Current Events in January 2007

Illinois Attorney General Lisa Madigan has filed a lawsuit against a Chicago debt collection agency for allegedly using unfair tactics, intimidation and misrepresentations to convince consumers to make payments when, in some instances, the consumers never owed the money.

The lawsuit names Leading Edge Recovery Solutions, L.L.C., as the defendant. Leading Edge Recovery Solutions, an Illinois limited liability corporation based in Chicago, collects debts on behalf of various entities, including credit card and installment debts.

Madigan's Consumer Protection Division has received 53 complaints against Leading Edge Recovery Solutions. According to these complaints, consumers made payments ranging from $300.00 up to $2,900.00 and, in some instances, Leading Edge Recovery Solutions deducted payments directly from consumers' bank accounts without the consumers' authorization.

"Based on the numerous consumer complaints that we have received, Leading Edge Recovery Solutions and its representatives have harassed and intimidated consumers in Illinois and throughout the United States to obtain payments on alleged debts," Madigan said.

The lawsuit, filed in Cook County Circuit Court, alleges that Leading Edge Recovery Solutions has attempted to collect on debts that are as much as 20 years old and, in some cases, are not even owed by consumers. When consumers have responded to contacts from Leading Edge Recovery Solutions by requesting proof that they actually owe the debt, the company has failed to provide such proof.

Madigan alleges that as part of its collection efforts, Leading Edge Recovery Solutions sent collection letters and contacted consumers by telephone, often using abusive language or improperly contacting consumers at their places of employment.

The complaint specifically alleges that representatives of Leading Edge Recovery Solutions made numerous misrepresentations during their collection efforts, including:

• That they are attorneys and that the company would file a lawsuit if the debt is not paid;

• That the company would file a lien against the consumer's property if the debt is not paid;

• That the consumer could be arrested or imprisoned for failing to pay the debt;

• That the consumer's wages would be garnished if the debt was not paid; and

• That the company would take other actions that would have an adverse impact on the consumer's credit report if the debt is not paid.

Madigan's lawsuit asks the court to prohibit Leading Edge Recovery Solutions from engaging in the business of collecting or attempting to collect on debts, and from further violating Illinois' consumer protection laws. The lawsuit seeks civil penalties and requests that the court order Leading Edge Recovery Solutions to pay restitution to consumers.

When two technologies compete for dominance, one usually wins, eventually, while the other loses. Remember the Betamax?

But history may not repeat itself when it comes to high-definition DVDs because hardware makers have agreed to produce machines that will play DVD movies in both formats, HD-DVD and Blu-ray.

The two technologies have been fighting for market share, trying to outdo one another in offering the high-resolution playback that consumers purchasing new HDTV sets expect.

But the war may be over. LG Electronics is expected to provide a glimpse of its new dual-format DVD player at the Consumer Electronics Show later this month. Other hardware makers have indicated they will follow suit.

While regular DVDs work on the new sets, DVD players specifically designed for HD are able to reproduce programs with the sharp pictures of Hi-Def. They also provide more features.

But HDTV set makers have fretted over the bitter war between HD-DVD and Blu-ray, fearing a repeat of the early 1980s standoff between RCA's VHS video format and Sony's Beta. It was not until VHS vanquished Beta that the video industry really took off.

Set manufacturers are likely to see the new machines as welcome news, removing one more excuse consumers might offer for delaying a purchase. The new dual-format players will have optical drives and integrated circuits necessary for both HD-DVD and Blu-ray.

The new players won't be cheap, though. Industry insiders say consumers should brace for price tags almost as steep as the TV sets themselves.

Should Avian flu jump to the human population and create a pandemic, health officials are counting on the antiviral Tamiflu as a major defense.

But increasingly, public health officials are concerned that widespread use of Tamiflu could have a very unwelcome side effect -- development of drug-resistant strains of the virus in wild birds.

British researchers at the Centre for Ecology and Hydrology in Oxford have released findings in the January 2007 issue of Environmental Health Perspectives (EHP) that demonstrate how Tamiflu's persistence in wastewater and river water could affect the waterfowl that drink from those water sources.

Since the World Health Organization's first warning of an avian flu pandemic two years ago, nations worldwide have been stockpiling Tamiflu for treatment and outbreak prevention. The drug, which minimizes flu symptoms and duration, inhibits the movement of the influenza virus from the cells it infects, and also helps uninfected people avoid contracting the flu.

However, Tamiflu's active agent, the metabolite oseltamivir carboxylate (OC) would be excreted into sewers for several weeks during a pandemic and is expected to withstand biodegradation.

According to the researchers in the current study, once birds drink OC-laced water from catchments receiving treated wastewater, they could produce Tamiflu-resistant strains and pass them on to other birds who share the same waters.

The investigators analyzed 11 waterway catchments in the United States and 5 in England using a metabolic pathway prediction system to determine the potential biodegradability of OC. They also measured wastewater discharges into the catchments.

They estimated the number of clinically infected people in each catchment area treated with a full 5-day course of Tamiflu with 100% compliance, assuming that 80% of the ingested Tamiflu was released into sewer systems as OC and that all of the OC entering each catchment was flushed out in one day.

