Current Events in August 2009

The Federal Trade Commission (FTC) has extended its crackdown in the billion-dollar prepaid calling card industry -- asking a U.S. district court for a permanent halt to the illegal practices of a major calling card distributor and its principals.

The FTC has charged Diamond Phone Card, Inc., a distributor of prepaid calling cards based in Elmhurst, New York, and its principals with advertising that the calling cards they sold provided more minutes than they actually delivered. The complaint also accuses the defendants of failing to disclose adequately that fees could reduce the value of the calling cards. The FTC is seeking to force the defendants to give up the money they made through their deceptive tactics.

Diamond Phone Card marketed the cards to recent immigrants, many of whom rely on calling cards to stay in touch with family and friends in other countries. The defendants' advertisements made bold claims about the number of minutes the cards would provide for calls to a wide range of international locations, including the Dominican Republic, El Salvador, Mexico, India, Pakistan, and Guatemala.

But the FTC charges that consumers didn't receive the number of minutes advertised. For example, a calling card claiming to deliver 400 calling minutes to Mexico provided only 106 minutes of calling time, and one claiming to deliver 50 minutes of calling time to Honduras actually delivered only 20 minutes.

The FTC's complaint also claims that the defendants failed to properly disclose "maintenance" and other fees. For example, the defendants' ads trumpeted in large, colorful text the number of calling minutes their cards purportedly would provide. Less obvious to consumers, however, was a 79-cent "maintenance" fee that applied to $2 and $5 cards, and was "disclosed" in nearly illegible print on the very bottom of the advertisement.

This complaint follows two recent FTC actions against distributors of prepaid calling cards. In February 2009, Alternatel, Voice Prepaid, and Mystic Prepaid agreed to pay $2.25 million to resolve FTC allegations that they had deceived consumers. In June 2009, another leading distributor of prepaid cards, Clifton Telecard Alliance, agreed to pay $1.3 million to settle similar FTC charges.

The FTC has established a joint federal-state task force to address deceptive advertising and marketing practices in the prepaid calling card industry.

Four delegation leaders on a People to People trip -- in which a Minnesota teenager died -- drank beer in their Tokyo hotel room instead of getting the 16-year-old the medical assistance he requested after he climbed Mt. Fuji.

That is one of the startling findings released today by the teen's parents, who announced the official settlement of their civil action in the wrongful death lawsuit they filed in the wake their sons June 29, 2007, death.

The terms of the settlement are confidential, but Sheryl and Allen Hill are now sharing some of the details they learned -- during depositions and other legal proceedings -- about the death of their son, Tyler, on his "dream trip" to Japan.

The Hills filed their 2008 wrongful death lawsuit in Hennepin County District Court against Ambassadors Group, Inc. -- the company that markets the People to People trips and handles all the travel arrangements --, People to People Student Ambassador Programs, People to People International, a United Kingdom organization called docleaf Limited, two of its employees -- Larry McGonnell and Dr. David Perl -- and the four delegation leaders on Tyler's trip: Susan Stahr, Pat Veum-Smith, Josh Aberle, and Angela Hanson.

In that action, the family alleged that People to Peoples' delegation leaders refused to take Tyler to the hospital when he requested medical attention.

Tyler had Type 1 diabetes and complex migraine headaches conditions his family disclosed before he left on his overseas journey.

But the travel organization that touts its ties to President Dwight D. Eisenhower assured the Hills it had a solid safety record and a 24-hour response team that could handle any medical emergency.

That promise laid the foundation for the Hill's lawsuit, which alleged that no one with the organization responded to Tylers pleas for medical attention when he became sick after hiking Mt. Fuji and his death in the Japanese Red Cross Medical Center was the result of that negligence.

Earlier today, the family released more details surrounding Tyler's death.

"Sheryl Hill was told by one of the leaders that on June 26, 2009, Tyler thought he had altitude sickness after climbing Mt. Fuji, and he wanted to go the doctor," the Hills said in a statement. "The leader gave him water, and told him to go to his room and work through it."

At that point, the Hills learned, the four delegation leaders went to a hotel room and started drinking beer.

"Veum-Smith, Hanson, and Stahr joined Aberle in his room, where all of the leaders drank beer until sometime between 12:30 and 12:45 a.m.," the Hills said in todays statement.

Those comments appeared under the heading "Evidence before Hennepin Country Court."

"Tyler had been vomiting for hours and asked for enough water to feed a family," the statement continues. "He was held back for the day's activities; his heart stopped less than 10 hours later. Despite specific training to contact the parents or seek medical attention when a child shows 'moderate' signs of dehydration, no phone calls were made to the Hills until Tyler's heart had stopped for than an hour."

Tyler died of apparent "severe dehydration," the Hill said, adding all four delegation leaders had training on treating dehydration.

The Hills today also said they discovered:

• Two of the delegation leaders searched Tyler's belongings and took pictures of some items while he was in the hospital. "While Tyler was dying in the hospital, Aberle and Hanson went through Tyler's personal belongings and took photographs of his medications and insulin," the family's statement said.

• One of the delegation leaders was on a previous People to People Trip in which student died. "Stahr was a student ambassador leader on a trip to New Zealand where another student died," the Hill's statement said. "The Hills were not informed or her prior safety record."

Asked if the settlement resolves all the issues alleged in their lawsuit -- and brings the family peace -- Sheryl Hill told us: We asked for truth, justice, accountability, and restitution. Justice is an open window and I would accept any help."

The lawsuit, however, does resolve the issues of restitution and accountability, the family said in today's statement.

The Ambassadors' Group CEO Jeff Thomas has publicly apologized and acknowledged that his organization accepts some responsibility for Tyler's death.

"Through hindsight we can see that there are steps that all of the leaders should have taken that could have prevented Tyler's death on June 29, 2007, during a trip to Tokyo, Japan, and regret that they were not taken," Thomas said in a statement released in June. "We are very sorry for Tyler's death and the Hill Family's loss and the impact it has had on many. We continue to review all policies surrounding students with pre-existing conditions, including diabetes protocols, to refine our procedures."

The judge in the Hill's case also granted a motion permitting the family to amend their complaint and seek punitive damages against Ambassadors Group Inc. and others named in the action.

