Current Events in April 2008

Florida's attorney general has reached a resolution with six cruise lines over the imposition of a retroactively-imposed fuel surcharge on cruise passengers.

Bill McCollum said Carnival and its five subsidiary cruise lines have agreed to refund approximately $40 million to consumers nationwide who were charged the fuel surcharge after they had booked their cruises.

Other affected cruise lines are Holland America, Princess, Costa, Cunard and Seabourne.

The agreements were reached after the Attorney Generals Economic Crimes Division received several hundred complaints from around the country about the entire cruise line industry because cruise lines were retroactively charging a fuel supplement charge after cruises had been booked and deposits had been made by consumers.

Under the agreements signed today, all consumers who were retroactively charged a fuel supplement will be refunded the full cost of the surcharge. In the future, the cruise lines must also ensure clear and conspicuous disclosure of any fuel supplement charges at the time the reservations are made, as well as in their advertisements.

The agreement with Carnival and its cruise lines will affect more than 1.1 million bookings.

Carnival will contact consumers eligible for refunds and must report to the Attorney Generals Office on the status of refunds within 30 days.

Consumers who believe they have been improperly charged surcharges may file complaints with the Attorney Generals Office by calling the fraud hotline at 1-866-966-7226 or by visiting the Attorney Generals website at myfloridalegal.com.

A similar settlement was reached last month with Royal Caribbean and Celebrity Cruises, resulting in another $21 million in consumer reimbursement.

No, not the Federal Emergency Management Agency. A new study suggests Wal-Mart, Home Depot and Lowe's would be a lot more helpful.

The study, from the Mercatus Center at George Mason University in Fairfax, Virginia, stresses that successful disaster relief depends upon responders having detailed knowledge of a local area and the right incentives to act on that knowledge.

Examining federal and private responses to Hurricane Katrina, the study by St. Lawrence University Professor of Economics Steven Horwitz shows why FEMA was destined to fail, and why for-profit firms succeeded at disaster recovery.

It also looks at the Coast Guard -- the only federal agency lauded for its Katrina performance -- which rescued more than 24,000 people in the two weeks following the storm.

Local knowledge

The study by Horwitz shows Wal-Mart, Home Depot and Lowe's made use of their local knowledge about supply chains, infrastructure, decision-makers and other resources to provide emergency supplies and reopen stores well before FEMA began its response. He says their local knowledge enabled the big-box stores to make plans ahead of the storm and put them into effect immediately after.

Also, leadership gave tremendous discretion to store managers and employees to make decisions rather than waiting for instructions from upper-level management, allowing for more agile disaster response.

Horwitz says the Coast Guard also places a strong emphasis on local knowledge. A flat organizational structure and unique agency culture allow for subordinate officers to alter the plans for a specific operation so long as they follow the commander's intent.

The Coast Guard's day-to-day activities (search and rescue operations, and work in the marine environment) as well as its division into specific geographic areas provide greater expertise for disaster response.

Horwitz also examined the conventional wisdom that businesses take advantage of disasters through price-gouging and other unsavory business practices.

While some price gouging obviously occurs during disasters, Horwitz's paper details how Wal-Mart, Home Depot and Lowe's actually sent truckloads of free supplies to the hardest-hit areas in the aftermath of Hurricane Katrina. No, it wasn't all altruistic, Horwitz notes. The businesses were just practicing good public relations, hoping to build long-term customer loyalty.

"Disaster response happens at the local level," Horwitz said. "FEMA is not local to anyone except people who live in Washington, D.C."

Insurance plans

With hurricane season approaching, now is the time for homeowners in the Southeast to review their insurance coverage. Read more ...

The PayItGreen Alliance, a nonprofit group formed to promote the environmental benefits of electronic payments, has produced a study of its own, hoping to demonstrate the impact one household can have by switching from paper checks to electronic payments.

"We've determined that, on average, an American household receives 19 bills and statements each month," said Stuart Williams, Director of Payment Services at CheckFree/Fiserv and a member of the PayItGreen Alliance.

"This same average household makes seven payments in the form of checks each month. If we were able to get them to switch to electronic bills and statements, the environmental savings would be significant."

By switching to electronic bills, statements, and payments. Williams says the average American household would, every year:

• Save 6.6 pounds of paper
• Save 0.08 trees
• Not release 63 gallons of wastewater into the environment
• Save 4.5 gallons of gasoline to mail bills, statements, and payments
• Not produce 171 pounds of greenhouse gases.