Their estimates showed a maximum concentration well above that required for development of resistance in vitro for 62 consecutive days in the arid Lower Colorado River catchment area.

Overall, the researchers say that because of the lower population density for many of the U.S. catchments, peak concentrations of OC in a pandemic would be approximately 10 times less than the concentrations in British rivers.

All but one of the American catchments studied are larger than those in Britain and, with the exception of the Lower Colorado River flow area, have more available dilution per person in each given population.

There were no specific ecotoxicological risks from Tamiflu identified at the time the drug was submitted for approval to the European Medicines Agency. The authors, however, suggest that the ecotoxicological risk associated with Tamiflu use needs to be reassessed in light of the hundreds of millions of courses that would be consumed globally during a pandemic.

The authors warn that, with the release of the uniquely structured, biochemically resistant OC antiviral into river water, "the range of OC concentrations predicted . . . will have uncharacterized ecotoxicological consequences." They call for more detailed water contamination modeling, especially in high-risk areas of the world such as Southeast Asian countries, where there is more frequent human-to-waterfowl contact and where future use of Tamiflu would be significant.

They also recommend development of methods to minimize the release of OC into wastewater systems, such as biological and chemical pretreatment in the toilet.

Not long ago consumers waited months for a Prius but now many Toyota dealers are advertising several Prius models in stock. In some cities, Toyota is offering to lease the hybrids for 36 months at less than $300 a month.

After rising for most of the year, hybrid sales fell to 19,000 in November from nearly 32,000 in August when gas prices across the country hit $3 a gallon.

Gasoline prices have declined 24 percent since August and hybrid sales have declined 31 percent.

In California, the country's largest hybrid market, changing consumer attitudes toward hybrids are influenced by more than just gasoline prices and tax credits. Uncertainty in California over the availability of HOV lane stickers for new hybrids is an additional factor slowing sales for the Prius as well as other hybrids.

The federal tax credit available to buyers of the Prius was cut in half late in 2006. Until then, the Prius enjoyed the largest hybrid credit, $3,150. The credit shrank to $1,575 on October 1.

Despite dropping sales, prices for the Prius and Honda Civic Hybrid have remained virtually unchanged. The average price paid for a Prius, less any cash rebates, was $26,281 in November compared with $26,076 in August.

The Industry View

Toyota executives predict Prius sales will rebound. The Japanese automaker expects U.S. hybrid sales to climb by 50 percent in 2007 to nearly 300,000, in part because of larger supplies of the Prius and the hybrid Camry.

Most automakers agree with Toyota and continue to ramp up for increased hybrid production in spite of the recent sales slump. General Motors just announced it has awarded lithium-ion battery development contracts to two suppliers for the upcoming Saturn Vue Green Line hybrid.

A recent survey by KPMG LLP, the U.S. audit, tax and advisory firm, confirms that auto executives believe that we've entered the hybrid age.

The survey, based on interviews with 150 senior executives at vehicle manufacturers and suppliers worldwide, found that executives continue to believe that fuel efficiency and quality are the primary consumer preferences when purchasing a new car, 89 percent and 88 percent respectively.

Last year, 87 percent of executives said quality was the leading factor, and 84 percent said it was fuel efficiency.

"High gas prices, which are permanently etched on consumers' minds, have had dramatic implications for auto manufacturers who lack quality, fuel efficient products to satisfy demand," said Daron Gifford, National Automotive Industry leader, KPMG LLP.

For the second consecutive year, industry executives said they believe the most popular vehicles over the next five years will be hybrids, cited by 83 percent of respondents, and low-cost cars, according to 64 percent of respondents. Last year, 88 percent of executives said hybrids would be the most popular, while 79 percent cited cars.

Overall, 64 percent of executives said they expect cars to increase global market share over the next five years, outpacing larger vehicles, such as minivans, which were cited as a growth model by only 33 percent of executives.

Meanwhile, just 28 percent said SUVs would be gaining share. Fifty-five percent of executives also expect market share for crossovers to increase, while 42 percent predicted market share for luxury vehicles would increase.

"Gasoline prices have shifted the model mix in executives' minds, and future winners in the global automotive marketplace will have to find ways to combine ingenious cost-efficiencies with startling design creativity," said Gifford.

In breaking the categories down into a regional view:

• 95 percent of North American executives said they were more likely to see a rise in hybrid sales over the next five years, while 67 percent of North American executives predicted crossovers.

• 89 percent of European executives were optimistic on the sale of low-cost vehicles, and 57 percent forecasted luxury vehicles sales would increase.

• 37 percent of Asian executives are more confident about the sales of large pick-up trucks, while 72 percent expected car sales to rise.

This year, 71 percent of executives believe hybrids will become a U.S. market force, with between 200,000 and 500,000 cars being sold compared with 200,000 sold in 2006.

"The hybrid mantra is that the breed cannot fail, given consumer demand and its relatively minuscule production numbers," said Gifford.

Additional key findings include:

• 90 percent of executives believe consumers will hold on to their new cars for three to seven years.

• 94 percent of executives consider product quality as the most important industry issue in 2006, while 89 percent named cost reduction.