But does the settlement bring peace and solace to the Hill family -- Sheryl, Allen, and Alec -- who continue to grieve the loss of their beloved son and older brother?

The son and brother they lovingly called "Ty man a top athlete who had 'dominated' his diabetes and was known for his big smile and tender heart.

"I will have found peace when the Travelling Youth Standards of Safety law passes," Sheryl Hill told us today.

Since Tyler's death, the Hills have advocated for the safety for students participating in travel programs. "How could I (we) not do that?" Sheryl Hill said. "To not do that would be like tossing another kid in the fire."

The legislation the Hills support would ensure that safety measures, sanctions, and penalties are in place to protect students participating in various travel programs.

"No safety standards, sanctions or penalties exist to protect children's health and safety rights while entrusted to third parties, especially during travel programs," the Hills said in their statement today. "Children have been denied health care, died, hurt, abandoned, raped and suffered severe illnesses, while traveling with some student travel programs. There is currently no oversight committee dogging the student travel industry."

The Hills' efforts have the backing of two of Minnesota's Congressional leaders.

"I am extremely grateful to Senator Amy Klobuchar and Congressman Erik Paulsen for hearing me and supporting the advocacy for the safety of students on these trips," Sheryl Hill told us.

Tyler, she said, would also champion the family's safety campaign. "Tyler would say 'You rock, mom,'" Sheryl said.

Her husband, Allen, added. "I think he would say that he was proud of us for sticking up for him and other children."

Another advocate of the Hills' legislative effort is Danielle Grijalva, director for the Committee for Safety of Foreign Exchange Students.

"I receive numerous complaints about other travel agencies from children and their parents about supervisors being intoxicated, molestations, children being denied health care when they are sick, unsanitary living quarters and 'unaccounted for' children," she said. "Parents need to inform themselves of the safety record of agencies and supervisors they are entrusting their kids to."

ConsumerAffairs.com has received complaints about students going missing, being "unaccounted" for unknown periods of times, becoming sick, or even struck by a car on recent People to People trips.

A single mom in New York told us her 11-year-old daughter was hit by a car during a recent People to People trip to France and England. The delegation leaders, however, did not disclose all the details of the accident to Heather M. of Schenectady, New York.

"I was informed that another child had bumped her into the narrow street of London and a small light car over her foot," she said. "(They said) nothing was broken and she was given two pain pills and told to take something over the counter for pain."

When her daughter returned home, however, Heather learned the accident was much more serious.

"She was struck - whole body -- by a car. Feet, legs, and arms," Heather said. "She had bruises on her foot, toe, ankle, arm, and stomach. She traveled in an ambulance to the ER - something I was not told on the day of incident.

"We had a follow-up with her pediatrician, who said she was a very lucky little girl," she added. "Only time will tell what will come from her injuries in the future."

People to People offered no apologies for the accident, Heather said. Instead, the organization sent her a bill for the delegation leader's lunch at the hospital and travel to and from the medical facility.

"I am to pay for the delegation leader that was to be watching my child?" Heather asked. "I spent about $6,000 for my daughter to come back in fear and (feeling) that she never wants to do a People to People "adventure" again."

A Kansas mom also told us her 17-year-old daughter lost several pounds on a recent People to People trip because the delegation leaders did not -- as promised address the teenager's severe food allergies and other medical issues.

"My daughter has asthma, a severe milk allergy, immune deficiency and is anemic," Karen D. of Louisburg, Kansas, told us. "If she eats or drinks too many dairy products it will trigger an asthma attack.

"I informed the organization of my daughter's health issues prior to her leaving and they assured me they could handle any medical issues."

During the trip, however, Karen's daughter called home and said she couldn't eat off the "required" People to People menu because it contained too many dairy products.

Karen immediately wired her daughter $300 for pay for food she could eat. The worried mom also sent an e-mail to the delegation leaders reminding them of her daughter's health issues.

The delegation leaders, however, ignored Karen's concerns. "She (my daughter) was never allowed to buy her own food. My daughter went up to the delegation leaders many times and said she couldn't eat what's on menu. But they said thats all you can haveyou have to eat off the People to People menu."

She added: "Instead of contacting me to see what we could do about this, they retaliated against my daughter by harassing her, insulting her dignity, character, and causing her asthma to flare up."

When Karen's daughter returned home, the 5' 7" inch teenager, who normally weighs 120 pounds, had dropped seven pounds.

"She's a tiny thing," Karen says. "She cannot afford to lose that weight. She also came home with raspy voice as well as shallow breathing, and for a week after the trip had to use her breathing machine for heavy duty treatments to get her lungs back on track."

In retrospect, though, Karen says she's lucky her daughter didn't suffer more serious health problems during -- and after -- the trip.

"I think about Tyler Hill and worry that could have been my daughter, too," says Karen, who is still trying to get answers from People to People about her concerns. "I could have gotten a call that said she had a serious asthma attack. And what would they (the delegation leaders) have done? These people need to be trained."

"I know I got very lucky."

ConsumerAffairs.com also confirmed that three American students traveling abroad on recent People to People trips went missing or were unaccounted for an unknown period of time. The Ambassadors Group is also facing a class action lawsuit, which alleges the organization's directors issued misleading and overly optimistic statements about the company's financial future.

ConsumerAffairs.com contacted People to People today regarding the Hill's statements and the recent complaints leveled against the organization. The company did not respond to our inquiries.

Back in Minnesota, Sheryl Hill offered some advice to parents who are considering letting their children participate in a student travel program.

"You have to check out the organization and its leaders," she said. "You have to ask tough questions. The leaders on Tyler's trip were senior leaders -- they had been on previous trips."

"You also need to find out the organization's alcohol policies. And make sure you have a passport so you can get your child (immediately) if you need to. If, at any point, you feel your child is in danger call the Federal Bureau of Investigation (FBI)."

Hill and Grijalva also recommend that parents contact foreign police authorities to report abuse and then contact local, state and federal agencies to report child endangerment.

The U.S. State Department has a special Students Abroad Web site with more information and tips.