Saving this amount of greenhouse gas is the equivalent of:

• The emissions avoided by not driving 169 miles
• The emissions avoided by not consuming 8.8 gallons of gasoline
• Planting 2 tree seedlings and allowing them to grow for 10 years
• Preserving 24 square feet of forest from deforestation

That might not sound like much, but Williams says Americans each year mail 26 billion bills and statements and nine billion payments in paper form. The production and transportation of those paper bills, statements, and payments consumes 755 million pounds of paper, nine million trees and 512 million gallons of gasoline, according to the study.

"If just two percent of households switched to electronic bills, statements, and payments, it would save more than 15 million pounds of paper and take 32,572 cars off the road," Williams told ConsumerAffairs.com.

If that total rose to 20 percent of U.S. households, it would save 150 million pounds of paper and avoid producing 3.9 billion pounds of greenhouse gas. And though the study doesn't measure it, even using a debit card instead of writing a check produces some environmental savings.

"Pure and simply, that's one less check being written," Williams said. Obviously checks are paper and paper comes from the environment. Beyond that it may depend on how that particular retailer may choose to process the check. If they're using a courier or sending an employee to deposit the check, you've got gas emissions."

For several years banks and financial institutions have promoted online transactions and rarely, if ever, charge consumers for the service. While helping the environment is nice, Williams says banks' policies are usually grounded in hard, cold business realities.

"One of the resounding facts that we discovered is the level of satisfaction, and the profitability to banks of consumers who use online banking and bill pay, is higher," Williams said. "They tend to be more loyal customers and are more likely to recommend their bank to others."

Why aren't more consumers using electronic payments? Williams thinks a lot of it has to do with inertia, and consumers' longstanding habits. He and others in the PayItGreen Alliance are hoping consumers will soon give it a try, if not for convenience, then to help out Mother Earth.

The U.S. economy is in the midst of a credit crunch and more and more economists are tracing its origins not to the housing meltdown, but to the credit card.

Steven Fazzari, economics professor at Washington University in St. Louis, says rising consumer indebtedness is finally slamming the brakes on the economy.

"For more than two decades we had consumer-led growth, which actually mitigated the recessions of the early 1990s and 2001," Fazzari said. "Part of the reason we had mild recessions was due to consumer strength. But we kept building up debt.

"It was also a period of falling nominal interest rates. This meant that every cycle of low interest rates was another opportunity for people to refinance on better terms and extend their spending further," he said.

In simple terms, consumers are now just tapped out.

According to the latest Federal Reserve Consumer Credit report, total revolving debt by consumers, which consists primarily of credit cards, is at an all-time high of $947.4 billion.

"Americans are in more debt than ever before," said Brad Stroh, co-CEO and co-founder of Bills.com, an online personal finance Web site. "The credit card industry could be the next domino to fall if consumers don't get a handle on their personal finances soon."

Fundamental changes

Fazzari sees fundamental changes in the economy that are reducing the effectiveness of consumer spending as an economic driver.

Part of the problem is the current debt burden. Part of the problem, he says, lies in the fact that its harder and harder to get credit. Even the Federal Reserve Bank's move to lower interest rates doesn't give Fazzari much hope for a turnaround.

"Bernanke deserves credit for creative approaches to containing instability in financial markets," Fazzari says. "But the source of the recession comes from structural problems that need to be changed. Bail-outs may help prevent everything from cascading further, but the Fed does not have the tools to solve these problems.

With property values plummeting nationwide, homeowners no longer have the luxury of tapping into home equity lines of credit. Instead, many have to use high-interest credit cards and other revolving credit for short-term cash.

Time to cut back

This trend also concerns Stroh, who warns that individuals facing economic hardship should be managing and eliminating debt, not adding to it.

"Now is the time for consumers to eliminate unnecessary expenses and then use those funds to pay off their credit card balances," he said. "This will require some sacrifice, but will be worth it in the end."

A credit card industry meltdown would have serious effects on the broader economy and create hardship for banks and consumers alike, according to Stroh. He points out, however, that the worst-case scenarios can be avoided.

"Prudent steps should be taken by consumers to avoid a credit crunch," he said. "Simple things like budgeting and spending plans can make a big difference in averting major economic problems."

Fazzari agrees. There's no magic bullet, he says. The root cause of the current economic slowdown in the U.S. goes back several decades. None of the choices, he says, are pleasant.

"Unfortunately, the cost of letting institutions fail is worse than the cost of bailing them out, but ultimately, the Fed will not be able to stop the downturn in consumer spending. The household sector just has to retrench and repair its balance sheet. In the meantime, the result is a weak economy," he says.

Fazzari notes that the stimulus packages proposed by Congress and the presidential candidates could be useful as well, but even those policies aren't nearly large enough to prevent a deep recession.

"With those proposals, we're talking about something that is a quarter of the size of what's necessary to turn things around."