• 66 percent of executives cited innovations in manufacturing as the greatest source of cost savings for vehicle manufacturers, followed by materials innovation and outsourcing to countries like China and Eastern Europe according to 61 percent of executives respectively.

• 48 percent of executives named new models and 43 percent determined that new technologies are the areas where manufacturers will increase investment.

In the KPMG survey, the executives interviewed represented vehicle manufacturers and suppliers in Canada, United States, England, France, Germany, Sweden, India, China, South Korea, Japan and Australia.

Consumer Reports crash-tested rear-facing infant car seats at the speeds most cars are tested at and found that most of the seats failed disastrously. The findings are reported in the February 2007 issue.

Cars and car seats can't be sold in the U.S. unless they can adequately protect occupants in a 30-mph frontal crash. But most cars are also tested in the National Highway Traffic Safety Administration's (NHTSA) consumer information program in crashes at higher speeds, 35 mph for frontal crashes and 38-mph side crashes. Child car seats aren't.

Most of the infant seats failed when Consumer Reports crash-tested them at those higher speeds.

The infant seats twisted violently or flew off their bases, in one case hurling a test dummy 30 feet across the lab. CR does, however, remind parents that any car seat is better than no seat at all.

All states and the District of Columbia require infants to be secured in car seats when traveling in passenger vehicles. Still, 572 infants under 1 year old were killed in traffic accidents from 2001 to 2005, with side crashes accounting for 151 of those deaths, or 26 percent, NHTSA data show.

Here are some highlights of CR's findings:

• Of 12 infant seats tested, only two performed well enough to be recommended by Consumer Reports: the Baby Trend Flex-Loc and the Graco SnugRide with EPS.

• Nine infant seats provided poor protection in some or all of the tests, even though they meet the federal safety standard. One seat, the Evenflo Discovery, didn't even meet that standard. CR is urging federal officials to order a recall of that seat.

• Many infant seats sold in Europe undergo more rigorous testing than do models sold in the U.S. Indeed, when CR crash-tested an infant seat purchased in England, the Britax Cosy Tot, it was the best in the tests. An infant seat sold in the U.S. by the same manufacturer, the Companion, failed CU's tests.

• CR's findings offer added evidence of problems with LATCH, the federally-mandated attachment system for child car seats. Many car seats performed worse with LATCH than with vehicle safety belts. And LATCH attachments aren't always easy to use.

Consumer Reports' new tests are tougher than the federal car-seat standard because a significant performance gap exists between vehicles and the car seats they carry.

"It's unconscionable that infant seats, which are designed to protect the most vulnerable children, aren't routinely tested the same as new cars," said Don Mays, senior director of Product Safety & Consumer Science for Consumer Reports.

Consumers Union, the publisher of Consumer Reports, believes that the government should bring the safety testing for car seats in line with tests that are conducted on most new cars.

The federal New Car Assessment Program tests most cars and minivans, some pickups and SUVs, in 35-mph frontal crashes and 38-mph side crashes. Scores in the form of "star" ratings are widely publicized, and as a result carmakers have improved the crash protection of vehicles. There has been no such incentive for the makers of child car seats sold in the U.S.

In 2000, Congress mandated under the TREAD Act that NHTSA establish a consumer information program for child car seats incorporating ratings no later than November 2001.

NHTSA concluded that the most effective consumer information system is one that gives the consumer a combination of information about ease of use and dynamic performance through higher-speed crash-test sled testing or an in-vehicle testing program.

To date, NHTSA has not started providing dynamic crash protection ratings for car seats as part of its consumer information program. Currently, the agency's car seat information program includes ease-of-use ratings in the form of letter grades as well as tips and advice for parents.

The infant seats evaluated by CR are rear-facing carriers that snap in and out of a base. The base connects to the car by means of the vehicle's safety belts or LATCH attachments. (LATCH, which stands for Lower Anchors and Tethers for Children, includes belts that hook the base to metal anchors in the car.)

Consumer Reports crash-tested multiple samples of each infant seat. In some tests, CR used vehicle safety belts to secure the base; in other tests CR used LATCH attachments. The tests mimic a crash in a Ford Explorer SUV, a popular family vehicle. The Toyota Camry sedan crumples similarly, especially in a side crash, so CR would expect comparable results for some sedans.

CR used a test dummy weighing the maximum claimed weight for each seat. That's 30 pounds for the Graco SafeSeat and 22 pounds for the others.

In CR's 35-mph front-impact test, seven car seats failed. They separated from their bases, rotated too far, or would have inflicted grave injuries, as measured by CR's test dummy, whose sensors record the severity of impact. CR retested these to see whether they passed the 30-mph federal minimum standard. All passed except the Evenflo Discovery.

When Consumer Reports performed side-impact tests at 38 mph, eight models failed. Four of the seats flew out of their bases.

Three seats failed all of CR's more stringent crash tests: the Evenflo Discovery, the Graco Safe Seat, and the Britax, formerly the top- rated seat based on earlier tests that mirrored the federal standard.

Most other tested seats passed either the front- or side-crash test in some configuration, though only the Baby Trend Flex-Loc and the Graco SnugRide with EPS passed every test CR performed and therefore, garnered CR's recommendation.