The State Department also has a Web site with information on what Americans should do if they become victims of a crime when traveling overseas.

More about People to People

Bumpers on 2009 models of the Honda Accord, Hyundai Sonata, Mazda 6, and Nissan Maxima performed better than their 2007 predecessors in low-speed crash tests conducted by the Insurance Institute for Highway Safety (IIHS). However, bumpers on the 2009 Chevrolet Malibu and 2010 Ford Fusion did worse than earlier models.

None of the 6 popular midsize sedans earns the top rating of "good" in a recent series of tests designed to assess and compare how well bumpers resist damage in everyday fender-benders. The Mazda 6 improved to "acceptable" from "marginal," with an average repair cost of less than $900 after four tests at 3 and 6 mph. The Accord and Sonata improved to "marginal" from "poor," while the Fusion slipped to "poor" from "marginal," and the Maxima and Malibu remained "poor."

"Consumers buy midsize cars for practical reasons. There's nothing practical about a $1,000-plus repair bill after a minor bump in commuter traffic," says Joe Nolan, Institute senior vice president.

This is the second group of vehicles the Institute has evaluated under a new bumper ratings protocol based on repair costs averaged and weighted to reflect real-world damage patterns and insurance claims frequency. The Institute rates bumpers good, acceptable, marginal, or poor based on performance in four tests -- front and rear full-width impacts at 6 mph and front and rear corner impacts at 3 mph.

Each vehicle is run into a steel barrier designed to mimic the design of a car bumper, with the barrier's plastic absorber and flexible cover simulating typical cars' energy absorbers and plastic bumper covers. These tests are designed to drive bumper improvements that lead to better damage resistance in a range of real-world crashes.

"Although midsize car bumpers still allow way too much damage in minor impacts, it's encouraging that some manufacturers are designing better ones," Nolan says. He points out that the front and rear bumpers of the 2009 Mazda 6 are wider, taller, and higher off the ground than the 2007 model. The Mazda 6 is only the fourth car tested under the new protocol to earn an acceptable rating for its bumpers. The others are the Ford Focus, Scion xB, and Smart Fortwo.

"Mazda is trying to protect buyers' pocketbooks while many other carmakers are letting them take a big hit in low-speed crashes," Nolan says.

Mazda, Honda, Nissan, and Hyundai improved the bumpers on their 2009 midsize cars so the bumpers would better resist front underride, which makes collision damage worse. Bumpers have to be tall enough to engage, and to stay engaged, with the bumpers on other vehicles in collisions, even during emergency braking, or they'll bypass each other when the vehicles collide. Preventing override and underride means crash energy is absorbed by bumpers instead of pricey vehicle parts such as hoods, grilles, and fenders, or safety gear such as headlights and taillights.

The 2009 Accord, for example, has sharply lower repair costs in the full front and full rear tests, compared with the 2007 model, because its bumpers are higher than the previous version, plus the front bumper's reinforcement bar now is strengthened with metal pieces that extend upward from the bar to prevent underride. The changes helped the Accord earn a "marginal" rating instead of "poor," but another change held back the car's overall performance. The 2009 Accord's bumpers aren't as wide as the 2007 model's, resulting in higher repair costs in both the front and rear corner tests.

Weaker bumpers mean bigger repair bills: Ford and General Motors made design changes that increased repair costs for the 2010 Fusion and 2009 Malibu over repair estimates for 2007 models.

"Ford fit the Fusion's front and rear with weaker bumper beams, and this had a big effect on the test performance," Nolan explains. The difference is easy to see in the 6 mph full rear test, which simulates a common parking mishap like backing into another vehicle. The Fusion's bumper buckled, which caused it to underride the test barrier, resulting in twice as much damage as the 2007 model in the rear test. In the full front test, the Fusion had $2,529 in damage, more than any other vehicle.

GM raised the Malibu's rear bumper so it's higher than on the earlier model, but it's still the lowest among recently tested bumpers. In the full rear test, the bumper underrode the barrier, resulting in almost $3,500 in damage -- the highest among the midsize cars evaluated. GM lowered the front bumper, which didn't help in the full front test. Damage totaled $2,092, partly because the Malibu's front grille overlays the center of the bumper. The result is that the grille, Chevy emblem, and decorative chromed plastic trim get hit before the bumper does in this test.

"Essentially you have to go through them to get to the bumper," Nolan says. "Replacing just the front grille and emblem cost more than $625."

Ford and GM, along with other automakers who sell the same vehicles in both the U.S. and Canadian markets, no longer have to meet a tougher Canadian bumper standard. The Canadian government last year weakened bumper rules to match U.S. regulations, which require only minimal protection. The previous Canadian standard required bumpers to prevent damage to vehicle safety equipment such as headlights in 5 mph impacts. Under the new rules, full front and rear tests are run at 2.5 mph and corner tests are run at 1.5 mph.

How 11 other sedans rate: The designs of 11 other midsize cars haven't changed since their bumpers last were tested in the 2007 model year. Performance in those tests earns the Mitsubishi Galant and Toyota Camry "marginal" ratings. The Chrysler Sebring, Kia Optima, Nissan Altima, Pontiac G6, Saturn AURA, Subaru Legacy, Volkswagen Jetta, Volkswagen Passat, and Volvo S40 earn "poor" ratings.

Besides the amount of damage sustained in a low-speed impact, repair costs are influenced by both the price of replacement parts and the complexity of repairs. The Volvo S40's "poor" rating reflects recent increases in parts and labor costs. At $335 the S40's rear reinforcement bar has nearly tripled in price since 2006, while the front bar now sells for $311, up from $195 in 2006.

How they're rated: Bumpers are evaluated under a ratings protocol based on repair costs averaged and weighted to reflect real-world damage patterns. These averaged and weighted repair costs determine each vehicle's overall rating of good, acceptable, marginal, or poor in 4 bumper tests representing full-width and corner crashes at low speeds. Weighted average repairs must be less than $500 for a "good" rating, less than $1,000 for "acceptable", and less than $1,500 for "marginal." Repairs of $1,500 or more earn bumpers a "poor" rating.

