAA) have taken issue with the studys results and are challenging the validity of its findings as well as the methodology used to conduct the study.

There are distinct differences between accuracy and validity, as well as a very questionable predisposition to finding fraud, said Chuck Sulkala, executive director of the NABC and owner of Acme Body & Paint, Jamaica Plain, Mass., in a written statement issued by the organization.

These statements ... have been presented as a representative sample of the work of our entire industry, Sulkala said. He said insurance companies, attorneys and consumer organizations have had a field day with what he calls the BAR's pseudo statistics.

The state, however, says its findings are the results of a non-partisan, objective study that is useful to consumers and honest body shops. The BAR study was mandated by a state law that provided for the licensing and regulation of automotive repair dealers, including autobody shops, by the BAR.

The fender benders complain that the study was restricted to owners who asked the state to examine the repairs to their car.

"If I fix your car and you complain to the BAR, chances are that you have a problem, said Don Feeley, immediate past president of the California Autobody Association. Feeley contends that much of the fraud may actually be "administrative mistakes," such as accidentally leaving off a molding or putting an old one back on when it should have been replaced.

"I understand where they [repairers] are coming from, but I think its important to shed light on the matter by showing facts. This was not a skewed sample. The program was open to anyone who wanted to participate, Luery said.

Luery notes that as a result of the study, the BAR took 47 administrative actions, meaning that the shops must go before an administrative law judge while the BAR presents its evidence and the shop presents any findings in its favor. The judge then makes a ruling, and the outcome may affect the shops license and ability to do business.

The BAR also made 46 referrals to district attorneys, more serious action that can lead to ciminal charges.

"We realize that some shops do make mistakes which are easily corrected. Thats why when fraud was found at a low-dollar amount, the BAR conducted office conferences to work with the shops to achieve voluntary compliance," he said. He said 110 such conferences were held.