Some Britax Companion seats were recalled in October because carriers were assembled incorrectly; CR tested a later model. The Evenflo Discovery, which CR is deeming Not Acceptable and believe should be recalled, was the subject of a NHTSA investigation in 2004 after the agency received seven reports about the carrier separating from its base. Evenflo received 52 reports, six involving fatalities, NHTSA says.

The agency could not identify a safety defect and closed the investigation.

The Eddie Bauer Comfort infant seat also had problems, specifically in the fit-to-vehicle test. CR's trained safety-seat installers could not get one of two different bases supplied with the seat to fit securely when tested in five different vehicles.

Because of that test result CR is judging the seat Not Acceptable and wants the problematic base to be recalled. The seat also performed poorly in the side-crash test when using the problematic base. The car seat (also called the Caress Comfort) is being discontinued though it is still being sold.

CR has learned that the manufacturer of the Eddie Bauer Comfort will supply an improved base through a "customer satisfaction program", but only to those consumers who know to complain to the company about improper fit. CR is crash-testing the seat with the better-fitting base. Results will be posted at www.ConsumerReports.org.

By Joseph S. Enoch
ConsumerAffairs.com

January 4, 2007
While most of Congress was preparing for the holiday season, President George Bush quietly asserted his authority by giving the government the right to search your mail without a warrant.

While signing the mostly mundane Postal Accountability and Enhancement Act into law Dec. 20, Bush added a "signing statement" that awarded him a vague authority to open individuals' mail under emergency circumstances.

That signing statement contradicts existing laws and statements found within the text of the law he had just signed, experts said.

"Despite the President's statement that he may be able to circumvent a basic privacy protection, the new postal law continues to prohibit the government from snooping into people's mail without a warrant," Rep. Henry Waxman (D-Calif.) told the New York Daily News.

According to the statement:

"The executive branch shall construe subsection 404(c) of title 39, as enacted by subsection 1010(e) of the Act, which provides for opening of an item of a class of mail otherwise sealed against inspection, in a manner consistent, to the maximum extent permissible, with the need to conduct searches in exigent circumstances, such as to protect human life and safety against hazardous materials, and the need for physical searches specifically authorized by law for foreign intelligence collection."

The news of this unprecedented authority comes one year after Bush got his hand slapped for tapping Americans' phones.

The White House is saying that this authority is nothing new.

"In certain circumstances -- such as with the proverbial 'ticking bomb' -- the Constitution does not require warrants for reasonable searches," White House spokeswoman Emily Lawrimore told the Daily News.

But experts fear Bush could use this reaffirmed authority to read endless stacks of U.S. mail.

"You have to be concerned," a senior U.S. official told the Daily News. "It takes Executive Branch authority beyond anything we've ever known,"

A "signing statement" is the loose authority for the President to add provisions to a bill when he signs it into law. The practice has come under particular criticism during Bush's two terms because he has used it more than 130 times and his statements have received more than 750 formal challenges.

One other recent controversial signing statement was added to the McCain Detainee Amendment. In the statement, Bush essentially gave himself the authority to determine what is considered torture.

The CDC study, published in the January 2007 issue of Pediatrics, found that 45 percent of the teenagers responding to a survey reported consuming alcohol in the past month, and 64 percent of the students who drank said they were binge drinking, which is defined as having five or more alcoholic drinks in a row.

The CDC report also found that binge drinking is strongly associated with sexual activity, violence, and other risky behaviors.

"Contrary to popular belief, parents remain the greatest influence over their children's behavior," said Richard Gallagher, Ph.D., Director of the Parenting Institute and the Thriving Teens Project at the NYU Child Study Center.

"Though media and peers play a role, parental influence is critical and there are ways parents can maximize that influence to reduce the likelihood that their children will engage in binge drinking," he said.

Dr. Gallagher offers these tips for parents:

• Clearly state what actions you expect your teen to take when confronted with substance use. Teens who know what their parents expect from them are much less likely to use substances, including alcohol.

• Talk about the alcohol use that your children observe. Parents need to make it clear how they want their children to handle substances, such as alcohol and tobacco. Children need to have controlled exposure to learn the rules of acceptable use.

• Help your teen find leisure activities and places for leisure activities that are substance-free. Then, keep track of where, with whom, and what your teen is doing after school and during other free times.

• Limit the access your children have to substances. Teens use substances that are available. They report that they sneak alcohol from home stocks, take cigarettes from relatives, and obtain marijuana from people that they know well.

• Inform teens about the honest dangers that are associated with alcohol use and abuse. Although teens are not highly influenced by such information, some discussion of negative consequences has some impact on the decisions they make. Especially emphasize how alcohol clouds one's judgment and makes one more likely to be harmed in other ways.

For more information on teenage substance use and abuse, visit www.AboutOurKids.org.

Another food retailer says it is enlisting in the battle against trans fats. Starbucks Coffee said that effective immediately, it will stop using the artery-clogging ingredient in its muffins, donuts and other pastries.

Story continues below video

The trans fat ban will only affect half the chain's U.S. stores in the near term, with the rest of the stores joining the ban later in the year.