Both the full front and rear test results are given double the weight of the corner test results because in the real world full-width impacts occur roughly twice as often as corner impacts. The weighted average of the repair costs determines the overall rating. No vehicle can earn a "good" or "acceptable" rating if it's unsafe to drive afterward or can't be driven at all because of headlight or taillight damage, severely buckled hoods, or a compromised engine cooling system.

One of the few pieces of good news to come out of the recent bankruptcy filings from GM and Chrysler is that both companies have promised to honor "Lemon Law" claims made before the companies restructured.

Personal injury suits, however, are a different story altogether. Consumers injured in accidents involving Chrysler and GM cars made before the bankruptcies are likely to be left in the lurch as the companies reorganize.

As they emerge from the rubble of their bankruptcy filings, Chrysler and GM are now essentially brand new companies. Going forward, for legal purposes, there will effectively be a "new" and "old" version of each company. Both "new" companies will remain liable for any injuries suffered in the future, but claims for past injuries, while the "old" companies were still active, are less clear-cut.

Under the arrangement, neither GM nor Chrysler will be held accountable for accidents that occurred before the bankruptcy filings. While this might seem like a trivial footnote in the story of two titans' respective financial crises, its effects are surprisingly widespread: consumers with unresolved claims against the companies number in the hundreds.

Attorneys for accident victims were able to win a small concession from GM; the automaker will remain liable for future accidents involving cars built before the company filed for bankruptcy. Chrysler, however, is off the hook for those accidents as well.

Chrysler spokesman Mike Palese told the Los Angeles Times that it is "really important for the future viability of the company that we would be free from this type of liability." That may be true, but it's likely little consolation for the accident victims drowning in medical bills and struggling to keep from filing bankruptcy themselves.

One member of Congress is trying to hold the automakers accountable. Rep. Andre Carson (D-IA) has introduced a bill that would force GM and Chrysler to cover all future claims for vehicles built before the companies' restructuring. The bill is named after accident victim Jeremy Warriner, who blames an accident that took both his legs on a faulty brake fluid container in his 2005 Jeep Wrangler. Jeep vehicles are manufactured by Chrysler.

Initially, even claims under state Lemon Laws were in doubt after a federal bankruptcy court exempted the "New Chrysler" from liability for defects in vehicles manufactured before the restructuring. Both GM and Chrysler relented after a number of state attorneys general poured on the pressure.

The bankruptcies marked a stunning fall from grace for two of Detroit's "Big Three." Chrysler filed for bankruptcy on April 30; GM followed suit on June 1. Under agreements with the federal government, GM CEO Rick Wagoner was shown the door and Chrysler was forced to merge with Italian automaker Fiat. GM's bankruptcy filing was the fourth largest in U.S. history.

As the Treasury Department urges mortgage servicing companies to step up their efforts to stop foreclosures, the latest available figures show that the number of households at risk of foreclosure is seven times the number of loan modifications, and the gap has increased steadily for the past year.

Although loan modifications are up from very low levels last year, the rapid growth of serious delinquencies and new foreclosure starts is swallowing modest gains in efforts by loan companies to fix the massive number of loans headed for foreclosure.

During the first quarter of this year, nearly 500,000 loan modifications were completed, but foreclosure starts and serious delinquencies during that period edged up to nearly 3.5 million.

Without significant intervention, foreclosures are on track to mount up to 13 million during the next five years. In 2009 alone, 69 million homeowners who happen to live near foreclosures will see their wealth shrink as property values decline by $502 billion.

"Continuing this same course would be disastrous," said Mike Calhoun, president of the Center for Responsible Lending. "The challenge of closing the gap between the foreclosure epidemic and foreclosure prevention represents a major public policy issue that will affect all Americans."

During the past two years, lenders have strongly resisted key policy proposals to stop the foreclosure epidemic, such as allowing home loans to be modified in bankruptcy court. Loan servicing companies asked for the opportunity to address the problem through the Home Affordable Modification Program (HAMP) launched in March. The New York Times has reported that about 130,000 loans have been modified under HAMP, but this number is dwarfed by the 3.5 million foreclosures that are expected to be initiated this year.

In recent testimony before the House and Senate Joint Economic Committee, Keith Ernst, Director of Research at CRL, emphasized that risky loans, not risky borrowers, led us to today's mortgage troubles. Ernst cited research from the University of North Carolina and CRL which shows that people who received subprime loans were three times more likely to face foreclosure than those who received lower-cost, primarily fixed-rate mortgages -- even when the two borrowers had comparable risk profiles. When multiple risks were layered into the same loan, the risk of default was four to five times higher on subprime mortgages.

To help people facing foreclosure, CRL urges Congress to do the following:

• Ensure that the Administration's current efforts to prevent foreclosures -- the Home Affordable Program and the Hope for Homeowners Program -- work as effectively as possible, and that homeowners who avoid foreclosure don't get set back again by the tax consequences of loan modification and reduced loan balances.

• Lift the ban that now prevents homeowners from seeking loan modifications on their primary residence, as they can on investment properties and other types of loans.

And to keep the current disaster from happening again:

• Pass legislation requiring lenders to determine a consumer's ability to repay the mortgage, and encourage the Federal Reserve Board to finalize its proposed rules banning yield spread premiums (kickbacks that encourage mortgage brokers to overcharge on home loans).

• Create a Consumer Financial Protection Agency as outlined in H.R. 3126, the Consumer Financial Protection Act of 2009, that prioritizes consumer protection and focuses on preventing abusive financial practices before they harm families and the economy.

The State of Oregon has filed two settlements that prevent two national travel store chains from selling "electronic cigarettes" in Oregon. The action is the first of its kind in the country and prevents Oregonians from buying potentially dangerous products that the U.S. Food and Drug Administration has yet to approve.

"When products threaten the health and safety of Oregonians, we will take action," said Mary Williams, Oregon Deputy Attorney General. "If companies want to sell electronic cigarettes to consumers, they have to be able to prove they are safe."

The affected travel store chains, Pilot Travel Centers, which has seven centers in Oregon, and TA Operating, which has four centers in Oregon, both sell "NJOY" brand electronic cigarettes. Electronic cigarettes are actually battery operated nicotine delivery devices constructed to mimic conventional cigarette. Each "cigarette" consists of a heating element and a replaceable plastic cartridge that contains various chemicals, including various concentrations of liquid nicotine. The heating element vaporizes the liquid, which the user inhales as if it were smoke.