Trans fats are vegetable oils that have been processed to turn them into solids. They are often used in baked goods, not to enhance taste but to provide texture. Large scale food producers favor them because they are also cheaper.

Beginning Wednesday, Starbucks stores in Seattle, San Francisco, Chicago, Los Angeles, San Diego, Boston, New York, Philadelphia, Washington, D.C., and Portland, Oregon, will have zero trans fats in their food.

Starbucks joins a growing number of food chains that are bowing to pressure from health advocates to stop using trans fats.

Wendy's has switched to a non-hydrogenated oil that will be used in its restaurants. McDonalds has announced no specific date, but is known to be experimenting with alternative oils.

All restaurant chains will soon have to come up with alternatives. New York City has approved a ban on trans fats in its 22,000 restaurants and several other large cities are considering such a ban.

Health advocates have warned for years against eating food with trans fat. They say the re-engineered oils raise LDL, the so-called "bad" cholesterol, and lowers HDL, the "good" cholesterol.

Studies have shown that consuming as little five grams of trans fat a day over several years leads to a number of cardiovascular ailments, increasing the liklihood of developing heart disease by 25 percent.

Soon to be the world's number one carmaker, Japanese auto giant Toyota plans to develop a system that it says will prevent a vehicle from starting after detecting that the driver is drunk.

The Toyota system analyzes sweat on the palms of the driver's hands to assess blood alcohol content and does not allow the vehicle to be started if the reading is above programmed safety limits.

The system can detect abnormal steering and whether the driver's pupils are out of focus as well as the sweat sensors in the steering wheel to determine the level of alcohol in the driver's bloodstream.

If any of these symptoms are detected the car will not turn on or will slow to a stop.

The automaker said the system could be available as soon as 2009.

Toyota joins Volvo in developing computerized systems to prevent drunk driving. The Volvo system requires the driver to blow into a tube to detect alcohol in the breath.

Toyota rival Nissan Motor is also working on measures to prevent drunk driving.

The research announcements follow a record of drunken driving in Japan which included 14,000 intoxicated driving accidents in 2005 that killed 707 people, according to the National Police Agency.

Japan is considering increasing the penalty for driving under the influence to up to a maximum five years in prison from the current three years and doubling the fine to $8,500.

Subprime lenders have been both blessing and bane in the housing industry for many years, enabling lenders to rake in huge profits while saddling consumers with exorbitant loan terms and high interest rates.

Now, as the housing market slows to a crawl, many subprime lenders are collapsing faster than homes made of substandard materials, and the signs point to even more pain in the housing market as a result.

Mortgage Lenders Network USA (MLN) announced it was shutting its doors today, as a result of market economics the lender said were "not good ... it deals with the performance of loans, and to a lesser extent the value of homes."

The company's abrupt shutdown left many brokers scrambling to find new financing for their clients' home purchases.

The Connecticut-based lender grew from 7 employees in 1997 to 1,800 ten years later, fueled by sharply-cut interest rates which enabled mortgage lenders and brokers to push home loans to clients who might not otherwise have been able to purchase.

Now, with strapped homeowners falling behind in their payments in greater numbers, foreclosures on the rise, and interest rates at their highest level in two years, companies such as MLN found themselves unable to finance new loans.

The last few months have seen a flurry of subprime lenders shut their doors, declare bankruptcy, or engage in mass layoffs as the housing market freezes up.

Ameriquest, formerly the country's largest subprime lender, collapsed quickly after its former CEO, Ronald Arnall, was appointed by President Bush to be ambassador to the Netherlands.

Ameriquest shuttered virtually all of its offices and laid off 3,800 employees thanks to the collapsing subprime market. Its demise was exacerbated by a $325 million settlement with 30 states' Attorneys General over deceptive marketing and lending tactics.

Subprime lender Ownit filed for bankruptcy in December 2006, after rising defaults on its mortgage holdings led Wall Street firms -- which bought and repackaged the loans Ownit held -- to seize the companies' assets and demand it take back the bad loans.

Ownit had formerly been the country's 11th-largest subprime lender, issuing more than $5.46 billion in loans in the first half of 2006.

Other subprime lenders potentially on the chopping block include Countrywide Financial and H&R Block's mortgage unit. The latter has been a particular target of wrath among ConsumerAffairs.com readers.

More Pain On The Horizon

The failures of subprime lenders are bad tidings for the housing market as a whole.

Just as low-income consumers feel the pain of gas or tax hikes first, subprime borrowers are the first to fall behind or default on their mortgage payments as interest rates rise.

A Center for Responsible Lending (CRL) study found that one in five subprime loans issued during 2005-2006 will fail, with over two million homeowners at risk for foreclosure as a result.

The CRL study placed much of the responsibility on the marketing of risky "creative" mortgage products such as adjustable-rate mortgages (ARMs) to consumers with bad or no credit, or bad financial histories.

A study conducted by the foreclosures (MBA) also found that subprime mortgages were experiencing higher rates of delinquency in the past twelve months.