Despite FDA issued "Import Alerts" against NJOY and other brands of electronic cigarettes, and despite the fact that the U.S. Customs Service detained several shipments of these devices, sales of electronic cigarettes continue throughout the United States. The products are even advertised on television.

Sales persisted even though just two weeks ago the FDA warned the public about health concerns regarding electronic cigarettes. FDA tests showed a wide variation in the amount of nicotine delivered by three different samples of nicotine cartridges with the same label.

Tests also revealed the presence of nitrosamines a known carcinogen. By the time the FDA issued its warnings, the Oregon Department of Justice had already launched an active investigation of the sale and promotion of electronic cigarettes. NJOY electronic cigarettes were a target of that investigation.

The settlement prohibits the sale of electronic cigarettes in Oregon until they are approved by FDA, or until a court rules the FDA does not have the authority to regulate electronic cigarettes. Even if courts decide that the FDA does not have regulation authority, the settlement stipulates that electronic cigarettes may not be sold in Oregon unless there is competent and reliable scientific evidence to support the product's safety claims.

In addition, the companies must give the Attorney General advance notice that they intend to sell electronic cigarettes in Oregon, provide copies of all electronic cigarette advertising, and provide copies of the scientific studies they maintain substantiates their claims.

With credit card companies tightening credit, some may be tempted to turn to payday lenders for help -- a move many consumer advocates say is never a good idea. But using an online payday lender could be even riskier.

Jackee, of Anaheim, California, said she applied for a loan online with 200cash.com, but her request for a loan was turned down. However, she said she still paid.

"My checking account has been charged a fee of $19.00 on 5/21/09 and another $19.00 on 6/25/09, and now on 7/30/09, fee of $19.00," she told ConsumerAffairs.com. "I have called the number listed but receive no person, only a voice saying they will contact me. But how, since I did not talk with anyone and I cannot leave them my telephone number?"

200Cash.com's Web site states that it charges a non-refundable $19 application fee, which applicants pay whether they get a loan or not. The company also charges $30 per $100 borrowed, every two weeks.

That means if you borrowed $100 for two weeks, it would cost $30 -- plus the $19 application fee that you would have been required to pay. Almost half of that $100 would go right back to the lender in the form of fees.

In recent months states have been cracking down on online payday lenders. In Wisconsin last week, Arrowhead Investments LLC agreed to zero-out all loans to Wisconsin consumers and pay $180,000 in restitution to settle charges of consumer law violations. The settlement stemmed from a class-action lawsuit that alleged Arrowhead's loan contracts violated the Wisconsin Consumer Act.

In mid July, the Pennsylvania Commonwealth Court ruled online payday lender Cash America is not authorized to do business in the state. The court ruled in a 4-3 decision that the state Department of Banking can enforce a 2008 statute that focused on lenders that were getting around the state's interest rate regulations by not having a physical presence in Pennsylvania.

"The July 10 Commonwealth Court decision is a solid victory for Pennsylvania consumers," said Pennsylvania Secretary of Banking Steve Kaplan. "The Department of Banking believes Pennsylvanians should be protected by state laws regardless of where the company with which they are doing business is located, whether it is down the street, in another state or on a Web site."

In March, West Virginia sued 12 online payday lenders and their collection agencies, saying it is against West Virginia law for them to do business in the state. West Virginia has a 18 percent APR cap on loans and does not allow payday lenders of any type to operate within its borders.

McGraw says Internet payday loans are the industry's most recent attempt to skirt consumer protection laws. He says the payday lending industry has historically sought to evade state usury laws through a number of ruses, such as partnering with national and state-chartered banks and by offering the loans over the Internet.

Internet payday loans are electronically deposited into consumers' accounts and typically require payment of interest with annual percentage rates ranging from 600 to 800 APR.

"Internet payday loan providers are the loan sharks of today," McGraw said.

Ohio has become the first state to file suit against a mortgage servicer, accusing it of not doing enough to modify loans of distressed homeowners.

Ohio Attorney General Richard Cordray teamed with the Ohio Department of Commerce to sue Carrington Mortgage Services, LLC, alleging that Carrington breached its agreement with the state to offer reasonable loan modifications to eligible borrowers.

The lawsuit also alleges that Carrington violated Ohio's Consumer Sales Practices Act by providing incompetent, inadequate and inefficient customer service in connection with its servicing of Ohio mortgage loans.

"This lawsuit makes it clear that we have reached zero tolerance for this kind of behavior from loan servicers," said Cordray. "We've tried to work with them, but now we must take action. I am determined to see that mortgage servicers step up, take responsibility and start making it right with Ohioans. No more excuses."

In January 2008, the Ohio Attorney General's Office and the Ohio Department of Commerce entered into an agreement with Carrington to resolve a dispute arising from the state's New Century litigation. The agreement required that Carrington engage in "good faith" loan workout negotiations with eligible New Century borrowers in order to avoid foreclosure. The agreement entitled borrowers to reasonable loan workouts, forbearance restructuring agreements or other resolutions acceptable to both the borrower and Carrington.

According to the lawsuit, Carrington breached the agreement by failing to provide borrowers with workout terms reasonably designed to avoid foreclosure, did not provide a written copy of the terms to the state and failed to provide proposed terms to borrowers within the 21-day timeframe allocated in the agreement.

"Carrington Mortgage Services owes Ohio borrowers a fighting chance at avoiding foreclosure," said Kimberly A. Zurz, director of the Ohio Department of Commerce. "Mortgage lenders and servicers need to know that this type of negligence will not be tolerated in Ohio. We will hold them accountable for their actions."

In the lawsuit, Cordray also charges that Carrington violated Ohio's Consumer Sales Practices Act by failing to investigate and resolve consumer complaints in a timely manner, by failing to offer loss mitigation options to borrowers, and by pressuring Ohioans into signing unfair, unreasonable and one-sided loan modification documents.