Although economists and realtors continue to claim that the housing market slump has hit bottom, many still see delinquencies on the horizon, particularly as the ARMs reset to higher levels that consumers will not be able to keep up with.

Jackson Hewitt, Inc. will pay $5 million, including $4 million in consumer restitution, to settle a lawsuit filed by California Attorney General Bill Lockyer.

The suit alleged that the nation's second-largest tax preparation firm violated state and federal laws in marketing high-cost refund anticipation loans (RALs) mainly to low-income customers.

Story continues below video

"Jackson Hewitt made a lot of money by pushing customers to take out expensive loans rather than encouraging them to wait a couple of weeks to get their refunds from the IRS for free," said Lockyer. "In the process they deceived consumers and took money from low-income families who can least afford it. They even charged people extra for being poor.

"This settlement benefits consumers by holding Jackson Hewitt accountable for its conduct, prohibiting the unfair practices we targeted in our lawsuit and requiring the firm to conduct itself in a manner that could set the industry standard," Lockyer said.

The complaint alleges Jackson Hewitt violated 13 state and federal laws or rules that regulate debt collection practices, and prohibit unfair business practices, false or deceptive advertising, and unauthorized use or sharing of individuals' tax return information.

The settlement requires Jackson Hewitt to pay $4 million in restitution to customers who purchased same-day "Money Now!" loans, "Accelerated Check Refunds (ACR)," and other RAL products that, according to Lockyer's lawsuit, Jackson Hewitt illegally promoted.

The $4 million will provide up to $30 per RAL purchased from 2001 to 2004, up to $15 for each additional financial product bought from Jackson Hewitt, and restitution to consumers victimized by the debt collection scheme.

In addition to the restitution, Jackson Hewitt will pay $500,000 in civil penalties and another $500,000 to reimburse the Attorney General's Office for its investigation costs.

As described in the complaint, RALs are loans provided to taxpayers, secured by their expected tax refund. Internal Revenue Service (IRS) rules prohibit Jackson Hewitt from providing loans itself, so the company contracted with banks for that purpose.

But Jackson Hewitt provided clients the loan applications, filled out the applications, sent the applications to the banks, and distributed the loan checks to customers. Jackson Hewitt's partner banks from 2001-04, the period covered by the lawsuit, were Santa Barbara Bank and Trust (now Pacific Capital Bank) and Household Finance (now HSBC).

In a typical case, Jackson Hewitt's RAL program worked like this: After calculating a customer's taxes and determining their refund amount, a Jackson Hewitt tax preparer signed up the customer for a RAL. If the bank approved the application, Jackson Hewitt ultimately provided the customer a check not for the full tax refund amount, but for the estimated refund, minus various fees Jackson Hewitt charged the customer. Depending on the amount of refund, those fees forced some consumers to pay the equivalent of annual interest exceeding 200 percent.

Additionally, Jackson Hewitt's marketing of RALs was deceptive in a number of ways, according to the complaint. Advertisements portrayed RALs as refunds or "Money Now," instead of loans, the complaint alleges, and omitted information that would have informed consumers the products actually were loans.

Jackson Hewitt also misled consumers by stating or implying RALs provided a faster way to get money at tax time than waiting to receive a refund from the IRS, according to the complaint. In fact, consumers who filed tax returns electronically could receive a direct deposit refund from the IRS just as quickly as they could get money from Jackson Hewitt through purchasing one of the firm's high-cost loan products.

From 2001 through 2004, California customers bought more than 200,000 RALs and other financial products from Jackson Hewitt, generating millions of dollars in income for the firm.

To indicate how Jackson Hewitt's RAL program targeted the working poor, the complaint notes most of the firm's customers are eligible for the Earned Income Tax Credit (EITC), established by the federal government to provide financial help to low-income families. EITC recipients, however, account for just 20 percent of all taxpayers.

Not only did Jackson Hewitt steer EITC recipients into expensive RAL products, the firm also charged them an additional fee ($10) to buy the products, the complaint alleges.

Jackson Hewitt also participated in a deceptive debt collection scheme under the banner of its RAL program, the complaint alleges.

RAL customers were liable for paying fees and paying back the borrowed money if their anticipated refund did not materialize, for whatever reason. If a customer allegedly owed that debt, Jackson Hewitt would give them a RAL application when they come to Jackson Hewitt in a subsequent year to get their taxes prepared.

What Jackson Hewitt did not adequately tell such customers is that when they signed the RAL application, they agreed to automatic collection on the purported debt, which they may not have even owed. The banks denied these RAL applications, and the customers' anticipated refund was used to pay off the alleged debt, plus a fee.

"Jackson Hewitt customers believed to owe debt from a prior year have been offered an application for a loan in the amount of their refund, but instead have found themselves in the midst of a debt collection process," the complaint alleges.

Additionally, according to the complaint, Jackson Hewitt violated state and federal law by using or sharing customers' tax-return information without their written consent. Jackson Hewitt engaged in these illegal practices to market RALs and collect on debts, the complaint alleges.

The Jackson Hewitt settlement is the second major development in Lockyer's enforcement crackdown on RALs. He filed suit against H&R Block in February 2006, and the case remains pending in San Francisco County Superior Court.