The lawsuit seeks consumer restitution, civil penalties and damages as a result of the breach of the agreement. It also requests that the court order Carrington to implement processes designed to provide efficient, competent and adequate customer service to all of its Ohio mortgage customers.

Marketing your product or service as energy efficient, or "green," has a certain advantage these days. Consumers in increasing numbers like the idea of using products that save energy or are otherwise environmentally friendly.

But consumers, unfortunately, can't automatically assume a product labeled "green" or "energy efficient" actually is. State attorneys general are grappling with that issue and Pennsylvania Attorney General Tom Corbett says you have to shop carefully.

In Pennsylvania, Attorney General Tom Corbett Attorney General Tom Corbett says consumers should shop carefully when considering products or services advertised as being "energy efficient," and to thoroughly review claims about financial savings or tax benefits related to certain purchases or home improvements.

"Consumers are anxious to find ways to conserve energy and save money, but it is important to fully evaluate any product or service to determine which is best for your particular situation," Corbett said. "It is vital that consumers educate themselves about all of their choices before spending hard-earned money on items that promise future savings."

That's particularly true when it comes to a marketer's claims about financial savings or tax benefits related to certain purchases or home improvements.

Corbett also recommended that consumers look for independent testing of the products they are considering, in order to properly calculate any possible savings, and verify their eligibility for any federal or state tax credits or energy incentives before committing to a purchase.

In addition to carefully reviewing the energy efficiency of particular products, Corbett stressed that consumers considering home improvement projects - including the replacement of windows and doors, or other large-scale changes - should verify that the installation business or contractor is registered with their state Attorney General's Bureau of Consumer Protection.

For Pennsylvania consumers, Corbett said that all home improvement projects, including the installation of many energy-saving products, are covered by Pennsylvania's new Home Improvement Consumer Protection Act, which went into effect on July 1, 2009.

"This new law requires written contracts for all projects over $500, including specific information about the total price, a start-date and end-date, details about the materials being used and an explanation of a consumer's three-day right to cancel a contract," Corbett said. "The law also requires contractors to register with the Attorney General's Office, so consumers can learn about past problems, including lawsuits, bankruptcies and other issues that may impact their selection of a business."

Federal authorities have taken legal action against Teva Animal Health Inc. to bar the company from making or distributing adulterated veterinary drug, the U.S. Food and Drug Administration (FDA) announced.

The action comes after FDA inspections of the company's St. Joseph, Missouri, facilities -- between 2007 and 2009 -- uncovered what officials call "significant" Good Manufacturing Practice (cGMP) violations.

"Good manufacturing practice standards are the backbone of product quality and the instrument on which the FDA relies most heavily for assurance that veterinary drug products are safe and effective," said Bernadette Dunham, D.V.M., Ph.D., director of the FDA's Center for Veterinary Medicine.

Under the terms of a consent decree reached Friday, Teva Animal Health cannot resume making and distributing veterinary drugs until it complies with current cGMP standards and obtains approval from the FDA. An independent expert will inspect the companys facilities and procedures and certifies they comply with those standards.

If Teva Animal Health fails in the future to comply with any provision of the consent decree, cGMP, or the Federal Food, Drug, and Cosmetic Act, the FDA can order the company to stop making and distributing veterinary drugs, recall the products, or take other corrective actions.

"The FDA will not tolerate the manufacture and distribution of adulterated animal drugs," said Michael Chappell, the FDA's acting associate commissioner for regulatory affairs. "Veterinarians and pet owners can be assured that the FDA will investigate and take regulatory actions against companies that produce animal drugs under conditions and controls that are inadequate to assure their safety and quality."

Under the consent degree, Teva Animal Health also faces penalties of $20,000 for each day the company fails to comply -- in the future -- with any provision of the decree and an additional $25,000 payment for each shipment of veterinary drugs in violation of the decree, up to $7.5 million per year.

Christopher Chase, of Lynn, MA, has been sentenced to 42 months in prison and three years of supervised release after pleading guilty to charges of conspiracy and money laundering. In connection with an Internet drug scheme.

Chase was accused of conspiring to smuggle and illegally distribute anabolic steroids, human growth hormone ("HGH"), insulin-like growth factor ("IGF-1"), and clenbuterol. He also was charged with laundering money by sending it to various foreign countries including China and Moldova.

The substances alleged in the indictment are illegal prescription drugs that were manufactured abroad, primarily in China, as well as other foreign countries. HGH and IGF-1 are injectable drugs and some forms of the anabolic steroids were also injectable.

The indictment charged that Chase and two co-defendants illegally imported the prescription drugs and introduced them into interstate commerce without the prescription of a licensed medical doctor or other licensed medical professional.

Many of the packages that were shipped into the United States contained the prescription drugs but falsely declared that the packages contained test tube samples, mold samples, glass samples, measuring cups and glassware.

The prescription drugs did not bear adequate directions for use in that the labeling did not contain directions under which a layperson could use the drugs safely and for their intended uses.

All of the were sold without a prescription and were nevertheless distributed despite the obvious dangers associated with unsupervised use of prescription drugs. Moreover, none of the drugs were approved by the Food and Drug Administration as safe or effective for body-building, the use for which Chase marketed the drugs.

Anabolic steroids are Schedule III controlled substances and are not FDA-approved for body-building. HGH is not approved by the FDA for body-building and may be lawfully distributed only for the treatment of disease or other recognized medical conditions as authorized by the FDA.

Clenbuterol is not approved by the FDA for any use in humans, and IGF is not approved by FDA for any adult use. Chase nevertheless sold these drugs to customers throughout the United States for a use for which the drugs had not been determined by the FDA to be safe and effective.

Moreover, Chase obtained the drugs from foreign sources with no assurance that the drugs were manufactured under sanitary conditions or that the drugs were what they were purported to be. The drugs originated in countries such as China, Turkey, Poland, and Romania and were not subject to the FDA's comprehensive review.

Thus, Chase not only sold the prescription drugs to customers who lacked a prescription and for a use not approved by the FDA, he sold drugs manufactured and packaged under unknown conditions.

Once the prescription drugs entered the United States, they were distributed over the Internet through websites and customers paid for the prescription drugs using credit cards and cash payments sent through the mail or by Western Union, MoneyGram, Pay Pal and PayByCheck. Most of the prescription drugs were paid for by credit card from customers in New Hampshire and throughout the United States.

To enable the customers to pay for the illegally distributed prescription drugs, defendant Chase obtained 20 merchant accounts in his own name and also in the names of the other participants in the scheme. Between December 1, 2005, and September 30, 2006, Chase mailed approximately 520 packages within the United States and abroad.

Chase represented to the banks that the merchant bank accounts were intended for legitimate merchandise rather than for the illegal sale of prescription drugs. In this regard, Chase created decoy websites that falsely purported to sell legitimate merchandise and provided the names of these decoy websites to some of the banks. Chase used the merchant bank accounts to sell the prescription drugs through websites that were not disclosed to the banks.

Using the merchant bank accounts, credit card sales in the amount of approximately $671,465 were processed and electronically transferred to eleven bank accounts belonging to Chase and other participants in the scheme. Thereafter, approximately $549,047 was withdrawn, $425,890 of which was wire transferred overseas at Chase's direction. The totals do not include the revenues that Chase generated from selling anabolic steroids in the United States, an amount that remains undetermined.

The U.S. Securities and Exchange Commission (SEC) filed suit against Bank of America, charging it made false and misleading statements about bonuses paid at Merrill Lynch. But the agency simultaneously announced a settlement with the bank, with Bank of America paying a $33 million fine.

The SEC accused the bank of misleading stockholders and regulators about $5.8 billion in bonus payments made to Merrill Lynch executives after Bank of America acquired the brokerage firm. The suit charged Bank of America claimed that Merrill had agreed to forego end of the year performance bonuses for Merrill executives before the January 1, 2009 merger between the two companies. The bonuses were, in fact, paid.

"Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty and warrants the significant financial penalty imposed by today's settlement," Robert Khuzami, Director of the SEC's division of enforcement, said in a statement.

The Bank of America - Merrill Lynch saga broke in early 2009, just as public outrage was building over bonuses paid to major banks that had taken billions in taxpayer dollars. The Merrill Lynch bonuses first came to light in an investigation by New York Attorney General Andrew Cuomo, who made it clear today that his investigation isn't over.

"We are pleased to see that the SEC has taken action with respect to the Bank of America-Merrill Lynch bonus matter, which this Office referred to the SEC on April 23, 2009," Cuomo said. "As we outlined in a letter to Congress on February 10, 2009, the timing of the bonuses, as well as the disclosures relating to them, constituted a 'surprising fit of corporate irresponsibility.' While the SEC has settled their action today, we want to be clear that our investigation of these and other matters pursuant to New York's Martin Act will continue."

The settlement with the SEC remains subject to court approval. Bank of America has made no admission of guilt in accepting the settlement.

By Mark Huffman
ConsumerAffairs.com

August 3, 2009
The U.S. economy may be in much better shape than anyone thought, and the government's Cash for Clunkers program may be the proof.

The program, modest by Washington standards, began last week, offering consumers up to $4,500 if they would trade in their gas-guzzler on a new, fuel efficient car or truck. There were a lot of caveats and conditions, meaning consumers had to pay attention.

For example, the amount of the government subsidy was dependant on the gas mileage differential between the vehicle being traded and the new one being purchased. The greater that differential, the higher the subsidy. So consumers had to do a little homework before deciding to trade in their clunker and head for the new car lot.

But head for the car lot they did, in huge numbers. Within four days of starting the program, the government had run out of its allotted cash. The White House found itself in a public relations snafu when it was initially reported the wildly popular program was being suspended, but the House quickly appropriated an extra $2 billion. The extra money requires approval by the Senate.

Impressive sales

Lost in the dust-up over whether the White House suspended the program or it didn't is the fact that U.S. consumers purchased new automobiles last week in staggering numbers, after all but abandoning new car showrooms in the last eight months. Sales figures are not yet available, but anecdotal evidence suggests the sales tally will be impressive.

At King's Toyota in Cincinnati, small fuel-efficient models flew off the lot. Managers said their inventory was nearly cleaned out.

"It's been awesome, unbelievable," sales manager Greg Walker told WLWT-TV.

Other car dealers around the country reported similar experiences. Consumers brought in older cars that might bring $400 or less on a trade-in and were able to turn it into a $3,500 to $4,500 down payment on a new vehicle.

Yes, the government was handing out thousands of dollars, but consumers also had to come up with another $12,000 to $15,000 in cash, or take out a loan for that much. The fact that they were willing - and able - to do so suggests that much about this recession may be psychological as well as economic.

With all the talk of the last eight months about the plight of the economy, it's fair to assume that many consumers have been fearful of spending money on a major purchase. Many obviously had the means, but were held back by fear about the economy.

Game-changer

While the Cash for Clunkers program may have the short term benefit of helping car dealers clear their crowded inventory, its more lasting value perhaps could be as a psychological game-changer. Fear's spell over the U.S. consumer may be breaking.

Even people still caught in the grip of the recession appear to be shaking off the fear and taking advantage of the program to buy a new car. The Wall Street Journal reports that James Dunn, newly laid off from his job at a South Carolina manufacturing plant, used his severance check and his 1989 pick-up to get a new truck. Even though he's now out of work, he doesn't seem all that worried.

"The economy is picking up," Dunn told the Journal. "Seems like it, anyway."

Some complaints

Not everyone is happy with the clunkers program. In Cape Coral, Fla., a ConsumerAffairs.com reader complained that some consumers -- and dealers -- were abusing the program.

"A woman interviewed (on a local TV news program) said she had to have her car towed in because it didn't run," Donald of Cape Coral complained. "Isn't this an abuse of the program. If they are doing this what else are they doing to violate rules?"

On New York's Long Island, a consumer said he lost his $5,000 deposit when his clunkers deal with Habberstad Nissan fell through.

Continuing his fight against "rip-off artists," Attorney General Edmund G. Brown Jr. won a $1.2 million ruling against Gaston Muhammad, 42, and Ronna Green, 41, of Duluth, GA, who billed nearly a million California business owners $150 each for deceptive and unnecessary corporate minutes services.