Looking for a new gimmick to jump-start your New Year's diet? How about a real staple that pierces cartilage in your upper ear to suppress appetite? Or a detoxification plan said to clean toxins and pollution out of your body?

"Save your money -- and save your health," says Francie M. Berg, chair of the Weight Loss Abuse Task Force of the National Council against Health Fraud. These are just two of year's worst weight loss schemes highlighted by Berg in the group's 18th annual Slim Chance Awards.

"There are countless products out there that promise quick weight loss. Most of them are total scams that make your wallet thinner, but not your body. Some cause injury and death. And in a dangerous new trend they now target children," Berg noted.

An unusual glut of unsafe products has flooded the market this year, according to Berg. Both the Federal Trade Commission and the Food and Drug Administration actively pursued weight loss fraud, but are hampered by having to do it on a case-by-case basis and usually getting only consent agreements.

Berg's organization, Healthy Weight Network, started the Slim Chance Awards 18 years ago. They are part of the lead-up to Healthy Weight Week, January 21 to 27, which offers a release from restrictive New Year dieting.

Americans typically begin a diet the first week in January, blow it the second week, and by the third week many are ready for lasting lifestyle changes that can make a real difference in their lives.

"We want to shift our national focus to health and wellness, to acceptance, respect, and an appreciation of diversity," Berg said. "It's time to move on from the war so many Americans are waging against their own bodies. The obsession with thinness is causing tragic problems for both children and adults."

The 2006 Slim Chance Awards:

• Worst Claim: ChitoGenics Billing himself as a "consumer advocate and trouble-shooter," Texas radio personality Tom Martino tells listeners ChitoGenics has transformed his once chubby body to rock hard.

ChitoGenic ads laud his credibility: "Tired of false claims and advertising? So are we! You can believe what this man says ... Tom has made a distinguished career of exposing liars, cheats, rip-offs and scams... when he likes something ... you can bet it works!"

The ChitoGenic stable of cures for the person who wants to lose, say, "20 pounds in one week ... without dieting" includes ChitoGold, ChitoGenics Mahuang, PowerUp Weight Loss Formula and Plus Chito Patches. Claims to be the "leader when it comes to blending herbs that effectively block sugars, carbohydrates, and fats in your diet ... combined with a natural appetite suppressant fat and filtering for cholesterol health." (Undisclosed: kickbacks to radio hosts.)

• Worst Product: PediaLean Advertised in tabloids and magazines including the Enquirer and Redbook, PediaLean is a fiber capsule claimed to cause substantial weight loss in overweight children.

Allegedly it is "clinically proven safe and effective for use by overweight children and adolescents," but experts say the Italian study offered provides no valid scientific proof, is poorly designed, had a high dropout rate, and revealed abdominal discomfort in many of the children tested.

Its active ingredient glucomannan is known to swell in the body and can clump and form an obstructive mass, sometimes causing esophageal and gastrointestinal obstruction. PediaLean is one of six weight loss products for which the FTC, as of May 2006, is requiring payment of $3 million to settle deceptive claim violations.

• Most Outrageous Claim: Isacleanse The detox idea is seemingly the perfect scam -- it sets up a problem that doesn't exist, then provides a solution.

Ads for Isacleanse warn of toxins building up, clogging organs and deteriorating the body -- unless regularly detoxified. (This doesn't happen, as the human body is naturally self-cleaning.)

A "healthier, leaner body" is promised in 30 days through ingesting a medicine chest full of Isagenix cures including IsaFlush for "regularity," diuretics, aloe pills, vitamins, ionic trace minerals, electrolyte drinks, Isalean Shakes and herbal teas.

For those who are frankly more interested in wealth-building, Isagenix turns a neat trick; on the same web page it alternately pushes a get-rich-quick scheme for deceiving others about the need to detoxify.

• Worst Gimmick: Magic Ear Staple What's new is that this is a real staple, piercing the band of cartilage in the upper ear where, supposedly, it presses on an acupressure point that curbs appetite. It's newly illegal in Florida.

Recent damaging publicity in Mississippi was related to infections from "underground operations in parking garages, bathrooms, coin laundries and the back seats of cars," complains Marie Fallow, a Mississippi-based ear stapler. Fallow says she has stapled ears of some 3,000 clients, is doing 2,400 new ears a month, and charges $75 for both ears.

Training offered by chiropractor Carissa Hamilton-Toups of southern Louisiana costs $850 for one afternoon class (in which students staple each other) or $1200 for a private session. Trainees leave armed with two staple guns, a set of rubber ears, staple remover, paperwork to immediately get started in the stapling business, and a warning: remove staples in four weeks or risk severe infection and the staples becoming embedded.

Last year's "winners" were Shape up with Dr Phil, Jana Skinny Water, Nutrathin with Hoodia, and Body Shape by Hydroderm.

Slim Chance award sponsors are Healthy Weight Network, the Society for Nutrition Education and the National Council against Health Fraud.

Wisconsin's Department of Revenue stated that taxpayers who had filed returns in 2005 using the paper Form 1 were affected. Those who filed their forms with professional tax preparers, filed different forms, or e-filed were not in danger, the department said.

The mistake was blamed on a "computer error."

The tax agency said it would notify all potentially affected taxpayers, and also notified the postal service to locate and return as many of the forms as possible.

Department spokeswoman Meredith Helgerson said that they could not estimate how many of the labels made it through the mail.

Helgerson said the agency and the postal service would take advantage of the four-day holiday due to New Year's and the day of mourning for former President Gerald Ford -- with the resultant lack of mail delivery -- to find and collect all of the mislabeled forms.

Wisconsin's Revenue Department had mailed forms out with Social Security numbers visible on them for years, until the state legislature and former governor Tommy Thompson pressured the department to use special identifier numbers instead.

Thompson, also a former Secretary of Health and Human Services, ironically went on to become a chief advocate of the usage of radio frequency identifier (RFID) tags, or "spychips," in medical patients and soldiers.

Clear and Present Danger

The chief concern was that criminals would steal the forms from unopened mailboxes and use the Social Security numbers for identity theft.

Social Security number-based identity theft is particularly difficult to detect and prevent, as criminals can mix and match names and numbers to create new identities and open credit accounts without being noticed.

Credit reporting agencies simply open new credit files for accounts using the same number, and don't notify the original or new account holders. SSN-based fraud can go undetected for years until the original account holder receives bills belonging to the thief.

It's extremely difficult to change a Social Security number once it's assigned, and even if the accountholder gets a new one, the account is often linked to the old account to ensure the recipient receives their Social Security benefits.

The Wisconsin incident is not the first time in recent months a printing mixup has led to potential risk of identity theft.

In November 2006, a contractor working for the Chicago public school system accidentally sent out the personal data of 1,740 employees and retirees as part of a mass mailing of health insurance benefit plan information.

Observers had predicted that reforming the credit industry would be a prime objective of the new Democratic Congress, and Rep. Barney Frank (D-Mass.) is taking up the challenge.

Frank, the incoming chairman of the House Financial Services Committee, says he will hold hearings in 2007 on how the credit bureaus can improve their reporting and error-correcting procedures.

ConsumerAffairs.com receives a constant stream of complaints from irate customers regarding credit bureaus' inability -- or unwillingness -- to protect the personal information of the very people they claim to assist.

"It took me over three months of letters, emails and calls to no avail," said Georgia of Lodi NJ in a recent complaint to ConsumerAffairs.com. "The workers at Experian read from script and do NOTHING to help one out.

"They've listed accounts that have been closed since 1998 and have inaccurate addresses on my credit report. My credit is as pristine as possible and would like to keep it that way, but cannot trust Experian," she said.

Rep. Frank's pledge followed a Boston Globearticle spotlighting the difficulties consumers have in trying to correct mistakes in their credit reports.

"We will have some hearings about how to fix this," Frank told the Globe. He said that laws mandating free credit reports for all Americans were not enough, especially if the procedures to correct errors were difficult and time-consuming.

Frank and his Senate counterpart, Christopher Dodd (D-Conn.), incoming chairman of the Senate Banking Committee, have already promised to target the mortgage industry and pass new protections against predatory lending.

Profiting From Fear

Errors in credit reporting can cost consumers jobs and loans, as well as leading to identity theft and fraud. Each of the three credit bureaus -- Experian, Equifax, and Trans Union -- has a laborious process for correcting errors that requires sending extensive documentation to prove the information is inaccurate or out of date.

The credit agencies generally blame the lenders for reporting inaccurate data, and for only reporting negative information, such as delinquencies, bankruptcies, or liens.

But the sale of credit reports continues to be a billion-dollar business for the credit bureaus, which collect buy information from lenders and sell it cheaply to lenders and other business clients while charging consumers three or four times as much to view their own information.

Consumers can spend years and thousands of dollars trying to clean up innaccurate credit reports, even those that are mixed up with others' information, being denied jobs, loans, and places to live all the while.

Worse yet, the "fraud monitoring" services credit agencies offer to protect against identity theft often don't work. They don't detect Social Security number theft, for example, which leads only to a new file being opened under the new account holder's name.

The three major credit bureaus -- Equifax, Experian, and Trans Union-- all offer comprehensive, and expensive, "identity protection" packages, which claim to insure the user from damages incurred by misuse of their personal data and issue notifications of fraud to creditors and other agencies who view consumers' credit on a regular basis.

Yet many Americans find themselves threatened with collection or unable to obtain credit due to a credit bureau's mistakes. The major CRA's consistently fail to report accurate information, change credit ratings based on erroneous data, and often "mix up" customers' information, resulting in innocent consumers being harrassed or penalized for actions they did not commit.

Moreover, as Consumers Union pointed out in 2005, "When a company improperly breaches a consumer's sensitive information, the onus is on that consumer -- the victim -- to fix the problem." Customers have to contact the credit bureau and attempt to prove that they were not responsible for the actions committed using their identity, a process made more difficult by the lack of direct contact options most credit bureaus provide.

A recent New York Timesarticle detailed the failings of credit monitoring services, including the admission by credit agency spokespersons that they fail to detect SSN-based fraud, even as credit monitoring rakes in $900 million a year for the agencies that offer it.