"These rip-off artists sent nearly a million deceptive mailers to business owners, threatening them with loss of their corporate status if they didn't pay $150 for unnecessary services," Brown said. "In reality, this was a massive scam costing California small business owners hundreds of thousands of dollars."

The defendants mailed solicitations to California business owners that were designed to look like State of California official forms-specifically, the Secretary of State's "Annual Statement of Information." The solicitations implied that unless the corporations paid the defendants a $150 annual fee, they could lose their corporate status. The defendants sent out 986,000 solicitations to California businesses between July 2007 and November 2008.

The solicitation appeared to be a government document featuring an official-looking seal, an official-sounding name, the corporation number, citations to the Corporations Code, and a return address in Sacramento. The defendants, in fact, resided in Georgia and the Sacramento address was a mail drop.

The defendants promised to prepare annual minutes for the recipient corporations, even though the information sought on the forms was insufficient to create minutes. Defendants simply invented the dates, meeting places, participants, and actions taken in the fictitious minutes they created.

Brown filed suit in San Diego Superior Court in May 2008, charging defendants with violating:

• Business and Professions Code section 17533.6 (Deceptive Mailing Statute) and 17550 (False Advertising Statute)

• Civil Code section 1716 (Phony Billing Statute)

• Permanent injunction from a previous mail scam judgment against Gaston Muhammad

• Unfair business practices within the meaning of Business and Professions Code section 17200.

On June 22, the Trial Court ruled that the solicitations were misleading. The Court also found that the disclaimers were not big and bold enough to alert the recipients that this was not an official form. It found that the defendants violated all four statues and the permanent injunction.

The court ordered defendants to pay restitution of $200,000 and imposed civil penalties of $986,000. It further issued a permanent injunction which, in addition to requiring the defendants to comply with the law, barred them from engaging in the business of providing corporate minutes in California for five years. The Court also awarded the state the costs incurred in the prosecution of this case.

Earlier this year, Brown filed suit against two brothers operating a similar scam, billing homeowners nearly $200 each for property tax reassessment services that were almost never performed and are available free of charge from local tax assessors.

Illinois Attorney General Lisa Madigan has filed suit against Wells Fargo and Company, charging the bank discriminated against African American and Latino homeowners by selling them high-cost subprime mortgage loans while white borrowers with similar incomes received lower cost loans.

As a result of its discriminatory and illegal mortgage lending practices, Wells Fargo transformed our cities predominantly African-American and Latino neighborhoods into ground zero for subprime lending, said Madigan. The dreams of many hardworking families have ended in foreclosure due to Wells Fargos illegal and unfair conduct.

Madigans lawsuit, which is the result of an investigation into possible violations of fair lending and consumer fraud laws, cites marked disparities in Wells Fargos lending data. In 2005, according to an analysis of Chicago-area data, approximately 45 percent of Wells Fargos African-American borrowers and 23 percent of the lenders Latino borrowers received a high-cost mortgage. That same year, only about 11 percent of the lenders white borrowers received high-cost mortgages.

The trend continued in 2006, with approximately 58.5 percent of Wells Fargos African-American borrowers and 35 percent of its Latino borrowers in the Chicago area receiving high-cost mortgages, compared with only 16 percent of white borrowers. In 2007, approximately 49 percent of Wells Fargos African-American borrowers and 25 percent of Latino borrowers were sold a high-cost loan in the Chicago area, compared with only 15 percent of white borrowers.

The lawsuit also follows a recent Chicago Reporter analysis of mortgage data submitted by Wells Fargo to the federal government. That study found that, in 2007, Wells Fargo sold high-cost, subprime loans more often to its highest-earning African-American borrowers in Chicago than to its lowest-earning white borrowers. According to the study, in 2007, about 34 percent of African Americans earning $120,000 or more received high cost mortgages from Wells Fargo in the Chicago metro area, while less than 22 percent of white borrowers earning less than $40,000 received high-cost mortgages from the lender.

These disparities indicate that something is very wrong with Wells Fargos mortgage lending, said Madigan. They strongly suggest that the predictor of whether a borrower would receive a high-cost home loan from Wells Fargo was race, not income.

Madigans complaint alleges that Wells Fargo established highly discretionary lending policies and procedures with weak oversight that permitted Wells Fargos employees to steer African-Americans and Latinos into subprime loans. As cited in the complaint, Wells Fargos discretionary policies and procedures included a compensation structure that rewarded employees for placing borrowers into high-cost mortgages.

The complaint also alleges that Wells Fargo targeted African-American borrowers for the sale of high-cost loans by hosting a series of wealth building seminars in cities throughout the country, including Chicago.

Madigan noted that high-cost, subprime loans of the kind sold by Wells Fargo are defaulting and going into foreclosure in record numbers, and are largely responsible for triggering the worst economic recession in recent memory. The Attorney Generals complaint comes as the home foreclosure crisis continues to affect hundreds of thousands of homeowners in Illinois and across the nation. Illinois saw almost 69,000 foreclosure filings in the first half of 2009, up nearly 30 percent from the first half of 2008. In Cook County alone, it is anticipated that mortgage foreclosure filings will top 52,000 by the years end, compared with 43,876 in 2008.

By targeting African-Americans for the sale of its highest-cost and riskiest loans, Wells Fargo drained wealth from families and neighborhoods and added to the stockpile of boarded-up homes that are an open invitation to criminals, Madigan said.

Additionally, the lawsuit alleges that Wells Fargo Financial Illinois, a subsidiary of Wells Fargo and Company that primarily originated subprime loans, engaged in unfair and deceptive business practices by misleading Illinois borrowers about their mortgage terms, misrepresenting the benefits of refinancing, and repeatedly refinancing loans, also known as loan flipping, without any real benefit to consumers.

Also, the complaint maintains that Wells Fargo Financial used deceptive mailings and marketing tools to confuse borrowers as to which division of Wells Fargo and Company they were doing business with prime or subprime. As a result, borrowers believed they were doing business with Wells Fargo Home Mortgage, which offered mainly prime loans, when in fact they were dealing with Wells Fargo Financial, a predominantly subprime lender.